Monday, May 24, 2010

China Syndrome

It seems to me that people who are generally supportive of an activist federal government and of the Obama administration more specifically, really ought to avoid holding up the example of China as a positive role model for government intervention.

Tom Freidman did it on Meet The Press this weekend, though he took pains to point out that he was simply engaging in fanciful speculation. Today, liberal blogger Matthew Yglesias, who is currently in China, offers this:
in the past couple of months the Chinese government has taken regulatory steps to try to cool things down including, most notably, requiring a 50% downpayment on any second homes. The clear intention there is to make it difficult to engage in leveraged real estate speculation, thus preventing too much in the way of mania.

I won’t try to judge how effective that step will be. But it’s a reminder that it’s not as if it’s impossible for regulators to notice that something funny’s happening and then change the rules in response. [EA]
Not allowing governments to have one set of rules for the home country and another for the colonies goes to the very heart of American history. For English speaking people, the notion that capriciousness in government is a bad idea may go back as far as Magna Carta. As bad as the current financial crisis is, upending this tradition now seems like an incredibly bad way to run a country.

More to my point here, it also seems like a bad way to win people to your cause. Just twenty years ago the Chinese government brutally suppressed pro-democracy public demonstrations. Thankfully, no Tea-partier has yet had to face down a tank, but when commentators on the left speak so glowingly of China, it reinforces the idea that worrying about such as possibility may not be all that crazy.

1 comment:

J. Strupp said...

Agree completely.

I wouldn't necessarily hold up one of the biggest currency manipulators in world history as a beacon of government interventionist virtue. Afterall, Yuan manipulation is the very reason that the PRC needs to intervene in domestic real estate markets in the forst place.

Once this massive asset bubble pops over there, I don't think we'll be looking so kindly on PRC intervention at all.

The only way I would look kindly on Chinese government intervention into capital markets is if they stopped delaying the inevitable and began allowing the exchange rate mechanism to work the way it's supposed to and, therefor, begin to reduce their current account surplus.