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China’s Most Impactful Export Is Not From Wuhan; Their Finest Economist Is From Guanghua

March 18, 2020/in Articles /by Mark Shupe

The first sentence of the Poetic Justice Warrior prologue reads “Poetic justice spontaneously rewards virtue and punishes vice.” This is what free markets do, and for them to exist, a moral code that rewards virtue is essential. As economist and Poetic Justice Warrior Zhang Weiying tells us in his book The Logic of the Market,

The market has never tried to change human nature. Instead, precisely because human nature cannot be changed, the market economy exists, which is also the reason the market economy is necessary: It causes human actions to conform to the requirements of virtue.

As the dean of the Guanghua School of Management at Peking University, Zhang is an operatic voice in a cacophony of endemic Chinese government corruption. To nudge the looters toward doing the right thing, he relies on an old Chinese proverb, “benefit yourself by benefitting others,” and describes the market economy as “humanity’s greatest creation. It provides the best rules of the game for human progress,”

Property, Prices, and Profit

Zhang’s understanding of reality reveals that “enriching oneself at the expense of others cannot be done.” Even if you could it would be immoral, meaning anti-life; yet socialists of all stripes want a piece of the action for themselves, just in case. Equality and shared ownership are central tenets of their collectivist, nihilist doctrine.

A version of this insanity is perpetuated in both Chinese and American academic circles. In what Zhang calls the China Model School, is the belief that authoritarian economic planning allowed China to accomplish in forty years what it took the West two hundred years to achieve. As he explains,

“The West constructed the road China followed. That China walked faster does not mean that its institutions are superior. Private property, unhampered prices, enterprises, entrepreneurs, and profit” are the superior institutions for economic progress.

The differences between the two are stark. China’s presumes that all useful knowledge can be concentrated in the halls of government and academia, the West flourishing in a decentralized society united only by objective law. Zhang is well-schooled in Austrian economics, particularly the individualism of Friedrich Hayek, and told the China Review in 2006, “The more active entrepreneurs are in a particular region, the smaller the social and income gaps.”

In 1999’s Theory and China Enterprise Reform by Qin Xiao, Zhang proposed his “theorem of the impossibility of the entrepreneur in a state-owned economy.” As the Australian publication The China Story reports,

“If we compare different parts of China, areas with a low ratio of government officials to employed population have faster economic growth.” Ever the iconoclast, he suggested that reducing the number of government officials would contribute to economic growth.

Yet despite the overwhelming lessons of philosophy, economics, and history, our Age of Absurdity persists. Intellectual lightweights (aka politicians) like Jeremy Corbyn in the UK and Peter Altmaier in Germany ignore Zhang’s evidence and propositions, and actively promote totalitarian China’s third way – unprincipled compromises between the forest and the fire.

The Audacity of Dopes

During a 2016 debate reported by the Wall Street Journal, Chinese government and former chief economist at the World Bank, Professor Justin Yifu Lin, highlighted the industrial policies of China, including subsidies, tax breaks and financial incentives aimed at specific industries. Zhang replied with a laser, “Industrial policy is just a planned economy in disguise. In the end, both will fail for the same reasons.” From the Logic of Markets he argues,

It was precisely the relaxation of government control that brought about market prices, sole proprietorships, town and village enterprises, private enterprises, foreign enterprises, and other non-state-owned entities.

What the Wuhan virus epidemic teaches is that Chinese authoritarians remain very jealous of their power. Since they produce nothing, control of economic levers is primary to their success. Because they are incompetent, secrecy is necessary to mask their failures. While highly productive Chinese entrepreneurs use money to trade values, government bureaucrats continue to trade people.

The reported arrest and death of the contagion’s whistleblower, doctor Li Wenliang, is an example. According to the Hudson Institute’s Michael Pillsbury, there were seven other physician whistleblowers who were also incarcerated in December, ostensibly to protect China’s racially superior image. What’s more difficult to hide is the government lockdown of cities, shutdown of factories, and cancellation of exports.

Of course, this draconian response wouldn’t be necessary in a free-market society that prizes limited government, right? Its creative minds would anticipate the risk, have a market-driven solution for outlier events, and add to the body of knowledge for continued human progress. In the case of the Wuhan virus, early detection, containment, and rapid mass testing are the essential elements. If you lived in South Korea, you’d be right. However, it’s not always possible to react in time to prevent a highly contagious virus from spreading, and the development of a safe and reliable vaccine becomes imperative. If technology’s greatest innovators operate within your borders, you’d be right, if you lived in Israel.

In America, the Food and Drug Administration has sole authority over test kits, treatments, and vaccines, not Zhang’s entrepreneurs. He describes China’s central planners as “a bunch of smart people doing something really stupid,” and this applies to America’s healthcare mandarins. Regarding European Union bureaucrats, Zhang reveals “They just want to spend and not to produce. They never want to work more.” At the 2012 Davos conference, Zhang warned that Chinese market reforms had stalled, and the country was sliding back into more heavy-handed state control, “What we need is reform-minded leaders and grassroots entrepreneurs, not a loose monetary policy and low interest rates.”

When needed most, in this unchartered territory of the Wuhan virus pandemic, reform-minded leaders have become isolated, and grass roots entrepreneurs are wading through red tape. Instead, bankers are pushing rates lower, lawmakers are spending lavishly, media nitwits are screaming racism and price gouging, hoarders are clearing store shelves, and all of it avoids reality. Lost in the cacophony of social distancing and retail workers scrambling to serve customers, is the operatic voice of capitalism.

The Supply Side is the Optimists’ Side

Wall Street Journal editorial writer, Abheek Bhattacharya, wrote in 2012 that,

The intellectual tide was going in Zhang’s direction at Peking University. The reforms proved successful, but the reformer was crucified. The old guard revolted, his loyalty was questioned, and Zhang was forced out of his Guanghua post in 2010.

According to philosopher Harry Binswanger, capitalist reforms at the FDA would start with stripping it of authoritarian control for the duration of the pandemic. The FDA’s irrational premise for dominance is to save the life of one American at the cost of one thousand lives that might be saved with experimental treatment.

The second step is property, prices and profits – encourage maximum profits (price gouging for social justice warriors) for reliable test kits and vaccines. This would attract capital, maximize production, reduce costs, and enhance the lives of millions. “This is the way every innovation in history has worked.” Look at the device you’re using to read this. Health care is not different, it must be delivered by other human beings.

As Zhang Weiying reminds us, “We human beings always seek happiness. You make yourself happy by making other people happy, that’s the logic of the market.” And the virtue of the Poetic Justice Warrior.

The Modern Poetic Justice Warrior Who Brings Adam Smith and Friedrich Hayek to Life – Russ Roberts

December 4, 2019/in Articles /by Mark Shupe

A primary attribute of poetic justice is spontaneity, and it confirms the Law of Causality – one state or process contributes to another state or process. This law of reality also leads to emergence – the creation of an entity whose attributes (states or processes) interact with each other to become a complex system with its own identity. Examples of emergent complex systems that people interact with every day include earth’s climate, spoken language, common law, and market economics. Two of these, climate and economics, are the targets of computer modeling techniques whose users try to predict and control future outcomes. They have always been wrong, by a lot.

While most rational people feel fortunate to control the climate and cleanliness in their homes, and enjoy or manage the ever-changing weather outside, almost no one understands or appreciates the spontaneous order or emergent nature of complex economic systems. At the same time, government economic planners and progressive public policy think tanks deny it exists. It would make them irrelevant. Fortunately for enlightened civilization, Poetic Justice Warrior Russ Roberts is hastening their irrelevance.

It is always best to explain complexity by starting with the basic, essential elements. In other words, simplicity, and no one is better at using audio, video, books, articles, acting, and digital media to simplify complex economic systems for the benefit of anyone with an appetite to learn the so-called dismal science.

Complexity Worship

Our postmodern world is dominated by the idea that everyday life is too complex for most people to understand, navigate and provide for themselves. To make their point, the peddlers of complexity cite the explosion in technology, unlimited choice in retail, spiraling health costs, trade deficits, climate threats, inequality, and looming economic recession. The remedy for these imagined or government-induced calamities is always new government intervention, taxation, subsidies, tariffs, and greater control over education to indoctrinate more public servants. This is the political way.

By contrast, Russ Roberts is at the vanguard of the economic way. A basic distinction between the two is that the political way requires hierarchies of concentrated power; the economic way organizes itself into decentralized networks. An economics professor, Roberts is also a research fellow at the Hoover Institution, a commentator on NPR radio, regular blogger, and the author of several books including two novels and many published articles. However, Roberts is probably best known for his weekly podcast Econ Talk, which has a new episode every Monday, is downloaded by 80,000 listeners every week, and is hosted by another great repository of wisdom, The Library of Economics and Liberty.

For a charming depiction of the spontaneous order of the economic way, Russ Roberts produced the short video It’s a Wonderful Loaf. Integrating poetry, music, animation, and his gift for simplicity, Russ illustrates what happens when the state of self-interest, as taught by classical economist Adam Smith, is combined with the process of division of labor, and emerges as The Invisible Hand of the economic order. While this phrase is only used three times in Smith’s writing, and is widely attributed to his 1776 classic, An Inquiry into the Nature and Causes of the Wealth of Nations, he used it first in his lesser-known 1759 scientific breakthrough, The Theory of Moral Sentiments. This earlier book is Smith’s (and Roberts’s) favorite among the two, and Roberts dedicated his own book, How Adam Smith Can Change Your Life, to it in a witty and candid analysis of Smith’s discoveries about human nature.

In a live performance, Russ Roberts dons the costume of Adam Smith and compares the precise order of the universe with the imprecise temperament of human nature. He explains how civilized society achieves harmony, “the choreography of our peaceful existence,” and how it is akin to the force of gravity choreographing the movements of heavenly bodies. Here Smith and Roberts share a scientifically-derived, divinely inspired, and optimistic attitude about human nature. This is the essential difference between the economic way and the political way. The patron saint of complexity and the political way, John Maynard Keynes, maintains in his book General Theory, that people resort to their “animal spirits” when faced with uncertainty and volatility. To him, only dispassioned “experts” can maintain economic order.

Emergent Order

As poetic justice would have it, Roberts also has his not so invisible hand in the production of a very successful video series featuring Keynes and the patron saint of spontaneous economic order, Friedrich Hayek. The co-founder and CEO of the creative studio Emergent Order, John Papola, teamed up with Roberts “to be the first people to bring classical liberal ideas to life in a way that was entertaining, scholarly, and uncompromising while remaining even-handed.” Their Keynes vs. Hayek rap videos, Fear the Boom and Bust and Fight of the Century have become viral internet hits.

To communicate abstract concepts, explain significant economic values and ideas to mass audiences, and present it in a way that causes people to pay attention, is no small feat. Fear the Boom and Bust is a defense of the Austrian Business Cycle Theory, and a warning about the unintended consequences of government manipulation of money and credit. The financial meltdown of 2007 – 2008 is a prime example. The Fight of the Century condemns the ineptitude of top-down economic planners and highlights the wide dispersal of all relevant knowledge among all market participants. It is impossible for any group of “experts” to possess but a small part of the information contained in the prices of commodities and marketable securities. Price discovery is the indispensable process and the price mechanism is an unassailable state of spontaneous market economies.

With over five hundred Econ Talk podcasts, Roberts has covered many aspects of the human experience including the economics of education, trade, climate, and health care – all government planning sacred cows. He has also exposed the shortcomings of using complex empirical data sets and computer modeling for making public policy decisions. The data cannot measure or anticipate dynamic variables such as innovation and changing human preferences.

One of his finest examples is one of the most recent podcasts, Free Market Health Care, and his conversation last month with entrepreneur and anesthesiologist Keith Smith of the Surgery Center of Oklahoma. What Dr. Smith found in his experience with traditional health care institutions is that an inordinate amount of their resources are spent on administration and infrastructure instead of patient care. Patients have no idea what the exorbitant charges for their health care services will be, and management tells the doctors how much they are worth. This is universal among all government planned and subsidized industries (see education). Fed up with the lack of price transparency, lack of self-determination on their value, and a bloated bureaucracy, he and his partners opened their independent surgery center in 1997. Their prices are posted online, have not changed in twenty years, and they only take cash. This is radical, life-affirming, and predictable to people who have learned the economic way.

Poetic Justice Warrior Russ Roberts has achieved something remarkable. Roberts has taken the dismal science, so dubbed by a socialist bureaucrat who foresaw his looming irrelevance at the invisible hand of free markets, and transformed economics into something comprehensible, interesting, and fun.

This 75-Year-Old Book – Celebrating Individualism And Warning Against Expanding Government Power – Is As Important Now As It Ever Was.

October 25, 2019/in Articles /by Hunter Hastings

While much of Friedrich Hayek’s The Road to Serfdom focused on correcting erroneous ideas and sloppy thinking that misled (and still mislead) many to support socialistic expansions of government power, that is not all it did. It also reiterated the case for individualism and its economic manifestation—free markets. Since convincing careful thinkers requires such an affirmative case as well as defensive debunking, the book’s diamond 75^th anniversary is a propitious time for Americans to remember what only individualism provides, so that we will not continue to follow a path of “replacing what works with what sounds good,” as Thomas Sowell described it.

The essential features of…individualism…are the respect for the individual man qua man…the recognition of his own views and tastes as supreme in his own sphere…and the belief that it is desirable that men should develop their own individual gifts and bents.
The attitude of the liberal toward society is like that of the gardener who tends a plant and, in order to create the conditions most favorable to its growth, must know as much as possible about its structure and the way it functions.
The holder of coercive power should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully.
The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life.
Planning and competition can be combined only by planning for competition but not…planning which is to be substituted for competition.
It is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about.
Nobody can consciously balance all the considerations bearing on the decisions of so many individuals…coordination can clearly be effective only by… arrangements which convey to each agent the information he must possess in order effectively to adjust his decisions to those of others…This is precisely what the price system does under competition and what no other system even promises to accomplish.
The economist…His plea is for a method which effects such co-ordination without the need for an omniscient dictator.
The various kinds of collectivism…[refuse] to recognize autonomous spheres in which the ends of the individuals are supreme.
Recognition of the individual as the ultimate judge of his ends…that as far as possible his own views ought to govern his actions…forms the essence of the individualist position.
What are called “social ends” are…merely identical ends of many individuals…to the achievement of which individuals are willing to contribute…Common action is thus limited to the fields where people agree on common ends.
The clash between planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires.
The more the state “plans,” the more difficult planning becomes for the individual.
The important question is whether the individual can foresee the action of the state…that the individual knows precisely how far he will be protected against interference from others, or whether the state is in a position to frustrate individual efforts.
In a planned society the Rule of Law cannot hold…the use of the government’s coercive powers will no longer be limited and determined by pre-established rules.
Economic control is not merely control of a sector of human life…it is the control of the means for all our ends.
To believe that the power which is thus conferred on the state is merely transferred to it from others is erroneous. It is a power which is newly created and which in a competitive society nobody possesses. So long as property is divided among many owners, none of them acting independently has exclusive power to determine the income and position of particular people.
The power which a multiple millionaire…has over me is very much less than that which the smallest fonctionnaire possesses who wields the coercive power of the state on…whether and how I am to be allowed to live or to work.
Contrast…two types of security: the limited one, which can be achieved for all, and which is therefore no privilege but a legitimate object of desire; and absolute security, which…if it is provided for some, it becomes a privilege at the expense of others.
Individualism is thus an attitude of humility…the exact opposite of that intellectual hubris which is at the root of the demand for comprehensive direction of the social process.
It was men’s submission to the impersonal forces of the market that…has made possible the growth of a civilization without which this could not have developed; it is by thus submitting that we are every day helping to build something that is greater than any one of us can fully comprehend.
If the democracies themselves abandon the supreme ideal of the freedom and the happiness of the individual…they implicitly admit that their civilization is not worth preserving.
It is more important to clear away the obstacles with which human folly has encumbered our path and to release the creative energy of individuals than to devise further machinery for “guiding” and “directing” them—to create conditions favorable to progress rather than to “plan progress.”

Friedrich Hayek’s The Road to Serfdom defended the individual—the only ultimate locus of choice, responsibility and morality—as the appropriate focus of efforts toward human improvement, at a time when failing to keep that focus threatened the entire world. That is a lesson we need to remember now as well, when many do not remember the horrors that can lead to, and so support constantly expanding government powers over its citizens, which is in precisely the opposite direction of what once created America as a unique beacon of hope for the world.