Obama Seeks Recovery Through China's Now-Collapsing Economic Model

The American left has long admired the European welfare state as a model for the “democratic socialism” it would like to introduce in the United States–despite high unemployment, ethnic segregation, growing bureaucratization, military dependence, and looming fiscal crisis.

In the 2008 elections, and throughout his presidency, Barack Obama added a new model: that of communist China, whose “state capitalism” has led to staggering economic growth, rapid industrialization, and new financial power as lender to the developed world.

Chinese “ghost city.” (Photo credit: World Bank)

But the emergence of Chinese “ghost cities,” plus rising inflation and unemployment, suggest that the virtue of the Chinese model–celebrated last week by former SEIU head Andy Stern as “superior” to the American free market ideal–have been vastly exaggerated.As the Wall Street Journal noted this weekend:

China is a poster child for the Austrian school of economics’ theory of the business cycle. After undertaking the biggest stimulus program the world has ever seen in response to the global financial crisis, the country is drowning in unproductive investments financed with credit.

The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S.

Now comes the hangover. The public works projects are winding down, unleashing a wave of unemployment and an uptick in social unrest. The banks’ nonperforming loans are rising, and local governments are insolvent. The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere.

China is a poster child for the Austrian school of economics’ theory of the business cycle. After undertaking the biggest stimulus program the world has ever seen in response to the global financial crisis, the country is drowning in unproductive investments financed with credit.

The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S.

Now comes the hangover. The public works projects are winding down, unleashing a wave of unemployment and an uptick in social unrest. The banks’ nonperforming loans are rising, and local governments are insolvent. The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere.

Though admired by the left, the Chinese model, like the European welfare state–and Stalinism before both–is a false idol, because human nature remains unchanged. The real question is why the left continues, in each generation, to search for alternatives to freedom.

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