China and the failure of economic planning

China's stock market meltdown underscores the inability of economic and financial planners to manage an economy.

Balloon pop.
Needle about to pop a green balloon, emblematic of this week's Chinese stock market action. (Composite)

WASHINGTON, July 9, 2015 — It was easy for old, totalitarian, communist China to confiscate and redistribute wealth among its teeming masses. But new and improved totalitarian, crony-capitalist China is having problems when it comes to market intervention.

Government fixers served as the buyer of last resort as investors triggered an avalanche of discarded equities. Calling its buying actions a “patriotic fight,” China’s stock-buying spree did nothing to stop the Shanghai Composite from dropping 32 percent or the Shenzhen from falling 41 percent.

The government went so far as to ban major shareholders and corporate board members from selling their stocks, else they will be dealt with “seriously.”

China also announced that homeowners can leverage their little piece of the nation’s real estate bubble to speculate in rapidly declining stocks.

According to CNN Money, China’s recent $3.25 trillion stock market loss was greater than the value of socialist France’stock exchange and 60 percent of Japan’s.

The International Monetary Fund’s 2015 forecast calls for global growth in GDP of 3.8 percent, with China leading the way.

“Small investors are now questioning their faith in the Communist Party’s ability to manipulate the markets,” said the Wall Street Journal, “which is the beginning of wisdom.”

The Journal added, “This reflects a Communist Party culture that tries to tightly manage outcomes because they reflect on those who push the policy.”

That being said, we are all communists now!

Can you name one government or central bank that has not attempted “to tightly manage outcomes”? Aren’t these the same financial geniuses that kept bailing out Greece until the Greeks told them, “Thanks for nothing, suckers!”

And aren’t these the same financial geniuses that believed real estate prices would never come down? America’s former Federal Reserve Chairman Ben Bernanke insisted that derivative investments based on toxic mortgage debt were “safe” because they were “traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly,” and that he did “not expect significant spillovers from the subprime market to the rest of the economy or the financial system.”

Bernanke also said, “China has taken initial steps toward a greater reliance on markets for determining the allocation of investment — for example, by authorizing and beginning to liberalize the stock market. China has also strengthened its banking system by improving supervision.”

Just last March, President Obama told the City Club of Cleveland, “Trickle-down economics [free markets] doesn’t work, and middle-class economics [wealth redistribution and government economic intervention] does.”

The last year of trickle-down economics, 1988, the U.S. labor participation rate was 66.1 percent. Under Obama’s Chinese economic model, it has dropped to 62.6 percent and falling.

New York Times columnist Thomas L. Friedman once lamented that America was not more like totalitarian China. “One-party autocracy,” said Friedman, “certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages.”

Friedman said China’s central planners “understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that.”

Obama, playing catch-up with China, “invested” tax dollars in solar-panel manufacturer Solyndra, costing American taxpayers nearly $1 billion when the company collapsed.

Hanergy, a Chinese thin-film solar panel concern, saw its stock plunge by 47 percent last May, costing its crony-capitalist founder nearly $15 billion.

It was the free market economist Milton Friedman who quipped, if government masterminds were put “in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

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