Chinese Growth: A Source of U.S. Export Opportunities - Poole Speech - St. Louis Fed

Chinese Growth: A Source of U.S. Export Opportunities - Poole Speech - St. Louis Fed

The President of the Federal Reserve Bank of St. Louis thinks that the tremendous growth in the Chinese economy means great opportunities for better paid jobs in the United States. I was encouraged by the headline, and then I found out what examples he gave for these better paid job. Of the universe of jobs that still exist in the United States, Mr. Poole was able to find two categories: workers engaged in making coal loading machineries and thoroughbred horse racing. Mr. Poole enthusiastically told us that "it is also possible that a number of Chinese will come to Kentucky to learn how to be trainers, exercise riders, jockeys, grooms and hot walkers." Right.

I am underwhelmed. I have no idea why Mr. Poole sees great future in the U.S. workers when the only encouraging examples are found in industries where less than 0.01% of all U.S. workers are employed. Perhaps all 1.5 billion Chinese will go to the races, so they need 100 million of us to get involved. I doubt it.

The fact of the matter is the Chinese holds today almost a trillion dollars that they earned from us mostly over the last 10 or so years. They bought our government debts because they found little else useful to buy. Yes, it is a big headache for them, as the purchase power of the U.S. dollar falls (the purchase power of the U.S. Dollar fell 40% relative to the Euro, in the last five years, for example), the Chinese are seeing their money evaporating at a relatively shocking pace. In the last two years we see them panickly trying to lose their U.S. dollars by buying up all the oil, gold, copper and other minerals in sight. That makes the Arabs and Canada happy, but it causes more pain for whatever industries that are left in the U.S. that also compete for these resources.

Many people think that our future is in information and ultra-highly skilled labor. They overlooked that the Chinese are turning out at least 10 times engineers and scientists than we are each and every year as far as any one can see. This is not the same situation when people were crying foul about our previous rivals from Japan and Korea. Then, I told people not to worry too much because Jopan and Korea need the U.S. market to continue their prosperity. This is not the case with the Chinese, in the long run. In a few years, the Chinese can do very well without the U.S. market. It was only 40 years ago that international trade accounts for less than 10% of the U.S. GDP and America was prosperous. The Chinese can do the same. Perhaps they can even afford to write off a couple trillion dollars of bad investment.

That is really scary.

It is possible that America will prosper in the rest of this century. But a few things must happen. First, we need folks who are not economic ignoramus to run the government and the central bank. Second, our people need to understand that prosperity in the U.S. is not a God-given right and adjust our expectations and focus our attention in policies that encorages formation of new industries (That means resumption and stepping up long term investments in basic research.) Third, the Chinese need to make some basic mistakes in their management of their economy, like the kinds we made right before the Great Depression, to allow us time to adjust.

I am not optimistic.