China: Cash without prosperity

Thursday, April 20, 2006

With President Hu in town, we ask what’s wrong with China. Ignore the obvious: forced abortion and sterilization, massive pollution of air, land, and water, limited religious expression and political repression. This is the surface.

Underneath there is another agenda. China has an estimated 1/3rd of our national treasure thanks to the imbalance of trade but the Chinese are still poor. The Chinese love money, they are industrious, they dominate Asian banking, they cornered the world market on hard work, but they are still poor. And where the cash is, is anyone’s guess. I tried to withdraw $400 in American dollars at a huge bank and they did not have any. Where had it gone? I put in twice that many greenbacks!

The reason – Beijing does not know how to spend it. They are prosperous at the government level but there is no prosperity for the public. Beijing puts up tall concrete buildings – everywhere – even where there are no houses and people in sight. The medical volunteers with us identified an epidemic of high blood pressure and diabetes but 400 clinics in one major city had no blood pressure cuffs or glucosometers. Farmers badly need tools. Chairman Mao demanded that farmers melt down their tools for manufacturing which resulted in the death of 30 million from starvation before Deng and some reforms.

When I lived in China I saw a woman of about 35 acting as the horse while her husband held the plow’s tiller behind her. Untold millions of farm workers plunk seedlings one-by-one into the soil when a machine could do this quickly and easily. Miles and miles as far as the eye can see there are vast fields of crops, but not one cannery for employing those women. With massive infusions of American profits from Wal-Mart sales the agricultural landscape could be magically transformed. Perhaps Beijing doesn’t want money going to an American company; forget buying horses for the plows, think of John Deere. An incredible misuse of man-and woman-power.

On the local streets there are visible changes. The kids are fatter and taller, they smile more, the future looks better. They want gasoline for their motor bikes. Everyone is a capitalist with a small business on the side and the country side is one big yard sale. People can handle reform but the bureaucracy is living in the past.

China’s leaders have not learned the basic rule of money – I quote from Dolly in Hello Dolly – money is like manure, you spread it around to make things grow.

The principle of Keynesian monetary policy is to move money around, you raise wages, lower taxes so people are motivated to work and to spend the excess on other workers’ products and services. Spreading cash around increases everyone’s profit. You do not stuff it in the basements of Tiananmen Square.

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