Sent to you by Gerald via Google Reader:
About 20 years ago, Mike Munger told disbelieving faculty members at Dartmouth's B-school, including an "Ass. Dean," that "Japan is a giant economic bubble."
That prediction looks pretty darn good now. Most recent evidence here. (Who says economists can't predict?)
So people should probably pay attention to his latest prediction.
The point is that China is going to run up against a captial constraint, and may (this is delightful) actually follow the Marxist predictions about industrial capitalism. Marx didn't understand capital, but neither do our Chinese friends. Unless the Chinese can get huge amounts of liquidity to feed the need for physical investment, wages from increased human capital are going to start to squeeze them really bad. And there may actually be the worker's revolt that Marx predicted for Western Europe. Except it will happen in a communist country, precisely because it is not capitalist enough to have common stock offerings.
Read the whole thing.
Note: famed business writer Michael Lewis seems to agree:
I've never been to China, other than a quick stop in Beijing, so I don't have a great feel for what is happening there. But I get his e-mail blasts, and they're pretty persuasive. They make Ireland look like chump change. There are whole cities that are empty. I'm very prepared to hear the skeptical arguments about China. Not so long ago, people were saying the same things about Japan that we are hearing now: "This unbeatable beast in the East is going to come up and end up owning America." Instead what happened was that some people in Japan got ripped off by American investment bankers and Hollywood producers. Then their economy collapsed on their own contradictions.
The Chinese so far have avoided interaction with the American investment bankers and American Hollywood producers, but that's the only mistake they haven't made. Instead what they've done is they've embraced the U.S. Treasury. It may be that 20 years from now we're all laughing about what fools we were for thinking China was such a threat. I don't believe that the Chinese political system can sustain a really successful economy. There's going to have to be a political revolution there before they're competitive with us. But what do I know?
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