The phenomenon of 64 million empty homes and apartments in China. It is surely the most spectacular and obvious example in the world today of how government control of an economy leads to misallocation of resources – i.e. a persistent over or undersupply of something; in this case a massive oversupply of residential properties, which are way beyond the means of the average earner in China.
This property bubble of staggering proportions is not a ‘failure of markets’ or an inevitable outcome of capitalism. It is a failure and inevitable outcome of state-controlled capitalism in a centrally planned, state-controlled economy. It is the result of monetary expansion, i.e. the government greatly increasing the supply of money in a relatively short period of time, and government economic “stimulus” – i.e. government redirecting vast amounts of wealth towards certain areas of the economy (in China’s case the property market).
Government control over economies and the economic activity of individuals has been distorting the information flow between producers and consumers, between supply and demand, for a long time in the western world’s economies, and that continues. But often the results are not as patently obvious to the public as they are in China.
It’s useful to use the example of the Chinese property bubble to have a think about your society, wherever you are in the world. Where and to what extent is your government creating misallocation of resources? What areas of the economy is the government forcing resources into that in the absence of state-control would be directed elsewhere by market forces, and therefore according to society’s demands? Consider what proportion of the wealth of your society is distributed according to the ideologies, beliefs, immediate self-interests and preferences of those in power, and not according to peaceful society’s wants and needs. How much of the wealth created by productive people, like you and I, is distributed to the benefit of non-producers like politicians and public sector workers. Take a look around. I think you’ll find it’s a hell of a lot.
The more centralised power over economic activity becomes – i.e. the bigger and more powerful governments become – the more concentrated and less diffuse wealth distribution becomes. The rich get richer, the middle class subsides into the lower class, and the poor get poorer. The western world has been steadily moving in this direction for several decades, but thanks to the laws of economics it won’t last much longer. Just like China’s property bubble.
The Chinese ruling elite has adopted the western world’s economic model and economic policies, which will make them and their crony pals very, very rich indeed. It’s also good for the average Chinese citizen alive today, after all some economic freedom and capitalism is better than none, but, as the western world has demonstrated, it’s a first class ticket to economic collapse in the long-run. First class, that is, for the ruling elite. Economy class for everyone else.