Maybe you have heard about the Asian Infrastructure Development Bank. This is the latest boondoggle created by a bunch of communist apparatchiks, mostly in their late 60’s. A lot of them majored in engineering in college.
These politicians are working in conjunction with a bunch of Keynesian apparatchiks at the People’s Bank of China, who spend their entire lives figuring out excuses on why mass inflation of the monetary base is good for China.
By combining Communist politics, Keynesian economics, and a central bank tradition going back 35 years of constant monetary inflation, the Chinese government will once again shoot itself in the foot. Here is a country that thinks it is productive to build entire cities that will hold a million people, but nobody moves in.
A BOONDOGGLE BANK
This enormous boondoggle, which is going to fund regional boondoggles set up by national governments, has received a lot of publicity, all of it good. The Keynesian press has rushed in to tell us about this political coup that the Chinese have engineered. We are told that the Obama administration has egg on its face, because the administration opposed the whole idea. This is a case of one group of central planners with their very own central bank and boondoggle banks, who oppose the invasion of the their turf by another group of central planners, who also have a central bank.
Meanwhile, all over the world, politicians are rushing to get in on the deal. They see this for exactly what it is: a gigantic boondoggle that they can dip into, at below-market interest rates, to fund their own national boondoggles.
Infrastructure projects are beloved by all statists. There are roads, bridges, and other highly visible testimonials to the utter wastefulness of government spending. This is what Frederic Bastiat wrote in 1850 in his famous essay on the things seen and the things not seen. They are classic examples of what he called the broken window fallacy. People can see the results of the government money in the form of massive projects. They never consider the losses that society has sustained, as a result of the transfer of wealth from one group of people in the society to another group.
The great losers in all this, as always, will be the Chinese people. Money that need not have been created will now lower the purchasing power of the Chinese yuan. This is the main point of this boondoggle. It is one more example of mercantilistic Keynesian nonsense. And Smith refuted back in 1776, but the Keynesians have not learned.
So, the average Chinese citizen is going to pay more for imports from other nations, because the People’s Bank of China will have created money out of nothing, and will have transferred the money to the Boondoggle Bank. The bank will buy IOU’s issued by governments from around the world. The governments will issue the IOU’s because they are going to use the money to create massive infrastructure boondoggles in their own countries.
(For the rest of my article, click the link.)