Adam Smith's invisible hand is solving the 'China problem'
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“Political leaders in capitalist countries who cheer the collapse of socialism in other countries continue to favor socialist solutions in their own. They know the words, but they have not learned the tune.”
- Milton Friedman, Rose Friedman (1990) “Free to Choose”
In 1942, Joseph Schumpeter wrote “Capitalism, Socialism and Democracy”. This note is not a critique of Schumpeter’s premise that there is a long-run tendency for profits to vanish, rather my assessment that the bipartisan position that something needs to be done about China by policymakers, ignores the market forces that have administered two malinvestment busts in 5 years to the largest command and control system in history. Critics who would be quick to site the failures of socialism or mercantilism, seem to believe that China is different from all the other command and control or export dependent nations that preceded them.
We see quite the opposite, China’s current account as a percent of GDP has contracted sharply since the pre-Global Financial Crisis high at 9% of GDP and is now close to zero. China’s global trade market share peaked in 2015, shortly after their demographic dividend that created the greatest increase in the supply of labor in history, and been steadily contracting.
Barry C. Knapp
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Ironsides Macroeconomics LLC
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