Quotable

“The reason for the unreason with which you treat my reason, so weakens my reason that with reason I complain of your beauty.”

Miguel De Cervantes, Don Quixote

Commentary & Analysis

Only the free market can save China…funny how we romanticize  

I appreciate Ludwig von Mises more than most and have for decades.So the yearning for free markets is high on my list.But the reality is we live in a world of controlled and quasi-free markets.Sometimes, however, we romanticize; most often when it fits our story we say markets are free—or at least they should be. 

I have noticed a pattern; when some do well they tend to extol the virtues of the “market system,” but when badly it was because of manipulation or some other government or powerful “they” intrusion into the market.Gold bugs provide a perfect example.To the bugs it is the love of gold and all its glittering qualities of safety and demand and transparency which are praised while prices are going up; but on the way down many blame manipulation by the bullion banks and governments for suppressing gold prices.Investors aren’t the only ones who exhibit this behavior—corporate executives have long mastered the technique. 

Now that China is showing signs of trouble those who used to say “China was more capitalistic than the West” are of course singing a different tune.And what might be the solution to help China solve its problems and stabilize Western financial and commodities markets?Why yes, more “free-market” reform:   

There are indeed only three large population countries that have achieved catch up to living standards equal to or at least 70% of Western levels—Japan, Korea, and Taiwan.And these countries did not get rich with free financial systems, free capital flows, or even free trade.The precise policy mix differed by country, but in all it involved a significant role for industrial tariffs, financial repression, and directed credit.Indeed, they got rich by rejecting almost all the precepts of the subsequently dominant ‘Washington Consensus’ and of the neoclassical theories of economic efficiency on which that consensus was built.