Recently, China’s deep market drops set off global reactions everywhere… except among liberals. The left was unwilling to let a crisis go to waste in 2008, and is still using it. Yet despite the similarities here to 2008, liberals are strangely taking a pass on China’s current condition.
When America’s financial crisis hit, it quickly had global reverberations. Not the least of these aftershocks came from America’s liberals. Loud were the outcries, climaxing in the Occupy Wall Street movement, with its marches, sit-ins, and civil disobedience. Blame was certainly heaped on Wall Street, but more generally it fell on capitalism itself. The left’s underlying message was: Without strenuous regulation, the capitalist system was doomed to excess, and from there to crisis.
The result: a host of new laws and regulations. Even with these, the left remains unsatisfied — mad that the new laws were not tougher, the prosecutions more extensive, and the penalties stiffer. Liberals still have a target on the back of America’s financial sector.
Into this climate comes China’s financial shockwaves. Although half a world apart, the U.S. and China events are remarkably similar.
While overlaid with sophisticated financial transactions that distributed its effects throughout our system, the U.S. financial crisis was essentially very simple: vast over-investment in a particular sector — housing. Like so many others, it was simply a boom that went bust.
China has done largely the same thing, just through very different means. Rather than private sector over-investment, China sits on top of vast public sector over-investment perpetrated through its state-owned enterprises.
A building boom that has generated impressive GDP growth figures for years, China’s lacks the multiplying effect of truly productive investment. Now that this over-investment has reached its limits, growth is slowing and the write-down of inflated value looms. This past summer’s shock foretells what the effect of such a rapid write-down would be.
At their core, both episodes resulted from over-investment — albeit by different means — and had global repercussions. So why liberals’ roaring silence this time?
Liberals could defend their demurring by saying China’s fall was neither as long, nor as great, as America’s seven years ago. However, what lies beneath China’s seismic tremor this summer is the same that underlay America’s financial crisis.
Due to today’s inter-connected global economies, when China’s reckoning comes, its effects will come to all — just as the summer crisis immediately flowed through global markets. While this was an early warning, it was a warning nonetheless.
Further, the left would not have hesitated to sound a tocsin if the shock had again come from Wall Street. No one could have beaten liberals to the “I told you so” punch had this shock come from within, instead of from without. The left would never have had to wait for further evidence of severity or culpability.
The answer lies in a fundamental difference amidst the overarching similarities between America’s over-investment and China’s over-investment.
Despite heavy regulation and government intervention — before, and even more since, the crisis — America’s economic system remains fundamentally capitalist. On the other hand, China, despite its increasing and heavy reliance on capitalism to achieve its needed economic growth, remains a communist state.
As oxymoronic as a communist state’s dependence on a capitalist economy may be, it is enough to shield China from blame for its over-investment from America’s left.
Regardless of the similarities with America’s own financial crisis. Regardless that capitalism is present in China and therefore available to be blamed. And regardless that China’s over-investment is having an impact on China, and undoubtedly will on the broader world, the veneer of communism is enough to hold America’s liberals at bay.
The reason is straightforward. In the U.S., the left demands government intervention as the means for preventing future financial and economic crisis. In China, government intervention — to a far greater degree — has not simply facilitated, but perpetrated, China’s over-investment. The left cannot admit the latter, without undermining its argument for the former.
No clearer example exists that what matters for the left is not outcomes, but intentions. The same offense that was vilified in America goes unpunished in China, because the crime was not the crisis, but capitalism.
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