China(blog.samaltman.com)
blog.samaltman.com
China
http://blog.samaltman.com/china
304 comments
Should the goal of the US be to emulate happy, stable, wealthy, smaller economies but arguably more egalitarian northern European democracies?
Or rather, should we chase China in a race to the bottom? Lower corporate taxes, longer working hours, reduced environmental protections, with the goal of creating a fabulously wealthy klepto-capitalist ruling class? How dare people criticize kids burning the candle at both ends to make other people billions of dollars, China is beating us!
Or rather, should we chase China in a race to the bottom? Lower corporate taxes, longer working hours, reduced environmental protections, with the goal of creating a fabulously wealthy klepto-capitalist ruling class? How dare people criticize kids burning the candle at both ends to make other people billions of dollars, China is beating us!
> One thing that I’ve found puzzling over the last ten or so years is the anger directed towards people who choose to work hard
That feels somewhat disingenuous. If 'sama is referring to the sentiments expressed on this board, from what I've seen, it's not anger towards people choosing to work hard, but anger towards demands of hard work of others from those who stand to benefit at their expense.
Ie, the anger is towards VCs who talk glowingly of start-up founders working themselves to the bone and, in turn, towards start-up founders who talk glowingly of 0.01% equity-holding employees grinding out hour after overtime hour.
That feels somewhat disingenuous. If 'sama is referring to the sentiments expressed on this board, from what I've seen, it's not anger towards people choosing to work hard, but anger towards demands of hard work of others from those who stand to benefit at their expense.
Ie, the anger is towards VCs who talk glowingly of start-up founders working themselves to the bone and, in turn, towards start-up founders who talk glowingly of 0.01% equity-holding employees grinding out hour after overtime hour.
Why ignore the elephant in the room? The U.S. is more unequal than it has been since before WWII [1], and that is a big reason why its growth is stagnating.[2] It's time to stop taking seriously any analyses that do not address this.
[1] http://www.epi.org/publication/income-inequality-by-state-19...
[2] http://www.washingtonpost.com/business/economy/income-inequa...
[1] http://www.epi.org/publication/income-inequality-by-state-19...
[2] http://www.washingtonpost.com/business/economy/income-inequa...
I don't mean to eye-roll, but Sam on economics tends to be, well, meh. The thing I always remind people when they say that China will take over the world is that everyone said the same thing about Japan in the 1980s (remember the movie/novel Rising Sun?). What happened?
Well, the mercantilist economic toolkit has an endgame. Neither Sam nor I knows when it's going to let them down, but building an entire economy on cheap labor and radical amounts of investment is hard to sustain. Eventually you need things like domestic demand and that requires wages, which short-circuits the export machine. Japan got caught in that trap, and China will eventually too.
Well, the mercantilist economic toolkit has an endgame. Neither Sam nor I knows when it's going to let them down, but building an entire economy on cheap labor and radical amounts of investment is hard to sustain. Eventually you need things like domestic demand and that requires wages, which short-circuits the export machine. Japan got caught in that trap, and China will eventually too.
As a native Chinese (I'm tired to claim this every time when commenting on China related topics.), I think the op needs to do a lot more homework on China. It's not an easy task to know something you are not familiar with with just numbers, even if one has more than enough numbers.
The main fallacy in that article is that USA is important because innovation. The conservative solution proposed by the author is to go back to an hypothetical golden age "that encourages investment, welcomes immigrants, rewards risk-taking, hard work, and radical thinking, and minimizes impediments to doing new things", like the good old times before.
My question is: what are you talking about? The "social" America of the '50s and '60s? The America of the technological boom of the 90s?
America is even more innovative today than decades before. More risks are taken today than before (the crisis of 2008 is also proof of that).
Are you sure that lack of innovation is the problem? Do you think that china is getting bigger and bolder because more risk taking? LOL no. They are conservative and fatalistic and hierarchical as ever.
I think that the American disease should be explained in another way.
My question is: what are you talking about? The "social" America of the '50s and '60s? The America of the technological boom of the 90s?
America is even more innovative today than decades before. More risks are taken today than before (the crisis of 2008 is also proof of that).
Are you sure that lack of innovation is the problem? Do you think that china is getting bigger and bolder because more risk taking? LOL no. They are conservative and fatalistic and hierarchical as ever.
I think that the American disease should be explained in another way.
In other words, stop complaining about unsustainable work habits leading to physical and mental problems among founders, and let venture capitalists turn that hard work into (a) profit for them while (b) keeping you all safe from Chinese Dominance.
Mentioning China's lack of environmental regulations is just a red herring that distracts people from the real solution. Consider the following:
It's illegal for me to build a cruise missile in the US. Likewise, it's illegal for me to import a cruise missile into the US.
It's illegal for my startup to pollute when I produce a Gizmo in the US. However, it's totally legal for for me to import said Gizmo from China after I paid someone there to pollute for me.
Any sane environmental regulation must be applied at the point of sale as well. The problem here is our environmental regulation. We can't change what China does but we can change our broken laws.
It's illegal for me to build a cruise missile in the US. Likewise, it's illegal for me to import a cruise missile into the US.
It's illegal for my startup to pollute when I produce a Gizmo in the US. However, it's totally legal for for me to import said Gizmo from China after I paid someone there to pollute for me.
Any sane environmental regulation must be applied at the point of sale as well. The problem here is our environmental regulation. We can't change what China does but we can change our broken laws.
Two disparate observations:
1. US GDP per capita is still almost 8x that of China: $53,042 US vs. $6,807 China (http://data.worldbank.org/indicator/NY.GDP.PCAP.CD). While there are other ways to measure this (such as the PPP Sam cites), the magnitude of difference remains large. So even if China's economy in the aggregate is larger than the US's, the US is still much richer per capita.
2. As China grows richer, I expect the US will too. In modern inter-connected economies with few trade barriers growth in one generally benefits the other too. One example would be as one country's citizens gain greater purchasing power, they become bigger consumers of the other country's goods and services.
1. US GDP per capita is still almost 8x that of China: $53,042 US vs. $6,807 China (http://data.worldbank.org/indicator/NY.GDP.PCAP.CD). While there are other ways to measure this (such as the PPP Sam cites), the magnitude of difference remains large. So even if China's economy in the aggregate is larger than the US's, the US is still much richer per capita.
2. As China grows richer, I expect the US will too. In modern inter-connected economies with few trade barriers growth in one generally benefits the other too. One example would be as one country's citizens gain greater purchasing power, they become bigger consumers of the other country's goods and services.
It's difficult to explore this question without being accused of racism, but I'd like to better understand why some cultures are so much more economically successful than others. The Chinese are such a great example of this. Wherever they go, they seem to end up being very successful. For example, in the Philippines it's claimed that Chinese are 1% of the population, but control 60% of the economy (http://opinion.inquirer.net/31223/ethnic-chinese-dominate-ph...).
> The other stark contrast is how much harder people in China seem to work than people here, and how working hard is considered a good thing, not a bad thing.
It is a survival thing, not an inherently good thing. Those factory workers or university students aren't working 14 hour days because of the 'virtue of hard work'. They're doing it because they have to in order to stay alive in the continious stampede of progression that is China.
See how 'hard' most Chinese people work once they've got money. Most of the hard work of wealthy Chinese to conceal their wealth in western coutries.
It is a survival thing, not an inherently good thing. Those factory workers or university students aren't working 14 hour days because of the 'virtue of hard work'. They're doing it because they have to in order to stay alive in the continious stampede of progression that is China.
See how 'hard' most Chinese people work once they've got money. Most of the hard work of wealthy Chinese to conceal their wealth in western coutries.
The historical track record of the largest economy being
overtaken by another is not good. Sometimes it’s
violent. (For example, Germany and the UK in 1914.
As I understand it, the Kaiser's geopolitical motive was to avoid being dominated by the Dual Entente given Russia's growing strength. He expected GB to stay neutral given it was generally more friendly to Germany than Russia and was fairly isolated from European mainland issues given its interests in the colonies.
In any case, why compare UK GDP and not British Empire GDP which at that time would have dwarfed Germany?
What's interesting is that it's very common for wealthy Chinese to invest in / move their families and their money into the States. Just look at places like Seattle, where around one-third of all $1+ homes are purchased by foreign Chinese, and according to this NYT article, three-quarters of their purchases are all cash. *
* http://www.nytimes.com/2014/09/21/business/in-suburban-seatt...
* http://www.nytimes.com/2014/09/21/business/in-suburban-seatt...
After listening to a recent episode of Invisibilia, I've become somewhat convinced that one of the root ills of current American society is extremely low expectations.
Whenever I think of countries like China, I think of an entire population driven to be more excellent. I know that's not true in general (people are people everywhere), but I still feel there is a stronger expectation that, as a human, you will do more than just exist and consume junk food and mass media.
America feels sluggish to me... safe and dumb and comfortable but not content. It's like the feeling I get when I spend an entire weekend on the couch binge-watching Netflix.
Whenever I think of countries like China, I think of an entire population driven to be more excellent. I know that's not true in general (people are people everywhere), but I still feel there is a stronger expectation that, as a human, you will do more than just exist and consume junk food and mass media.
America feels sluggish to me... safe and dumb and comfortable but not content. It's like the feeling I get when I spend an entire weekend on the couch binge-watching Netflix.
I look forward to the day where nationalism is seen as an anachronism. I know this probably wasn't the primary message of this post and that YC has funded a number of non US startups but if you swap US and China in this post, I wonder what kind of reception it would get.
> We’ve had an environment that encourages investment, welcomes immigrants, rewards risk-taking, hard work [2], and radical thinking, and minimizes impediments to doing new things.
I think a major reason the middle class was able to live a fairly cushy lifestyle without doing much real work was some combination of:
- A massive supply of overseas slave labor, coupled with a complete lack of environmental regulations both domestically and abroad.
- Being able to tax people overseas by deflating the dollar.
- Heavy investment in infrastructure.
- A large population boom.
In other words about 20% sound policy, and 80% finding ways to steal money from other people and future generations. Since we're no longer investing in infrastructure or doing much in the way sound policy, and we're also losing our ability to steal money from others, I don't really see how the U.S. is going to sustain itself regardless of hard work, innovative thinking, immigration policies, etc.
I think a major reason the middle class was able to live a fairly cushy lifestyle without doing much real work was some combination of:
- A massive supply of overseas slave labor, coupled with a complete lack of environmental regulations both domestically and abroad.
- Being able to tax people overseas by deflating the dollar.
- Heavy investment in infrastructure.
- A large population boom.
In other words about 20% sound policy, and 80% finding ways to steal money from other people and future generations. Since we're no longer investing in infrastructure or doing much in the way sound policy, and we're also losing our ability to steal money from others, I don't really see how the U.S. is going to sustain itself regardless of hard work, innovative thinking, immigration policies, etc.
Speaking from personal experience, the atmosphere in the U.S. is a lot better than in China, in terms of the recognition of importance and respect to science and technology fields as well as scientists and engineers. I feel an implicit discrimination towards engineers in Chinese culture in the sense that "you are regarded successful if you hold a management position and live a (perceived) decent lifestyle, but not if you get your hands dirty, tinkering around stuff and being managed." when I worked in China. In Chinese college, the "elite majors" including cooperation and government management usually have the highest bar of admission.
This post isn't particularly well thought out or argued, but special mention must go to footnote [2] for being self serving nonsense. While those complainers do exist and are wrong about some aspects of the situation they are quite right to criticise the exploitative start up ecosystem.
A third of China's population are still farmers -- compared to the US's low single digits. It's per capita GDP is somewhere around Peru's and Iraq's. While this has been rapidly changing, it is yet to be seen how much of China's rapid growth the last couple of years is propped up by government malinvestment (ghost cities, etc.). We've seen high growth rates in many countries throughout history. The question is whether this is sustainable, and how much of the low-hanging fruit of growth China has already used up.
I lived in Shanghai and worked at a startup for a year after college. The startup expat and startup local communities are surprisingly developed.
There are a lot of co-working spaces, hacker spaces, and start up events. For anyone interested in China, you can live in Shanghai without speaking Mandarin.
Western training in programing, design and product is highly valued. Salary offerings are lower by a factor of 10. Regardless, its easy to live and identify alternative income sources.
I'd love to answer any questions for people interested in the Chinese startup space.
There are a lot of co-working spaces, hacker spaces, and start up events. For anyone interested in China, you can live in Shanghai without speaking Mandarin.
Western training in programing, design and product is highly valued. Salary offerings are lower by a factor of 10. Regardless, its easy to live and identify alternative income sources.
I'd love to answer any questions for people interested in the Chinese startup space.
I think idea of the RMB being a reserve currency is laughable. It's controlled by an authoritarian government whose only history with the currency is to manipulate it in their favor. And said government has repeatedly made it difficult for foreign companies to do business in the country. Why anyone would think that people would trust such a currency is beyond me.
One major point often overlooked in this discussion is, that nobody trusts the Chinese government. In foreign policy, China has to pay dearly for very little trust/support in return. Therefore I don't see the dollar getting dethroned any time soon.
I also don't believe that China is getting risk management right. Corruption in government and industry, extreme growth rates and untrackable webs of debts will sooner or later stop Chinese growth unless it transforms into a much more liberal or democratic form of government.
For China, it's still a long way to the top.
I also don't believe that China is getting risk management right. Corruption in government and industry, extreme growth rates and untrackable webs of debts will sooner or later stop Chinese growth unless it transforms into a much more liberal or democratic form of government.
For China, it's still a long way to the top.
He's Paul Krugman in (I think) 2003 discussing how people overstate the value of the dollar being the world reserve currency:
http://web.mit.edu/krugman/www/seignor.html
http://web.mit.edu/krugman/www/seignor.html
The US could easily remain the world's only superpower if it was ruthlessly focused on doing that. Actually it would have been easier 40-50 years ago. The opportunity is fading away.
Interestingly, the US often behaves as if it wants to control the world. So either this is a misperception, and the leaders of the US don't want to control the world (and they're spectacularly bad at public relations), or they're spectacularly bad at implementing their plan.
With all the advantages the US enjoyed last century it would have been possible. Maybe actual control of the world territorially is unnecessary, and some group is content to control the world financially. Or maybe the people implementing whatever plan have some perspective that make whatever they're doing make sense to them.
I wonder if that perspective is actually good for the US (it probably is not meant to be, other than for the elite). Perhaps they're using a flawed model that will seem painfully obvious later. I'm guessing it is something like the banking crisis. Some guys are following a flawed model that they think should work, and other guys are looking out for themselves, and eventually the whole thing will fall apart.
Interestingly, the US often behaves as if it wants to control the world. So either this is a misperception, and the leaders of the US don't want to control the world (and they're spectacularly bad at public relations), or they're spectacularly bad at implementing their plan.
With all the advantages the US enjoyed last century it would have been possible. Maybe actual control of the world territorially is unnecessary, and some group is content to control the world financially. Or maybe the people implementing whatever plan have some perspective that make whatever they're doing make sense to them.
I wonder if that perspective is actually good for the US (it probably is not meant to be, other than for the elite). Perhaps they're using a flawed model that will seem painfully obvious later. I'm guessing it is something like the banking crisis. Some guys are following a flawed model that they think should work, and other guys are looking out for themselves, and eventually the whole thing will fall apart.
> People generally have to buy energy (oil) in our currency, which adds a great deal of support (though we’ve already seen the very beginnings of the PetroYuan).
Can someone explain why using USD as a medium of exchange supports the USD? I can see this effect insofar as central banks will hold a trade-weighted basket of currencies and having more trade in USD will increase that share of the basket. Other than this effect, is there (an) other(s)?
Can someone explain why using USD as a medium of exchange supports the USD? I can see this effect insofar as central banks will hold a trade-weighted basket of currencies and having more trade in USD will increase that share of the basket. Other than this effect, is there (an) other(s)?
> The most important story of 2014 that most people ignored was the Chinese economy overtaking the US economy. (This is using the purchasing power parity metric, which incorporates differences in the price of goods, but the Chinese economy will overtake on other metrics soon enough.)
It is an important story, but I think it was largely ignored in the U.S. because it is essentially a domestic Chinese story. PPP GDP equivalence is a major step on the path of bringing Chinese living standards up to those in the U.S. and Europe. That is an achievement that will be good for the world, but it will really great for China.
If you want to compare China and U.S. as players on the global stage, then I think in most cases one will get a clearer picture of relative strength by sticking with nominal GDP. China's nominal GDP is bit more than half the U.S. GDP. It helps understand why the U.S. has the dominant currency, dominant military, etc.
China has grown its economy tremendously by taking the world's IP (by contract or theft) and building goods to export. That's how the U.S. caught up to Europe 150 years ago, so unlike other posters I don't think it's a terrible thing.
But it is true that China, to become a true economic superpower, must start creating innovative Chinese goods that other Chinese will buy, and which they can export. So Americans aren't just buying Apple phones that are made in China, but are buying Chinese products, the way they buy Japanese cameras or German cars.
That could be difficult to achieve, because the Chinese government does not permit free exchanges of ideas and views...which can make it hard to innovate. By its very nature, innovation makes people uncomfortable, and China's leaders do not currently permit things that make people too uncomfortable.
It is an important story, but I think it was largely ignored in the U.S. because it is essentially a domestic Chinese story. PPP GDP equivalence is a major step on the path of bringing Chinese living standards up to those in the U.S. and Europe. That is an achievement that will be good for the world, but it will really great for China.
If you want to compare China and U.S. as players on the global stage, then I think in most cases one will get a clearer picture of relative strength by sticking with nominal GDP. China's nominal GDP is bit more than half the U.S. GDP. It helps understand why the U.S. has the dominant currency, dominant military, etc.
China has grown its economy tremendously by taking the world's IP (by contract or theft) and building goods to export. That's how the U.S. caught up to Europe 150 years ago, so unlike other posters I don't think it's a terrible thing.
But it is true that China, to become a true economic superpower, must start creating innovative Chinese goods that other Chinese will buy, and which they can export. So Americans aren't just buying Apple phones that are made in China, but are buying Chinese products, the way they buy Japanese cameras or German cars.
That could be difficult to achieve, because the Chinese government does not permit free exchanges of ideas and views...which can make it hard to innovate. By its very nature, innovation makes people uncomfortable, and China's leaders do not currently permit things that make people too uncomfortable.
China is also the most indebted country in world history, and has acquired that mantle at a faster pace than any other country in history.
http://i.imgur.com/iwarkOm.png
From everything I've seen in the financial press about their rapid accumulation of shadow debt, the situation is even worse than that chart reveals.
So at at a time when robots are set to overtake human labor, China's demographics are rapidly aging, and they lack even a meaningful social safety net - you want me to buy the bogus claim that China is about to become the next dominant economy? Not a chance in hell.
In another five years they'll likely have accumulated another $20 to $30 trillion in new debt, all going toward faking economic growth so they can pretend their economy didn't stop growing six years ago when the global consumer crashed.
Back in reality, accounting for real inflation, and accounting for their need to leverage extreme debt to fake growth, China's economy is not growing at all, and is most likely headed toward decades of Japan style stagnation - in a best case scenario.
Worst case scenario, they get old way before they get rich (guaranteed), their 400-500 million farmers revolt as their future potential goes sideways, robots take half their manual labor jobs, they stack up $80 trillion in debt (on a third rate currency that nobody trusts even today), and collapse into social chaos and revolution, as the party fails to deliver on decades of promises.
Those 400-500 million farmers? China should have maybe 15 to 25 million farmers. So they have 400+ million unemployed persons the Chinese system is intentionally holding in stagnation to avoid upheaval, because there's zero chance China can create half a billion new jobs, much less at a time when the age of robotics is upon us.
http://i.imgur.com/iwarkOm.png
From everything I've seen in the financial press about their rapid accumulation of shadow debt, the situation is even worse than that chart reveals.
So at at a time when robots are set to overtake human labor, China's demographics are rapidly aging, and they lack even a meaningful social safety net - you want me to buy the bogus claim that China is about to become the next dominant economy? Not a chance in hell.
In another five years they'll likely have accumulated another $20 to $30 trillion in new debt, all going toward faking economic growth so they can pretend their economy didn't stop growing six years ago when the global consumer crashed.
Back in reality, accounting for real inflation, and accounting for their need to leverage extreme debt to fake growth, China's economy is not growing at all, and is most likely headed toward decades of Japan style stagnation - in a best case scenario.
Worst case scenario, they get old way before they get rich (guaranteed), their 400-500 million farmers revolt as their future potential goes sideways, robots take half their manual labor jobs, they stack up $80 trillion in debt (on a third rate currency that nobody trusts even today), and collapse into social chaos and revolution, as the party fails to deliver on decades of promises.
Those 400-500 million farmers? China should have maybe 15 to 25 million farmers. So they have 400+ million unemployed persons the Chinese system is intentionally holding in stagnation to avoid upheaval, because there's zero chance China can create half a billion new jobs, much less at a time when the age of robotics is upon us.
It seems like people are advocating for centralized solutions to "problems". But after recently reading Mitchel Resnick's book _Turtles, Termites and Traffic Jams_, I can't but help wondering what decentralized solutions might look like?
Here's a piece by him describing "decentralized" more: http://hci.ucsd.edu/102a/readings/LearningAboutLifeAnnotated...
Edit: And here's a similiar non-PDF piece: http://web.media.mit.edu/~mres/papers/JLS/JLS-1.0.html
Here's a piece by him describing "decentralized" more: http://hci.ucsd.edu/102a/readings/LearningAboutLifeAnnotated...
Edit: And here's a similiar non-PDF piece: http://web.media.mit.edu/~mres/papers/JLS/JLS-1.0.html
The Chinese value the appearance of working hard, not actual hard work. Cheating among Chinese students is pandemic. Chinese companies regularly publish misleading or outright fraudulent earning statements and quarterly reports. While the Chinese government seems to be taking steps to reverse these trends, it will take a long time to undo their culture of corruption. Contrast this with the American culture of honesty; fraud and cheating are national scandals, not the norm.
Second, the US currency is the world reserve currency because the world trusts that the US will keep paying interest on the debts. A trillion dollar debt is not actually that large, and this is reflected in the near-zero interest rates on treasury bonds. If there was a belief in the market that America would no longer be able to pay off the debts, interest rates would be sky-high. But the opposite is true. The national debt is just a talking point for people who don't understand economics. (The largest owner of American debt is...America!)
Finally, I am unsure what evidence there is that the US culture has moved away from innovation, risk-taking, etc. If anything, there are many more entrepreneurs today than there ever has been before; the maker movement, youtube celebrities, and startup culture is evidence of a growing number of people who are not employees of large corporations, but independent businesses.