"When consumers in the U.S. finally fall off the edge of the cliff, where will demand come from? The reflexive answer is always “from consumers China and other emerging economies.” There are a few problems with that: (1) workers in China and other low wage countries don’t make very much and, therefore, have less to spend. (2) Those low wage workers have a very strong propensity to save, rather than consume. (In China the saving rate may be as high as 30%, and consumer spending is only around a third of GDP v. 70% in the U.S.) (3) It would be extraordinarily naive to think that the Chinese government will not manipulate things to insure that the vast majority of sales in China go to Chinese companies (in many cases companies using technology transferred from the West as part of China’s industrial policy.)

The fact is that we are very far indeed from a place where consumers in countries like China are going to pick up the slack when consumers in America and the rest of the developed world finally fail to get the job done. And there’s yet another problem: While China has benefited from globalization, it is by no means immune to the impacts of automation. In the long run factories and other business in China will also automate, and unemployment will become a serious problem. In fact, this is already occurring in industries like textiles where automation has been progressing at a rapid rate."