Obama gets one half right

However inartfully phrased part of his answer was, President Obama showed in India that he gets the fact that America's economic power will be challenged in coming years by the rising economies of India and China.

Speaking at a town hall meeting in Mumbai, he said, "I do think that one of the challenges that we are going face in the US, at a time when we are still recovering from the financial crisis is, how do we respond to some of the challenges of globalisation? The fact of the matter is that for most of my lifetime and I'll turn 50 next year - the US was such an enormously dominant economic power, we were such a large market, our industry, our technology, our manufacturing was so significant that we always met the rest of the world economically on our terms. And now because of the incredible rise of India and China and Brazil and other countries, the US remains the largest economy and the largest market, but there is real competition."

The size of the American economy, recession-laden though it is, still is much greater than either India or China - or both combined. But both are coming on strong, with China occupying the number one slot in rate of growth and India number two.

From 2007 until now, India's GDP growth never sank even to 5 percent annually and was more than 9 percent well into 2008. That placed India just behind China as an emerging economy. Goldman Sachs has said that in 10 years, India's GDP will be quadruple that of 2007. This year, India's GDP is expected to grow by more than 7 percent.

As for China, "According to the Conference Board, a highly respected economic research association, China will overtake the US as the world’s biggest economy by 2012, or within two years."

OK, so in dollar terms, that’s obviously not going to be the case. It will be a lot longer than two years before China overtakes the US on that measure. But in terms of purchasing power parity, according to the Conference Board’s latest world economic outlook, China is already nearly there, and by 2020 will have reached a size of output which is nearly half as big again as the US.

Purchasing power parity means, briefly, measuring economic output "according to the volume, not the price of goods and services produced." So in dollar-to-yuan terms, China's economy will be far from America's equal in 2012, but in volume output, it will likely be greater. Think that's a false comparison? Think again - a cab ride in Washington, DC, costs many multiples more than a cab ride in Beijing, but the "volume" of each is the same.

That means that when China's economy does surpass America's in money-normed terms, its economic volume will be magnitudes greater than ours. Some economic analysts say that will happen in only a quarter century.

Furthermore, there are certain trade and other economic realities that are radically different from those of only a couple of decades ago, reports Pankaj Mishra.

A tangle of bilateral trade agreements underpins Asia's new economic unity. China and Asean countries already constitute the biggest free-trade zone in the world. Asian fears of China's rise, which the United States keenly monitors, look minor beside the fact that China is now the largest export market for Japan, South Korea and Taiwan, in addition to being India's biggest trading partner.

This development serves pretty much to shut America out of significantly increasing its market share among ASEAN nations (Association of Southeast Asian Nations). No wonder, said Mishra, that when India's prime minister visited Kuala Lumpur, Malaysia, last week, editorialists there deemed his visit "more important than the jaunt of Hillary Clinton, the US secretary of state, to the region at the same time."

Inflation in China is low and GDP growth is forecast this year to be about 7.5 percent. Compare both India's and China's performance to the USA's anemic GDP growth of less than 3 percent for the past three years.

However, the problem with Obama's analysis is not that it is incorrect (which it isn't), but that his two years in office force the conclusion that he has no idea how to shape government policy to meet this challenge. Victor Davis Hanson put it well: "Obama seems to think that making money is a casual enterprise, not nearly so difficult as community organizing, and without the intellectual rigor of academia — as if profits leap out of the head of Zeus."

And the professor lists Obama's spoken desire for "redistributive change," spreading the wealth around, "fairness," not revenues, as being the central issue in federal tax policy and his claim (as president!) that "at some point you've mad enough money." So, observes Prof. Hanson, "for most of his life Barack Obama has done quite well without understanding how and why American capital is created ... "

The Politico reports,

And business leaders, even the few who continue to be Obama-friendly, say they are convinced he is hostile to free markets and the private sector. Some of these executives have balance sheets flush with cash but are reluctant to add jobs or expand in part because they don't trust Obama’s instincts for growth.

The WSJ's Daniel Henninger says that the problem isn't limited only to the chief executive. The whole Democrat party, he says, suffers from the same dysfunction.

The Democrats running things the past two years proved they have no clue about the business of business. In their world, the real world of the private economy is an abstraction, a political figment. ...

The party's decoupling from vast swaths of America at work didn't start with Barack Obama. Al Gore and John Kerry ran hard against the depredations of the insurance, pharmaceutical and oil industries. The post-modern Democrats, starting at the top, convey the impression that the average company consists entirely of three guys in spats, silk vests and top hats, like the little character on the Monopoly cards, who deserve to be indicted or monitored.

And so in this, as in so many many things, America's president is good at describing problems but neither has a clue of how to address them nor any interest in learning. And there is no corrective within his own party to ameliorate the effects of his disastrous economic-political philosophy because the rest of the party believes it, too.

So start buying stocks of Chinese and Indian companies, folks.