On Thrifty China: The Yale Professor versus Me

I was just reading Yale Professor Robert Schiller’s article Thrifty China, Spendthrift America, which explains the apparent discrepancy of the saving rate in America versus what’s occuring in China.

While I cannot provide as indepth an economic analysis as the learned professor has made, I would like to touch upon some of the points he discussed in his article. In doing so, I will be using a wide range of academic journals (to prop up the leg of my somewhat wobbly desk, which I bought in a Chinese market a few months back). I don’t profess to be a China Expert – but I am in China, and that’s gotta count for something, right?

The Professor states:

The saving rate in China is the highest of any major country. China’s gross saving rate … is around 50%. By contrast, the saving rate in the United States is the lowest of any major country – roughly 10% of GDP.

Whenever anyone throws out that 50% number, I’m always reminded of that old joke that 99% of statistics are fabricated lies. In my personal experience, 50% is the first number that I tend to toss out off the top of my head, with 25% and 75% coming in tied for second place. These are the statistics I use, when I just don’t got no real statistics.

And moreover, whenever academics quote numbers about China, I can’t help but wonder… Are Chinese Official Statistics reliable?

The Professor goes on:

…the uptrend in saving in China began at around the same time as its one-child policy was implemented in 1979. . . The late Nobel laureate economist Franco Modigliani, in his last major published paper in 2004 (co-authored with Shi Larry Cao), argued that this demographic change explains much of the increase in the saving rate, as Chinese substituted investment in capital for investment in children.

True. Good point Robbie. But don’t forget about all those fabulous double-income gay families that we keep hearing so much about on CCTV…

Professor Rob:

For one thing, although the Chinese don’t elect their leaders, they trust their government more. According to recent World Values Surveys, 96.7% of Chinese expressed confidence in their government, compared to only 37.3% of Americans.

Are the remaining 3.3% doing alright? I’m just curious. (Don’t drop the soap, guys!)

Professor Rob:

Likewise, 83.5% of Chinese thought their country is run for all the people, rather than for a few big interest groups, whereas only 36.7% of Americans thought the same of their country.

Professor, please watch your choice of words. “83.5% of Chinese thought?” Try using the word “said.” I’m no Kreskin, but I do know there’s a big discrepancy between what people are free to think, and what people free to say in China.

Professor Rob:

As inequality deepens [in the U.S.], many who fall behind struggle to save face, consuming in order to maintain the appearance of success. At the same time, those who rise from low economic status revel in their newfound wealth by engaging in spectacular displays of personal spending … Of course, Chinese increasingly consume fancy new cars and designer clothes. But there is relatively less pleasure in public displays of consumption at a time when the prevailing national story is one of triumph over adversity.

Interesting. I should really pass on the professor’s article to all those Chinese dudes walking around with the Italian leather man-purses and shiny new Audis, or at the very least to that kid who owns 500 cell phones. It would be my guess (from what I see here on the ground in China) that public displays of consumption are in fact a means for people to show their personal triumph. But that’s just my thoughts…

Now to the professor’s credit, he does predict that as China continues to change, the Chinese people’s “enormous willingness to save . . . will fade.”

Similarly, I will go out on a limb and boldly predict that the winner of last year’s World Series will be the St. Louis Cardinals.