Austrian Influence: China and the WSJ

Zhang Weiying’s warnings that stimulus spending would lead to malinvestment were once ignored. Now official ministries invite the follower of Hayek to speak.

The economic slowdown, he calmly says over tea, is actually good news that “makes the government think we need to change”--toward reform and away from priming the pump. We aren’t all Keynesians now in China, he insists.

Then a top administrator at Peking University, where he now teaches economics, he argued that since the financial crisis was caused by easy money, it couldn’t be solved by the same. “The current economy is like a drug addict, and the prescription from the doctor is morphine, so the final result will be much worse,” he said. He invoked the ideas of the late Nobel laureate Friedrich Hayek and the Austrian School of Economics to argue that if the economy weren’t allowed to adjust on its own, China’s minor bust would be followed by a bigger one [Emphasis mine].

Ultimately, Beijing’s stimulus fed a false investment boom that stoked asset bubbles--then the morphine wore off while the government tightened. Officials claim the economy grew at 7.6% year-on-year between April and June this year. Skeptics think the real number is closer to 4%. (One London research house says 1%.) Meanwhile, industries dominated or favored by the state, such as steel or solar power, are idling from overcapacity. Countless sheets of copper are reportedly stacked in warehouses, blocking doorways and exemplifying Hayek’s notion of “malinvestment [emphasis mine].”

He says that when he recently wrote an article praising the late Austrian economist Murray Rothbard, the Communist Party secretary of Shanghai--a fairly high-level apparatchik--told him he liked it.

We human beings always seek happiness,” says Mr. Zhang. “Now there are two ways. You make yourself happy by making other people unhappy--I call that the logic of robbery. The other way, you make yourself happy by making other people happy--that’s the logic of the market. Which way do you prefer?”