"The correlation between growth rates in one decade and growth rates in the next decade is remarkably low." (Image by World Economic Forum.)

Larry Summers isn’t the most popular guy, but I think his comments on China make a lot of sense. An excerpt from an exit interview he did with International Economy:

International Economy: Let’s start with China. The Chinese governmentv is hinting that it plans to spend another $1.5 billion on new technologies. Housing and retail spending, the preoccupations in the United States, are not part of that spending. In the meantime, China’s military has been engaged in a lot of bravado. How do you size up this brave new world?

Larry Summers: President John Kennedy died believing that Russia would be richer than the United States by 1985. Every issue of the Harvard Business Review in the early 1990s contained some joke or allusion to the effect that the Cold War has ended and Japan and Germany have won. Ezra Vogel’s 1979 book Japan as Number One was a bestseller. But none of these prophecies proved to be correct. In fact, looking at the history of growth rates in all countries, the correlation between growth rates in one decade and growth rates in the next decade is remarkably low. Extrapolative forecasting is perilous.

If concern about China leads the United States to strengthen our education system, invest more heavily in research and development, and contain our borrowing, then it could be very constructive. At the same time, it is easy to exaggerate what is happening in China. The average Chinese citizen is not nearly as rich as an average American was even two or three generations ago. The Chinese government is riding a tiger given all of the changes that are underway in that society.” (Thanks Marginal Revolution.)