0:00

I'm Elise Hugh. And I'm Josh

0:02

Klein. And we're the hosts of Built

0:04

for Change, a podcast from Accenture. On

0:06

Built for Change, we're talking to business leaders from

0:08

every corner of the world that are harnessing change

0:10

to reinvent the future of their business.

0:13

We're discussing ideas like the importance

0:15

of ethical AI or how productivity

0:18

soars when companies truly listen to

0:20

what their employees value.

0:21

These are insights that leaders need to know

0:24

to stay ahead. So subscribe to Built

0:26

for Change wherever you get your podcasts.

0:28

The legendary

0:31

Noah Smith makes his China Talk debut

0:33

alongside longtime guest

0:35

Matt Klein. We'll be talking China's economy,

0:37

industrial policy, the 2024 election,

0:40

and more with two of the sharpest

0:41

econ sub-stackers in

0:43

the game. What are we trying to talk

0:45

you to? Man, you should be a sports announcer. You're

0:48

too good for the podcast circuit. As

0:52

soon as someone offers me that UFC

0:55

announcing contract, I will be there tomorrow. But

0:57

in the meantime, we're stuck talking about

0:59

the Chinese economy. Matt, what's up with

1:01

it?

1:02

Up might not be the right word that I'd

1:05

use for this. I mean, essentially,

1:07

there are two perspectives that

1:09

I would take. One is a much longer term

1:12

structural perspective of what's really been happening

1:14

over the past 10, 15 years.

1:17

And there we've seen basically the Chinese economy

1:19

gradually slowing down from a peak growth

1:21

rate around the double

1:24

digits that was reached around 2010, 2011. It

1:28

was slowing down pretty consistently before the pandemic

1:30

to something around like a 6%, 7% growth

1:33

rate. And that's really sort

1:35

of if you zoom out, that's essentially where

1:37

we are now is essentially a continuation of that trend

1:39

and that process. And then separately, there's

1:42

what happened with the pandemic and what's been happening more recently

1:44

with the end of the COVID zero restrictions.

1:46

So China,

1:47

as you and your listeners all know, reacted

1:50

the pandemic emerging initially by

1:53

essentially shutting down large swaths of the economy, literally

1:55

locking people in homes and so forth. And

1:57

that was extremely disruptive and repressive, but.

1:59

It did work in the short term in 2020

2:02

anyway, sort of arresting the spread of the virus and allowed

2:04

a degree of normality to return by the

2:06

summer of 2020. But then as the virus

2:08

mutated, it became a lot more

2:11

contagious by the time you get to 2022, that wasn't

2:13

really working. So government

2:16

officials in China at the local level tried to do

2:18

this again, places like Shanghai and in

2:20

Guangzhou, and it just didn't really work the same extent.

2:23

You just had much more repression, much more shutdowns. Economy

2:25

really had a rough time. You

2:27

get to the end of 2022, there's essentially

2:30

mass protests about the arbitrariness of this.

2:32

You have a situation where people

2:34

are killed because there's a fire in a building

2:36

and they're not allowed to leave because of COVID restrictions.

2:40

Eventually, the policy just, there's

2:42

a complete turnaround at the end of 2022 saying, okay, we're

2:44

going to get rid of all restrictions.

2:47

The hope was at the time that once

2:50

that

2:51

the restrictions were over, there would be presumably

2:54

a few months of extreme disruption as a lot of people

2:56

had not gotten sick and had not been properly vaccinated

2:58

would get sick and alone die.

3:00

But that hopefully, if we're looking at sort of the bright side

3:02

here, that by the end of that, by say like March of

3:04

this year, things would actually be pretty open

3:07

and then the economy would really be able to... All

3:09

those restrictions would be gone, you'd had a real robust

3:11

rebound and wherever the economy

3:13

should have been absent,

3:15

the pandemic is where we would have ended up relatively

3:18

quickly. And what's interesting is that that didn't really happen. You did

3:20

have a fair amount of death and disruption

3:22

in January and February and December. You

3:26

don't really know what those numbers are. You may never know what those numbers really

3:28

were. But since

3:30

then, you haven't really had the kind of rebound

3:33

and growth you would have expected. All the data

3:35

you'd be looking at that they publish on a monthly basis, things like

3:37

the retail sales numbers, various measures

3:39

of industrial production, investment, whatever, not

3:42

really been doing very well at all. In fact, there's

3:44

been essentially... If you're

3:46

looking at things like what is the trend in

3:49

retail spending and

3:51

what has spending been like recently relative to

3:53

that, it's remarkably poor. There's

3:55

basically been the idea there'd be some sort of revenge

3:57

spending bounce back. The kind of thing you saw... by

4:00

the way, in 2021. We

4:02

haven't really seen that this year in

4:04

any meaningful way. And we

4:06

know it's bad because in addition to just me

4:08

looking at data and other people looking at the data that are

4:11

published, there are also a lot of news articles

4:13

about how the Chinese government senior officials

4:15

are trying to figure out what to do about this. And

4:17

so that's the real indicator that something is bad because if they think

4:19

there's a problem, then they're probably seeing

4:22

things that we're not seeing here. And so there

4:24

have been various attempts to try

4:26

to

4:27

invigorate the economy. So Matt, there was a

4:29

blockbuster article by Ling Ling Wei in the Wall

4:31

Street Journal, basically making the case that

4:34

she is sort of ideologically

4:37

opposed to like the softness

4:41

of doing helicopter, throwing

4:44

money out of helicopters and bailing out and

4:46

trying to stimulate demand from a consumer

4:48

perspective and how this is potentially

4:51

a major closing off

4:54

what a lot of Western,

4:56

but particularly Chinese economists are increasingly saying

4:59

is like the thing that China needs to do in

5:01

order to start to

5:04

get the economy on track in the sort of

5:06

near term. Do you, well,

5:08

I mean, who knows to the extent

5:11

that that's true, but like how much would

5:13

getting over that sort of like ideological

5:16

hurdle of like actually being like

5:18

a consumer demand driven economy

5:20

and not one where this sort of the

5:23

state support is only flowing towards semiconductors

5:26

and electric vehicles or what have you. How

5:29

much does that open up the aperture for

5:31

like smart policymaking from a macro

5:34

perspective?

5:35

So first of all, I think that news story is

5:37

entirely plausible because it's consistent with things we've

5:39

seen in public, not necessarily that Xi

5:41

Jinping himself has said, but that other people affiliated,

5:44

broadly speaking, with sort of elite policymaking have said

5:46

that they talk about the concern of welfarism

5:50

and they say that we don't want to end up like Latin America.

5:52

They're very explicit about this, that this is

5:54

what essentially, the reason why Latin America didn't develop

5:56

past a certain point was because the governments just gave

5:59

people stuff and then they didn't. They lost the will to work

6:01

and what have you that that's sort of the official

6:03

that's the interpretation from a lot of

6:06

Chinese I just don't know making elites and

6:08

just like brief detour Noah

6:11

and Matt is that a reasonable interpretation

6:13

of the second half of the 20th century? I

6:17

It's a little extreme. Yeah,

6:19

I don't I don't think that's I mean I Will

6:23

say that Latin American development model ended

6:25

up being very different from what China ended up pursuing But I don't

6:27

think that necessarily explains. I don't

6:29

think their interpretation of it necessarily

6:32

is correct I think also even if that

6:34

is what you think happened in Latin America. The situation

6:36

in China now is so different from

6:39

Anything that's ever happened there that I don't really think

6:41

it's a comfortable situation They do that that Chinese

6:43

workers are you know gonna are Lazy

6:46

and not producing enough and that they're just

6:48

taking from society I mean if we just look at

6:50

anything we see about actually what's going on The

6:53

story of the Chinese economy of the past 30 plus

6:55

years is actually that workers in China

6:57

have been progressively squeezed and that all

7:00

the instruments of state formal and informal

7:02

have been used to take from workers

7:05

and Redistribute purchasing power that

7:07

workers should have had to go towards local

7:09

governments and businesses and the reason they've been able to

7:11

build up so much infrastructure or choose to build up some

7:13

infrastructure and real estate development so

7:15

forth is precisely because It's

7:18

the flip side of taking from people who otherwise would

7:20

have bought other things You know there's Jordan

7:23

you've had on the show, you know, Natalie Helton Scott Roselle

7:25

They're talking about you know, the the

7:27

vast poverty impoverishment of large swaths

7:29

of rural China I mean, this is I think The

7:32

natural flip side of all the people

7:35

say oh, what's the cost of China over investing

7:37

or what have you or spending too much? investment out of the consumption

7:40

Right, it's actually,

7:42

you know shocking levels of ringworm and

7:44

in children and you know, not having the

7:46

corrective vision

7:47

Treatments and things like that the people not knowing how

7:49

to read So that that

7:52

is really the flip side here. And so I

7:54

think there is this huge ideological problem here

7:56

I think there's also a structural problem on top of the ideology,

7:58

which is that Maybe

7:59

be

8:00

just a little speculative, but if

8:02

you have a very Leninist political

8:05

system and a way of organizing the world, if

8:07

you want to have your party being

8:09

in control of the commanding

8:11

heights of the economy because that's how you stay in charge of society,

8:14

then

8:15

your natural

8:17

preference is going to be having economic activity

8:19

concentrated in things

8:22

that you can control, so very much at

8:24

the government level or big businesses or things

8:26

like that, and not so much having spending

8:28

power dispersed among lots of consumers who buy what

8:31

they want and then have businesses respond

8:33

to what consumers want. So obviously it's not 100% one

8:36

or the other, but I think you can clearly see

8:38

that over time that's

8:41

generally been sort of the way that I think Chinese political

8:43

economies evolve. I think it explains a lot of

8:45

why is it that consumer spending in China

8:47

is so low as a share of national

8:50

output, and I think that creates all these other problems, including why

8:52

is real estate such a big thing? I mean, the reason real estate

8:54

has been so large, residential real estate,

8:56

isn't because lots of Chinese people need

8:59

housing. I mean,

9:00

sure,

9:01

there are lots of Chinese people, they need homes, but the reason this

9:03

stuff is built is because it's mostly the

9:05

only way that Chinese people can

9:08

save money in a way that isn't

9:10

either. The stock market has notoriously been filled

9:13

with scams and speculation. Basically the total

9:15

return over time is close to zero for many,

9:17

many years. Put money in the bank, which

9:19

historically you get basically pitiful

9:22

interest relative to inflation or growth, anything reasonable.

9:24

So the only other thing you can put it in is

9:26

housing. And so that's why Chinese house

9:28

prices, in terms of if you look at

9:31

price per square foot relative, in

9:33

dollar terms, not even relative income, but just in dollar terms, it's

9:35

actually pretty close to what it is in the United States, which is insane

9:38

because incomes are so much lower there. And

9:41

that's because of course there's a lot more money going in there for

9:43

these sort of investment saving purposes relative

9:45

to those things. But that's a function of people not

9:47

having the ability to consume

9:50

as a function of the distribution of income being very skewed. A lot

9:52

of people buying housing that hasn't built yet

9:54

because it's just where they put their money. And so these

9:57

are kinds of the bigger, among the reasons.

10:00

reasons why they have this kind of

10:02

limitations here. I think that the ideological

10:04

issues at the top are certainly part of it, but there's a

10:07

lot of factors that are also combined here, which

10:09

I think are unfortunately going to be preventing what,

10:12

as you said, economists in China think, or many economists in China

10:14

think, is sort of the right approach. The

10:17

thing that's highly unintuitive to Western

10:19

observers is this idea that switching to consumption-based

10:21

service industries would accelerate productivity.

10:25

In advanced economies, what

10:27

we've seen is that a long-term shift

10:30

towards service industries has slowed productivity

10:32

via the Balmle effect because

10:34

service industries inherently have less opportunity

10:37

for productivity gains

10:39

than manufacturing at the point where

10:42

most developed

10:47

economies are. Manufacturing

10:49

productivity for the United States, for Japan, grows

10:51

faster than services.

10:54

But I think that this logic

10:56

flips for a developing country that has suppressed

10:59

growth of its service industries because we actually

11:01

have gotten quite a bit of productivity growth in service

11:03

industries. We just got it slower, and we got

11:05

it in the past, and we really

11:08

never went through a phase where we suppressed service

11:11

industries. We've had doctors

11:13

and the Sears catalog for hundreds of

11:15

years. We've never really repressed

11:17

service industries, so their productivity health

11:20

care has grown slowly, slowly,

11:22

slowly over time. China has benefited

11:24

from relatively little of this, which is one reason

11:26

why their GDP is stuck

11:29

at generously a little

11:32

less than a third of ours, maybe even lower.

11:34

One reason is because

11:37

manufacturing productivity tends

11:39

to converge pretty quickly with the international

11:42

average. You see this in ...

11:45

Danny Roderick, the economist, has some

11:47

papers showing this. Actually even in Latin

11:49

America, even in Africa, anywhere, manufacturing

11:52

productivity tends to reach the global frontier

11:54

pretty easily. For

11:57

most countries, industrialization is a question of how

11:59

much ... manufacturing can you have in

12:01

your early development? Can you do this sectoral shift,

12:04

this sectoral allocation where you get a lot of

12:06

people to work in manufacturing? Well, China

12:09

absolutely did and it's arguable that they did this

12:11

too much and so

12:15

it is possible to go toward,

12:18

we think, oh we need more manufacturing because the productivity

12:20

goes up faster. Well, it's possible to go too far. It's

12:23

possible to do too much manufacturing so

12:25

that your productivity already converged,

12:27

like Huawei phones are

12:30

not appreciably worse than the iPhone, or

12:34

Chinese manufactured products are not appreciably worse. I

12:36

mean, sometimes they're a little bit

12:38

worse because they're a little bit cheaper, lower

12:40

end of the market stuff, but there's

12:43

not a huge difference in productivity

12:45

between China and advanced countries

12:47

in terms of making stuff in a factor.

12:50

What there is,

12:53

their service industries just

12:55

really suck and because

12:59

instead of service industries, they've

13:01

tried to substitute things that

13:03

they thought were like, I don't know, manly

13:06

warlike or just suited

13:08

their ideological preferences or suited

13:11

their political economy of being able to hurl money at

13:13

the right people. By

13:15

building too much real estate, by building, I wouldn't

13:18

say too much infrastructure, but maybe too

13:22

fast or in the wrong places, but then especially

13:24

real estate. They just built

13:26

apartments and apartments and apartments instead of figuring

13:29

out how to employ people in service industries like

13:31

healthcare and insurance and

13:34

whatnot

13:35

and retail. That's

13:37

been a problem for the Chinese economy.

13:39

It runs counter to our

13:42

intuition that they should actually shift towards

13:44

service industries in order to boost productivity. But

13:46

the point is when you're a developing country that's not

13:49

very good at service industries, but has largely converged

13:51

in manufacturing, that's kind of what you should do.

13:53

I'm just going to briefly add that what's interesting is that

13:55

despite all these sort of structural restraints

13:58

and limitations on the Chinese service, service sector,

14:00

you nevertheless have seen the emergence

14:03

of some incredibly successful and globally

14:05

competitive Chinese software companies, for example.

14:08

Now, this is a situation where the

14:11

government sort of pushed back and they don't like the kids

14:13

playing too many video games or whatever, but it's still striking

14:15

that even despite all these things, there

14:17

clearly is a lot of potential there. It's unfortunate.

14:20

It's not like Chinese society is destined

14:22

to be underdeveloped or anything like that. Clearly, it is there.

14:25

It's just that you have a

14:27

sort of structural problems with the way the

14:30

government, what they incentivize and so forth.

14:33

It's unfortunate, but it does suggest there's a lot of room for growth

14:36

if things were different.

14:38

So let's take that and sort

14:40

of come to the peak China question.

14:43

And let's just do this

14:45

from a sort of economic growth, maximizing

14:48

their potential perspective. Let's

14:51

say we're sort of like baking in

14:54

roughly the same sort of governance and

14:56

ideological, economic

14:59

ideological outlook that we've seen for the past 10

15:01

years, for the next 10 years. Does

15:04

that mean we've hit peak China? Is

15:06

this sort of radical shift in

15:09

the narrative about China's

15:11

future sort of economic place in the world

15:13

that we've seen from 2020 to now justified, overblown?

15:18

Noah, what's your hot take?

15:21

I think that peak can mean many

15:23

things. Is China as rich as it will ever get? No,

15:26

it will get richer than this. Have

15:29

we seen peak China growth in terms

15:31

of growth rates? Yes, we absolutely

15:34

have. They will not return to 10% growth. They

15:37

will only return to 6% growth

15:40

very briefly and with heavy data manipulation

15:43

massaging. So in that sense,

15:45

we have seen peak China. The question is, have

15:49

we seen peak China in terms of its relative

15:53

sort of economic catch-up to

15:56

developed countries? In other words, is China

15:58

going to stay symbolize

16:00

at its current place in the economic

16:03

hierarchy of the world. I would say that if

16:05

not now, then pretty close. We're

16:08

pretty much at the peak now. I

16:10

would say yes, but that's much more

16:13

open to argument, I think. In

16:18

terms of Japan, with retrospect,

16:21

we saw peak Japan

16:23

in the late 80s. That

16:27

was not necessarily clear until decades later.

16:30

It's going to take a while for us to figure this out.

16:32

I think that what we are seeing

16:35

is a more nebulous, vague peak in terms

16:37

of Chinese state capacity and

16:40

industrial effectiveness. I

16:43

think that China is

16:45

currently capable of doing absolute marvels,

16:48

and we are seeing those marvels getting done, things

16:50

that no other country in the world can

16:52

possibly come close to matching. The

16:54

fact that they built more

16:57

than half the world's high-speed trains in just a few

16:59

years, they

17:03

have more than half the world's miles of high-speed trains.

17:05

That is incredible. They built it in

17:07

a decade. That's

17:10

just unfathomable. Japan couldn't do that. No

17:12

one can do that. France couldn't do

17:14

that.

17:15

The fact that their car industry

17:18

exports have gone from basically and

17:20

also ran almost non-existent to

17:22

being the world's largest car exporter in, I think,

17:24

two years, that is incredible.

17:27

No other country can do that. China

17:31

is currently capable of producing industrial

17:33

wonders. In

17:35

that sense, when people talk about

17:37

peak, everyone thinks about the

17:39

decline that comes after the peak, but it's possible to

17:41

peak in plateau. If you looked at,

17:44

say, Germany, and you

17:46

saw in the 1880s, by that time, Germany was already the

17:51

manufacturing powerhouse of Europe. One

17:53

of the manufacturing powerhouses of the world, and arguably

17:55

the highest quality manufacturer, the

17:58

manufacturer of the most technologically advanced vehicles, is the products

18:00

on the planet by 1880 but

18:03

you see it's not until really

18:06

it's not until you know Nazis you

18:09

know came in and messed it up that

18:11

you see them that you see them really start to decline

18:14

Germany was still right at the top all the

18:16

way up until you know the Nazi era so

18:19

these countries and that was that was over

18:21

half a century the country's gonna very

18:23

long you know plateaus where

18:26

they're capable of doing wonders you

18:28

know for many decades before you

18:31

know things like aging or

18:33

you know the shift of industrial clustering

18:36

to other countries start to catch up with them right

18:38

you can you can be at that peak for a long time

18:41

you know you mentioned aging I think that's a very relevant

18:44

point for thinking about China's

18:46

situation I mean I completely agree with you that the

18:48

growth rate peak

18:50

you know 2010 so people acting

18:52

now like oh China's gonna slow down

18:54

for like as anyone looked at the numbers

18:57

I mean clearly that there's been a sustained slowdown for

18:59

some time that happened in fact right

19:01

and in fact it was something that was desired by Chinese

19:03

policymakers because they thought it was a problem you

19:05

know that there was unbalanced and uneven growth before

19:08

that so yeah they see some things now if

19:10

you like oh man then you can

19:12

it gives you a sense of who's sort of a tourist here but

19:15

I also agree that I'm Elise

19:17

Hugh and I'm Josh Klein and we're

19:20

the hosts of Built for Change a podcast

19:22

from Accenture

19:23

on Built for Change we're talking to business leaders

19:25

from every corner of the world that are harnessing

19:27

change to reinvent the future of their

19:29

business

19:30

we're discussing ideas like the importance

19:32

of ethical AI or how productivity

19:35

soars when companies truly listen to

19:37

what their employees value these are insights

19:39

that leaders need to know to stay ahead so

19:42

subscribe to Built for Change wherever you

19:44

get your podcasts

19:47

I think it's certainly plausible that

19:49

in terms of relative position that the Chinese

19:52

economy may have reached sort of its zenith

19:54

relative to say like the United States but I think a lot

19:57

of that is going to be based on

20:00

demographic outlook of the

20:03

number of Chinese working age, in

20:05

particular the number of Chinese

20:07

in sort of their 40 to 49

20:09

age cohort, which people have found

20:11

repeatedly that's where like most of the productivity comes

20:13

from. So you know congratulations everyone in their 40s you're

20:15

supposed to be contributing your maximum out to there. So anyhow

20:18

that population has been shrinking a lot

20:20

in China already. I mean that peaked in 2013

20:24

and it's set to fall like you know I

20:26

think that the people specifically in their 40s

20:28

I believe if I'm ever correctly looking at the

20:30

last UN world population prospects is projected

20:33

to fall something like two-thirds between now and

20:35

the end of the century. And so even

20:37

though the Chinese population as a whole is supposed to

20:39

be much more stable because essentially a lot of people are going to be aging.

20:42

And so if you look at that it's very difficult to say

20:44

okay this is I mean clearly you can have productivity

20:46

gains offset some of that that's the promise of automation

20:49

and so forth but we've never seen

20:51

anything like this before. I think it's going to be very

20:53

challenging society-wide. Now

20:56

the living standards of any individual person

20:58

in China might still continue to rise. That's

21:01

certainly possible but if you're thinking about like relative

21:03

power from sort of geo-economic sense

21:05

or whatever that's going to be I think a big headwind.

21:08

The demographic side of course on the productivity

21:11

side it's also not clear how much productivity increases

21:13

we've actually had in China. I mean there's there's

21:15

issues of how you measure productivity how much of its attributable

21:18

to capital deepening or what-have-you but there

21:20

are some estimates that claim that total

21:23

factor productivity would essentially you you net

21:25

out improvements in education and growth

21:28

in the capital stock. That's actually been essentially flat

21:31

since like 2007. I don't know if that's

21:33

right. There are at least some credible

21:35

estimates making that argument. The pen world

21:37

tables.

21:40

Yeah that's one I mean there's another there's some other yeah I

21:42

mean basically if you you look at this stuff

21:45

you say okay well I mean that's that's gonna

21:47

be another huge headwind. I mean you can't really have a

21:49

lot of growth going forward if you don't have literally

21:52

no productivity growth there. So I

21:54

don't I

21:54

mean that would be sort of the big challenge

21:57

you know

21:58

Jordan when you sent around before we start. a list

22:00

of topics I was looking through. I remember

22:02

I'd written about this and I found a column from Barrens

22:04

I'd written in early 2020 making this precise

22:07

point about, well, maybe this

22:09

will be sort of close to the top, I mean,

22:11

or like 2040 or something. Who knows, right?

22:13

But it's certainly plausible from

22:16

that perspective that, you know, peak China,

22:18

although I'm sort of reticent to use that

22:21

term because of what it

22:22

sounds like. It's

22:23

going to be all downhill from there or whatever. But I think that thinking

22:25

about what the future is going to hold. You

22:27

know,

22:28

there are a lot of situations in the past where

22:30

you have a period of rapid growth and people say, oh,

22:33

it's going to go on forever. And then it doesn't.

22:35

Right. I mean, you think about when Khrushchev made

22:37

his We Will Bury Your Speech in 56

22:40

and you look at what happened after that. And, you know,

22:42

if you, there are a lot of ways of measuring this

22:44

and their disputes about whether these measurements are

22:47

accurate, but you look at the,

22:48

the Madison database of, of GDP

22:50

per capita across countries. And

22:53

for the Soviet Union as a share of the United

22:55

States, you saw a huge convergence right after

22:57

that actually. So it looked like he was right. It's like, oh, well, there's

22:59

massive convergence. I mean, it's only like 20 percentage point

23:01

increase in

23:03

GDP per capita of the Soviet

23:05

Union relative to the United States, I mean, 56

23:08

in like the mid seventies. But then

23:10

it stopped and then eventually it went down a lot.

23:12

And so, and if you look at where we are now,

23:15

just for, for Russia, not for the Soviet Union as a whole,

23:17

you know, pre-Ukraine war,

23:20

it was basically in relative position

23:22

comparable to where we were in like 1910,

23:24

relative United States. So like that was, that

23:26

was the end of that.

23:28

China right now, I mean, starting from much lower

23:30

base, but seeing a pretty dramatic

23:33

convergence over the past couple decades. But

23:36

I mean, it could stop. I don't know. I mean, maybe it won't,

23:38

but I mean, I, the baseline assumption that,

23:40

oh, countries that are poor are naturally going to keep converging

23:43

and have, is it something that actually

23:45

you don't see very often? It's

23:47

happened a few times and it's noteworthy, but

23:49

it's not, shouldn't be the baseline assumption. So

23:51

to continue on this sort of Soviet Union analogy, like

23:53

just because like relative, you know, share

23:56

of global GDP may be peaked

23:58

in the 1950s for the Soviet Union. Union doesn't mean

24:01

that no

24:03

70s no so I was

24:05

saying he said the speech in 56 and then from

24:07

then until 70 maybe I wasn't clear but from then okay

24:09

okay gotcha catching up

24:11

until the late 70s right

24:13

gotcha okay and then they're catching up after the

24:15

late 70s and early 80s they basically the convergence

24:18

peaked basically

24:21

when they invaded Afghanistan it

24:23

was not necessarily related that

24:25

was

24:26

no no I think it all I mean later

24:29

but it's an interesting uh

24:30

right because so so the causation runs

24:33

the other way because when you're you know when you're feeling

24:35

your oath you know you're feeling your strength you're like well

24:37

I could I could let's let's take this

24:39

geopolitical power out for a spin baby

24:41

and see what we can conquer and dominate

24:44

and

24:44

in fact that little hole from 56 until

24:46

then right I mean the whole Brezhnev doctrine of oh yeah

24:48

we're gonna go in all these other countries and do stuff and it

24:50

seemed yeah exactly and then it peaks and

24:52

then they stop so I

24:55

think that is very much when they stop which

24:57

you know how the Union's peak came quick

25:00

the thing is that people I think that

25:02

we expect these peaks to be

25:04

to be over quick because the the USSR

25:07

and Japan shortly after

25:09

they peaked it was only about a decade after

25:12

they peaked that we started to say okay this is a country

25:14

in decline

25:15

relative decline

25:17

but

25:18

I think that's a mistake because if

25:20

you go back and look at other powers I

25:22

mean the United States

25:24

lasted at its peak for arguably

25:26

a century before it went into decline

25:30

and then I think that you know Germany

25:32

lasted for half a century and and

25:35

you know then you can even go back earlier to that you

25:37

look at Britain I would say Britain lasted arguably

25:39

a century

25:40

and so so these peaks can last a long

25:43

time the the USSR and Japan

25:45

were kind of special cases I

25:47

think

25:48

Japan may be a little more relevant

25:50

in the Soviet Union in fact we should talk about Japanification

25:52

a little bit Jordan Soviet Unionification

25:55

which does Sovietification which doesn't make

25:58

us as handy a term as

25:59

not as cute.

26:01

But I think that the

26:03

main analogy there is that capital deepening

26:05

will only get you so far. And I

26:07

would like to mention that

26:09

all of the

26:12

capital that you've seen China

26:14

build, all of those just infinite miles

26:16

of high-speed train, infinite forests of apartment

26:19

towers, giant gleaming

26:22

new factories with robots and stuff like that, that

26:24

will depreciate.

26:26

What people don't understand is that capital

26:28

depreciation really sets in after what, 20

26:31

years? Physical

26:33

depreciation. You can amortize your depreciation

26:35

anytime that the government allows you to. But that's just

26:38

a financial trick. The actual physical

26:40

depreciation of capital in terms of infrastructure,

26:43

machinery, and structures happens

26:45

after about 20 years. Stuff starts to get

26:48

really worn out. It depends on how well you build in the first place

26:50

too, right? How well you build it. Japan

26:53

built their stuff very, very well. China

26:56

did not. China

26:58

is

26:59

like the United States in that they

27:01

build quick, shitty, and cheap. As

27:04

an aside, I've often argued that China is the country

27:07

that is most similar to the United States in the entire

27:09

world. And that basically people think

27:12

that there are these two alien civilizations,

27:14

there's a clash of civilizations. No, it's

27:17

a similar country. Everyone's just wearing khaki

27:19

shorts and a t-shirt and crocs and

27:21

going to the mall and driving to the mall

27:24

and watching Fox

27:26

News or whatever and saying, like, my country's great

27:29

because it's big and then dreaming big unrealistic

27:31

dreams of getting rich. No, China

27:33

and America are the same except in China the Republicans

27:36

always win. But anyway, stop playing

27:38

video games. Stop being gay on

27:41

TV. No, stop being

27:47

gay. Be manly. No, welfare is bad.

27:52

What are your other analogies Noah?

27:55

I have a little sidetrack

27:58

rant here.

27:59

impression of China is it?

28:02

But okay, so Japanification,

28:06

the thing is that most of our narratives about what

28:08

happened to Japan in the 80s and 90s are incredibly

28:11

exaggerated and some

28:13

to the point of being wrong. So Japan

28:15

was this export powerhouse. No,

28:18

it had a

28:19

trade surplus for financial

28:21

reasons.

28:22

Its exports as a percent of GDP

28:24

were always quite low.

28:26

Which is like China as it's been since about

28:28

the past 15 years. Yes, in the 2000s

28:31

China was an export powerhouse. Then after 2008

28:33

China's like, no actually we're

28:35

just going to build a bunch of housing and infrastructure instead,

28:38

and which they did, and so they shifted from being

28:40

an export powerhouse to be, you know, their

28:42

exports as a percent of GDP are not that low. It's like 20%

28:44

maybe? I think it's like 15. It might have gone up recently.

28:50

Also the pandemic has changed things

28:52

a little bit, but yeah it's been in sort of 15-20% range,

28:54

which is pretty low. That's getting

28:56

down toward Japan range, which is not that

28:58

open an economy. Most of your like, you know,

29:01

India is higher than that.

29:02

And so exports as a percent of GDP are not

29:04

that high. It's not an export powerhouse, but Japan

29:06

was never an export powerhouse really. Japan never

29:09

had a high rate of exports to GDP as

29:11

long as we've been keeping track of that. Japan's

29:13

exports to GDP is the highest

29:16

now that it's been since we started keeping track of it. And

29:19

so, you know, we just they

29:21

had a trade surplus, but that's net not total.

29:23

And so, you

29:27

know, what happened with Japan, there was

29:29

a shift

29:29

toward real estate,

29:32

but it was much less

29:34

in terms of real estate construction, which has already always

29:36

been pretty robust in Japan and remained robust.

29:38

It was toward real estate finance,

29:41

which was somewhat like China,

29:43

but China did that a lot more. If you look at real

29:45

estate and related industries as a percent of GDP,

29:48

Japan's peaked in the teens.

29:50

China's peaked at like almost 30% of GDP,

29:52

you know, more than twice.

29:55

So there's just China in that

29:57

sense is more Japanified than Japan

29:59

ever.

29:59

was.

30:02

In

30:05

terms of this real

30:07

estate crash,

30:10

Japan had a real estate crash, Japan had a stock

30:12

crash. A lot of this was related to the way

30:14

that corporations find that stuff in

30:16

Japan.

30:18

Now I've just thought of a new thought,

30:20

which is approximately

30:22

sort of truthy, which is that

30:25

China's burst now is more

30:27

like

30:28

a double version of

30:31

America's bust in the 2000s than it

30:35

is like Japan's bust. Because Japan's bust was fundamentally

30:37

a corporate bust. It was corporations

30:40

were using real estate as collateral

30:43

to borrow to do industrial expansion

30:45

for things that they were mostly selling in Japan.

30:48

That was a process that couldn't continue and was

30:51

continued too long by a bunch

30:53

of weird financial practices that Japan had, such as

30:56

cross-shareholding, evergreening of

30:58

loans, blah, blah, blah, blah, blah. Japan's

31:01

story was always a lot more

31:03

subtle and complex than people thought. China's

31:06

story is much more similar to our

31:09

typical story of Japan. You had this country

31:11

where just overbuilt or just had

31:16

a massive real estate bubble from just normal

31:19

people bidding up the prices of housing. Are

31:22

you okay, Jordan? Oh,

31:24

jet lag. Yeah, keep going. Oh, jet lag. Okay. Yeah, so you had

31:26

a banking system sort of failure in

31:29

China. In Japan,

31:39

you

31:43

had a lot more complex stuff going on.

31:45

China fits the Japan story much more cleanly

31:48

than Japan did.

31:49

So I completely agree that

31:52

there are a lot of differences between China and Japan. And

31:54

I think that Noah, you did a very good

31:56

job explaining what actually happened with Japan, which is different

31:58

from I think a lot of the common areas. I do think actually if

32:00

you zoom out though, there are actually some interesting similarities because

32:03

if we think about why was it that so much of

32:05

growth

32:06

in Japan in

32:08

the 70s and 80s was

32:10

coming from this kind of corporate investment

32:12

funded by borrowing, so much of the growth in China

32:14

similarly is coming from the

32:16

construction and investment of things

32:19

as opposed to household consumption financed by different

32:21

kinds of borrowing.

32:22

I think there are actually some similarities.

32:24

I think there's some very important differences. In Japan, it was

32:27

basically a democracy that was not repressive.

32:29

You didn't have

32:30

a lot of wholesale going policy deliberately

32:32

trying to squeeze consumers,

32:34

but you did have a situation.

32:38

There is a similarity, particularly the banking system is structured

32:40

of essentially saying, okay, households

32:42

are going to put money in the banking system. They're not

32:44

going to get a good return, and then you're

32:46

going to use that to create some kind of surplus. It

32:48

tends to transfer wealth and purchasing power

32:51

from households to end users elsewhere,

32:53

whether it's local governments or businesses or what have you. That

32:56

actually is a kind of a similarity there

32:58

in terms of how that played out. Then the

33:00

thing is, you make these investments. In

33:03

either case, those investments are going to be worthwhile

33:06

if you actually have some end consumption down the line

33:08

to justify it. In both cases,

33:10

you have a situation where

33:11

the system that was so

33:13

good at financing and encouraging that investment

33:16

perversely made that it more

33:18

challenging for those investments to end up turning out to be

33:21

worthwhile because you didn't have

33:23

the consumer spending later on.

33:26

I think that's important. Well, so Japan never

33:28

really had financial oppression in that sense.

33:31

In China, everyone saves

33:33

their money in real estate. In Japan, everyone saved their

33:35

money in bonds, and that was mostly government bonds.

33:37

The

33:39

stock market was always fine.

33:41

It was never a joke, like in China,

33:43

it was always fine. The reason

33:46

people saved most of their money in bonds

33:48

had to do with the fact that Japan has a system where they

33:50

demolished real estate so it doesn't appreciate, so people put their

33:52

money in bonds instead,

33:54

mostly government bonds. It was never financial

33:56

oppression. The government never did anything to

33:58

make this happen. It was just sort

34:01

of the way things shook out, given

34:03

Japan's real estate policies, you couldn't save

34:06

your money in real estate.

34:07

Maybe I'm curious to your sense. My

34:09

understanding is that in prior

34:12

period, particularly when Japan was going relatively rapidly,

34:14

that the interest rates that you'd get

34:16

on a bank deposit, which was a relatively popular

34:19

form of saving

34:20

for households, were

34:22

unusually low. That

34:24

also led to ... That created a wedge

34:27

so that banks could lend relatively

34:29

low interest rates relative to growth

34:32

rates. I'm talking about pre- ...

34:34

That's correct. That's right, but it wasn't because

34:36

the government made you save in a bank.

34:39

It was because the government

34:42

would knock down your house every 20

34:44

years and build a new house in its place

34:47

to improve earthquake safety technology,

34:50

and also possibly to give money to construction companies.

34:53

The point is that real

34:55

estate was always a consumer durable, more

34:57

like a car in Japan. The

34:59

stock market has always been a relatively small

35:02

piece of savings for anyone, and the stock

35:04

market was fine in Japan. They had a stock

35:06

bubble too at the same time. The

35:09

reason Japan had a real estate and land bubble

35:11

was because of

35:14

the corporate stuff that we talked about before,

35:16

they never ... The

35:19

bank deposits were, or

35:22

let's say bond rates in general, just

35:24

anything with a fixed interest rate,

35:26

had low interest rates primarily

35:29

because

35:30

you couldn't save your money in real estate,

35:32

so everyone piled into bonds. Bonds

35:34

didn't have to raise interest rates to attract

35:37

capital, to attract savings. It was

35:39

much more the natural outcome

35:42

of a place that builds a lot of housing.

35:45

If you have massive expansion of housing

35:47

supply such

35:50

that you can't save your money in real estate, people will go

35:52

save their money in bonds, which drives down interest rates.

35:54

That's really what happened with Japan, but there

35:58

was also some other stuff.

35:59

like home bias, like people that

36:02

the famous carry trade wasn't really nearly as big

36:04

as people think, and so people wouldn't like save their

36:06

money overseas, and actually then they started

36:08

to, which resulted in some weird stuff in the 80s. But let's

36:11

not get too stuck on Japan. Let's go

36:13

back to the question of China.

36:16

China fits this story

36:18

pretty well with the financial repression.

36:21

They really pushed people

36:24

toward real estate by making you get a crappy

36:26

return on bonds. They

36:27

were like, you're not going to get a good return on your bonds on your bank

36:29

account, so where are you going to put your money? And the

36:32

stock market is a joke. So where are you going to put your money? Real

36:35

estate. And so China did that,

36:37

whereas

36:39

Japan almost did the opposite in that it was like,

36:41

well, you're not going to be able to save money in

36:43

your real estate because we're going to knock it down every 20

36:45

years.

36:46

So in China, people

36:48

were forced into saving in real estate, and

36:50

they saved all their money in real estate. Whereas

36:53

in Japan, people

36:54

couldn't save their money in real estate, so they saved all

36:56

their money in bonds.

36:58

I would just add one more thing about China's relevant

37:00

here, which is that the way local governments' finance

37:02

operations is very much by taking land

37:05

and seizing land in various ways and selling

37:07

it to developers. That's a large

37:10

chunk of their operating revenues

37:12

historically. And so that also creates a big incentive

37:14

for creating this real estate. And of

37:16

course, they're not very squeaky. Local governments

37:19

are generally in China what provide

37:21

most public services. There are people who

37:23

pay for most of the infrastructure investment, and

37:26

they're getting very squeezed by the situation

37:29

here with real estate. So the linkage there

37:31

is very important in explaining

37:35

how they ended up in this situation

37:38

as well. For

37:40

several decades, they've had a very strong incentive for

37:43

boosting the real estate industry for their

37:45

own, essentially, fiscal policy. Real

37:48

estate just did so much for the Chinese economy.

37:50

It was the main way everybody saved their money.

37:52

It was the way that local governments financed

37:55

everything. And it was the

37:57

way that the central government did fiscal stimulus

37:59

whenever there was a threat to the economy. They're basically,

38:02

and it was like the source of jobs and employment

38:04

for everybody, but basically there were

38:06

three weird ways in which real estate was special

38:09

to the Chinese economy in ways that it wasn't special to

38:11

other economies necessarily. And those things

38:13

all combined, and that's why I always tell everyone real

38:15

estate is what, real estate is not the only

38:17

threat. It's

38:18

not the only thing that slowed China's growth. It's

38:20

not the only threat facing China now, but

38:23

it is the reason for this slowdown. This is a real

38:25

estate driven slowdown. Would you

38:27

agree with that?

38:28

Yeah, I think if we're looking at what's happened immediately

38:31

in the past few years, there's a poll, yeah, basically

38:33

starting in 2021, the Chinese government said

38:35

we're gonna crack down real estate, and then they have, and that's

38:37

led to a lot of other things. So in that sense, yes. I

38:39

think also though, zooming out

38:42

why real estate is so important to the Chinese

38:44

economy is reflective, it's essentially

38:46

a symptom of these sort of other issues that

38:48

we're talking about in terms of if you don't have

38:51

a consumer sector, if you don't have, you know,

38:53

you have to have, there are only so many ways to generate GDP

38:56

growth, which is the target and employ people. So if you kind of

38:58

rule a lot of those other ones out, you're left with

39:00

this.

39:01

So I think that's like the other sort

39:03

of deeper reason for why they're in this situation. But yeah,

39:05

if we're looking at just like what the past couple years, and yes, I mean

39:07

you can just very see it. And I would say arguably since 2008, this

39:09

has been building

39:13

since 2008.

39:15

So there's a policy even longer.

39:17

Let's turn to industrial policy now. So

39:20

I've done a lot of other shows on China talk about sort

39:22

of what have been the reasons that

39:25

the Chinese electric vehicle and semiconductor

39:27

industry have been so successful. I'm curious,

39:29

you know, for your perspective on like, to

39:32

what extent this is something that

39:34

Western policymakers should be

39:37

stressed out about. And

39:41

you know, how, you know, like,

39:43

if is it, you know, from your perspective

39:47

is like a world beating Chinese

39:49

electric vehicle industry or a world beating,

39:52

you know, leading edge fab

39:54

capability in China, something

39:56

that the US needs to stop not just

39:58

for you know, sort

40:01

of amorphous military reasons,

40:03

which is what BIS says when they do the semi-character

40:06

export controls, but also from a sort of like long-term,

40:09

I don't know, like economic sort

40:12

of growth trajectory perspective.

40:17

I don't think we need to be worried from that. When thinking about this sort

40:19

of like relative balance of economic

40:22

weight into the medium term.

40:25

I don't think we need to be worried about the long-term, economic

40:29

industrial competitiveness piece of this at

40:31

all.

40:31

I think that people are going to worry

40:33

a lot about that, especially in Europe. I

40:36

think that there is a gigantic

40:38

freak out in Europe about Chinese

40:41

electric vehicles out-competing, Volkswagen

40:43

out-competing the German car industry.

40:45

That's a thing that's going to happen because,

40:48

but I think that

40:50

in terms of cars,

40:52

ultimately the world tends toward an

40:54

equilibrium where most cars are made where they

40:56

are sold, because cars are very heavy relative

40:58

to the amount of price they command. The

41:01

amount of economic value that you ship

41:04

in a car per kilogram

41:06

of weight is much, much, much, much

41:08

lower than for say processors,

41:11

right? A processor can

41:14

give you, a little box of processors

41:16

can give you more economic value than a car, and it's something

41:18

like this, whereas a car, I can't lift, right? And

41:20

so it should work out more. But

41:22

then, but a

41:25

car is, is

41:28

heavy,

41:29

and a battery is very heavy, and

41:31

ultimately it will not, and

41:33

most cars are made where they are sold.

41:36

And we look at these graphs of China's exports

41:39

dominating the world, but we don't, but

41:41

then you look at exports as a percent of total consumption,

41:43

and it's not that big. And so ultimately

41:46

it will take only a small amount of Germany

41:49

supporting Volkswagen and Volkswagen making some management

41:51

changes, and whatever they need to do, it's going to take

41:53

only a little bit of that to take the car

41:55

industry back from China, because

41:58

if you look at the history of America, Japan, you

42:01

know, in the 80s people were freaking out, oh my god, everyone drives

42:03

a Japanese car, blah blah blah. Fast forward just

42:05

a couple years and Japanese cars are the most

42:07

American of any car. Like

42:10

Toyota and Honda and Nissan have more

42:12

American made stuff in them than

42:14

GM and Ford by quite a bit

42:17

because most cars are heavy

42:19

and most cars are made where they are sold

42:22

no matter who owns the IP and like, you know,

42:24

puts their brand on it. And

42:27

so in terms of like having a car industry

42:30

it's ultimately more about like branding and IP

42:32

than about where the cars are actually made. They're going to be

42:34

made close to where they're sold. The semiconductor

42:36

industry is a very different animal because semiconductors

42:39

are very light, very easy to ship, very easy to

42:41

supply chain, tons of value

42:43

in that little box of processors. And so that

42:45

I think semiconductor industry is

42:47

the industry where and they're also much

42:50

more I think militarily relevant at this point

42:54

although maybe Matt will correct me. But I

42:56

think that semiconductors are going to be the main sort

42:59

of arena for competition between, you

43:01

know, overall with the car thing

43:03

being like a little bit of sideshow with like Europe

43:06

worrying about too many

43:07

electric car imports.

43:09

Yeah on cars I think one thing that's also worth

43:11

noting is that at least as

43:13

of now the growth in Chinese

43:16

car exports is entirely

43:18

been a function of the fact that Chinese production

43:20

of cars has been flat

43:23

over the past two years and Chinese domestic

43:25

demand for cars has gone down. It's

43:28

not actually a situation where

43:30

cars. It's not like they've suddenly

43:32

increased their total production of motor vehicles.

43:35

I mean maybe that will change in the years ahead I don't

43:37

know but like as of you know July August

43:39

of this year that's that's what the numbers are showing. And

43:41

so that's also some perspective here in terms

43:43

of you know how this is playing out right

43:46

if you just you built all this capacity

43:48

to make cars you can sell them a lot more

43:50

cheaply because you know your labor costs are lower etc.

43:53

And then you just squeeze your domestic

43:55

market you have an x-ray okay fine we'll send them abroad

43:57

but why not right I mean like that's going to be super cheap.

44:00

At the price point, like a BYD electric

44:04

vehicle is like what, like 10 grand or something, I think, right?

44:06

If you can... I mean, that's obviously going to just

44:08

outcompete a Volkswagen no matter, in any circumstance, right?

44:11

So it doesn't take a lot. I mean, most of those exports are not going

44:14

to Europe. They're basically none of them are going to the

44:16

US. They're going to third markets. But still, like,

44:18

I mean, that's sort of the thing there. I mean,

44:20

historically, the military application of

44:22

having a car industry is that you could have

44:24

those factories make tanks. I don't know how relevant or

44:27

helpful that's going to be going forward or that

44:29

how much people should think about that as a point of concern.

44:31

I don't know. But like, if we're thinking about like the

44:34

growth of the Chinese auto industry, I mean, it's been

44:36

growing for a while. But essentially, if you look at the production

44:38

numbers, it's been sort of flat since 2018. So

44:40

I mean,

44:42

and quite frankly, like, we

44:44

need globally more electric vehicle

44:46

manufacturing capacity because if you want to turn over

44:49

the existing fleet of motor vehicles globally

44:51

from what it is now, which is overwhelmingly

44:53

internal combustion engine towards mostly

44:55

battery electric vehicles, you're going to need to have way more

44:58

production than we

44:59

have now. Most new production as a share

45:01

of the existing fleet is pretty small, right? Just

45:03

for anything. So if you want to turn over the whole fleet like this. So the

45:05

fact that

45:06

you're having more production is not so bad. I mean,

45:08

I think it's

45:09

if you're a policymaker in a country that's

45:11

not China, you want to make sure that

45:13

you maintain your own domestic production because there's good

45:15

things for that. But I mean, the fact that China

45:17

is producing more is not inherently a problem. I mean,

45:19

I also don't think it's inherently a problem that, you

45:22

know, China is producing or maybe

45:24

producing, you know,

45:26

functional, you know, commercial aviation.

45:29

I mean, you know, the idea that you have a Boeing

45:31

Airbus duopoly, it's not obvious

45:33

why that's inherently good for the world. I mean, I think it's

45:35

good for, you know, the US to have

45:38

the ability to manufacture airplanes and

45:40

have that supply chain and everything in the US. But I

45:42

also don't think that there's any reason why you would want to

45:44

have less production in total or less competition.

45:47

So I think that we can have this from a positive

45:49

view of this. And if it takes industrial

45:52

policy and China's part to get there or

45:54

for that matter our part to prevent that, you know,

45:56

the destruction of what currently exists,

45:59

then that's fine.

45:59

look at semis too. The

46:01

semiconductor industry is

46:04

perhaps more than any other industry, one that wherever

46:07

it exists requires extreme levels

46:09

of government subsidies. People say, oh, there's

46:11

comparative advantage of building semis in Taiwan. It's like, okay,

46:13

well, Taiwan is basically a

46:15

jungle island with no industry whatsoever 100 years

46:17

ago. I don't know why we talked about comparative advantage of

46:19

building the most high tech components ever. They

46:21

just made a lot of effort to make it happen. You change your comparative

46:23

advantage.

46:24

You can see that in all sorts of things.

46:27

If you want to have a semiconductor

46:29

industry in your country, for some reason,

46:32

apparently, it requires lots of subsidies. Dirty

46:34

little secret. Half the time when people claim a comparative

46:36

advantage underneath it is a racial stereotype.

46:41

Yeah, maybe. There's a full quote. There's

46:43

a full quote. I'm just downstream of government policy

46:46

from 150 years ago, I think is

46:48

the ... Well, I mean, in reality,

46:50

government policy matters a lot, but in people's

46:52

minds, Taiwanese people,

46:55

and by extension, Chinese people

46:57

are able to comprehend how semiconductors work in a

46:59

way that just dumb

47:00

people in Arizona are not.

47:02

For some reason, I guess they think Japanese people aren't.

47:05

But it's dumb that people think this

47:07

way. People think like, oh yeah, those

47:09

Taiwanese are just really, really good at chips.

47:13

Yes, but it's a learned skill.

47:16

The reason the incentive for learning was there was because

47:18

of government policy. It's not like Taiwanese people

47:20

are born knowing how to do

47:22

semiconductor engineering. Talk

47:25

about 2024. I don't think I've talked about

47:28

it.

47:28

That's next year. Is

47:31

it though? Holy shit. That's

47:33

next year, 2024. I mean, or if you want to be,

47:37

it's two and a half months, right? It's almost upon us. I can remember

47:39

in 2024 was Cyberpunk future.

47:44

And you know what? Honestly, the present

47:46

feels like that Cyberpunk future that I imagined

47:49

for 2024 when I was like a kid in the 90s. With

47:52

geriatric presidents, I'm ruling

47:54

over a solve. Blade

47:57

Runner was set in 2019, right? I mean, wasn't that ... Yeah.

48:00

So it's on fire, you know like

48:03

how much does a

48:06

Trump

48:06

Presidency change any

48:09

of the sort of like relative

48:12

national power global influence Economic

48:15

growth trend lines that we've been talking about

48:17

for the past 45 minutes.

48:18

Matt you take that. Uh-huh

48:20

I feel like that's a noah question.

48:23

Yeah. Oh, that's an that's a me question Oh,

48:25

I'm more like what do you write about? So I guess I

48:27

mean The

48:30

answer is who knows because Trump is a chaos agent

48:32

who knows what it'll do

48:34

We don't know that then a next Trump presidency would

48:36

be like the last Trump presidency what we saw

48:38

in the last Trump presidency was Essentially

48:41

two things Trump would start culture war fights and

48:43

Trump would

48:44

vaguely direct economic policy in the direction

48:46

of things that like people yelled about in

48:48

the early 90s when Trump was at his peak of

48:50

you

48:51

know, wealth and influence and

48:52

And so Trump was very much stuck

48:55

in the early 90s. So Trump tried to start a trade war with Japan

48:58

Like you know, so

49:00

Which hasn't been a competitive

49:03

threat for like that Like Trump is

49:05

dumb and and so he took all these things that he

49:07

saw in the early 90s and he he got Robert

49:09

Leithizer To go, you know make some tariffs and

49:11

like yell at some of these countries And so and

49:14

and then in the background we had the security

49:16

state building the foundation for the Biden policies

49:19

Which we so for export controls that

49:22

that was come up. It was the security state that came

49:24

up with that, you know Especially

49:27

deemed exports that's like that's actually the big one

49:29

that we never talked about and And

49:32

it was or or Sipius investment restrictions.

49:34

That was all the security state

49:36

that came up with that

49:38

So while Trump was like reeling into the deep state or

49:40

whatever that it was the security services that were actually

49:42

making China policy or at least the parts

49:44

of it that would really endure and have an impact

49:48

And the military, you know, the military was was thinking

49:50

about this They were very much thinking about the balance

49:52

of technology between the United States and China And

49:54

so we could see that again also the military

49:56

ran Operation Warp Speed, which is why it worked but

49:59

We could see that again.

50:02

Or we could see Trump

50:04

being completely controlled by

50:07

foreign, you know, by like the, the,

50:09

the access powers here, Russia and China. And

50:11

we could see, you know,

50:14

Trump basically intentionally trying to sabotage

50:16

any attempts to compete with China. Uh,

50:19

you know, or, or, you know, sabotage, like remove

50:22

export controls, blah, blah, blah. Claiming he'd made

50:24

a deal with Xi Jinping or like, you know,

50:26

just some, whatever bullshit because someone

50:28

is slipping him this idea from within his administration

50:31

and you know, he's, he's a geriatric president as

50:33

well. So he's, you know, going to be let

50:35

probably weaker, I would say, uh, in

50:38

a second term and more susceptible

50:40

to people like whispering in his ear, like ideas

50:42

to do, he was somewhat susceptible to that

50:44

his first time, but more this time. Um,

50:46

so my guess would be that some,

50:49

that, that China and Russia are going to get their guys in

50:51

there and have him drop export controls and have him basically

50:53

drop attempts to economically or to,

50:56

to militarily slash economically

50:58

compete with China, um, despite

51:01

the fact that he ran on like an aggressive anti-China

51:03

platform in 2016, I think he'll pivot.

51:06

I think that, uh, guys will whisper

51:08

in his ear to like drop all this stuff. That's

51:11

my guess, but who knows he's a chaos agent.

51:13

So it's fundamentally an unknown quantity. It's, it's, you

51:15

know, sort of a role that I.

51:17

Yeah. I would say based on what we saw from the last

51:20

time that he was in office and

51:22

what he said in the past few years, I mean,

51:24

one thing that I think is interesting is that on China,

51:27

despite rhetoric that was very

51:30

hostile, he did repeatedly say he was

51:32

friends with Xi Jinping. He mostly blamed his

51:34

predecessors rather than anything the Chinese government had done.

51:37

Um, he was made, it went out of his way to basically

51:40

give China carte blanche to do what

51:42

the Chinese government wanted to do in Tibet and Hong

51:44

Kong and, and in, uh, the Uyghur,

51:47

um, parts of the country. So

51:49

the idea that Trump is tough on China

51:52

is, you know, that people sort

51:54

of falling, falling for a certain set of rhetoric rather

51:56

than actual policy, um, things

51:59

that occurred. And so. I would be sort of wary

52:01

of that. I

52:04

think on a very different way, but also

52:06

relevant is that, oh, yeah.

52:08

Well, let's just stay on that for a second because I think personnel

52:10

is going to be really interesting and

52:13

weird in a Trump 2024

52:16

because I have no idea

52:19

who is left, who is going to take

52:21

the Assistant Secretary of State for East

52:23

Asia or National Security Advisor,

52:26

Secretary of Defense. I mean, you know, Matt Pottinger,

52:28

right? Like he quit on

52:30

January 7th. And

52:33

you can get him on the show, by the way. It

52:36

works. So

52:40

it's a weird dynamic where

52:44

I think Noah,

52:46

the sort of like authoritarian

52:49

curious thing, was

52:52

obviously very aggressively

52:56

resisted by the deep state. But

52:58

if he decides to fire the entire

53:01

federal government and the folks he hires

53:03

to lead these shelled out agencies

53:05

are just like, I don't know,

53:08

wing nuts. It's

53:11

really uncertain. You

53:14

could bring in folks who want to start World War III with China. You

53:16

could bring in folks who couldn't

53:19

care less about anything

53:21

revolving like America's role

53:24

in East Asia. So it's a

53:26

very open, I think, for me, exactly how

53:28

this might go. The other thing I think that relates

53:30

to this, and it looks like it's the other side of the world,

53:32

but to the extent that I think presumably

53:36

not just Trump, but probably many of the Republicans

53:38

are currently running would be relatively

53:41

pro-Russian and want

53:43

to pull back any kind of support there.

53:45

I mean, you've figured that one of the main foreign

53:48

policy accomplishments of the Biden administration has been

53:50

getting Europe and the US, the

53:52

G7 extended basically all on the same

53:55

page. That would be undone

53:58

probably, and that would have a lot of consequences. differences

54:01

for a lot of things, including for the US relationship

54:03

with China. And more important is the US ability

54:06

to, and the ability of the democracies in

54:08

general to actually project

54:10

power. Because you talk about

54:12

the US being relatively declined to global

54:14

GDP or whatever. If you think about the US

54:17

as the leader, the

54:20

first among equals of a large coalition of like-minded

54:23

countries,

54:24

that

54:24

group as a whole is overwhelmingly

54:27

powerful compared to any other potential

54:29

grouping in the rest of the world. But that only works if all

54:31

those countries are basically willing to coordinate and be

54:33

on the same page. But if you don't have

54:35

that, which seems like a highly likely possibility,

54:38

then you open up a lot of potential

54:41

problems. And that is, I think, another

54:43

thing to be concerned about above and beyond all the points

54:45

that you know, Noah mentioned.

54:48

Noah, like how do you do what you do?

54:53

I don't know, man. Sorry, I'll be more specific. So

54:55

Noah, like, you know, Matt and I,

54:57

like, I write like one thing a week. Matt

54:59

writes like, you know, one and a half things a week. You're

55:03

cranking out like very high quality content,

55:05

not all of which I agree with, but like, like

55:07

very cogent takes and explainers,

55:09

you know, three,

55:12

four, sometimes five times a week, if you're like really

55:14

going at it. Like, talk

55:16

me through your process methodology.

55:18

Like, how can how can the rest of the world learn from

55:21

the the Noah Smith production function

55:23

when it comes to explaining things about

55:26

Asia and the economy and US politics and

55:28

God knows whatever else you write about and

55:30

his urban design? I

55:32

don't I don't make my own graph. And

55:35

Matt makes his own graphs. So basically

55:38

that, you know, that takes a whole lot of time. But

55:40

but I will say Matt's graphs are amazing.

55:42

And and you should definitely read

55:44

his blog,

55:45

even just for the graph, you know, it's great

55:48

in general and you should read it. The

55:51

answer is that I don't

55:52

know if you just don't have anything

55:54

else to do with your time, then maybe you spend

55:57

all your time just reading about various, you

55:59

know, I'm

55:59

million different topics and then get a topic

56:04

and so I think a lot of it is the fact that you know I

56:06

just I don't have kids I don't

56:08

have anything else to do and so

56:10

I'm just like reading this stuff kind of obsessively

56:13

all day

56:14

but also I would

56:16

say that the

56:18

key to writing a lot is to get annoyed

56:20

a lot and to just be like okay this

56:23

is wrong this needs correcting this is wrong it's that

56:25

old comic of someone has said something wrong

56:27

on the internet that is my entire reason

56:29

for existence like that's why I do what I do it's not

56:31

for money it's not for love it's not to like

56:33

help the world roll a lot it's because someone has said

56:35

something wrong and they must be corrected now I'm

56:38

half joking but that is like will it

56:40

a desire to

56:43

think by engaging with other points

56:45

of view is an important part of the motivation

56:47

and I feel like you know that opens

56:50

you up to being comfortable

56:53

I don't know I feel like Madden are

56:56

like Matt the threshold that Matt and I

56:58

have for like having an opinion on something

57:00

and like the degree of I don't know I don't

57:03

think degree of confidence yeah like maybe

57:05

you're just like more confident and comfortable

57:07

having takes on stuff but I feel like I really need

57:09

to like build myself up and like like I

57:12

like myself to be like I'm gonna have an opinion and

57:14

put it online but this must be just innate

57:16

or can I like grow this in myself

57:18

like is there a cultivation routine

57:20

that I should you know engage in to

57:23

like be more comfortable like having cakes

57:25

on things

57:26

well though so the joke which is

57:28

also the joke of the name of my blog no

57:30

opinion is that the vast

57:32

majority of things I just don't have

57:34

an opinion about and the thing is

57:36

that any anything that exists

57:38

that I have an opinion on you will have read my opinion

57:41

on because I write

57:43

about so many different topics right so

57:45

I have so so any opinion that

57:47

I have you will know I on all the

57:49

other stuff I don't write about it's not like I have some secret

57:51

opinion that I'm concealing I just you know

57:54

I just didn't have an opinion so so I write a hundred

57:56

percent of the opinions I have and then just

57:58

don't have opinions on most of the stuff And

58:00

then you know so like the key

58:02

is as soon as you have an opinion like write

58:05

it and write why you had it and I think

58:07

that You know not to segue too much, but

58:09

I think that takes care of the epistemic competence Idea

58:12

too and some bloggers try to say epistemic

58:14

confidence low epistemic confidence high You

58:17

know no one understands what that even means

58:19

much less believe that that's your actual level of epistemic

58:21

competence, right? Instead

58:23

so like Scott Alexander no one no one

58:26

you know It's a noble effort, but no one trusts

58:28

it and so instead what you have to

58:30

do is lead people through your thought process

58:33

Show them how you arrived at

58:35

your opinion that you have in your writing

58:37

And then they'll know when you're just going out on

58:39

a limb and tossing something out versus when there's

58:42

something you know a lot About because when there's something

58:44

you know a lot about you'll show them that you

58:46

know a lot about it Because you go through this

58:48

process of showing them how you arrive at this

58:50

opinion. That's my style of writing It's

58:53

like a it's like I'm it's a it's

58:55

an extended stream of consciousness style where I'm just telling

58:57

you like

58:58

you know I decided that that

59:00

the the new Huawei phone Didn't

59:03

doesn't mean that export controls are a failure and here's

59:05

how I got to that decision And then I just sort of

59:07

lay it out That's what I do in today's post

59:09

if you want to check that out But um but

59:12

then all my most of my posts are basically

59:14

like that And I think that that means that

59:16

I'm very efficient with the opinions. I do have

59:20

Um

59:21

that was that was cold

59:24

No, I don't

59:27

know I just like I

59:29

Don't know I feel like I have to I have to I There's

59:31

something in my writing where I feel like I have to hide that

59:34

and I have to be like oh no I mean me though my

59:36

perception of you is like that you're you're

59:38

just like The

59:40

but I think what I do is like a lot

59:42

of a lot of what I do is like I do like Or

59:45

I do like summaries of other things it's

59:47

like it's less like Jordan Schneider's view

59:49

of the situation

59:55

When I read you saying translating those

59:57

things are reporting those things I see

59:59

it

59:59

as Jordan Schneider's view, even if you don't see

1:00:02

it that way. So here I am

1:00:04

thinking that you're tossing out a million opinions a second,

1:00:06

and you don't think you've tossed out an opinion at all, you just think

1:00:08

you shared a link. I'm like, oh, Jordan Schneider

1:00:11

says this is right. You can choose Jordan Schneider

1:00:13

with a chairman rabbit, that's interesting. I

1:00:16

never eat chairman rabbit, it's too high, too high output,

1:00:20

but I approve of the rabbit. The rabbit is good.

1:00:22

But no, Jordan, everyone else thinks that you

1:00:24

are an opinion machine. They

1:00:27

already think you're doing it. Okay,

1:00:29

all right, well, I guess I'll keep going

1:00:32

on my merry way then. Yeah, you're

1:00:34

already doing it. I mean, like,

1:00:36

you know, your stuff sounds more

1:00:38

opinionated than Bill

1:00:40

Bishop.

1:00:41

You know, the very famous

1:00:43

well-known China pundit puts out a huge amount of

1:00:45

output. He feels like someone who's just

1:00:48

like

1:00:48

reporting the news,

1:00:50

whereas you feel somewhat

1:00:52

reporting the news, but a little more toward the opinion side

1:00:55

than him. So I'd say you're

1:00:57

already doing what I do. I wouldn't

1:00:59

necessarily ask how I do it because you do it. Okay.

1:01:02

Okay. Yeah. All

1:01:05

right. Anyway,

1:01:06

I think we'll call it there. Noah,

1:01:08

do you have a song to take us out on reflecting

1:01:11

your work

1:01:13

process?

1:01:15

Or the future of the Chinese economy?

1:01:18

The future of the Chinese economy? Or a Trump 20-thorn?

1:01:21

Or a second Trump term? What

1:01:23

do you think your pick for inspiration?

1:01:26

It's the end of the world

1:01:29

as we know it. I swear to

1:01:31

God, literally half of the guests I ask,

1:01:33

that's the song that they give me, which I think is

1:01:36

like, does that have to be the China talk theme?

1:01:38

It's too depressing. No, I can't,

1:01:40

because I can't sing the who's wolf totem

1:01:42

because I can't sing in Mongolian. That's the real

1:01:44

one. All right. That's

1:01:46

the song. Wolf totem by the who. Like, basically,

1:01:49

rough translation,

1:01:51

we're going to fuck you up.

1:01:59

I'm trying to talk. I'm

1:02:30

trying to talk.

1:03:00

I'm trying to talk. I'm

1:03:30

trying to talk. I

1:04:00

am the one who has the

1:04:02

most... ...the one who has the most...

1:04:06

...the one who has the most... ...the

1:05:00

one who has the most...

1:05:03

...the one who has the most... ...the

1:05:30

one who has the most... ...the one

1:05:32

who has the most... ...the one

1:05:34

who has the most... ...the one who has

1:05:36

the Hangover... ...the one who has

1:05:38

the most... ...the

1:05:40

one who has the best... ... eagle in the neck...

1:05:44

...gorilla, nigga, nigga, nigga, nigga, nigga... ...eghow .

1:05:48

...say I'm my lover? I'm

1:05:50

the one who

1:05:51

is the one who holds the worst... ...the

1:05:53

only man who raises the last... ...of all

1:05:55

but you and me to him... ...he significant portion

1:05:57

of all of you. The

1:06:04

the the

1:06:14

the the

1:06:20

the the

1:06:28

the the

1:06:36

the the

1:06:44

the the

1:06:56

the the the

1:07:03

the the

1:07:09

the the

1:07:18

the the

1:07:24

the the

1:07:32

the the

1:07:40

the the

1:07:49

the the the the

1:07:54

the the the

1:07:59

the the the