Paul Krugman Understands Neither China nor America!

July 25th, 2013
in Op Ed, syndication

Written by

When Paul Krugman writes, people read. Here is a recent publication by Professor Krugman: Hitting China's Wall. It has caused strong reactions not only in the U.S., but also in China (Hitting China's Wall - The Chinese version). Hesitantly, I decided to respond to Professor Krugman, holistically!

Why the hesitation? Because I am not an economist (thankfully so)! Although I have published extensively on a variety of subjects, including money (e.g. Money and America), I am uncomfortable debating an economist in his terms (e.g. stats and darn stats).

Follow up:

Why responding this time? Because I care deeply about U.S.-China relations!  When Professor Krugman writes inappropriately about China like that, I am determined that "he is not going to get away with it without hearing from me"! Very importantly, I actually have published my opinion about Professor Krugman several times already! So this response is just a further extension to my previous criticism of him, making it more complete.

Why holistically? You can't understand Professor Krugman without touching Keynesian economics!

1. Paul Krugman does not understand China!

Here is an excerpt from a previous post of mine (America: What is China, Anyway?):

Unfortunately, the American political-media complex in general has not been forthright about China, thanks to "brainwashing"! Moreover, many China "experts" in the West focus too much on the technical details, without adequately understanding China (e.g. the essence of its political system and the culture).

Professor Krugman epitomizes my statement! His understanding of China is very limited, and at least partially erroneous! Worse yet, because we, as human beings, tend to see things from our own perspectives, how could Professor Krugman possibly understand a remote land as China when he does not even understand America, his home?

2. Paul Krugman does not understand America!

Here is an excerpt from another post of mine (Karl Marx and John Keynes):

Worse yet for America, despite the fact that both Presidents Hoover and FDR admitted that it was WWII, not the massive government spending, that finally got America out of the Great Depression, many left-wing extremists (e.g. Paul Krugman and Robert Reich) still try to keep this biggest lie of the 20th century going by actively advocating deficit spending as the only way out of today's Great Recession. These folks have made their livings out of Keynesian economics. They blindly, irresponsibly, and shamelessly promote it, just like communists promoted Marxism a few decades ago, even in the face of mounting evidence that what they sell does not work, nor has it ever actually worked.

Oh, Paul Krugman appears to possess great credibility after winning a Nobel Prize. Mikhail Gorbachev also won a Nobel Prize! But I called Gorbachev "brainless and reckless" for the way he dismantled the Soviet Union. I have the same regard for Paul Krugman for the way he has been damaging America's economy, through relentless promotion of Keynesian economics!

3. "Hitting China's Wall"

Now that I have asserted my position, let me specifically focus on Professor Krugman's recent article: Hitting China's Wall ...

3.1 "It's harder to figure out what's really happening in China"

Here is how Professor Krugman begins his article:

"All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it's harder to figure out what's really happening in China than it is in any other major economy."

While his argument is basically true in a very gross sense, it points out how little he knows about the essentials of the subject he is opining about, but that didn't seem to deter his offering an opinion! Surely he is not presenting a way to understand China, economy-wise or otherwise! A good way to understand China is to read my book (Saving America, Chinese Style)! It comprehensively explains to my fellow Americans what America is and what China is, in terms of history, socialism, communism, capitalism, and democracy!

Without that basic knowledge, most Americans do not even understand America, let alone China!

Here are two key points about China:

  1. China's political system: it could be simply called a "dictatorship without a dictator." Their system, albeit with many endemic problems of its own, appears to be slightly better than America's political system.

  2. China's economic system: It's state capitalism. Overall, today's Chinese government is more pro-business than today's American government, even per Steve Wynn! Note that capitalism is not perfect. But today, bad capitalism in China is often better than good socialism in the U.S.!

These two key points put China solidly on the right track, with everything else being secondary! Yes, they are the key reasons behind China's rise and America's fall over the past two decades, at least, with no end in sight!

With that, here are three salient points to learn about China:

  1. Do not be distracted by the unimportant details! For example, China's GDP grew 7% last quarter. Fine! Oh, no, it was only 6.5%. Fine, too! It's the direction that is important, not a particular number! Note that in a mostly top-down economy like China's, low-level people forge numbers to please the boss! Yes, China's stats are often even less trustworthy than our own doctored numbers!

  2. Do not think the Chinese are wrong simply because they are different.

  3. Treat most things in China like Chinese food: enjoy it, but do not go into the kitchen to see how it's made!

3.2 "Yet the signs are now unmistakable: China is in big trouble"

Here's Professor Krugman's pesky opinion about something he admittedly knows nothing about: China is in big trouble. Perhaps yes. But they admit it and they are addressing their issues! America is also in big trouble. But we deny it even while allowing it to worsen!

3.3 "What keeps China's consumption so low?"

They save too much! We Americans spend too much! However, saving too much is better than spending too much, especially since their exports are so high while developing their own domestic consumption model, vs. Americans, who spend too much money and import too much, resulting in our national debt being $17T and growing rapidly!

3.4 "It's running out of surplus peasants"

A complete disregard for the obvious truth! With 1.3B people, the Chinese government's overwhelming concern has always been jobs, not a shortage of laborers! A great project in China is massive urbanization: trying to move some 300M peasants into cities in the coming decade, which will dramatically uplift their quality of life and consumption (e.g. gas for cooking and hot water for showers). For more, read: Premier Li Keqiang Wants More Chinese in the Cities.

Now, the Arthur Lewis point ... Professor Krugman refers to it extensively in his article. The Arthur Lewis point looks correct, but Professor Krugman's application is not. In response, I will devote Section 4 "The Bob Costas point" to it.

3.5 "We were afraid of the Chinese. Now we're afraid for them"

My fellow Americans, do not worry about China (or anybody else). Look to ourselves first!

Everything in China is well under control! For example, in an explosive growth economy like China's over the past three decades, there are inevitably many bubbles (e.g. real estate). However, the Chinese government, with their control, can choose which bubble to burst and even when!

The system over there works, albeit with many problems of its own, unlike our political system here, which does not work!

The world would have been a much better place, if we Americans would only have minded our own business. Two facts:

  1. Our military spending in more than the next 16 biggest spending countries combined. Yes, America has been the source of instability around the world since the Cold War ended in 1989.

  2. America has been trying to save the world, while bankrupting itself at home!

4. The Bob Costas point

Bob Costas is perhaps one of the best known sportscasters in the U.S. A fixture of Olympics broadcasting, Mr. Costas has openly and obviously grown up on China over the past two decades. For example,

  1. In the 1996 Olympics (Atlanta), he was so nasty and shamelessly biased against Chinese athletes that the Chinese-American community strongly protested it.

  2. Mr. Costas became more and more balanced through the 2000 Olympics (Sydney) and the 2004 Olympics (Athens). He became a Chinese angel in the 2008 Olympics (Beijing), and remained a Chinese angel through the 2012 Olympics (London).

Here is the Bob Costas point: Mr. Costas did China bashing in 1996 for three reasons:

  1. He did not understand China very well.

  2. He did it to please his main audience, without realizing that he had severely offended the Chinese-American community, in addition to doing a huge disservice to his main audience.

  3. He thought he could get away with his China bashing, unpunished.

Professor Krugman did his China bashing, albeit much more mildly than Mr. Costas did in 1996, for the same three reasons, I suspect. Too bad, he caught my attention this time (and maybe others as well).

Hopefully Professor Krugman will have a Bob Costa epiphany: you just can't ignorantly and irresponsibly attack China like that, even in America, as Bob Costas did in 1996, without meeting heavy rebuttal from those who are better informed!

5. Closing

Professor Krugman should study the works of economists who are real China experts. For example, Michael Pettis has been living, teaching, and consulting in China for well over a decade. For a couple of years, Professor Pettis has said that the rebalancing of China's economy would reduce China's GDP to about 3% on average over the next decade. However, according to Professor Pettis, China is not headed for disaster.

Given the trouble at home, Professor Krugman would do a more useful service if he concentrated on the U.S. economy, going beyond Keynesian economics, of course!

Finally, allow me to repeat this simple observation: "China is quickly becoming yesterday's America, while America is quickly becoming yesterday's China." What does that mean? Remain uninformed or you can read my book: Saving America, Chinese Style!

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