"It is the government's duty to intervene. Now we have a very good example that it is acceptable." -- former Chinese government advisor
What is this government official referring to? Could it be the Russian invasion of Georgia? The latest move by Venezuelan strong-man Hugo Chavez to nationalize more of his country's industry? Not at all. The official refers to Treasury Secretary Paulsen's decision last week to effectively nationalize the U.S. mortgage industry.
As fellow blogger, Gallileo articulated last week, this nationalization was simply making a long standing situation explicit. However, this very public act serves as a demonstration of how far away from the free market the US has actually strayed, and how badly we undercut our efforts to influence other nations' policies.
From a Wall Street Journal article, "U.S. Plan serves as Template For China to Bolster Its Markets"
Still, over the past 30 years, China has studied the U.S. economic model and cherry-picked elements to introduce little by little. It has adopted U.S.-style financial principles to build a market-based system for trading stock. It has invited U.S. financiers to help, with cash and advice, transform its banks into consumer-focused firms with mortgages and private lending. America-focused economic courses are popular at Chinese universities.
U.S. officials have often called on China to cease heavy-handed interventions and occasionally lectured Beijing on financial issues such as how it manages its currency. With the U.S. having to increase its own market intervention, foreign calls for liberalization are likely to be received more cynically in Beijing.
"I think the Chinese regulators will learn the wrong lesson from this," says Liu Jing, professor of accounting and finance at the Cheung Kong Graduate School of Business in Beijing. "Both systems have problems. The problem in China is too much government control, not too little. And they will end up thinking that they should control even more."
The Federal bail-outs, nationalizations and liquidity injections over this crisis are some of the largest interventions in the financial sector since the Great Depression. They are an example of statism, and statist moves. But as this example points out, the US is seen by others as trumpeting the free-market, as an example of how to run free markets, and it is the name of the free market that will be sullied instead of the true cause here, statism.
As Yaron Brook effectively points out in his recent Forbe's op-ed, "The Government Did It," the blame for this financial crisis is to be laid squarely at the doorstep of big government and statist policies. This not an example of the free market mismanagement, but of statism, using an altruist philosophy, run amok.
Again, the The Wall Street Journal article,
Overall, however, the U.S. housing crisis has raised questions about the wisdom of adopting too much American-style capitalism that aren't likely to dissipate soon. The U.S. mortgage crisis is "sobering" for Chinese, who are used to believing "that American financial markets are the best regulated and best managed," says Mr. Zhou [Zhou Dunren, deputy director of the Pudong Institute for the U.S. Economy].
What other nations get wrong when they see this example is that this is a case of American-style statism, not capitalism. True American-style capitalism takes one form, lasseiz-faire, and it would do America some good to once again start practicing it.