Economists are boring, but admitting to finding Hank Paulson
refreshing is beyond admitting boredom; but I confess the saturation of the
airwaves with interviews of his views on China while promoting his new book (Dealing with China: An Insider Unmasks the New Economic
Superpower by Henry M. Paulson) was a personal
pleasure. We have been pummeled by the
media with commentary about how the China economy is in trouble as standard GDP
year on year growth approaches 7%. Rubbish.
Paulson gets it right on the fundamentals;
disaggregation of the forces and drivers is the best methodology for looking at
China. What I found interesting (over
and over again) was his refusal to deal with the macro number. Again he is correct. Financial innumeracy
amongst politicians is endemic.
As the basis has expanded, normal (untransformed) year
on year growth will always rescale, but those in the media and politics cannot
grasp this concept. Those of us who are boring just have to keep reminding them
how to pronounce ‘logarithmic’. This is about finance and economics and budgets
and all manner of detail which should be their expertise, but is at the end of
the day a demonstration of their lack of suitability (IMHOP) for the job. It is not the law of large numbers, is it
just basic ignorance.
Quick reads:
Why China's
economy is slowing Mar
11th 2015 by S.R. | SHANGHAI
The law of
large numbers (financial, rather than statistical) applies to nations as well
as to companies: the bigger an economy gets, the harder it
is to keep growing at a
fast clip. Growth of 7% this year for China would generate more additional
output than a 14% pace did in 2007.
The simple arithmetic of China’s growth slowdown Danny Quah | February 18, 2015
The
conclusion? China in 2015 is a very different economy from even just 10 years
ago. It has changed far more than the world at large has in this time. A 7
percent growth rate is obviously lower than an 8 percent one. So, whatever good
comes from a 7 percent growth rate, at the margin a growth rate a little higher
will be even better. But, quantifying the changes that have taken place in the
global economy, a 7 percent growth rate for China today means something even
more positive than did a 12 percent growth rate 10 years ago.
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