The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

We’re #1, We’re #1 . . . Today!

09/16/2010

Last month, China passed Japan to become the world’s second largest economy. At current rates, it should bypass the U.S. in 2020, which is a mere ten years away. It may do so, but it is interesting that they are not learning from our mistakes. Already, they are allowing retirement for women at age 50 and men at age 55, along with a comparable Medicare plan. Just ask Greece how that worked out for them!

There is a difference between a budget deficit and a structural deficit. A budget deficit looks at one year. A structural deficit looks at much longer time periods. For example, we all know that Medicare, Medicaid, and other health care costs are ballooning out of control, with or without Obamacare. Politicians talk about the budget deficit but simply resort to partisan name-calling on the structural deficit.

As we all know, China is running enormous annual surpluses, but I would love to see some numbers on their swelling structural deficit. To make their problem even worse, the U.S. permitted a huge social safety-net partly out of mere humanitarian interests, and because we could afford it at that. China has a far different problem. They face a much greater risk of social instability than the U.S. and politicians may be forced to pander even more to the disaffected.

At this point, I don’t see any scenario that will prevent China from over-taking us, but I am confident they won’t be #1 forever.

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