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Richard Tren is a program manager and policy writer at the Searle Freedom Trust. He’s seen a lot of the world, as have his grandparents. They first saw China in the 1980s. The timing is notable because the poverty they witnessed (including toilets that were holes in the ground) has them in disbelief when their grandson tells them the country’s cities presently shimmer with bright skyscrapers everywhere one looks.

China’s remarkable advances from abject poverty require consistent reminders given the desire of pundits and expert economists to tell the country how to grow. That their advice would logically slow economic growth is the real truth, but we’re getting ahead of ourselves.

For now, it’s useful to reference a recent piece by Financial Times writer Edward White. Titled “Xi’s last chance to revive the Chinese economy,” the lengthy analysis never got around to the freedom part. The Chinese people formerly suffered collectivism combined with state planning of economic activity, with predictable results. Then China’s political leadership woke up to the genius of economic freedom, and the results were similarly predictable. Though the Chinese Communist Party runs China, anyone who’s visited there in the last 20-30 years knows that the “communist” part is symbolic in an economic sense. State planning could never produce this much growth this fast. Now that the Chinese people are broadly free economically, they’re thriving.

All of the above is important given White’s call for the state to get the economy moving from a position of relatively slow activity. If growth is the desired result, there’s really no mystery as to what to do. Economic freedom always and everywhere works. 

Council on Foreign Relations senior fellow Brad Setser is given lots of ink in White’s analysis, and to Setser the answer isn’t more freedom; rather it’s more consumption. In Setser’s words, the Chinese government should develop more of a medical and broad welfare safety net, thus “giving households confidence that they can scale back their precautionary savings.” There's arguably a better way of looking at this. 

Really, when have governments ever needed to encourage people to consume? Certainly not in China. Apple sells a fifth of its iPhones there, there are over 4,000 Starbucks there, GM sells more cars in China than it does in North America, while the once destitute country is presently the second largest market for McDonald’s and Nike. This doesn’t sound like a country that’s not consuming. We work so that we can consume, and the Chinese are no different.

Better yet, Setser and White don't discuss the happy truth that even when the productive aren’t individually consuming, it’s as though they are. White laments that “the country’s gross domestic savings as a percentage of GDP is 44 per cent," but the latter in no way slows consumption. Stated simply, banks and financial intermediaries don’t “rent” savings in order to look at them lovingly. The latter would be the path to insolvency. Instead, what’s saved is immediately lent to others with near-term consumptive needs, or to businesses in need of growth capital.

It all speaks to a perceived problem in China that’s anything but. Think about it. What is an economy but a collection of individuals? Are individuals ever harmed economically by having more in the way of savings? The question answers itself, or it should. That the Chinese people save is plainly good for a global economy always and everywhere in need of capital, it logically boosts the savers, plus it’s logical in consideration of where the Chinese people once were economically: again, desperately poor. Basic reason dictates they would save a great deal with the past not a very distant memory, at which point everyone, including those who comprise the “Chinese economy,” benefits.

From there, it's no insight to say that governments can only spend insofar as their citizens produce wealth for governments to tax. In other words, governments spend what they tax and borrow from the productive. How could this boost the Chinese people? If it's true that the Chinese actually don't consume enough (see above, to see why that's not true), it's hard to make a case that the solution is for government to tax and spend more of what people earn. After which, is it better for those who produced the wealth to spend it and save it, or government? These aren’t trick questions. 

White’s conclusion is that if Beijing fails when it comes to getting the Chinese to consume more, “China faces the prospect of following Russia and others into the middle income trap.” More realistically, income at all levels will grow less speedily if Chinese government officials extract precious resources from the economy.

Indeed, if we ignore that there’s no limit to what free people can achieve, if we ignore the why behind stupendous Chinese economic achievement, we can’t ignore that jobs and compensation are an obvious consequence of savings. The solutions presently bruited for China are excess. What Richard Tren's grandparents witnessed tells us why they are. 

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His next book, The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution, comes out on October 18th. 

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