Krugman’s China Critique

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“Rapacious crony capitalism” is the phrase the Nobel laureate Paul Krugman, writing in this morning’s Times, uses to describe the system in Communist China. He calls the crisis in the People’s Republic “worrying.” He wants the Red Chinese to be more communistic, or, as he puts it, to “invest less and consume more,” while making reforms to “distribute the fruits of growth more widely.” This is what Karl Marx meant when he said: “From each according to his ability, to each according to his needs!”

That phrase is from a document called the “Critique of the Gotha Program.” It was written in March 1875, late in the career of the author of the Communist Manifesto. It is based, Wikipedia’s account reminds us, on a letter Marx wrote to the Social Democratic Workers Party of Germany. The idea was to point the way to a “higher phase of communist society,” after, as Marx put it, “the enslaving subordination of the individual to the division of labor.” Marx maundered on and on.

The immediate problem, in Mr. Krugman’s critique, is “how to sustain spending during the transition,” a point where — to put it in in lingua Nobelista — “things have gotten weird.” The government, he writes, supported the economy “by funneling cheap credit to state-owned enterprises” like Obamacare … pardon us, we lost our train of thought momentarily . . . state-owned enterprises and then adopting “an official policy of boosting stock prices, combining a stock-buying propaganda campaign with relaxed margin requirements, making it easier to buy stocks with borrowed money.”

The goal, Mr. Krugman writes, may have been to help out Goldman Sachs and other … dang, we lost our train of thought again; sorry . . . may have been to help the state-owned enterprises. “But the consequence was an obvious bubble, which began deflating earlier this year.” China’s authorities “pulled out all the stops to support the market — suspending trading in many stocks, banning short-selling, pushing large investors to buy, and instructing graduating economics students to chant ‘Revive A-Keynes, benefit the gover. . .’” . . . blast it, our mind wandered again .. . “to chant ‘Revive A-shares, benefit the people’.”

Mr. Krugman reckons all of this “has stabilized the market for the time being,” though it has tied communist China’s credibility “to its ability to keep stock prices from ever falling.” This, he trans-supposes, is why China “decided to let the value of its currency decline,” a decision that Mr. Krugman believes “made some sense,” since in his view the renminbi is “significantly overvalued.” The market’s reaction, though, has taken the mandarins of Chinese communism “completely by surprise.”

Of course, that could happen to any issuer of fiat money. Just ask, say, Ben Bernanke or Janet Yellen, who famously missed the data leading up to 2008. Then again, Mr. Krugman notes, the Chinese communists promptly switched to an “all-out effort to support the renminbi’s value.” He says the common theme in these “wild policy swings” is that the Chinese communist leadership “keeps imagining that it can order markets around, telling them what prices to reach. And that’s not how things work.”

Let’s see if Mr. Krugman will share that insight with the governors of the Federal Reserve. He insists he’s not saying that governments “should never interfere with markets.” He’s still plumping for the minimum wage and ever more regulations. He’s even for occasionally intervening “to prop up asset prices,” like when the European Central Bank promised “to do ‘whatever it takes’ to safeguard the euro.” He’s just worried the Chinese Reds fail to grasp that this can’t be sustained. He offers no discussion of the price mechanism or mention of Comrade Supply or his rapacious crony, Comrade Demand.


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