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GUY RAZ, host:
We're back with ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.
When historians look back at the signposts along China's path to economic dominance, this past week might very well include one of them.
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RAZ: A stock selloff on Wall Street in response to China's decision to force its own banks to cut lending.
Mr. DAN FITZPATRICK (Stock Analyst): What makes anybody think that we have any power that we're going to exert over China? China is going to act in its own best interest. We've given these guys a big club and now we're expressing indignation that they're hitting us over the head with it. It doesn't make sense.
RAZ: Dan Fitzpatrick, a stock analyst speaking on CNBC yesterday.
China wants to ratchet down its economic growth at least in the short-term. But as we're discovering, decisions made in Beijing have major ripple effects in New York and London and beyond.
And as always, our news analyst James Fallows is following this story and others.
Mr. JAMES FALLOWS (National Correspondent, The Atlantic): Nice to speak with you, Guy.
RAZ: Jim, I'm fascinated by this story. Here's how I understand it and correct me if I'm wrong. China tells its banks to tighten up on lending because the central government wants to slow down economic growth, and that then leads to a selloff on Wall Street.
Mr. FALLOWS: Indeed. And the way I make sense of this is by thinking of it as a three-act play. Act one would be the past 10 years, when both the Chinese and the U.S. economies were growing pretty strongly but in unbalanced ways: The Chinese producing more than they consumed, we doing the reverse and then they are lending to us.
Stage two is what we've been through in the last two years, when there've been economic shocks around the world. And so, stage three is the government response to that which has been more aggressive in China than the U.S., where they have more government spending, they've told the banks to lend more money, and the banks have more money to lend. And so it started to work in China.
And now, we're facing the consequences of that where the Chinese government is always afraid of inflation, so they've started to put on the brakes. And so that is the effect we're now feeling. China is beginning to recover but we haven't yet, but we're being caught in their slowdown.
RAZ: Jim, for several years now, we've been hearing about the rise of China, of course, in the fall of the so-called American Empire. And you've written about this. But I'm wondering if we are actually starting to witness some of those predictions in real time; that is a China that is increasingly comfortable calling the economic shots for the world.
Mr. FALLOWS: It's possible. There will come a time when I change my tune about this. But my sense is what we're seeing now is the fact of the connectedness of the world's economies, especially China's and the U.S.', rather than the Chinese ability to boss us around or have their way.
RAZ: Jim, yesterday, President Obama signed a piece of legislation that in theory requires Congress to authorize spending only when it can be sure the money is there. And it's being called Pay As You Go, which to me sounds like an ad for Boost Mobile phones.
I mean, but how do you actually enforce a law like that? I mean, you effectively you have 535 independent agents operating from both chambers under the Capitol Dome, and they're expected to be, well, fiscally responsible?
Mr. FALLOWS: Well, yes. That is one of several problems. The advantage of tricks like this, tricks in quotes, is they give legislators an excuse to do something which is difficult otherwise. And that difficult thing is either restricting certain benefits or in some cases, increasing taxes.
The case against them, number one, in an operational sense, is that whenever there is a need for an exception, they find some reason to come up with an exception. The other reason is that during a recession, the imperative is to spend more money and keep the economy going and from further collapsing further, rather than reducing it with deficit reduction in the long-term.
So this can be a useful trick, but like any other trick, there are ways around it.
RAZ: Hmm. Jim, two things about the economy that caught my eye this week. One is that unemployment is only three percent among those who typically earn more than $150,000 a year. And then another story, a devastating article actually in your magazine, in The Atlantic, that basically says people between the ages of 20 and 35 are doomed to live a life of social and economic malaise.
Mr. FALLOWS: We have heard for decades now about in various ways the polarization of the American income distribution, by race, by gender, by educational background and all the rest. And I think the fact that we're going to downturn has brought this surprising news, number one, as you mentioned, that for people who are well-educated and largely white man of middle years and above, the unemployment rate is quite low for them.
And, number two, this article that you mentioned by Don Peck in my magazine, I think is extremely sobering. He mentions among other things that the effects of the Great Depression of the 1930s in a way never really left. The cohort of people who were in their 20s then, there were psychological affects, family formation affects, income stream affects. And so he warns about the dangers of letting this kind of chronic unemployment persist because it can have effects for decades into the future.
RAZ: That's James Fallows of The Atlantic. You can read his blog entries at jamesfallows.theatlantic.com.
Jim, thanks so much.
Mr. FALLOWS: Thank you, Guy.
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