Hey, remember the late 1980s and early 1990s, when all the smart guys were predicting Japan was going to be the economic powerhouse of the 21st century? So much for that idea, as the Daily Finance Website noted in 2011:
In 1986, Gore Vidal wrote that in the face of Japan’s climb to economic dominance, “There is only one way out. The time has come for the United States to make common cause with the Soviet Union.” His advice on the Soviets was provocative, but the idea that Japan owned the future was nearly ubiquitous.
In 1991, former MIT dean Lester Thurow, wrote that, “If one looks at the last 20 years, Japan would have to be considered the betting favorite to win the economy honors of owning the 21st century.”
In 1988, former Reagan official Clyde Prestowitz said, “The American century is over. The big development in the latter part of the century is the emergence of Japan as a major superpower.”
In his book Trading Places, Prestowitz elaborated: “The power behind the Japanese juggernaut is much greater than most Americans suspect, and the juggernaut cannot stop of its own volition, for Japan has created a kind of automatic wealth machine, perhaps the first since King Midas.”
Michael Crichton — not exactly an economic analyst, but widely read nonetheless — wrote in 1992 that “Sooner or later, Americans must come to grips with the fact that Japan has become the leading industrial nation in the world. The Japanese have the longest lifespan. They have the highest employment, the highest literacy, the smallest gap between rich and poor. Their manufactured goods have the highest quality. They have the best food. The fact is that a country the size of Montana, with half our population, will soon have an economy equal to ours.”
It never did. These predictions weren’t just wrong. They were the sheer opposite of what happened. Japan’s stock market and real estate market collapsed in the 1990s. Its economy has been in an unmitigated slump ever since, spending the better part of two decades fighting deflation. It is now the most indebted industrialized nation in the world.
What went wrong? In the most simplistic terms, bulls focused obsessively on Japanese managerial techniques. The nation did have some great managers, particularly in comparison to American businesses like General Motors (NYS: GM) , which were failing hand over fist. But what went mostly ignored was that Japan’s boom was based on debt and overinvestment, not productivity. That created a bubble of epic proportions. When that bubble burst, the chickens came home to roost. Twenty years later, they’re still roosting.
Hey, remember the mid-to-late-naughts, when all the smart guys were predicting China will be the economic powerhouse of the 21st century? So much for that idea — “China may not overtake America this century after all,” Ambrose Evans-Pritchard writes in the London Telegraph:
The National Bureau of Statistics has since revealed that data collected by the regions overstates GDP by 10pc, though they have not acted on the insight. It is well-known why this goes on. The reward system of the Communist hierarchy has been geared to talking up growth, and officials gain kudos by lowering the stated “energy intensity” of their zone.
China’s Development Research Council (DRC) expects growth to drop to 6pc by 2020. It could be much lower. The US Conference Board says it will average 3.7pc from 2019-2025 as the ageing crisis hits. Michael Pettis from Beijing University thinks it is likely to slow to 3pc to 4pc over the next decade, deeming this entirely desirable if it comes from taming the runaway state enterprises.
If so, China’s growth may not be much higher than the new consensus estimate of 3pc for a reborn America, powered by its energy boom and the revival of the chemical, steel, glass, and paper industries.
All those charts showing China’s economy surging past the US by 2030, or 2025, or even 2017, will look very credulous. China may not surpass the US this century.
Stop by the Internet cafe in your local Chinese ghost town and read the whole thing.
[jwplayer config=”pjmedia_eddriscoll” mediaid=”63355″]