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What the US Can Learn From China: Stephen Roach

While the U.S., Europe and China all have their economic challenges, the U.S. may want to adopt China's approach of greater economic planning to deal with its issues, Stephen Roach, Yale University senior fellow, told CNBC's "Squawk Box" on Tuesday.

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"China does something we need to think about in the United States," the former Morgan Stanley executive said. "They do strategy, they have a commitment to the strategy, and they have the tools to implement that commitment."

He added, "They have a five-year plan. We have Adam Smith who has never planned anything in his life or afterwards."

Roach expects China to continue to grow at about 7 or 8 percent. He also said that the idea that there are ghost cities all over China misses the future rural urban migration, "which is a very powerful story ongoing in China." (Read More: Changing China: The New Leaders.)

In the U.S., the main challenge is getting overly indebted consumers to start spending again. Roach noted that for the past 19 quarters the average annual growth in consumer spending was 0.7 percent, versus a prior ten-year average of 3.6 percent.

"Quite a slowdown for 70 percent of the economy," he said.

Without a stronger American consumer, the impact of going off the "fiscal cliff" — when a host of spending cuts and tax increases hit at the end of the year — will hurt more than it otherwise might, he warned.

"We've got a generation of zombie consumers that are haunting the landscape in the United States," Roach said. "What the consumption weakness shows you is the economy doesn't have a cushion, so when you hit an economy without a cushion with sharp fiscal consolidation we'll go immediately into recession."

Roach expects Congress to deal with the country's near-term fiscal problems largely by pushing the problem down the road and through "smoke and mirrors." (Read More: Bears Beware, Fiscal Cliff 'Won't Happen': Senator Corker.)

"It's hard to argue with the logic of fixing the fiscal problem," he said. "But I think the politicians come up with a short term patch, will push it into 2013. We'll have some grand summit and come up with a solution that doesn't make anyone happy."

For markets, Roach said the real worry is that gloomy global growth will be driving gloomy global earnings in 2013.

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