Andy Mukherjee of Bloomberg writes Hayek, Once China’s Poison, Is Now Its Prophet. Hayek, once reviled is now on the desktop of communist party members. Mukherjee explains a classic conundrum of state planning: the planners don’t know how to get the results they want, and because their attempts have uninented consequences they often get the opposite.

Since working capital loans are renewed in three months to 12 months and the duration of fixed-asset credit is between three years and five years, “when the banks are asked to tighten,” says Wong, “the easier way is to stop rolling over working capital loans as they’ll mature faster, although this is not what the central bank wants them to do, and more importantly, it is not what the economy needs.”

In fact, China’s strategy of choking credit to real estate firms and makers of cement, steel and aluminum, is turning out to be an all-round clampdown on credit, even causing airlines to curtail new aircraft orders, according to David Hale, president and chief economist at Hale Advisors LLC.

“They want to slow things down selectively,” Hale said last week. “But because their system is so clumsy and so authoritarian, what they produced in the last eight weeks is an across-the-board credit crunch.”

Hayek’s work on central planning built on Mises’ critique of central planning. Mises argued that an economy could not be planned successfully by a single planner or planning body because the planners would not have prices, and economically meaningful prices can only come about in a private property system where entrepreneurs bid against each other, putting their own money at risk, for the factors of production. Hayek’s formulation of the problem rested on the dispersed nature of the information used by economic actors, and the individual’s ability to interpret and act on the information.

Subscribe to comments on this post via RSS