Browsing the blog archives for September, 2010.

Returning from China

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I just returned from a ten-day visit to Beijing, so I thought I’d share a few thoughts on the blog.

It appears that the Chinese are weathering the economic slowdown fairly well. In the U.S., politicians on the left constantly meddle with markets and expand the debt to buy votes, and the consequences have been devastating. Chinese politicians enjoy single party rule; they are not subject to a free and independent press, not to mention talk radio. Our open government approach creates serious problems when so many Americans are recipients of transferred wealth from the productive class. It takes vigilance to defend liberty, while Marxism festers with incessant emotional appeals to class envy.

The Chinese don’t have the type debt problems we have in the U.S. Consumers buy what they can afford, only borrowing for big ticket items like a house (apartment) or car. The government is more interested in holding U.S. debt than incurring its own. An estimated 150 million Chinese live below the global poverty level, but they are not in a good position to seek redress from their political leadership.

Wealth redistribution is central to communism, but I really didn’t see any more of it in China than in the U.S. Beijing has more than its share of inequality, while the professional class lives pretty well. Reasonable health care and decent housing by U.S. standards are still hard to come by for many Chinese families, especially those outside of the large cities where poverty is a major problem.

The Chinese government blocks a number of websites outside of the U.S. for political reasons. Major U.S. news sources like FOX and CNN are available. I was able to log in to Sirius online, and to the major conservative talk show sites I tested as well (Church, Hannity, Levin, Limbaugh, Wilkow) as well. BATTLE4LIBERTY is blocked, however.

The list of sites blocked for political reasons is not always rational, but is often tied to particular comments posted on a particular site or to the use of certain phrases picked up by webcrawlers. This is unfortunate in the case of BATTLE4LIBERTY. I do my best to analyze the Chinese economy as objectively as possible, and the people I work with there are certainly warm and friendly. Relations between the U.S. and Chinese governments have their tense moments, but they have moved far beyond what they were a couple of decades ago. I may be a frequent critic of economic and social policy in China, but it’s not like my own government hasn’t created enough problems of its own.

The truth is that many of the economic challenges we have with China have been facilitated by poor U.S. policy and too much economic intervention. The ongoing problem with the dollar-yuan exchange rate in a good example; the Chinese government is pursuing a policy it believes to be in its best long term interest, while we lack the resolve to take a strong position and defend a fundamental principle of free trade. While I was there, the Chinese government instituted a tariff on U.S. poultry imports. They cited “dumping” that was “unfairly harming Chinese agriculture.” Go figure.

I always enjoy traveling to China and I learn a lot when I’m there, but it’s good to be home. One thing is true: I love my country, but I must say that it’s getting harder to preach the merits of free markets in China these days with a straight face.

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Obama’s Deathbed Conversion

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President Obama has been talking business tax cuts as of late, prompting some Republicans to question why their similar proposals have been ignored. The summer recovery never materialized and the Democrats are sliding in the polls, so the political explanation for this change of tune is not very difficult to understand. But I’m a little concerned about the lukewarm response Obama is getting from the right.

Clearly, Obama’s proposal for a 100% business investment write-off through 2011 is a better idea that another pork-laden stimulus package. But this initiative suffers from the same Keynesian thought process, the notion that government intervention can cure our economic woes. An unintended consequence of business investment incentives is that they encourage firms to invest in areas where the projected returns would not otherwise justify the expenditure. Besides, businesses will still hesitate to invest until they are more confident about future economic conditions, and most expect another two years of heavy-handed government after the midterms.

Business leaders know that while Washington is prodding them to invest, it also stands ready to confiscate a greater share of the profits and regulate production even further. Business and economic uncertainty are very high now, and many executives are trying to ride out the storm in hopes of a reprieve in 2010 and real change in 2012.

Obama’s view on the economy—like that of other soft socialists—is flawed for two key reasons. First, it assumes that government can dictate markets in an efficient manner. But if the market doesn’t like a particular aspect of government coercion, it will find a way to work around it in a manner that is neither best for the market nor the government. For example, when the government raises the minimum wage, companies respond with a mix of fewer workers and higher costs. Neither is good for the economy.

Second, Obama’s view assumes that increasing demand will solve all economic problems. More demand leads to more production—the argument goes—requiring companies to expand and hire more workers. A “stimulus package” is the left’s favorite means of spurring demand because it uses government spending to pick specific beneficiaries, perhaps “green” industries, campaign contributors, or those with big union ties. But the increased debt creates a long term drag on the economy and restricts capital availability in the private sector. The demand created is usually in areas where it cannot be sustained, so benefits are minimal and last only as long as they are subsidized.

Our economic problems are much too serious to think that a government “jumpstart” will solve them. Investment tax breaks have some advantages, but there is little evidence that businesses will take the bait anyway, especially in the current environment. Besides, Obama’s proposal is what many leftists call corporate welfare. Many soft socialists realize that economic growth hinges on profit incentives in the private sector, but they just can’t admit it and let go of the reins. Even Castro seems to be figuring this out.

Republicans should seize the moment and call for an end to the manipulation of individual and business activity through the tax code, including BOTH incentives and regulations. A lower, simpler, and flatter tax rate across the board makes sense, not a temporary reduction or incentive that can easily evaporate after the election. Let’s free up consumers and businesses to keep more of what they earn and make their own investment decisions accordingly. This could be a first step toward the type of comprehensive economic reform that will probably have to wait until 2012, including a version of the “fair tax” or a flat income tax, an overhaul of social security, and an end to Obamacare.

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Hayek on Competition

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I’ve been rereading F.A. Hayek’s The Road to Serfdom lately. I count Hayek as one of the most brilliant economists of the last century. If you haven’t read the book, I highly recommend it. If you have, considering reading it again. Hayek was a great writer, and some of the quotations from the book just can’t get any better. Here is a real gem:

“[Competition is] superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority.”

Adam Smith’s seminal work, The Wealth of Nations, argued for capitalism primarily on practical grounds; capitalism is the best system because it delivers the most benefit to the most people. Many collectivists have challenged Smith’s practical defense over the years, but today most acknowledge the simple reality that capitalism works. Given the demise of the USSR, China’s economic changes, and present conditions in Cuba and North Korea, the economic vitality of collectivism can hardly be defended. Most socialists now call for a “middle ground” between capitalism and socialism. Some call it “managed capitalism” or “planned competition.” Both are oxymorons.

Hayek concurred with Smith, but argued against a middle ground on the grounds of morality and liberty. Collectivism always leads to coercion or arbitrary government intervention. You can’t have political freedom without economic freedom, and the middle ground ultimately deprives you of both. It can’t be implemented without a government official telling you what kind of car you can drive, where you can and cannot work, how much you can make, how much you must pay your employees, and how much you must pay for their healthcare.

Capitalism values individual liberty. Socialism sacrifices liberty for the collective. You can’t have both.

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