Command Economies Suck
China Learned This. America Will Soon.
A half decade ago, China made a big mistake.
After 30 years of letting capitalism do its thing, the deal being that if people kept getting richer, they would shut up about freedom, Xi Jinping got scared. He was afraid people were seeing business as a separate power center. He was afraid people were comparing him with Winnie the Pooh.
So, he broke the bargain. It was to be expected, because he’d already broken all the other bargains of Chinese politics, like the idea that leaders leave office and don’t pretend to be Mao.
Breaking the bargain, however, had negative side effects. Tech fell, housing demand collapsed, and corruption rose. All normal, because what do you expect when corruption is the only way to get ahead?
Tech fell just as AI was becoming a thing, and within a few years this threatened to take the whole economy down. Xi had to change course.
Tech is now back in fashion. Even Jack Ma is back, after four years of virtual exile in Japan, teaching at Tokyo College. Stocks are back to where they were five years ago.
There are still problems, because a command economy doesn’t start-and-stop in reaction to demand, but to the priorities of leaders. It will take years to undo the damage Xi caused through raw arrogance.
You might think Americans would learn a lesson from that.
You would be wrong.
Making Xi Great Again
There is a difference between a regulated economy and a command economy. (Picture from ChatGPT.)
A regulated economy is still free. Government can charge it for externalities. Citizens and investors can demand protection from rip-offs. Legal precedent has meaning.
A command economy, like the one the Administration is now putting in place, is something else again. You get ahead by being a friend of the President. If you’re not one, tough shit. The economy’s priorities are no longer the market’s but the whims of the leader.
This is true wherever the command economy operates. Tariffs, for instance, are an important cost, a tax to be avoided if you’re to remain competitive. But when they’re set by the whims of the leader, you can’t plan, and you lose money. The same thing with visas and people. The same with your national reputation. When the political leadership struts about like the leader is a God, it’s hard to plan and profit.
Political leaders are not businesspeople. They prove it every time they try to run an economy. This Administration is proving it once again. The economy is already shuddering. The stock market is going to collapse, once the short-term demand for Nvidia data centers declines. That will happen once customers see the limits of what the current generation of AI can do for them.
The predictable result of every tech boom is a tech bust. Wise leaders are ready for it. Our leaders aren’t wise.
The Administration is doing precisely what Xi did. We’re going to get the same result. They’re hoping that, as with Xi, whose secret police have a monopoly on violence, they can stop the blowback.
If they can, there will be no difference whatsoever between China and America.
