James Fallows: The $1.4 Trillion Question

Another stunningly insightful and well-written article by James Fallows:

The $1.4 Trillion Question, The Atlantic Monthly, Jan/Feb 2008.

The excitement I had when first read his article "China makes, the world takes" (The Atlantic Monthly, Jul/Aug 2007) last October is still vivid. The "Trillion Question" article tackles an entirely different question, yet as significant if not more. I recommend it for several reasons:

First, Fallows has an outstanding ability of explaining economic problems in plain, easy-to-access language. In response to my (unusually) harsh criticism of "Currency Wars" (货币战争), a demagogic, charlatan work that ascended to the best-seller throne in China, some readers on Douban rebuked me by saying that "If you think this is rubbish, then provide us with a better story of your own; otherwise shut up". Well I am certainly not taken back by such bitter and unreasonable (just think about the good film critics who do not make films themselves) rebuttal, but I do realize the necessity of at least introducing some authors whose works I resonate with. Though not an economist himself, Fallows did study economics in Oxford as a Rhodes Scholar. I know this is a repetition of his background, just to help the readers come up with some reasonable guess of his credibility.

Second, beyond the scope of his specific articles, I see a person with an admirable attitude toward international affairs, an attitude that I believe represents the essence of the American spirit. An attitude that is at the same time fair, open and objective, as well as empathetic, passionate and patriotic. Fallows' writings are free of the ideological biases typical of many American reporters in China, yet I can still sense his strong conviction in the best part of American values: liberty, equality, democracy and so on; as well as his readiness to defend and preserve these values.

Third, the role played by the likes of Fallows. I think he certainly goes beyond the conventional limitations of a journalist. How to precisely define his occupation? An appropriate counterpart in the Chinese vocabulary might be "writer", but that word is too prosaic for someone like him. After all, there is not too much utility in defining him precisely. What's the use of defining Walter Lippmann, or Bob Woodward? The most innovative persons always defy any ready-to-fit frames. There is no doubt that Fallows himself is part of the elite core of the U.S. That status grants him the opportunities (though probably not as abundant as those of John Thornton) of directly talking to many key decision makers in the government and corporations, a privilege that even a Pulitzer-winning New York Times reporter (such as Joseph Kahn) may not enjoy; yet his official occupation as a reporter allows him to live and travel freely in China, as just another normal foreigner, without invoking too much attention. That combination of freedom and celebrity is simply marvelous.

Back to the issue -- China's gigantic and ever-growing foreign exchange reserve -- Fallows dug into that question in depth, from an American perspective, and I'll leave it to you to judge. The article alerts me to the seriousness of this question -- that is, a precarious balance, or "the balance of financial terror" between the US and China, in Lawrence Summer's words as cited. I was astonished that elite Americans see this balance as worrisome as the "nuclear balance" during the Cold War, and the logic behind such concerns seems sound to me. I want to highlight the closing remarks of Fallows and put my own question and uncertainty on the table:

"Years ago, the Chinese might have averted today’s pressures by choosing a slower and more balanced approach to growth. If they had it to do over again, I suspect they would in fact choose just the same path—they have gained so much, including the assets they can use to do what they have left undone, whenever the government chooses to spend them. The same is not true, I suspect, for the United States, which might have chosen a very different path: less reliance on China’s subsidies, more reliance on paying as we go. But it’s a little late for those thoughts now. What’s left is to prepare for what we find at the end of the path we have taken."

My question is: Could the United States really have chosen differently? What could the alternatives be?

P.S. I updated one link on my homepage: China in the American Eyes (美眼看中国). As you'll find, I've been very selective. Interestingly, all three articles I chose came from bi-monthly journals.