Pettis Vs Corrigan

Now there economic analyst China watcher named Sean Corrigan.  As far as I can tell, Pettis is of the Keynesian school.  Corrigan is of the Austrian school.  Here is Corrigan on the same topic as Pettis essayed.  Corrigan, even with his over-stuffed prose, gets it clearer and quicker than a Keynesian.  For my part, I cannot critique Corrigan's essay, here in part:

It is therefore not Keynes or Kuznets to whom should be looking, much less the ineffable Krugman, but the shining example of Sir John Cowperthwaite whose enlightened strategy of what he called ‘positive non-interventionism’ in 1960s Hong Kong—coupled with a near blanket ban on the collation of official statistics for fear their provision would tempt men into meddling (“If I let them compute those statistics, they’ll want to use them for planning.’’)—allowed the entrepot to more than quadruple its GDP per capita (it really is a hard habit to break, isn’t it?) in comparison with its colonial masters in dour, socialist Britain, in the space of single generation. 

A man who eschewed tariffs in an era of protection; who abstained from government borrowing at a time when his peers were fast becoming ’all Keynesians now’; who capped income taxes at a modest 15% in an age when the rich were being ‘squeezed until their pips squeaked’; and who resolutely refused all blandishments to shower corporate welfare upon the taipans, Cowperthwaite’s assessment of his own role was nonetheless characteristically modest, once declaring that, as regards his contribution to Hong Kong’s success,

I did very little. All I did was to try to prevent some of the things that might undo it.

Today, when we are plagued with the grossest of governmental interventions, the maddest of monetary manipulations, and the most invidious of attacks on individual wealth, it might serve to reflect upon some of Sir John’s expressed principles. 

On capital controls:

… money comes here and stays here because it can go if it wants to. Try to hedge it around with prohibitions and it would go and we could not stop it and no more would come. 

Re the role of the state vis-à-vis the private sector in production:

…when government gets into a business it tends to make it uneconomic for anyone else.

On what we Austrians would call the great ‘knowledge’ problem—so routinely overlooked by the meddlers in office:

In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster.

Or this:

For us, a multiplicity of individual decisions by businessmen and industrialists will still, I am convinced, produce a better and wiser result than a single decision by a Government or by a board with its inevitably limited knowledge of the myriad factors involved, and its inflexibility.

And again:

I must confess my distaste for any proposal to use public funds for the support of selected, and thereby, privileged, industrialists, the more particularly if this is to be based on bureaucratic views of what is good and what is bad by way of industrial development. An infant industry, if coddled, tends to remain an infant industry and never grows up or expands. 

Are you listening, Mr Cameron; écoutez-vous, M. Hollande?

 But, setting aside the political philosophy for now, let’s return to the humdrum business of commenting upon that laboratory of central bankers, that Petri dish of those armed with the printing press, that we touchingly refer to as the ‘market’.

Much of the week has been an exercise in Google-translated rune-reading from China’s ongoing ‘Two Meetings’ at which the formal handover of power will be undertaken. Largely monopolized so far by the outgoing crew, we have to wonder whether Wen Jibao’s effusiveness reflects policy as it will be or whether it is simply a wistful, legacy-minded expression of policy as it should have been.

For what it’s worth, there has been plenty of open criticism of the GDP-at-all-costs model and some frank recognition of the scale of the malinvestment already in place. For example, NDRC chairman Zhang Ping candidly admitted that ‘a rising number’ of heavy industries were making losses and ‘lamented’ the overcapacity in steel, aluminium, cement, glass making and coking coal. Plants in these sectors, he said, were running at just 70-75% of capacity, while the once booming solar industry was operating at just 60%. To address their ‘huge difficulties’, Zhang said he was pushing to increase the pace of mergers in these sectors, but also confessed that such an approach has had ‘little success’ in recent years.

The financial flipside to this was made plain by Li Yining, professor at Beijing University, who warned a CPPCC press conference of nothing less than ‘a possible financial collapse caused by over-investment amid the country’s new urbanization wave.’ – you know, the same ’wave’ on which all the CCP’s hopes are being pinned for the coming years. 

In the midst of this, we were treated to the release of the Chinese trade numbers for February which, for reasons of LNY calendar variability, are best combined with those for January when we attempt to gauge the state of play. Intriguingly, imports—not the least imports for number of key commodities, such as copper, iron ore, and oil—were relatively subdued and hence,  in keeping with anaemic showing of neighbouring Korea and Taiwan. But, despite this, exports took a major jump, rising by almost a quarter on the same two months of 2012.

How did that happen? Had China suddenly and dramatically reduced the erstwhile heavy contribution of foreign inputs to its output? Was this a staggered liquidation of product built up in QIV’s hothoused burst of activity? Or was it perhaps an exercise in good, old fashioned, tax and subsidy arbitrage and/or chicanery aimed at evading the current account restrictions?

We ask this because, although they, too, rose in absolute terms, exports bound for the United States—after all, the fastest growing of all the large, net-deficit economies and hence there most likely destination—fell to a modern-era record low share while those to round-trip Hong Kong soared 60% to a new outright and relative share high. At the same time, the country saw record foreign exchange inflows of more than $100 billion—a marked contrast to last year’s hefty drain of hot money. Not coincidentally, this was a period in which the traditional speculative vehicles, the markets for stock and property, both, were on a violent upward tear.

So, were exports—possibly greatly overinvoiced—again being used to wash funds through the somewhat porous capital account barrier, picking up tax rebates along the way? Was this a means to exploit the yen’s twice-in-a-lifetime rate of decline by clandestinely borrowing some of that excess valuation in Abe-san’s fast depreciating currency? We have no way of knowing, of course, but we remain duly suspicious. 

There is a difference between the regnant Keynesians and the marginal Austrians.  The Austrians know how to spot the problems and how to fix them.  But, if no problems, and no fixes necessary, then who needs government?  No one, but people want government.  But as Hong Kong shows better than anywhere else, if left alone business will self-govern, and the government can sleep easily at night.

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