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The economics of confidence

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COMMENTS

9 February 2010 15:51

I've been reading Akerlof and Shiller's new book on the importance of animal spirits, and in particular on the key economic role played by confidence. In this light, I found these poll results quite thought-provoking. 

In February 2008, pollsters asked the US public to identify the world's leading economic power; 41% chose the US, followed by 30% opting for China. That was before the fall of Lehman Brothers. By November last year, the order had reversed: 44% now though China was the world economy's top dog, as against 27% for the US.*

If Akerlof and Shiller are right, then this shift in relative confidence about US economic performance will have real world consequences. One might be a reduced tolerance for economic (and other) behavior on the part of China that is seen as damaging to US interests. Cue the latest round of US criticism of China's exchange rate policy, and Beijing's all-too predictable response

These changes in sentiment about relative economic standing are echoed in China. According to the Pew Global attitudes project, for example, while  in 2008 some 48% of Chinese polled identified the US as the world's leading economic power, compared to 21% for their own country, by 2009, 41% were picking the US and 41% were opting for China. 

This change in attitudes may well make China even less willing to listen to Western 'advice'. Yet, as David Pilling pointed out in the FT last month, probably the greater obstacle is Beijing's quite different view about China's appropriate role in the world. Where Western voters see an economic superpower, Chinese policymakers see a developing country, albeit a remarkably successful one. 

The fact that the world's second largest economy in absolute terms is still only somewhere in the middle of the global league tables when it comes to income per head is inevitably going to be a key driver of China's response to rich-country demands for China to become a more active global player.

* A cautionary note: in a sign of how perceptions (and the underlying reality) can shift quite dramatically, the accompanying report points out that fewer people in December 2009 said China was the top economic power than had named Japan as the leading economic power back in the late 1980s (58% in 1989). By the November 2009 poll, only 13% thought Japan was the leading economic power, although this was still enough to give Japan third place.

Photo by Flickr user [phil h], used under a Creative Commons license.

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