Friedman on the US growth model
I cannot say that I have ever wanted to quote Thomas Friedman. He has been such a booster for globalization, full of breathless praise for capitalism. I confess, I have never read any of his books for precisely those reasons. Someone gave me The World is Flat once and I could not stomach it, although I did love Ed Leamer’s critique of the book.
Anyway, here is the 2009 model Friedman:
We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese …
This sounds a lot like the standard critique of economic growth made by many environmentalists. While I am highly sympathetic to that critique, it is remarkable how often it is not recognized for being a spear chucked at the heart of capitalism. Yes, we should stop the pattern that Friedman decries, but this is requires more than just patching up the banking system.
The other big question the quote raises is whether the symbiotic relationship between China and the US can continue. In The Predator State, James Galbraith makes some very interesting observations about the Chinese model, and argues that its relationship with the US can keep on going indefinitely, simply because neither party has an interest in stopping it. As long as the Chinese (and others) want to hold US bonds in their portfolio, the US must import more than it exports. And ultimately, the US is different from everyone else, precisely because of its central role in the world financial system.
Prior to the crisis, most economists were focused on the issue of “structural imbalances” and lived in fear of a break in the China-US dynamic, where China (and the rest of the world) loses confidence in the US, pulls out their money and causes a dollar crash. Since then all hell has broken loose but still the dynamic seems to maintaining its odd equilibrium, though there may be another shoe to drop yet.