For some time now, readers have been fed a constant stream of commentary about China’s economic decline. To give just one example, Washington Post columnist Catherine Rampell recently wrote that the Chinese economy was going through a “difficult period.” Rampell is not alone. Around the time of her column, the Post gathered a number of contributors to consider the reasons for China’s economic difficulties.
Does it have problems? As this column always sheepishly admits, it would be very difficult to measure the “GDP” of any street, let alone a vast country. Furthermore, economies are not blobs whose temperature can be measured, but people. The speculation here is that measurements of China’s economic health are as misleading as they are state-focused. The economies of both the United States and China are far too dynamic to be tracked by conceited people who would presume to measure them.
At the same time, it is noteworthy that US stock indices have not made a significant correction. No sequel? Not at all. China is a huge market for US companies. Readers recently saw this with Apple’s $200 billion market cap loss, which came after Chinese officials threatened only limited bans on iPhone sales. Apple sells a lot of iPhones there just to get investors to express their nervousness. Apple is not alone. If China’s economy weakens, we will see this very clearly in the weakness of stocks in the USA
Which raises an obvious question: If China’s economy is so weak, why isn’t it showing up in market indices? Why actually? Perhaps the answer lies in Xi Jinping, the person so many U.S. experts point to as the cause of China’s alleged economic woes.
According to a recent report in the Wall Street Journal, Xi’s considerable power is “delaying the country’s response to the worst economic downturn in years.” While “officials in charge of day-to-day economic affairs have held increasingly urgent meetings in recent months to discuss ways to address the deteriorating outlook,” Xi appears to have been content to take no action. In the words of Journal reporters Lingling Wei and Stella Yifan Xie, Xi “did not seem interested in supporting further stimulus measures” despite “leading Chinese economists advising him to take bolder measures.” Xi is the wise one.
Better yet, if Benjamin Anderson were around, he would applaud Xi’s lack of activity. In his brilliant book about the 1930s, “Economics and the Public Welfare,” Anderson made clear that the “Great Depression” was only “great” because the political class, in response to a weak economy, assumed the power to fix it . There was your depression.
It is not clear to economists and politicians in the United States and in China today that a “recession” is a sign that the economy is recovering, as bad investments are mothballed and poorly-off employees are laid off so that they can find jobs that are better for them They fit elsewhere, and on the whole mistakes are quickly corrected. Fighting the “recession” means fighting the recovery. Instead of empowering individuals and companies to fix themselves, “stimuli” perpetuate bad ideas. If there are no politicians “doing something” in the 1930s, there is no Great Depression. There is simply a boom, similar to when President Harding did little in response to the much larger recession of 1920-21. Do Nothing, author of the Roaring 20s. Get it?
By doing nothing now, Xi will ideally allow the Chinese to fix their mistakes and allow well-run companies to acquire physical and human capital relatively cheaply. This all suggests that Xi knows much more about why economies grow than economists. This also applies to the stock markets.
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I am president of the Parkview Institute, publisher of RealClearMarkets, senior fellow at the Market Institute, and senior economic advisor at Applied Finance Advisors. I am also the author of six books. The most recent publication is The Money Confusion (All Seasons Press, 2022). Others include: “If Politicians Panicked, They Are Both Wrong” (AIER, 2019), “The End of Work” (Regnery, 2018), “Who Needs the Fed?” (Encounter, 2016), and Popular Economics (Regnery , 2015).
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