What's Driving China's Economic Surge Over the United States?

Since the late twentieth century, America has progressed in one direction while China has progressed in the opposite.

Everyone publicly condemns the Chinese government, which is led by the Chinese Communist Party (CCP). Their civilization is totalitarian and "anti-democratic," whereas in America, "at least I know I'm free," as the song goes.

Despite this, no one appears to believe that liberty leads to greater economic prosperity or happiness. Every political debate about China begins with the assumption that authoritarianism creates superior results and that the United States is hampered by its commitment to freedom. When China's central leadership decides to do anything, they are not hampered by the adversarial processes inherent in the US Constitution, which Americans enviously observe.

This is also the premise on which trade wars are based. China has "advantaged" the US by being more economically mercantilist, while the US has made the mistake of allowing its industry to migrate to China and other countries due to more liberal trade policies.

This is plainly incorrect. Manufacturing continues to account for roughly the same share of real GDP as it did after WWII. The issue with American manufacturing isn't so much how much is produced as it is what is produced. Manufacturing in the United States is far too biased toward creating guns and other useless products, thanks to a monetary system that allows resources to be diverted to unproductive ends.

China's rise as an economic power has brought fresh competition to the United States, but this rise is not due to China's dictatorship. China's economy has risen rapidly in the last thirty years because it is substantially less autocratic than it was earlier, particularly in the economic realm.

Americans never seem to wonder why, in the twentieth century, a country with four times the population did not have a substantially larger economy than the United States. The answer is straightforward: communism. China had one of the most autocratic economic systems in human history. While they are still far from laissez-faire, they are significantly more "capitalist" in comparison. This, not the authoritarianism that lingers from the communist era, is the key to their success.

In contrast, the United States is less free than it has been at practically any point in its history, with the exception of the 1930s and 1940s. And it's on a path to involve the government more and more in the economy and everyday lives.

The United States became the world's most powerful economy for the same reason that the United Kingdom, which is made up of two small islands with a small population, was before the United States. It had the most open markets. For want of a better description, it was the most "capitalist."

The United Kingdom squandered its resources by attempting to establish a massive worldwide empire that provided prestige to the government but drained its wealth and caused the currency to debase. Does this ring a bell? Capitalism may enable empire, but it is not a necessary component of capitalism. Empire is an anti-capitalist ideology. Property rights and voluntary exchange are central to capitalism. Empire necessitates the imposition of taxes and the misallocation of money to the creation of weaponry and other imperial necessities that do not contribute to the taxpayers' happiness.

Weapons, soldiers, and military infrastructure that aren't strictly necessary for defense have no use. The productive sector of the imperial economy will eventually run out of money to subsidize the unproductive sector.

Every empire in history has ended this way. It's also why the USSR's transition from communism to capitalism was far more difficult than China's—it had an empire of other communist republics draining its already misdirected resources.

While the United States' global standing army is a crucial factor in its economic downfall, it is not the sole one. With each passing year, America has gotten less free in all aspects of economic and social life.

Americans have grown accustomed to having their phone calls, e-mails, and financial transactions monitored by the government. The New Deal regulatory framework, in which executive branch officials establish most laws by fiat rather than through an adversarial process with Congress, continues to spread. Its entitlement systems, which were intended to cover the last few years of life, are increasingly requiring money to cover decades after retirement.

The privilege of generating the world's reserve currency has harmed the American economy's dynamism the most. Malinvestment is a result of all inflation, but the inflation enabled by the global dollar standard has resulted in bubbles that may account for half of US GDP.

Millions of people work in the cartoonishly bureaucratic education and healthcare industries, offering no value to consumers. Millions of administrative positions have been introduced to the system as guaranteed student loans have funneled trillions towards the education business. These occupations aren't required to teach reading, writing, or arithmetic. Meanwhile, educational outcomes continue to deteriorate.

Healthcare is in a similar state. The most cutting-edge segment of the industry, where profits and losses are still possible, and which operates under the most capitalist conditions, continues to create innovation miracles. However, the remainder of the system, which is heavily supported and becoming increasingly bureaucratic, is sclerotic and in decline.

Routine American medicine is still done in many respects as it was in 1970. Why? Because there is no reason for it to improve. It's on the dole, with government spending accounting for half of all healthcare costs. When your income is guaranteed by taxpayers, there's no reason to improve medical or commercial operations. Consult the DMV.

Just think about why you're still being asked to fill out multiple forms with your insurance information when the office already has it. They wouldn't even schedule you until they received your insurance information and confirmed your eligibility with the insurer. However, when you arrive for your appointment, they still require you to fill it down on two distinct forms. Inefficiencies like this are unaffordable for non-subsidized industries.

In the past, being much freer than any other country in the globe was what made America richer and more powerful. I don't mean "more democratic" when I say "freer." Limited government, not democracy, was the key to American liberty. It was the truth that the vast bulk of economic and social life in the United States was not up for a vote. Rather, most decisions were left to the private sector and individuals' discretion.

During the same time period, China was impoverished due to its utter lack of independence. Nothing else could have stopped China from becoming the economic powerhouse it is today. However, since the late twentieth century, America has progressed in one direction on the freedom scale while China has progressed in the opposite direction. It is reasonable to speculate that they have now met at a level significantly below that of America's freer past.

There is no cause for Americans to be concerned about China's economy eventually surpassing that of the United States. That would be an unavoidable consequence of having a much greater population. But, if America is to reclaim its economic strength in a post-dollar world, it must stop viewing China's success as a result of its authoritarianism and return to the principles that built America's wealth in the first place: significantly less government, freer markets, and maximum individual liberty.


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