Dwarkesh Podcast: "China’s Digging Out of a Crisis. But America’s Luck is Wearing Thin." with Ken Rogoff

Release Date: June 12, 2025
Host: Dwarkesh Patel
Guest: Ken Rogoff, Professor at Harvard, Author of Our Dollar Your Problem, Former Chief Economist at the IMF

1. Introduction to the Discussion

The episode kicks off with Dwarkesh Patel welcoming Ken Rogoff, a distinguished economist, to discuss his insights on global economic dynamics, particularly focusing on China and the United States.

[00:12] Ken Rogoff: "Thanks so much for having me, and welcome to Harvard, which is where we're filming this."

2. Competence of Chinese Leadership and Emerging Crisis

Dwarkesh references Rogoff's interactions with Chinese leaders during his tenure at the IMF, noting their apparent competence and willingness to heed advice. Rogoff acknowledges the high level of competence within Chinese leadership but points out a significant shift under Xi Jinping towards less technocratic and more loyalist governance.

[00:49] Ken Rogoff: "I was very impressed by the competence of the Chinese leaders... Xi Jinping has really changed that. He's been pushing out this system and gone more to loyalists and people who are less technocratic."

Rogoff discusses how this shift may have contributed to China's current economic challenges, such as overbuilt infrastructure and demographic issues.

3. China’s Current Economic Challenges

Rogoff delves into the structural problems facing China's economy. He highlights the overinvestment in infrastructure and housing, leading to a "classical housing crisis." Additionally, he emphasizes demographic strains that are undermining economic growth.

[04:14] Dwarkesh Patel: "You worried that we're not as competent... China's not as competent. That's a recipe for having bad things."

Rogoff reflects on a pivotal talk he gave at the China Development Forum in 2016, where he candidly addressed China's economic vulnerabilities, which surprisingly did not result in punitive actions against him.

[03:56] Ken Rogoff: "After I gave the talk... the couple top leaders came up to me and said, 'we very much appreciated your remarks.'"

4. High Investment vs. Low Consumption in China

Rogoff contrasts China's high savings rate and investment with its low consumption rate. He argues that the lack of consumer spending is a significant impediment to sustainable growth.

[13:09] Ken Rogoff: "Their saving rate and investment rate are astounding... Their consumption’s very low. They have some wealthy people, but a lot of China's living on $200 a month kind of incomes."

He attributes China's economic troubles to its overreliance on investment and exports, which have led to inefficiencies and a lack of domestic consumption.

5. GDP Measurement: Nominal vs. Purchasing Power Parity (PPP)

The conversation shifts to how GDP should be compared between countries. Rogoff advocates for nominal GDP comparisons when assessing geopolitical power, arguing that PPP might obscure the true economic strength relevant in military and strategic contexts.

[15:37] Dwarkesh Patel: "Is purchasing power parity the right way to compare or is nominal the right way to compare?"

[16:18] Ken Rogoff: "I'm a Western economist... You're doing an amazing job, what do I know? But I don't think that would be good for growth."

Rogoff critiques the reliance on PPP for assessing economic strength, especially regarding military capabilities where nominal GDP provides a clearer picture.

6. Projections for China’s GDP Relative to the USA

Rogoff provides his projections on China's GDP relative to the United States, expressing skepticism that China will surpass the US in nominal GDP by 2040. He considers his forecast "bearish," anticipating a slower growth trajectory for China amidst its ongoing economic issues.

[17:34] Dwarkesh Patel: "What is your projection by 2030 and by 2040, the ratio?"

[17:39] Ken Rogoff: "They'll gain about a percent a year on us maybe. I don't think they're going to grow way faster than the United States."

Rogoff anticipates China maintaining a GDP roughly 75% of the US by 2030, growing slowly due to internal economic strains.

7. Comparing China’s Economic Path with Japan’s Crisis

Rogoff draws parallels between China's current situation and Japan's prolonged economic stagnation following its asset price bubble burst in the early 1990s. He suggests that structural issues, such as financial repression and demographic challenges, have similarly hindered China's growth.

[26:29] Ken Rogoff: "Japan invented this business model that I think a lot of countries have duplicated... But over time others imitated it and sort of took, were building some of the things that they were building."

He reflects on how Japan's financial crisis led to long-term economic stagnation, cautioning that China might follow a similar path if it cannot effectively manage its debt and financial policies.

8. US Fiscal Position and Future Crises

The discussion turns to the United States' fiscal challenges, particularly its high debt-to-GDP ratio. Rogoff warns of potential future crises driven by unsustainable debt levels, constrained political flexibility, and the possibility of an inflationary or financial downturn.

[59:32] Ken Rogoff: "I think the most likely thing will be inflation, which only lets off steam because inflation sort of pulls the... it's like a default."

He forecasts that the US might face an inflation crisis as a tool to manage debt, projecting long-term economic repercussions akin to those experienced by Greece and Japan.

9. Implications of Federal Reserve’s Independence

Rogoff emphasizes the critical role of the Federal Reserve's independence in managing monetary policy and preventing political interference from exacerbating economic problems.

[44:38] Ken Rogoff: "They have too much faith in the independence of the Federal Reserve... They’re dreaming that there are so many ways Congress and the President could override the Fed."

He expresses concern over potential political pressures that could compromise the Fed's autonomy, which is essential for maintaining economic stability.

10. Future Economic Scenarios: Financial Repression vs. Inflation

Ken Rogoff explores potential future scenarios for the US economy, discussing the trade-offs between financial repression and inflation as mechanisms to handle high debt levels. He leans towards the likelihood of an inflationary crisis, highlighting its immediate but severe impact compared to the prolonged struggles associated with financial repression.

[55:37] Ken Rogoff: "We'll start with World War II... The financial markets as you grew up in... it's a completely different world."

He argues that while financial repression can manage debt without immediate defaults, it often leads to long-term inefficiencies and reduced growth, as seen in Japan.

11. The Exorbitant Privilege and Its Implications

Rogoff discusses the "exorbitant privilege" of the US dollar being the world's reserve currency, which allows the US to borrow at lower costs. He acknowledges the benefits but also recognizes potential drawbacks, such as incentivizing excessive debt accumulation.

[84:37] Ken Rogoff: "The core of the benefit we get is actually that we borrow safe assets... It's sort of the same thing as the equity premium where you hold stocks."

While praising the advantages, Rogoff remains cautious about overreliance on this privilege, suggesting that future shifts away from the dollar could have significant economic repercussions.

12. America's Competitive Advantage and Luck

In concluding the episode, Rogoff attributes America's sustained economic dominance to both competence and a degree of luck. He warns that relying on luck can be precarious, especially as other nations like China and Europe make strategic missteps that could erode the US's competitive edge.

[90:09] Ken Rogoff: "We've been lucky. If you ran it all again, it didn't have to go the same way."

He underscores the importance of maintaining America's dynamism and innovation to preserve its leadership position amid global economic uncertainties.

Notable Quotes with Timestamps

• On Chinese Leadership Shift:

  [00:49] Ken Rogoff: "Xi Jinping has really changed that. He's been pushing out this system and gone more to loyalists and people who are less technocratic."

• On China’s Investment Issues:

  [13:09] Ken Rogoff: "Their consumption’s very low. They have some wealthy people, but a lot of China's living on $200 a month kind of incomes."

• On Predicted US Financial Crisis:

  [37:32] Dwarkesh Patel: "When we do hit this, when the picker comes calling, what actually happens?"

  [39:56] Ken Rogoff: "I think when it happens again, markets will be very unforgiving about it. They will look at us and say, 'you are not to be trusted.'"

• On Federal Reserve's Independence:

  [44:38] Ken Rogoff: "They have too much faith in the independence of the Federal Reserve... They’re dreaming that there are so many ways Congress and the President could override the Fed."

• On Exorbitant Privilege:

  [84:37] Ken Rogoff: "The core of the benefit we get is actually that we borrow safe assets... It's sort of the same thing as the equity premium where you hold stocks."

Conclusion

Ken Rogoff provides a sobering analysis of the intertwined economic challenges facing China and the United States. While praising China's past competence, he highlights significant current vulnerabilities exacerbated by leadership changes and structural economic issues. Simultaneously, he warns the US about the untenable trajectory of its fiscal policies, emphasizing the critical role of the Federal Reserve's independence. Rogoff’s insights call for strategic policy considerations to navigate the impending economic uncertainties and preserve America's competitive advantage on the global stage.