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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (51692)	7/22/2004 10:37:06 AM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

More Jobs, Worse Work _______________________ By Stephen S. Roach OP-ED CONTRIBUTOR The New York Times July 22, 2004 The state of the American labor market remains the defining issue of the current economic debate. Through February, the United States was mired in the depths of the worst jobless recovery of the post-World War II era. Now, there are signs the magic may be back. More than a million jobs have been added to total nonfarm payrolls over the past four months, the sharpest increase since early 2000. These gains certainly compare favorably with the net loss of 594,000 jobs in the first 27 months of this recovery. But there's little cause for celebration: the increases barely make a dent in the weakest hiring cycle in modern history. From the trough of the last recession in November 2001 through last month, private sector payrolls have risen a paltry 0.2 percent. This stands in contrast to the nearly 7.5 percent increase recorded, on average, over the comparable 31-month interval of the six preceding recoveries. Nor is there much reason to celebrate the type of jobs that have been created over the past four months. In general, they have been at the lower end of the economic spectrum. By industry, the leading sources of hiring turn out to be restaurants, temporary hiring agencies and building services. These three categories, which make up only 9.7 percent of total nonfarm payrolls, accounted for 25 percent of the cumulative growth in overall hiring from March to June. Hiring has also accelerated at clothing stores, courier services, hotels, grocery stores, trucking businesses, hospitals, social work agencies, business support companies and providers of personal and laundry services. This group, which makes up 12 percent of the nonfarm work force, accounted for 19 percent of the total growth in business payrolls over the past four months. That's not to say there hasn't been any improvement at the upper end of the labor market, with the construction industry leading the way. At the same time, there has been increased hiring in several of the higher-end professions: there is more demand for lawyers, architects, engineers, computer scientists and bankers. Manufacturing, however, has continued to lag. Putting these pieces together, there can be no mistaking the unusual bifurcation of the recent improvement in the American labor market. Lower-end industries, which employ 22 percent of the work force, accounted for 44 percent of new hiring from March to June. Higher-end industries, which make up 24 percent of overall employment, accounted for 29 percent of total job growth over the past four months. In short, jobs are growing at both ends of the spectrum, but the low-paying jobs are growing much more quickly. The contribution of low-end industries to the recent pick-up in hiring has been almost double the share attributable to high-end industries. An equally dramatic picture emerges from the survey of American households. According to the Bureau of Labor Statistics, the total count of persons at work part time - both for economic and non-economic reasons - increased by 495,000 from March to June. That amounts to an astonishing 97 percent of the cumulative increase of the total growth in employment measured by the household survey over this period. By this measure, as the hiring dynamic has shifted gears in recent months, the bulk of the benefits have all but escaped America's full-time work force. Finally, the occupational breakdown of the American labor market, as also sampled by the survey of households, provides yet another facet of the character of the recent hiring upturn. It turns out that fully 81 percent of total job growth over the past year was concentrated in low-end occupations in transportation and material moving, sales and repair and maintenance services. At the upper end of the occupational hierarchy, increases in construction and professional jobs were partly offset by sharp declines in the numbers of production workers, who mainly toil in manufacturing plants. Consequently, from three different vantage points - employment breakdowns by industry, by occupation and by degree of attachment - the same basic picture emerges: While there has been an increase in job creation over the past four months - an unusually belated and anemic spurt by historical standards - the bulk of the activity has been at the low end of the quality spectrum. The Great American Job Machine is not even close to generating the surge of the high-powered jobs that is typically the driving force behind greater incomes and consumer demand. This puts households under enormous pressure. Desperate to maintain lifestyles, they have turned to far riskier sources of support. Reliance on tax cuts has led to record budget deficits, and borrowing against homes has led to record household debt. These trends are dangerous and unsustainable, and they pose a serious risk to economic recovery. We hear repeatedly that the employment disconnect is all about productivity - that America needs to hire fewer workers because the ones already working are more efficient. This may well be true, but there is a more compelling explanation: global labor arbitrage. Under unrelenting pressure to cut costs, American companies are now replacing high-wage workers here with like-quality, low-wage workers abroad. With new information technologies allowing products and now knowledge-based services to flow more easily across borders, global labor arbitrage is likely to be an enduring feature of the economy. Hiring always moves up and down. But it is evident from the experiences of Europe and Japan that new structural forces can come into play that have a lasting impact on job creation. Such is now the case in America. It was only a matter of time before the globalization of work affected the United States labor market. The character and quality of American job creation is changing before our very eyes. Which poses the most important question of all: what are we going to do about it? ___________________________________ Stephen S. Roach is chief economist for Morgan Stanley. nytimes.com

To: Jim Willie CB who wrote (51692)	7/22/2004 10:55:55 AM
From: one_less	Respond to of 89467

You continue to dishonor yourself more with each new post like that and you further expose the level of incredulity among your bush bashing sect.

To: Jim Willie CB who wrote (51692)	7/22/2004 11:13:55 PM
From: stockman_scott	Respond to of 89467

Global: The Job-Quality Debate ______________________________ Stephen S. Roach (New York) Morgan Stanley Jul 22, 2004 Not surprisingly, the jobs debate is heating up in the United States as we move into the heart of the political season. My interest in this issue bears more on the economic and financial market implications of underlying trends in the US labor market. A jobless recovery puts pressure on consumer purchasing power and challenges the sustainability of an economic upturn. It also forces income-short consumers to rely on riskier sources of support—namely, outsize tax cuts, which blow up the budget deficit, and equity extraction from homes, which pushes debt loads into uncharted territory. By contrast, in a hiring-led recovery, the economy draws support from internal, or organic, growth—thereby avoiding the imbalances and other stresses and strains that have long concerned me. Most have drawn great comfort from recently improved trends on the US hiring front. With jobs on nonfarm payrolls up 1.024 million over the past four months (March to June 2004), it is tempting to conclude that the long drought of the jobless recovery is over. I have argued to the contrary—maintaining that the recent improvement on the hiring front is skewed decidedly to the low end of the quality spectrum (see my July 9 dispatch in the Global Economic Forum, “America’s Job-Quality Trap,” and my Op-Ed piece in the July 22 edition of the New York Times, “More Jobs, Worse Work”). If I am correct, that means the recovery remains in precarious shape. Several have challenged this conclusion, slicing and dicing the employment data with a different set of tools. The first such effort showed up in the form of a July 9 article posted on www.factcheck.org, a Website sponsored by the non-partisan Annenberg Public Policy Center of the University of Pennsylvania. In the interest of full disclosure, I should note that several senior government officials have brought this article to my attention—implicitly urging me to rethink my conclusions. A recent article in Business Week has elevated the debate over job quality to the national stage. The following letter to the editor of that publication is a direct response to this critique: The Editor Business Week Dear Sir: In “Another Look at Those Jobs Numbers” (Business Week, July 26, 2004), Peter Coy takes issue with my conclusion that the recent upturn in hiring has been concentrated at the low end of the quality spectrum. However, there is a serious shortcoming to his analysis: It is based on unpublished data taken from the government’s smaller and less reliable survey of US households—the so-called Current Population Survey. My conclusions are based on the far more comprehensive and accurate survey of workers on payrolls in business establishments—the Current Employment Statistics Survey. There is really no comparison in the sampling accuracy of these two surveys. According to the US Bureau of Labor Statistics, the “active sample” of some 400,000 establishments in the payroll data covers about one-third of the total universe of such workers. By contrast, the monthly sample of only 60,000 households covers just 0.06% of the universe of more than 106 million households in the United States. There is no doubt in my mind as to which of these two surveys should be trusted more. Other experts, including Federal Reserve Chairman Alan Greenspan, have come to similar conclusions. Moreover, it is a real stretch to glean such finely calibrated insights—by industry as well as by occupation—from this tiny survey of households. The data are unpublished for good reason—much of the granular detail in the 154 job categories that Mr. Coy has analyzed is simply not statistically significant. If you divide 60,000 households into 154 cells, then each cell contains an average of only slightly less than 400 households—a tiny sample for an economy the size of the US. Moreover, to the extent that some categories are populated by a greater-than-average number of households, that leaves a miniscule representation in the remaining cells. In my view, that seriously compromises the integrity of the statistical analysis. That's why I gave up years ago using the household survey to do industry analysis—I was getting nonsensical results. I am afraid that is still the case. In other words, the household data should not be trusted as the ultimate arbiter of job quality. Nor is this finely calibrated detail of the household survey reliable enough to seasonally adjust. That further complicates an accurate analysis of underlying trends in the US labor market. This latter shortcoming should not be minimized. Lacking in seasonally adjusted data, Mr. Coy examines trends on a year-over-year or 12-month trailing basis. That misses a key aspect of this debate—a decomposition of job trends over the past four months, March to June 2004. Overall, the main problem with using the household survey for detailed industry analysis is that it was never designed for that purpose. It was mainly intended to get a good sample of unemployment. The industry and occupational detail that can be gleaned from the household survey is largely an after-thought—a statistical by-product of how individuals view their role in the business sector. That stands in sharp contrast with how companies may see it. While nothing is ever perfect in the realm of statistical analysis, my strong recommendation in attempting to measure job quality is to stay with the establishment survey. For those reasons, I stand by my own detailed analysis based on the far more reliable survey of business establishments. By industry, restaurants, temporary hiring agencies, and building services were the leading sources of hiring over the past four months. Accounting for only 9.7% of total nonfarm payrolls, these three low-quality segments of the US work force contributed fully 25% to the cumulative growth in overall hiring from March to June 2004. Disproprtionaely large hiring contributions also occurred in other industries at the low end of the job hierarchy—namely, clothing stores, couriers, hotels, grocery stores, trucking, hospitals, social work, business support, and personal and laundry services. All in all, lower-end industries, which employ 22% of the work force, have accounted for 44% of new hiring—or twice their fair share—over the past four months. The US Bureau of Labor Statistics does an excellent job in providing a rich body of data that can be used to analyze trends in America’s labor market. But like all statistics, the data must be used with care. In contrast to the headline in the Business Week article on jobs creation, the BLS has not put any spin on newly revealed employemt detail by recommending one conclusion over another. That task, according to Mr. Coy’s reporting, apparently has fallen to the White House’s Office of Management and Budget. Now why would they be interested in painting a rosy picture of one of America’s toughest problems? Sincerely, Stephen S. Roach Chief Economist Morgan Stanley morganstanley.com

To: Jim Willie CB who wrote (51692)	7/23/2004 3:52:17 PM
From: stockman_scott	Read Replies (2) \| Respond to of 89467

Fed ready to quicken pace ____________________________ Moskow says bank will react sooner if economy overheats July 23, 2004 (Reuters) — The Federal Reserve can probably raise interest rates at a measured pace but if the economy overheats the central bank will move more quickly, Chicago Fed President Michael Moskow said Friday. ``With inflation currently expected to remain relatively low, policy accommodation can likely be removed at a measured pace,'' Moskow told an economic breakfast. ``The Federal Reserve will be vigilant to make sure that inflationary pressures do not jeopardize our goal of price stability. If the economy begins to overheat, the Fed will move more aggressively toward a neutral policy stance,'' he said. Moskow told reporters after his speech that the recent soft patch in consumer spending and factory production in June is unlikely to linger. ``If it continues for many months I think it would have an impact on business confidence, but I don't think it will continue,'' he said. In a speech that echoed the themes of Fed Chairman Alan Greenspan's testimony to Congress earlier this week, Moskow also said the Fed's semiannual forecasts released this week show inflation should remain low, with core prices seen up 1.75 percent to 2.0 percent this year. He said although prices for a wide range of goods and services, from clothing to pet services, have been increasing more sharply in recent months, these have been offset by price declines elsewhere. ``We are carefully monitoring the persistence of these developments,'' he added. Futures markets suggested that prices of energy and other commodities may have peaked, and unit labor costs have been falling for the past two years. ``Outright declines are unlikely to continue as labor markets tighten — in fact unit labor costs edged up the past couple of quarters — but strong productivity trends should help keep overall cost pressures in check,'' Moskow said. Excess capacity and relatively high unemployment will also stop producers from raising prices quickly and causing an acceleration in inflation as the U.S. economic recovery reaches a ``cruising altitude,'' Moskow said. ``Unemployment is still higher than we would expect it to be on a sustaining basis,'' he said. Moskow, who is not a voting member on the Fed's policy committee this year, played down the recent run of weaker-than-expected economic data. ``On average economic growth in the first half of this year was quite solid,'' he said. The Chicago Fed chief said it was difficult to define a ''neutral'' level of interest rates that neither boosts nor drags on the economy. Though Fed officials have been reluctant to say where neutral lies, economists agree it is well above the current 1.25 percent federal funds rate. Moskow acknowledged the Fed's first interest rate rise in June was ``only one step'' in moving policy toward a neutral stance. Since the economy has gathered steam over the past year and inflationary pressures have picked up, some in the bond market have raised concerns that official rates are too low and risk fueling higher inflation down the road. Futures markets expect the Fed to continue raising rates to about 2.25 percent by the end of this year and at least 3.5 percent by the end of 2005. Moskow said the looming November presidential election would ''absolutely not'' prevent the Fed from raising rates in September if it feels such a move is needed. ``Politics never enter the room when we talk about monetary policy,'' he said. Copyright Reuters Limited.

To: Jim Willie CB who wrote (51692)	7/23/2004 6:24:17 PM
From: stockman_scott	Respond to of 89467

The Amazing Money Machine ___________________________ Defying doomsayers, the Dems -- by some measures -- are outraising the Republicans BUSINESSWEEK COVER STORY AUGUST 2, 2004 yahoo.businessweek.com Just six months ago, Louis B. Susman, national finance director for John Kerry's Presidential campaign, was one frustrated fund-raiser. His man was sinking fast in the polls and, says the Citigroup Global Markets (C ) vice-chairman, "I was begging for contributions, but people weren't returning my phone calls." Then Kerry gambled everything on winning the Jan. 19 Iowa caucuses. He rejected federal matching funds so he could bust the state's spending cap and even mortgaged one of his houses to lend the campaign $6.4 million. The shoot-the-moon strategy worked: Kerry won Iowa and went on to take New Hampshire and 10 other states by Feb. 10. Susman's perseverance paid off, too. On July 20, Kerry reported that his fund-raising, as of June 30, totaled $185 million, just 18% less than President George W. Bush's $226 million cache. But that hardly tells the whole amazing story of the comeback kid of campaign cash. When you add in what allied groups are spending to help oust Bush, Kerry and the Dems are remarkably competitive. LAGGARDS NO MORE A BusinessWeek scorecard tallying receipts by the Presidential campaigns, national political parties, congressional candidates, business and labor organizations, and shadow committees known as 527s shows that the Democrats have pulled in $912 million, vs. $1.03 billion for the GOP. When funds raised by nine other Democratic primary candidates are counted, however, the overall Dem figure rises to $1.09 billion, exceeding the GOP's by $57 million. After decades of lagging, especially among low-dollar donors, "Democrats have caught up," says Michael J. Malbin, executive director of the think tank Campaign Finance Institute (CFI). If anything, the BusinessWeek figures, largely based on funds raised and reported to the Federal Election Commission or the IRS, undercount overall campaign spending. The tally does not include voter turnout efforts by AFL-CIO affiliated unions, such as the $65 million the Service Employees International Union says it will spend. Nor does the tally count programs by numerous tax-exempt groups, from Planned Parenthood to the National Rifle Association, because election laws do not require them to disclose their spending. The Democrats' success defies predictions made by most campaign-finance experts after Congress passed the McCain-Feingold reforms of 2002. The gurus said that Dems couldn't possibly replace the unlimited soft-money checks that business, unions, and wealthy people gave to the party and that the new law banned. They predicted the party would never build a small-donor base to match the GOP's. And they projected that Bush would outraise his opponent by at least 2 to 1. The Chicken Littles of campaign cash were wrong on all three counts. Democratic-leaning 527s -- named after a section of the tax code -- have pulled in $125 million, and the two largest, America Coming Together and the Media Fund, say they have an additional $50 million in hard pledges. By law they can't coordinate with Kerry, but it hasn't been too difficult to dovetail their message with his. The Democrats have also leapfrogged over a traditional weakness in direct-mail fund-raising by using the Net to reach contributors -- vastly increasing their take from small donors who give less than $200. Democratic Presidential candidates raised a mere $10.5 million from small donors in 2000. This time, Democratic candidates upped that by 927%, to $107.8 million, the CFI says. So what explains the outpouring to Dems? Many experts believe donors are driven less by a zeal to install Kerry than by a fervor to oust Bush. Dissatisfaction with the growing federal deficit, economic jitters, and Bush's rush to war in Iraq and management of the aftermath all feed the Kerry financial machine. And Kerry's ability to keep up with -- and sometimes pull ahead of -- Bush in the polls has inspired givers. "This sense of inevitability that Bush was going to be reelected a year ago has really disappeared," says Kerry supporter Steven Rattner, managing principal at private investment firm Quadrangle Group. TECHIES WOOED Silicon Valley has especially rallied to Kerry's side. Even Intel (INTC ) Chairman Andrew S. Grove recently contributed $2,000. Intel is a leader in the push to stop an accounting-rule change requiring companies to expense stock options -- a position Kerry does not support. To woo high-tech execs, Kerry dispatched key economic adviser Roger C. Altman, chairman of New York investment firm Evercore Partners Inc., to California. On July 13, Altman camped out at Yahoo! (YHOO ) headquarters for one-on-one meetings with Valley execs. One invitee, Marc Andreessen, chairman of software-maker Opsware Inc. and a founder of Netscape Communications Corp., had previously spoken out against Kerry's views on trade, but was won over. While he's not giving Kerry money yet, he says: "They're doing a full-court press and doing it pretty effectively." But it's people like Andy Rappaport, a Menlo Park venture capitalist, who are key to Kerry's catch-up fund-raising. Rappaport and wife, Deborah, have "maxed out" by giving a combined $190,000 to Kerry, party committees, and other Democratic candidates. Overall, the couple has donated $5 million to liberal causes, including 527 groups that now accept the soft money that the party can't. Rappaport reports that he gets daily calls from people who say: "I've been a Republican my whole life, and I never thought I'd vote for a Democrat. But I am so angry at what this Administration is doing that I'm not only going to vote for John Kerry, but I want to have a fund-raiser for him." But nothing has succeeded for Kerry like the Internet. Kerry has raised $57 million through online donations, or nearly one-third of his total. Bush, by comparison, has raised a mere $9 million online. The beauty of these contributions, says Kerry Internet fund-raising director Josh Ross, who took a leave from his job as a vice-president at Silicon Valley company USWeb, is that the donations are "low-effort and high-margin." The cost of raising $1 via the Net is about 3 cents, vs. 15 cents for a telemarketing call or a piece of direct mail. And five-course dinners that attract high-rollers who can give up to $2,000 apiece can eat up 25 cents of every $1 raised. Still, Bush has a couple of advantages. He has $64 million in cash on hand, against Kerry's $36 million. And although both candidates are expected to accept $75 million in public funding for the general election, Bush has the upper hand there as well. Public money kicks in as soon as candidates accept the nomination. After that, they can't raise or spend private funds. Kerry's problem is that the clock starts on July 29 -- five weeks before the GOP convention. So Kerry has five fewer weeks in which to raise private money and must stretch his $75 million over 13 weeks, vs. Bush's 8 weeks, until Election Day on Nov. 2. One way Kerry is expected to conserve his treasury is by "going dark" for much of August. After the Democratic Convention, he may forgo TV ads while traveling through 10 battleground states, banking on free media. He will distribute surplus money to the Democratic National Committee and state parties, which can run TV ads -- as long as they don't coordinate with his campaign. The 527s will also be able to run TV ads in August. But on Sept. 2, most will have to turn off the spigot. McCain-Feingold bars them from paying for ads that identify a specific candidate 60 days before the election -- even though they can keep spending on voter turnout. In the end, Kerry may not have to dip into his public funds until Sept. 3, when Bush begins doing the same. These days, Kerry finance chairman Susman is a lot less frustrated. Since March, "I never asked anybody for money and got turned down. Not once," he says. In fact, money is walking in off the street. A woman recently strolled into Kerry's Washington headquarters and handed Susman an Ann Taylor shopping bag. In it was $40,000 in checks. ______________________________________________ By Paula Dwyer in Washington, with Robert D. Hof and Jim Kerstetter in Silicon Valley and Marcia Vickers in New York

To: Jim Willie CB who wrote (51692)	7/24/2004 12:24:18 AM
From: stockman_scott	Respond to of 89467

Global: Taming the Dragon ____________________________ Stephen Roach (New York) Morgan Stanley Jul 23, 2004 The China slowdown has barely begun. Yet the latest spin is that a soft landing may now be close at hand. Nothing could be further from the truth. Chinese economic activity is still expanding at a torrid and unsustainable pace. The nation’s authorities cannot afford to ease off on their campaign of policy restraint. If they do, an overheated Chinese economy runs the serious risk of a destabilizing hard landing. A slower-than-expected second quarter Chinese GDP growth rate is the source of this confusion. Not only did the 9.6% Y-o-Y increase represent a fractional (albeit statistically insignificant) moderation from the 9.8% pace of the first quarter, but it came in well below market expectations, which were centered in the 10.5% to 11.0% range. This prompted a sigh of relief from Zheng Jingping, official spokesperson of China’s State Statistical Bureau. In his words, “The uncertainties and unhealthy factors existing in economic performance have been put under initial control.” Putting it mildly, that’s wishful thinking. First of all, a 9.6% increase still represents an extremely rapid growth rate by any standards -- fully 0.5-percentage point above China’s 20-year trend and a moderate acceleration from last year’s officially stated gain of 9.1%. Second, the latest GDP estimate probably understates actual growth by a wide margin. This is hardly a shocker. Suffice it to say China’s growth problems have never been accurately reflected in its GDP statistics. Not only is this metric of dubious quality, but it obscures the impact of industrial activity -- the sector where the overheating drama is playing out most vividly. Recent trends in the industrial sector do, in fact, tell a very different story than the GDP statistics. Industrial output growth held at 16.2% in June -- down only marginally from peak comparisons of 19.4% in the first two months of this year and well above the 10% trend-line increases of the past 10 years. At the same time, the growth in energy generation barely moderated from 16.6% in May to 14.3% in June -- although it may well be that this “slowing” was more an outgrowth of the widespread power shortages of an overheated economy. In my view, the industrial output comparison needs to move into the 8% to 10% zone -- and then stay there for at least six months -- before a legitimate soft landing can be declared. From that point of view, China’s slowdown is, at best, only about 25% complete. Other data points offer mixed signals in gauging progress on the China slowdown front. The most encouraging trend shows up in fixed investment -- a stunning deceleration from peak growth rates of 53% in January and February of this year to 18.5% in May. This has long been the most bubble-prone sector of the Chinese economy, and the administrative actions that the government has taken to bring investment under control are certainly working. Even so, bank lending growth -- the principal means by which the investment bubble has been funded -- has moderated ever so slightly; year-over-year credit comparisons went from 20% in March to 16.3% in June and are still well above the 10-12% trend line . Meanwhile, Chinese inflationary pressures seem to be easing off a bit. While the CPI moved up to the 5% threshold, most of the acceleration remained concentrated in agricultural products. Significantly, signs of pricing moderation are now evident at the wholesale level: The co-called corporate goods price index published by the People’s Bank of China declined for a second month in a row, pushing the Y-o-Y comparison fractionally lower from 9.4% in May to 9.3% in June. While the energy component rose for a second month in a row, pricing elsewhere at the wholesale level was decidedly lower. At the same time, there has been little let-up in China’s impact on economic activity elsewhere in the world -- yet another corroboration of the limited slowdown in the Chinese economy. In large part, that’s because Chinese import growth -- a good proxy for this nation’s impact on the rest of the world -- continues to power ahead. China’s purchases of foreign-made products accelerated sharply in June, surging at a 50.5% Y-o-Y rate -- well above the 40% gains recorded in 2003. This has had collateral impacts on other key gauges of global industrial activity. That’s true of industrial commodity prices, especially metals, where China accounted for between 25% and 30% of the total growth in global consumption in 2003. The Journal of Commerce metals index has flattened out since mid-July -- actually down 1% -- but is still holding at levels 50% above those prevailing in the first half of 2003. Similarly, shipping activity remains relatively firm - -yet another area where the China boom has also had a major impact. While the Baltic Dry Index plunged from February through June 2004, it has subsequently rebounded sharply in July; looking through these gyrations, the latest reading of this gauge still stands at more than twice the levels prevailing in early 2003. I have long argued that the vigor of China’s production has become the major driver on the supply side of the global economy in the past couple of years. At this point in time, the power of that dynamic remains very much intact. When Chinese industrial activity turns more decisively to the downside, as I continue to believe it will, the impacts on the global economy could be quite significant. The Chinese leadership knows full well what’s at stake in all this. I give them tremendous credit for speaking openly and frankly about the perils of overheating. In many respects, China’s senior officials have actually led this debate (see my March 24 dispatch from Beijing, “China -- Determined to Slow “). For that reason, alone, it is ludicrous to expect China’s macro managers to declare victory prematurely. In that regard, I take considerable comfort from the recent remarks of China’s Premier Wen Jiabao in front of the State Council when he warned of the “difficulty and complexity of macroeconomic control” and cautioned against a “blindly optimistic” assessment of the prospects for a soft landing. This is precisely the tough jawboning that China needs as it grapples with the inevitable pushback from internal pro-growth constituencies. If, on the other hand, China were to back off on its policy-induced slowdown campaign, the financial and investment bubble would most assuredly end in tears. This is a critical moment on the glide path of descent for a still overheated Chinese economy. I remain convinced that China will not waver. Just as it successfully managed three serious macro adjustments in the past decade -- the boom-bust of 1993-94, the Asian crisis of 1997-98, and the synchronous global recession of 2001 -- I am willing to give the Chinese leadership the benefit of the doubt this time as well. Yet there is still a significant risk that world financial markets will price China for a “hard landing.” A year-to-date 19% decline in the “H shares” of Chinese enterprises traded in Hong Kong from their highs in early January 2004 is but a hint of that possibility. But to the extent that the world once again expects the worst from China -- an all-too familiar bias -- I would be willing to take the other side of that bet. The conclusion that emerges from all this is that a white-hot Chinese economy has barely begun the transition to a more sustainable growth path. The corollary of this conclusion is that the world has yet to feel any serious impacts of a China slowdown. Those developments remain very much in the cards, in my view. But we shouldn’t blow this transition out of proportion. China’s extraordinary success over the past 25 years is testament to an unwavering commitment to reform and to an increasingly adept macro management team. China is now facing yet another fork in its long road to prosperity. There is too much at stake for the Dragon to take the wrong turn. morganstanley.com