Tuesday, May 13, 2008

Chinese Tragedy Ahead

The Chinese have decided to imitate American economic progress. But they have chosen to imitate the wrong thing. American economic success has come in spite of, not because of, government development schemes. In particular, the US government and the states granted large amounts of land and access rights to railroads in the nineteenth century. Although railroads contributed to economic development, they did so at much higher cost to the public than was necessary. The public donations of land were accompanied by considerable incompetence and corruption. More railroads were built than were needed. In today's world, the corruption associated with land grants has not disappeared. The Progressives of the early twentieth century believed that by rationalizing the corruption of the political bosses, government support for business could be rationalized and made honest. In the Progressive tradition, Robert Moses in New York and similar social democratic Progressives in other states involved state and federal governments in considerable grants to business. This tradition is not why America has succeeded. America has succeeded in spite of government support for business. Sadly, the Chinese have chosen to imitate the Jay Gould/Robert Moses tradition. They are attempting to modernize their country through government support for development coupled with inflation.

The way that America did succeed in developing its economy was entrepreneurship. Freedom of enterprise not only permitted entrepreneurial genius to innovate here, but also drew entrepreneurial geniuses from other countries. For instance, Nikola Tesla came to the United States because Europeans refused to invest in his concept of A/C electricity. Thomas Edison, Jonah Salk and an endless list of homegrown and immigrant innovators came here because of American freedom. But a long list of social democrats, media pundits, quack academic economists and socialists have done all they can to destroy America's freedom.

The development that occurred because of Jay Gould, Robert Moses and Bruce Ratner, the successor to the governmental welfare approach to business, is not the development that made America a great country. Rather, America became a great country in spite of Jay Gould, Robert Moses and Bruce Ratner. In the case of Robert Moses, the public housing on which he squandered billions of dollars and was supported by the New York Times caused massive increases in crime, destruction of neighborhoods and the near-bankruptcy of New York City in the mid 1970s. Jay Gould's and his contemporaries' railroads were incompetently run and cost the nation far more than they should have. Despite the massive tax on innovation that corrupt government support for business has posed, the US surged ahead because of the innovation of men like Edison and Tesla. The entrepreneur, free of government impediment and government welfare subsidy, thinks of ways to meet consumer needs and so makes himself wealthy and the world wealthier still.

Tragically, the Chinese perceived the spectacular image of large-scale development and have attempted to emulate Robert Moses's approach with large construction projects, continuing to limit the intellectual and economic freedom on which economic development depends. Equally sadly, Americans lost sight of the reason for their success, and passed laws and regulations, and imposed punitive taxes, that have inhibited entrepreneurship, slowing American economic progress, even as they have increasingly provided welfare payments to incompetent bankers, real estate developers, academics and Wall Street stock jobbers who do not produce wealth.

This country and China have squandered resources in stupid ways. The bubble will burst as all credit bubbles do. America may have enough resources to reassess its errors. The Chinese likely do not, and many there will be hurt.

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