China’s Anti-Keynesian Insurgent

Zhang Weiying: China's Anti-Keynesian Insurgent (WSJ):

Three years ago, Keynesianism was official policy. The 2008 financial crisis had Beijing gloating over the failure of the free-market "Washington Consensus" and touting the "China Model" of government intervention. Keynesianism fit the statist zeitgeist and Beijing then suffered an export slump, so the government allocated $3.5 trillion—or about 50% of gross domestic product—in bank loans and direct spending.

Mr. Zhang .. 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. He also advocated doing away with existing distortions such as the monopolies enjoyed in many industries by state-owned enterprises.

Ultimately, Beijing's stimulus fed a false investment boom that stoked asset bubbles—then the morphine wore off while the government tightened ..

.. the sheer size of the failure suddenly has people paying attention. "The Keynesian policy didn't deliver what it promised," he says, so "more and more people realize that . . . when the government makes investment [in] something that's useless, recession will come."

.. Mr. Zhang thinks in stark moral terms. In a speech this year, he invoked Aristotle and Thomas Aquinas to argue that there is such a thing as natural law and that the right to property is "passed prior to sovereignty."

The flip side of this freedom to pursue success is being able to stomach failure, which is where Mr. Zhang's affinity for Hayek ties in. Austrians frown even on central banks trying to manipulate demand because, as Mr. Zhang tells it, "when you make a mistake, you must take responsibility."

"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?"