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Prospects and Risks for East
Asia in the Next Decade
Presentation to the World Knowledge Forum
Dean Baker
Co-Director
Center for Economic and Policy Research
October 14, 2009
Prospects and Risks for East Asia
in the Next Decade
1. Relative growth of China, India, and the
United States
2. Risks to growth:
a) Bad trade path
b) Stagnation in the U.S.
c) More asset bubbles
Risk 1: The Bad Trade Path
1) Continued loss of U.S.-European
manufacturing – growing inequality in
wealthy countries.
2) Growing protection for drug patents,
software copyrights, and entertainment
copyrights – increased inefficiency and
rent-seeking. (Story of bad drugs.)
Figure 8: Patent Protection in Prescription
Drugs in the U.S.
Risk 2: Deficit Obsessions and
Destructive Trade Policy
1) East Asian countries hold up the value of the
dollar against their currencies.
2) The U.S. runs low budget deficits to keep interest
rates from rising.
3) Slow growth in U.S., slow growth in Asian exports.
4) Remember accounting identities:
Foreign savings = Public savings + Private
savings
X-M = (T-G) + (S-I)
Risk 3: Another Asset Bubble
1) Too big to fail doctrine has been formalized in
U.S.
2) Bank executives have incentives to take big
risks.
3) Regulators have not gotten any smarter (or
more accountable)
4) An asset bubble may be the only way to boost
growth in the U.S.
Conclusion
• Asia has very bright prospects, it will be
the center of economic activity in the
next decade.
• The biggest risk would be to focus too
much on the United States.