[music] I'm Alexander Heffner, your host on The Open Mind.

I'm delighted to welcome our guest today, Yasheng Huang, a professor at MIT and author of the books The Rise and Fall of the East, Statism with Chinese Characteristics, and forthcoming in 2027, The Needham Question.

Professor, a pleasure to host you today.

Thank you, Alexander.

I look forward to our conversation.

Professor, to begin with, I was digging into your academic credentials and discovered, as you indicate, in some of your work, that you wrote a dissertation on the politics of inflation.

Now, that was not in the United States.

That was the politics of inflation in China.

But you have a very distinctive lens into the current debates about inflation.

And I wanted to start there.

What to you is most relevant from your study of that period of inflation in China to the present discussions about inflation?

Thank you, Alexander.

Let me, approach this issue in two ways.

One is when I was working on my dissertation, China was a very different economy from what it is now.

It was suffering from the legacy of socialism, central planning.

And then the inflation pressures were built out because there was a huge investment drive to make products and to increase GDP.

But in the short run, it created tensions within the system because some of the goods are not there and you push up the demand but not the supply at the same time.

And that was built into the system itself, because local governments were rewarded on the basis of all of these investment projects that they make.

So the book was, you know, came out in 1996.

It was really about that period.

But the longer term, the effect of this, what we academics call investment hunger, the longer term effect of that is to create oversupply relative to the demand.

And this is where China is today.

So it was, today it's almost the opposite of the situation that I was working on when I was a graduate student, when the economy had a lot of shortage.

And then you created this incredible demand for products and that created inflation pressure.

Today, China is suffering from deflation.

The supply is much bigger than the demand, and there's no end in sight of this.

So that's one big difference compared with that period that I was talking about before.

The other big difference is that since the early 2000s, China began to export massively.

And this is a familiar story that, you know, we read about every day in the newspapers.

Just now, they reported $1.2 trillion of trade surplus for 2025.

So one of the ways to take off this supply is relying on the global market.

You know, China could do this for a long period of time because it was still just developing just emerging.

But today China is a massive economy.

It is 35% of the global manufacturing capacity.

It is only consuming 11% just to push all of that surplus onto the global stage.

It's going to create huge tensions.

Economic tensions, and political tensions, you know, our own president, Donald Trump, has made very good use of that in his campaign in 2016 and 2024, blaming foreigners for all the problems that we have in the United States.

What would you say is the reality of the inflation discourse in the United States?

So, you've synopsized eloquently the Chinese, Yeah.

last quarter of a century.

But what about here?

What's the reality of inflation over the last three decades in the United States?

Yeah.

So let me contrast kind of two ways that, that governments use to control inflation.

One is command and control, and that's the Chinese way.

And I talked about that in my, 1996 book, essentially central government disciplining local officials, cut the projects, reduce spending, and then you stop the inflation.

The market economy, especially the advanced democratic market economies, use a very different method.

It is more relying on soft landing, preventing inflation from happening rather than waiting for the inflation and then try to crack down on inflation.

Now some governments do it well, some governments don't do it well, but at least the general approach is fine tuning the policy on the spending side, on the monetary side.

But that approach requires separation between the executive branch and the monetary policy making authority.

My worry, and this is a worry shared by many, many people now, is that the Trump administration is actively, undermining this key institutional pillar upon which market economy relies upon not only to control inflation, but to preempt inflation.

So the worry now is that he is going to use monetary policy, just like drawing money from his own bank, printing money, and the result of that is going to be a disaster.

Right.

And you're alluding to the lack or disappearance of independence.

That has become more visible now in the dialog between the executive branch in the fed.

And I think when you say it will be like him running his own circus is the American economy.

I think you also suggest that it could be more like that earlier period in China?

I mean, ultimately, the centralized power being the state and not the free market?

Yeah.

So I think the closer analogy would be countries like Argentina, Turkey, Egypt, countries like that.

You still have kind of a democratic shell.

When you run for elections, you want the economic numbers to look good.

At least in the short run.

One way to do that is to print a lot of money.

Right?

But the longer term effect of that is inflation.

And this is the design principle of having an independent central bank.

China never has an independent central bank.

So, the way they control inflation is not through that mechanism.

Right.

The downside of that, well there are two downsides.

One is that the Chinese central leadership, to their credit, has always been very alarmed by inflation.

So they are much more inflation sensitive when there's a signal, or indicator of inflation, they act quickly.

That's not true of leaders in Argentina, leaders in these emerging market economies, you know, they see printing money as a way to get the situation out.

The other difference is that China has a very strong centralized system.

If the central government wants to crack down, they can crack down.

Right?

The worry that we have about this country is that you can get away or get rid of this central bank independence, and you don't really have this strong central authority.

Then you lose the capacity to control the inflation or to prevent the inflation.

And inflation is a very painful experience.

And we should be very thankful that for the last 30 years, the US government has that under control.

What I hear you saying, professor, is that it could be the worst of both worlds as opposed -to the best of both worlds.

-Right.

Correct.

And I want to ask you about the Needham Question, and for you to explain what that is to our audience.

But before I go there, let me ask you about this conundrum of inflation in a discourse about affordability.

I think there's been a perception, including mine, that, a deflationary climate in some respects, when it comes to housing, for example, to make it more equitable, when the prices are not affordable to the vast majority of people.

And, the American way, if you will, has been to take out loans for ten years, 20 years, 50 years to have any kind of equilibrium with the rising costs.

So you allude to China's problem of oversupply.

The conventional wisdom is that in the United States, we have undersupply when it comes to housing, and that by rebuilding or building anew, we're going to create that equilibrium.

is that what you believe?

Well, so I think, at least at this point in the US economy, we still have not experienced runaway inflation in the way that these other emerging market economies did.

So there's pressures on inflation, but pockets of the economy are experiencing surging prices.

Affordability issues, groceries, for example, housing.

But housing is a long term issue, right?

Especially in big cities like Boston and San Francisco.

In New York, I kind of separate that from the kind of short term macro economic inflation that we have been talking about that is built in a structure.

It has to do with permit, has to do with the ability of companies to build, housing.

So that's a deeper issue than just central bank independence and things like that.

Right?

Permitting is a big issue.

And the, environmental protection, you know, and the community interest, you know, how do you build while protecting the community interest?

So in the United States, this is a very complicated issue.

In China, it's not a big issue at all.

They just build.

Right?

So if, environment is getting hurt by building, they just don't care.

They just go ahead with that.

We definitely don't want to go there.

So I don't really have a perfect solution for the system that we face.

How you juggle all these, different demands on the system to solve the housing affordability problem.

But, I think the larger point is that we should sort of set that issue aside and don't do other stupid things that add problems to that existing problem.

This is what I worry about.

What the Trump administration is doing.

Understood.

I'm intrigued, and also puzzled about how we proceed with that, those separate discourses, you know, the discourse about housing versus the discourse about the price of eggs or milk.

My question to you about housing in particular, is that how much of the increase, valuation of housing has been the result of speculation in the economy versus, what you might regard as the natural increases in the cost of living, the cost of manufacturing, the cost of goods, because at some level, I think the American people believe that the price of housing just got out of control.

-Just and -Yeah.

I want to understand if that is a result of, real value or like speculated value.

Yeah.

I think this housing affordability issue is a very specific issue specific to certain locations.

Right?

That's my... Alexander, I want to make a, make it clear I'm not an expert on US housing situation.

I'm reading the things that you read.

And so my impression is that this is a particular problem in blue states, in big cities.

And that is a result of regulations permitting, all these, kind of barriers, rent control is a is another problem.

Preventing the, normal functioning of the housing market.

So, that's number one.

Number two is housing market is notoriously inefficient.

It takes time to build.

So if you look at, where I am, right?

I'm a professor at MIT, near MIT, there's a kind of square that now we have an oversupply of commercial real estate because of the overbuilding, before.

And the Wall Street Journal just had an article about that.

Right?

So you can't really perfectly time all these things.

And at one point you may feel that there's affordability issue, at another time, you may feel that the prices have gone down too much.

So I really don't have a good prescription for that.

But I do believe that, you know, I go with the conventional wisdom.

I do believe that excessive regulatory controls are not the right way to go.

If you look at the commercial real estate in Boston for years and years, we suffered from, lack of, adequate space.

And then they relaxed the control and now we suffer from the oversupply.

I just think that's the way it is.

And the third thing I want to say is that, it is interesting that you know, I was born in China, raised in China.

It is very interesting when I observe the one difference between these two countries, in China, people move a lot, especially from rural areas to urban areas.

In the US, you know, usually we think about US as a mobile society.

But geographic mobility is actually not that substantial.

Housing should increase that mobility.

Right?

So if you cannot afford a place in Boston, you should think about moving.

And that is beginning to happen.

So that's going to, if that mobility is going to increase, that is going to be a partial solution to the problem.

Right.

I just wonder, professor, if the disequilibrium and the failure to address systemic inequities in the American landscape, will ultimately mean that it will take some kind of, 1929 or 2009 event to reshape the market in a way that's more palatable to more people.

2009 and 1929 were terrible events.

It's not clear that they actually precipitated, a fairer marketplace or, but, you know, those types of events or jolts to the system.

I don't know if and when that will happen again in America, but here I was on The Open Mind in the, you know, early 2010s, saying there was going to be a pandemic.

And I would say to our viewers, now, I, I don't regard the idea of another recession, Great Recession or Depression as implausible.

As a result of the AI speculation occurring and maybe some of the, resulting, feedback loop.

I think I agree with you.

I think the prospect of experiencing another 2008 financial meltdown, I think the prospect is definitely not a non-zero one for one for the other.

Back in 2008, we had responsible leadership in both the executive branch and in the financial policy making, monetary policy making branch.

And, you know, we can say something about Congress, but at least Congress acted, reluctantly.

So we had serious policy solutions, ideas.

The criticism is they didn't do this enough.

They didn't do that enough.

But at least we never doubted that we had American leadership who wanted to solve the problem in the best way, in their own mind.

Right?

I cannot say the same thing today.

Yeah.

-And I think, if -Fair Enoguh.

something like that happens again, just imagine that the position of the dollar was not undermined by the 2008 financial crisis.

Even though it was a homegrown crisis, which is really remarkable.

The US government was able to borrow money at actually very, very, comfortable, rates even during the middle of the financial crisis.

Now, I cannot have the same confidence.

This is my worry.

What is happening now is both increase the prospect of some sort of financial troubles, undermine the capacity of the government to deal with the problems after they have occurred.

Okay, in the remaining time we have, I want to talk to you about Statism with Chinese Characteristics A History of China's Reforms and Reversals, and your forthcoming, title, The Needham Question.

First, because I don't know that our audience is familiar.

What is the Needham Question, Professor?

So, the Needham Question was opposed famously by Professor Joseph Needham in the 1960s.

And the question is why China lead the rest of the world in technology during much of the human history.

But then they began to fall apart beginning 14th century, 15th century, and 16th century.

That was the Needham Question, and that's the question that we are trying to answer in that forthcoming book.

And the relevance of that history to the present.

How would you describe, the current circumstances when the global perception of China is that they are the pinnacle of innovation?

Perhaps even overtaking the US at the moment?

Yeah.

So, first of all, I think it's a question worth writing about in and of itself, even without, relevance to current issues.

In terms of the relevance today, we always learn from history what we have learned by doing this project was that when China was at its technological peak, its political system, its social system, its ideological system, was relatively flexible.

Rather than being very rigid, very centralized and very, very, controlling.

So the idea of the book is that the Chinese became inventive, just like Americans becoming inventive, just like Europeans in the 17th and 18th centuries, becoming inventive.

Inventions, technology progress, required ideological, political and social flexibilities.

When China began to tighten the politics, tighten the ideology, that inventiveness went away.

So let me bring this issue to today's China.

As you pointed out, China is making, substantial technological progress.

It is very important to be very specific of how they have done it.

They have done it at least, for a long period of time, on the basis of collaborations with international institutions, collaborations with international companies.

The first generation of high tech companies in China, every single one of them was funded by foreign VCs, foreign financial institutions, and then the internet and other technologies, including, by the way, the technology that China is now famous for the EVs.

All of that came from international collaborations.

When China was close to the outside world, it made no technological progress and made no technological inventions.

Right?

So, we think about China as an autocracy.

That's true.

But in the economic sense, for a long period of time, China was actually quite open to the rest of the world.

You know, as a professor at MIT, I know this because they were a lot of collaborations between US universities and Chinese universities when the relationship was good.

The other thing is about Hong Kong.

What I document in my book, in the Rise and Fall of the East book, is that almost every single high tech company, especially in bioscience, in life science, own their legal protection to Hong Kong's system of rule of law under the British system and then under the Chinese, control where there is known as a one country, two systems.

Now, what I worry about is that, you have this incredible emphasis on political controls, on ideological controls.

You may undermine some of the conditions that have given rise to the technological progress in China.

So last year, a, AI company in China made it to the international stage.

A DeepSeek, right?

And if you look at DeepSeek, it happened in the most entrepreneurial region of China.

They use a lot of Western chips.

They even use the American data sets.

But if you look at the use of the DeepSeek today, it is basically limited to two countries.

China and Russia.

Right?

Because the rest of the world is very concerned about privacy, political controls and all of that.

In the long run, this is not a good environment for Chinese technology.

So, I don't buy the thesis that China, if the politics remains the way it is now, I don't buy the thesis that China is going to bury the United States, and China is going to overtake the US.

If you look at the economy, it actually has stopped overtaking the US.

Are you allowed to say that in China today?

No, not at all.

And that's the problem.

I could say lots of these things ten years ago.

The ten years ago China had a much more free media, social media and among academics we could discuss these issues very freely.

But today it is impossible now.

And you don't foresee that changing in the near term?

To have a at least a more, freer discourse, if not democratic decision making process?

Yeah.

So, Alexander, I really appreciate the distinction you just made.

Right?

Which is one democracy.

The other is a more tolerant autocracy.

I definitely support democracy and I treasure.

And that's why I am very worried about the United States because I was born, you know, autocracy.

I don't want to go back to autocracy.

But on the other hand, in my Rise and Fall of the East, I also have to say, I make this point very clear.

I also respect a country's history.

China has 2000 years of autocracy.

China has 2000 years of ideological, controls.

So I think the best case scenario is a gradual transition from today's system, maybe eventually to a democracy.

In between, I like to see China returning to a more open autocracy.

Ten years ago, as I said before, you know, among academics, and I could teach, at Chinese universities, you know, freedom of speech.

I could criticize the Chinese government.

I could criticize the government policies.

I think it will be much better if China simply goes back to that situation, rather than going all the way.

Professor, thank you so much for your insight.

We've run out of time.

I look forward to hosting you again.

Please check out the books The Rise and Fall of the East, Statism with Chinese Characteristics, and The Needham Question.

Appreciate your insights so much, thank you sir.

Thank you, Alexander.

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