These are humbling times for champions of the free market and American-style capitalism. The CEOs of the Big Three car companies are kneeling before Uncle Sam like Henry in the snows of Canossa. The stock market volatility these days is looking more and more like a death rattle. No one wants to check their 401(k) for fear of their face melting like that Gestapo guy in "Raiders of the Lost Ark" when he peeked inside the Ark of the Covenant.
But while we cheerleaders for economic liberty need to take our lumps and spend some time thinking about where things went wrong, it would be nice if the Chicken Littles spent a wee bit of time doing likewise.
Exhibit A: China. You can't pick up a copy of Newsweek without reading something by Fareed Zakaria about how China will only get larger and larger in our rearview mirror. Five years ago, Goldman Sachs predicted that China's GDP would overtake America's by 2041. Now it thinks that China will reach us in 2027. (Of course, with a much bigger population, China's per-capita wealth would be much lower than ours.) The National Intelligence Council's new report, "Global Trends 2025: A Transformed World," echoes these concerns.
Heck, maybe they're all right. Maybe not. The simple fact is that no one knows.
But I'd bet against it.
First of all, there's a long record of very smart people making very bad predictions. Just Google "bad predictions" and you'll see what I mean. In 1943, the chairman of IBM said, "I think there is a world market for maybe five computers." Legend has it the head of the U.S. Patent Office said in 1899, "Everything that can be invented has been invented." Neville Chamberlain prophesied "peace in our time."
And roughly two decades ago, the best and brightest were telling us that "Japan Inc." was going to overtake America any day now."Future historians," warned Harvard's Ezra Vogel in 1986, "may well mark the mid-1980s as the time when Japan surpassed the United States to become the world's dominant economic power." Yale's Paul Kennedy wrote a blockbuster of a book concluding that American policies should be designed to manage our decline "so that the relative erosion of the United States' position takes place slowly and smoothly." When Jacques Attali was head of the European Bank for Reconstruction and Development in 1991, he observed that America was becoming akin to "Japan's granary, like Poland was for Flanders in the seventeenth century."
Journalist James Fallows, political scientist Chalmers Johnson and economist Lester Thurow were fawned over for their supposedly incontrovertible conclusion that Japan was the future. "The Cold War is over," Johnson wrote, "and Japan won."
Then, as you may have heard, the Japanese economy went kablooey.
The Japan example not only demonstrates that smart people can be wrong and that the elite chattering classes are prone to groupthink, but it helps illuminate why they are so prone to this sort of thing.
For more than a century, countless American intellectuals and business leaders have looked enviously at how foreign countries "planned" and "managed" their economies. Woodrow Wilson and the Progressives drooled over Otto von Bismarck, and today every self-proclaimed "global strategist" gazes at China's managed capitalism like a kid with his nose pressed against a candy-store window.
Of course, China has made enormous progress since it decided that markets are a more desirable means of improving the lot of its citizens than organized mass murder. But China's fans still have an enormous blind spot.
Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.
Does anyone honestly think China doesn't have these problems 10 times over? It has no free press, no democratic accountability and no truly independent regulators.
After every Chinese earthquake, we discover that safety inspectors couldn't be trusted to oversee the construction of schools and hospitals. And we're supposed to believe that China's corrupt model produces toxic baby formula but spic-and-span finances?
There's an honest debate about how much blame institutions like Fannie Mae and laws like the Community Reinvestment Act deserve for the financial crisis, but few honest observers dispute that they played some kind of deleterious role. Well, China's entire economy is one big Fannie Mae, its laws one big Community Reinvestment Act.
I'm willing to bet that the bill for that comes due long, long, long before China catches up with the United States of America.