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03.01.2009 0

Trading Places

  • On: 03/12/2009 10:07:24
  • In: Globalization
  • By Howie Rich

    For years, the Communist Chinese have been the butt of American jokes for their Maoist principles and centralized government planning.

    They’ve also received scathing international criticism for their at times brutal suppression of human rights – and deservedly so.

    But in the years since Tiananmen Square, China has moved steadily towards a market-based economic system while America has racked up increasingly large deficits for centralized, socialist spending – with a growing percentage of our accumulating public debt held by Chinese creditors.

    Also, China has taken steps to improve its human rights record in recent years, while American liberties have gradually eroded under the weight of an ever-expanding federal government.

    Clearly repression and communism are still the laws of the land in China, but it is worth noting how one nation waxes and the other wanes – particularly when crisis comes.

    Just look at the divergent approaches taken by the American and Chinese governments with respect to their economic “stimulus” plans.

    Like our country, China is operating under the flawed assumption that investing in additional government will somehow bring about economic revival.

    But, there are critical differences in these two superpowers’ positioning and plans which could make the economic downturn much easier for China to manage.

    Supporters of the “American approach” like point to the fact that China is ballooning its deficit from 0.4 percent to 3 percent of its national income to pay for its plan – but that argument ignores the fact that America’s deficit currently stands at 12 percent of its national income.

    We also have an $11 trillion (and climbing) national debt – of which China was holding $681 billion prior to the most recent U.S. bailout.

    China, meanwhile, entered 2009 with nearly $2 trillion in foreign currency reserves.

    There are also huge differences in the “meat” of the two plans.

    In China, the majority of the stimulus package was actually devoted to bricks and mortar. Huge chunks were also devoted to business tax breaks, and a full quarter of the package was devoted to rebuilding an area of the country devastated by the Sichuan earthquake last May.

    Has it worked? Few trust China’s optimistic estimates of 8 percent growth in 2009, but the country’s lending, spending and consumer confidence has largely stabilized.

    By contrast, America has poured billions of dollars into the same failed financial institutions and government bureaucracies that conspired to create its current crisis – not surprisingly, to no avail.

    The first bailout failed miserably to stimulate lending or lift the Dow Jones out of its doldrums, while the second bailout resulted in another massive selloff on Wall Street over fears that it “didn’t do enough to stimulate the economy.”

    Talk about the understatement of the millennium.

    While China at least pursued its flawed interventionist philosophy (it’s still a communist country, remember) with a modicum of common sense, America has plunged herself deeper into big government insanity.

    For example, billions of dollars intended for small businesses were stripped from the final version of the “stimulus” package, which ended up as a liberal special interest goodie bag routed through the same old inefficient, unaccountable agencies.

    Also, China pumped in its “stimulus” money immediately where it would have the maximum effect, whereas the U.S. approach is to engage in a protracted, multi-year federal spend fest on government programs with no immediate economic benefit.

    In fact, the Treasury agency charged with picking winners and losers in our marketplace (where was that in the Constitution?) recently acquired four floors of DC office space by agreeing to a ten year lease – a sign they plan on sticking around for awhile.

    Thinking that government can rescue a national economy under any circumstances is wrong-headed, but the clear differences in China’s reaction to this crisis and America’s are telling indicators of the direction each country is moving.

    And sadly, America doesn’t seem likely to reverse course anytime soon.

    The author is Chairman of Americans for Limited Government.

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