The Wall Street Journal recently published an article titled "Reading Hayek in Beijing", in relation to the award of Manhattan Institute's Hayek Prize to Yang Jisheng, a Chinese journalist and author of Tombstone, a painstakingly researched history of famine in China during the period of Mao Zedong.
Prior to the communist revolution, China was a highly advanced economy. With the implementation of Mao's Red Book teachings, China suffered many episodes of starvation, poverty, and economic collapse. Yang lost his father during the famine that took 36 million Chinese lives during 1958-1962. The article noted
that the source of all the suffering was not nature:
There were no major droughts or floods in China in the famine years. Rather, the cause was man, and one man in particular: Mao Zedong. Starving peasants were prevented from fleeing their districts to find food; cannibalism, including parents eating their own children, became commonplace.
Yang analyzed China's famine in light of Hayek's book The Road to Serfdom. Hayek predicted the impossibility of socialism and the inevitable consequences of communism that appear in the long term once entrepreneurship disappears and capital has been eroded. The suffering inflicted by statism was not peculiar to China; it spared no country that applied collectivism. Russia suffered repeated famines and economic collapse.
The US has built its industrial might and wealth on private sector initiative and capital. Ironically, President Barrack Obama and Federal Reserve chairman Ben Bernanke have been forcefully promoting a model of failed policies that call for the largest role possible by the state.
There are contrasts and similarities between the extinguished communism of Mao and the rising one of Bernanke-Obama. Both reject Hayek's theory and the private sector, and believe in a provident state; wealth has to be redistributed equally. Both believe that capital has no remuneration and the interest rate has to be zero.
Nonetheless, there are contrasts between Mao's Red Book and Bernanke-Obama collectivism. The former called for confiscation of private poverty and forced labor to work with hands and small tools; unemployment was not allowed and workers earned deservedly a share in the product. The Bernanke-Obama model is based on Keynesian economics and calls for creating as much demand as possible through fiscal deficits and money printing.
The key principle of Bernanke-Obama model is to redistribute wealth through bank credit and government hand-outs. You are paid directly by the state to consume and to remain unemployed. Beneficiaries receive free healthcare, housing, cars, and entitlements through money printing by Bernanke and fiscal deficits of Obama. Most interesting, people live on welfare and drive fancy cars; it is all paid on one hand by the government doles and the other hand by free loans from Bernanke. Nobody needs to work to enjoy such free living under Bernanke-Obama communism.
In fact, work and high income become a serious liability. Obama recruited thousands of tax agents to go after every taxpayer domestically and abroad and particularly those who make US$250,000-plus a year as well as against conservatives who believe in economic freedom.
Often, taxpayers have their tax returns audited at least three times, with penalties inflicted in each audit. In fact, under Obama's rule, it is far better to receive payment from the government instead of working and be subject to endless tax audits and persecution; others renounce US citizenship to avoid huge tax penalties.
Both the Mao and Bernanke-Obama models are inefficient and even ruinous. Mao could not export starvation through printing money since his money had no international acceptance; millions of Chinese had therefore to succumb to famine and cannibalism at different times, the latest in 1969 with 20 million deaths. In contrast, under Bernanke-Obama model people are enjoying opulence as trillions of dollars are printed to finance fiscal deficits or provide unlimited loans.
The US dollar is still the world's main reserve currency and is accepted everywhere. Under the Bernanke-Obama model, large real imports that afford high living standards are paid for with printed dollars. Nearly 50 million people in the US live on food stamps and 15 million on disability benefits. Hence, thanks to the dollar, starvation is exported and there is a huge drain of capital from the rest of world which will slow growth worldwide. Other vulnerable countries face malnutrition.
The inefficiencies of Bernanke-Obama statism are too numerous. Because of the dollar being a reserve currency, they affect the rest of the world. Bernanke, who was the master of George W Bush's economic policy, initiated near-zero interest and a super-cheap money policy that wrecked the US and world economy in 2007-2008. Bernanke's policy ended two decades of prosperity and brought misery and inflation. Lured by near-zero interest rates, many countries got into debt crises and remain in state of dislocation.
Elected in 2008, Obama joined hands with Bernanke to promote statism through unorthodox money and fiscal policies. Both men share the same beliefs of zero interest rates, money debauching, and statism. Bernanke bought failed loans, initiated the largest money expansion in the US history, and denied savers any remuneration of capital. Obama initiated the wildest fiscal policies. Both men aim at the largest redistribution of income and wealth. The state became the main lender to consumers and about 47% of people in the US depend on direct government support.
As predicted by Hayek, Bernanke-Obama collectivism is no different from Mao's and failed to restore economic growth. In view of dramatic increases in tax revenues, record government spending, and trillions of dollars in money printing, one would expect Keynes' multiplier to function and bring about 10% real growth per year, at least. Disappointingly, US economic growth remained anemic at about 1%-2% per year during 2008-2012.
The Bernanke-Obama model created too many uncertainties and explosive inflation in assets, housing, and basic necessities prices. Financial disorders are growing.
Inefficiencies of collectivist models cumulate over time. As capital is consumed and private sector is persecuted, a country loses its ability to grow and succumbs to inflation and poverty. Countries are left to make their own luck. If the likes of Mao, Bernanke, and Obama rise to power then no Hayek economics are relevant and we have to brace for the worse, hopefully falling short of cannibalism.
It is Mao's Red Book or Keynes' General Theory that dictate the policy principles of collectivism. No one knows the chaos that will follow Bernanke-Obama collectivism. If leaders inspired by Ronald Reagan and Margaret Thatcher rise to power then Hayek becomes relevant and lost prosperity is retrieved.
Nonetheless, once collectivism becomes deeply established, as now under the Bernanke-Obama model, with most of the population depending on direct money from the state and free wealth from Bernanke, it would be very difficult politically to reverse it. As Aristotle predicted, the country will be in a declining or, at best, stationary state.
Noureddine Krichene is an economist with a PhD from UCLA.
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