Browsing the blog archives for September, 2013.

The Austrians in China

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I just returned from China. Some websites are accessible there based on content and other factors. Battle4Liberty was not.

I met two fascinating scholars in Beijing, economist Feng Zingyuan and political scientist Lui Junning. Feng is a professor in the Rural Development Institute at the Academy and one of the top Austrian economists in China. Yes, I said Austrian economist. I didn’t know there were many followers of Mises and Hayek in China, but he insists the number is growing.

Lui has been battling the political system in China for a long time as well. His 2001 article calling for economic and political reform got him expelled from the Chinese Academy of Social Science and barred from traveling outside the country. The travel ban was rescinded in 2009, but his place in the Academy has not been restored. Lui boldly rejects the idea that liberal democracy is merely a Western idea. He writes for the Wall Street Journal on occasion; one of his op eds can be found at http://online.wsj.com/article/SB10001424052702304760604576427931129537282.html.

Both Feng and Lui are fans of Ayn Rand and Atlas Shrugged. They actively defend the morality of capitalism in a nation whose economy is officially based on Marxism. The fact that their views are tolerated in China is a positive sign. It is also encouraging to learn that their ideas are being well received by many students there.

One thing really hit home from our discussion. While there are important differences, China and the United States are facing many of the same economic problems. China has financed much of its infrastructure boom with debt. Quantitating easing that debases the currency continues to be central to Chinese monetary policy. Although the official numbers are lagging, there is growing evidence that prices in China are on the rise. Beijing continue to expand the economic bubble with various forms of “stimulus.” Their story sounds a lot like ours.

A half-century ago China and the U.S. were 180 degrees apart, politically, socially, and economically. China was a poor, tightly controlled and insular nation, with very little contact with the outside world. China began introducing market-oriented reforms in the late 1970s and growing economically in the 1980s. Change has been slow and China remains a largely socialist nation, but its economy has moved in the right direction and has developed a great deal.

In contrast, the U.S. was largely free 50 years ago, with expanding economic opportunities and political liberty. Our economy was strong, but Ayn Rand foresaw impending problems when she published Atlas Shrugged in 1957. Looking back it’s hard to refute her forecast. Government corruption and cronyism are serious problems today and economic growth has slowed. Amid a $16 trillion deficit, wealth redistribution has become Washington’s primary political purpose as one “class” is constantly pitted against another.

During the past two decades, China has sought to introduce its own version of liberty and free enterprise. Just last week, Premier Li Keqiang announced plans for instituting a free trade zone in Shanghai. Meanwhile, Washington continues to pursue even more intervention, as the Fed announced its plan to continue buying $85 billion worth of bonds each month. While China is looking more like the U.S., our nation is looking more like China. The cronyism, political corruption and tight central planning many Chinese seek to dismantle have become massive problems in the U.S. with no end in sight. The two nations are traveling on the same road, but in different directions.

The case for capitalism as a moral and productive system is compelling. It’s both ironic and sad that many Chinese—led by scholars like Liu and Feng—seem to understand this better than many Americans do. I don’t know what the future holds, but there’s a lot we can learn from watching the internal struggles in China over political and economic freedom. The nation’s recent growth is proof positive that economic development is linked to free enterprise. I don’t worry that China will soon become a global economic powerhouse, however. I worry that my country will cease to be one if we don’t change course soon.

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Deciphering the Unemployment News

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If you just listened to the mainstream media you’d think the U.S. economy was doing quite well. Consider the opening lines from an LA Times article on Friday entitled, ECONOMY ADDS 169,000 JOBS IN AUGUST; UNEMPLOYMENT RATE EASES TO 7.3%:

“The economy added 169,000 net new jobs last month and the unemployment rate ticked down to a near post-Great Recession low of 7.3%, its lowest level since the end of 2008, the Labor Department said Friday. The job growth in August was slightly below analyst expectations though roughly in line with the average monthly gains this year. But it came along with significant downward revisions for the previous two months, raising questions about whether economic conditions have improved enough for Federal Reserve policymakers to start reducing their stimulus efforts.”

What the LA Times and others aren’t telling you is that workforce participation actually dropped to 63.2%, its lowest level in 35 years. How can the unemployment and workforce participation rates drop at the same time? The answer is quite simple, and is one that would be more than a footnote if major news outlets weren’t seeking to influence public perception about the economy. There are some technical issues involved in calculating the participation rate, but it’s essentially the proportion of willing and able working age Americans who are either employed or actively looking for work. This percentage hovered around 66% when President Obama was elected in 2008. Had the participation rate remained unchanged since that time, the current unemployment rate–which does not count those who have given up looking for jobs–would exceed 11%. This number is even higher when you consider underemployed Americans.

Not only is the real unemployment rate constantly understated, but these numbers indicate that a higher percentage of jobless Americans EITHER don’t believe the hype and have given up looking for work OR their current situation–considering unemployment, welfare and other benefits–does not motivate them to enter the workforce. Neither of these scenarios is good for our economy. Moreover, the LA Times questions whether the “improvement” in the economy is great enough for the Fed to trim its stimulus (AKA, quantitative easing). Even with the Fed’s efforts to prop up the economy, it remains stagnant and real unemployment continues to be a serious problem, leading a rational observer to question the current path we’re on.

I’m not trying to talk down the economy, but the first step in addressing a crisis is to admit that we’re facing one, and the second step is to define it in honest and clear terms. At this point, neither the President nor the mainstream media is willing to do either.

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