This is a follow-up to the post “Why The US Is Still The Number One Economy In The World, And Will Remain So For A Very, Very Long Time“. There are still many Americans who are under the illusion that somehow China is a more enlightened, modern, and progressive country then the US, and that the Chinese people are now–or will soon be–as a consequence wealthier than typical Americans.
Much (all?) of this foolishness comes from the fact that the country of China has amassed a substantial reserve of US dollars, and owns a large portion of the US debt. However, the issue of dollar reserves and debt has little to do with the actual economic health of the country or wealth of its people, and everything to do with its neo-mercantilist trade policy–an economic policy which exchanges a lower standard of living for greater internal control over the economy. Ultimately, neo-mercantilism is unsustainable, and must be followed by greater openness or a zombie economy will result, as what happened in Japan. However, there is the risk that with this greater openness a neo-mercantilist country will kill the goose that lays the golden egg, hence the neo-mercantilist dilemma–a dilemma China is now facing. (A good look at some of the economic pressures China is facing–and why their economy is unsustainable–can be found here.)
Regarding the standard of living for the Chinese people, the following graph, though initially difficult to follow, is quite instructive. It is from the book, The Haves and the Have Nots, written by an expert at the World Bank.
On the horizontal axis we have 20 equally-sized income groups, country ventiles, what Rampell describes as “a cluster of five percentiles.” On the vertical axis are percentiles of world income distribution. So, for instance, in the chart above you can see that Brazil has both spectacularly rich and spectacularly poor people.
The incomes on the graph are adjusted by PPP (purchasing power parity), so exchange rates are not a factor here–this is a strict comparison of standard of living. There is a lot that could be said about the graph, but let us focus on China. From the graph, it appears that about 85% of the Chinese people have a standard of living that is poorer than the poorest people in America. That’s right. If we take the poorest inner-city families, the poorest reservation Indians, or the poorest Appalachian top-land farmers, all live better than 85% of the Chinese people. As for the richest 15% of the Chinese, most would not even be considered middle class in the US–by US standards they are still quite poor.
The graph raises a lot of questions. For one, what is the money the Chinese government is amassing being used for? Second, how is it that such a poor country can have so many millionaires and billionaires? And third, since the economy is unsustainable as is, what will happen when the goose that lays the golden egg is led to slaughter? Can there be a so-called soft landing?
(Graph h/t NRO)
- American vs. Chinese poor (thepathtotyranny.wordpress.com)
- China’s housing bubble: ghost malls, ghost highrises, and ghost cities (boingboing.net)
- Why Isn’t China Democratizing? Because It’s Not Really Capitalist (american.com)