Friday, August 31, 2012

The Deng [ Xiaoping] Curve

Commenter Bret Swanson at The Money Illusion has an interesting take on the economic history of China, which includes this;

Many observers will say that the worldwide supply-side tax-cut revolution began in 1981 with the passage of Ronald Reagan's Economic  Recovery Act, which was based on a bill sponsored by Congressman Jack Kemp and Senator Bill Roth and which had been in circulation since 1976. Others say it began in  1978 with the passage of Congressman Bill Steiger’s capital gains tax cut or with California's substantial reductionin property tax rates, known as Proposition 13, in the same year. Others still, with Margaret Thatcher’s economic reforms in Great Britain. But by far the largest and boldest supply-side tax-cut of the era, and maybe of all time, occurred in Communist China. 
For several years during the seventies, with poverty intensifying and the leadership in Beijing wandering aimlessly, some farmers had quietly moved away from the formal collective system. One commentator called it a “surreptitious grass-roots land reform.”... One of Deng's very first acts in 1978 was to encourage this trend, allowing farmers to raise pigs, chickens, and ducks, simple activities that nevertheless had been banned during the Cultural Revolution. Then in September 1979, at the Fourth Plenum of the Eleventh Central Committee of the  Communist Party, Deng cut tax rates on China's 600 million farmers. Dubbed the “household responsibility system,” Deng’s plan decollectivized the farms. Farmers could now lease their land from the local government for a fixed annual price. They were free to produce the crops they wanted. They were free to sell them at the market. The choice of work or leisure was also now theirs. All profits above the lease payment – in essence a lump-sum tax – were theirs to keep. The marginal tax rate paid by 16 percent of the world's population had been cut from 100 percent to zero. 
Swanson also notes that the Chinese beat Adam Smith to the invisible hand by about two millenia;
By the Han dynasty, which stretched from 206 B.C. to 220 A.D., the great historian Sima Qian had already summarized the “division of labor” and the “invisible hand,” two famous concepts of the market economy Smith would not write about until  eighteen centuries later. “There must be farmers to produce food,” Sima wrote, to extract the wealth of mountains and marshes, artisans to produce
these things, and merchants to circulate them. There is no need to wait for
government orders: each man will play his part, doing his best to get what
he desires. So cheap goods will go where they will fetch more, while
expensive goods will make men search for cheap ones. When all work
willingly at their trade, just as water flows ceaselessly downhill day and
night, things will appear unsought and people will produce them without
being asked. For clearly this accords with the Way and is keeping with

No comments:

Post a Comment