The Chinese economy: to infinity and beyond?

Robert Fogel, another of those darn pesky Economics Nobel Prize winners, has a new article out claiming that China's GDP will be $123 TRILLION by the year 2040. For reference, China's GDP is now $8 trillion, and the U.S.'s is $14 trillion. Fogel's prediction is based on the assumption that China will sustain growth of 10.8% between now and 2040.

A couple points I'd like to make about this prediction:

1. If Fogel is right, then by 2040 the average Chinese person will be about 1.5 times as rich as the average American, assuming that the U.S. hits its "trend" growth of 3% over that time period.

2. If we extend the assumption of 10.8% growth out to 2100, then by the turn of the next century, China's economy will produce $58 QUADRILLION in output (that's $58,000,000,000,000,000). Keep in mind, this is after adjusting for inflation.

This does not seem impossible to me. For example, we might invent self-bootstrapping AI or total personality upload, creating a technological singularity that turns humans into gods.

Short of that, though, there seem to be some important reasons why Fogel's analysis falls short.

Let's start with Implication #1. For China to be that much richer than an economically successful U.S., two things have to happen: A) the human race has to invent new technologies at a much faster rate over the next 30 years than we have at any time in history, and B) China must be a lot better than the U.S. at adopting those new technologies. This would be unprecedented in history. Sure, per-capita income gaps exist between developed countries - people in Europe or Japan are only about 85% as rich as people in the U.S. But a gap of 50% would be something the world has never seen.

And that's not even taking into account the sheer size of China. If growth continues at the rate Fogel predicts, the average Chinese person in 2040 will have 3 times as much stuff as the average American does today. Consider all the stuff Americans have - cars, houses, TVs, computers, MRI scans on demand - and consider how much energy, how much water, and how much land all that stuff uses. Of course, by 2040 most of our new inventions may be very low-power stuff - IT, biotech, or even virtual stuff - that uses a lot fewer resources than stuff does in 2010. It may be that the uber-rich Chinese of 2040 may have a whole lot of this low-resource stuff, and comparatively less of the wasteful stuff Americans have now.

So suppose Chinese people in 2040 are four and a half times as energy-efficient as modern Americans (an absurd assumption if they have houses and cars). China has four and a half times America's population. If this ridiculously optimistic assumption holds true, China in 2040 will consume three times as much resources in 2040 that America consumes in 2010. If resource consumption in the rest of the world stays flat from now til 2040, that would mean that total human resource use in 2040 would be 1.5 times what it is today.

So, like I said...a technological singularity could turn us all into gods. Or Robert Fogel, brilliant Nobel-winning economist, could be full of 屁话.

Now, Fogel has a bunch of arguments about China's hidden economic strengths, the mistakes made by its detractors, etc. But he'd do well to remember the model made by another Nobel-winning economist named "Robert" - the Solow growth model, which forms the backbone of all modern growth theory. The Solow model says that poor countries can grow very quickly by saving a lot of their income and using those savings to finance accumulation of capital (i.e. stuff that earns income). But capital is subject to the law of diminishing returns - build too many buildings and cars and industrial machines, and pretty soon you run out of people to operate them. And all that capital costs money to maintain, so pretty soon you're shelling out ever more money for ever smaller gains in output. At that point, growth must slow down. This is why Japan, which used to grow at 10%, now grows at 1%; rich countries simply cannot maintain high rates of growth.

Fogel assumes away the Solow model. He assumes that even after China is a rich country - not just rich, but the richest on the planet by far - it can continue to grow at the astounding speed of a poor country. Apparently he thinks all the other countries that ever got rich - Europe, the U.S., Japan, Korea, Taiwan - experienced growth slowdowns because of policy mistakes, not because of the natural constraints imposed by physical reality.

That's a bit of a silly position for him to take, but hey...he's got the Nobel, and I don't.