US versus China: Who will own the future?

A Chinese worker in a factory in Jinjiang Image copyright AFP
Image caption Will China's economy overtake America's?

Will this really be the Chinese century? Or, in our awe at what China has achieved in a single generation, do we give its economy the benefit of far too many doubts?

That was the first big question for my guests on Stephanomics this week, broadcast on BBC Radio 4 today. The follow-up was about America: for all its squabbling politicians and ballooning public debt, are we in danger of selling its economy short?

People often look at America and see a global super-power literally living on borrowed time - much of it borrowed, incidentally from China, which for all these years has been buying US bonds to soak up its massive cash reserves (now an astonishing $3 trillion).

US politics are probably more dysfunctional - more polarised - than at any time in living memory. The leading presidential contenders are in a statistical dead heat in the opinion polls and people despair of Congress getting even the smallest things done.

For the first time in the post-war era, there are fewer jobs in the private sector than 10 years ago. Real wages for the average US worker are no higher than in the 1970s. And the share of total income taken by the top 1% of taxpayers has risen from 10% to 21% between the 1970s and 2008.

And yet, as the Economist pointed out on its cover recently (see 14 July issue), there are signs that America's private sector is even now reinventing itself, yet again - just as it has so many times before.

The current account deficit is down, exports are up, and productivity has taken off. That could help sustain America's place in the global economy long-term, even if it produces a miserable jobs market right now.

Charles Dumas, of Lombard Street Research, is one of the US optimists. He's even co-authored a book called "The American Phoenix".

When I tell you that another guest, Arvind Subraminian from the Peterson Institute in Washington, has written a book called "Eclipse: living in the shadow of Chinese economic dominance", you will gather that he takes the opposite view.

When macroeconomists get together to talk about China and America, there's always a risk it will end up in a brawl over who has the biggest structural imbalances. (Piece of advice: never go to the pub with a macroeconomist who's not interested in sport.)

There was some of that on the programme, not to mention a lively debate about whether any of China's official statistics bore any relation to reality.

There's a line going around the City that "China's GDP is the next Libor" - a crucial number for the world economy that turns out to be, er, somewhat fictional.

But we also had Paul Ormerod to throw into the mix, an economist known for having a more unusual, microeconomic take on things. His new book (sigh) is "Positive Linking: how networks can change the world".

He was long-term optimistic about America as well, partly because the US does seem a lot better at innovating and creating powerful networks. But not without sizeable reservations.

It was a spirited discussion - and unexpectedly entertaining. I could barely get a word in, some of you will be relieved to hear.

But I was struck by the lack of disagreement about Europe, which all my guests were deeply gloomy about.

Paul Ormerod even thinks countries such as Greece and Spain could be facing an era of almost unprecedented "de-development", with the crisis and its aftermath reversing decades of economic progress.

That is, indeed, what many people see when they look at Europe. And looking at today's headlines, you can see why.

But when so many economists agree on something, you can't help thinking it might be time to buy some euros. When the dust settles from this crisis, years from now, we might discover we were missing the big picture on Europe as well.