Here’s a note to the brother of a former student of mine:
Mr. K__:
Thanks for your email. You ask my opinion of this MarketWatch piece on China. I’m afraid my opinion isn’t high.
The piece is standard-fare pop economics that uncritically accepts the kindergarten-Keynesian notion that economic growth is a mechanical outcome grounded in consumer spending: More spending, more growth. This notion ignores the role of institutions such as the security of property and contract rights, the freedom of prices, profits, losses, and interest rates to reflect underlying economic realities, and attitudes toward innovation and economic change. The root cause of China’s economic troubles isn’t excess saving by the Chinese people, and these troubles won’t be ended by government ‘stimulus’ or by redistribution of income. They’ll be ended only if and insofar as the Chinese economy is freed of Beijing’s fetters and prodding.
Allow me to make another point: I really dislike the much-used term “export-oriented economy.” This term is highly misleading. What’s meant is an economy that exports a great deal. Yet such an economy grows and benefits from its exports only insofar as it receives in return goods and services – that is, only insofar as it imports. An economy whose exports do not provide its citizens with the capacity to import at least an equivalent amount is an economy that is growing poorer as it enriches foreigners with a steady flow of gifts. Therefore, every successful economy described as “export oriented” can just as accurately be described as “import oriented.” Yet the commonplace term “export oriented” fuels tolerance for trade restrictions by conveying the false impression that exports as such are a source of wealth while imports are irrelevant or even harmful.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
