The World Will Adjust

Amar Bhide is a professor at Columbia Business School and the author of The Venturesome Economy. Although Bhide is fairly confident that the recession will not go on forever, he refuses to say when it will end—and he recommends not listening to anyone who thinks they know.

So when is the economy going to recover?
I don’t know.

Why not? Don’t you call yourself an economist?
I don’t believe in forecasting, because the economy is constantly evolving.It’s never the same as it used to be, and yet what it used to be is all economists have to measure the future. And that doesn’t make any sense to me. Let me give you a biological analogy—if you get a cut of a certain depth in a certain place, and it takes you a week to heal, you can be reasonably confident that the same kind of cut in the same place will again take you a week to heal. But if it’s a completely different cut in some different place or of a different depth, you have no clue how long it’s going to take to heal and nobody does. Economic recovery takes place through individual experiments. And so what we observe is the aggregate outcome of these experiments. Individuals looking for a suitable job. Employers trying to figure out the level of employees they need to have, or price their products correctly. Given all this, I have no idea what basis you can use to say, “oh, this recovery is going to take X many months, or it’s going to be this deep or that deep.”

So why does almost everybody else in your profession do it?
Because everybody wants an answer. It’s like children saying, “Are we there yet? I’m hungry. I’m thirsty. I need to go. Are we there yet?” In some sense we are all like children.

Illustration by Kevin Christy
Amar Bhide

What about some of the macroeconomic themes—do you have, say, a position on the role of China in the recovery of the U.S. economy?
There are so many ways in which this can sort out. It could be that the recovery will involve China consuming more of its own. So these “imbalances” can sort themselves out through a variety of combinations.

So you do believe there are “imbalances” in global trade that have to be worked out?
Yeah, to a degree. I wrote a paper with [Nobel laureate] Ned Phelps on the Chinese surplus as a temporary dynamic phenomenon. Whether you want to call that an imbalance or a temporary dynamic phenomenon is a matter of taste. But our analysis was predicated on the idea that, when you have a badly underdeveloped country, it’s much easier to rely on exports than a domestic market as the engine of growth. You can set up a Nike factory to make shoes for exports far more easily than you can get your people to develop an interest in, and a capacity to pay for, Nike sneakers. And so temporarily it makes sense for everyone concerned for China to produce more shoes than it consumes, until its capacity to consume catches up. In the meantime, Americans have the benefit of cheap sneakers.

But eventually that changes?
Yes, this process has to go into reverse at some point. When it spins around, and they want the money back for all the shoes they made for us, then life is not so good for us. And if you just looked at that moment, it might seem horrible. But if you look at the whole process from start to finish—China opening up, China producing more than it consumes, China learning to consume as much as it produces—you see that everyone comes out ahead. So yeah, it’s an imbalance to the degree that it’s not a natural state of affairs that should last forever. But imbalance also has a connotation of undesirability, which is not necessarily true.

It sounds like an awfully long process, and not necessarily a pleasant one for Americans.
Let’s say it takes us ten years from now to get back to where we were. You could call that a “lost decade” if you want, but I don’t think people’s minds work like that. They focus on whether today is better than yesterday and whether tomorrow is going to be better than today. The fact that we once owned the Dow at 14,000 may cause a pang, but as long as we are on an upward trajectory, most of us can cope.

So are we on an upward trajectory yet?
Well, I don’t know. At some point, certainly.

See Also
A Worrier’s Guide to Our Economic Future

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The World Will Adjust