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China is a prime example of socialism via the parasitical, predatory State.

The economist Ludwig von Mises showed in 1920 [1,2] that since a socialist economy destroys price information via government intrusion, the myriad of participants in the economy are unable to make a fully rational calculation about true profit and loss. Any economic activity that operates at a loss cannot be “sustainable”, a concept the left loves to scold us about, yet cannot really grasp.

Taking another approach, the Nobel economist F.A. Hayek showed that a national economy had such an immense myriad of dynamic economic relationships that no single committee or bureaucracy, no matter how smart or how well staffed, could possibly know enough to direct prices or production levels. His Nobel Lecture [3] was entitled The Pretence of Knowledge. Hayek had previously used this idea as the basis for a very thorough article [4] on the subject, “The Use of Knowledge in Society.”

At some point, the fact that their Marxist economy could not sufficiently feed, clothe and house their growing population, caused the Chinese Communist Party to became fearful that economic discontent could allow them to be overthrown. Above all, the commies are paranoid about keeping power at any price (and they killed 50 million people once to retain power).

So, they decided to allow people to have economic freedom as long as it did not threaten the power of the Party. The way things have turned out, the Party from the lowest official to the very top are parasites on the private sector. The local official makes his $500 a month, but gets $2500 a month in bribes. Up the chain, the pickings get better.

The downside for the Party is that the more prosperous people become, the more they expect to have a say in how government spends their money. At some point the Party will have to give in or push back. Because of this dynamic and the corruption that has only gotten worse over the years, I think China is very brittle. If the Party cannot maintain full control, there will be very nasty and bloody tensions come out in public. This could get bloody. It will not be pretty, but then again, the wreckage from socialism is always ugly.

[1] Economic Calculation in the Socialist Commonwealth by Ludwig von Mises
http://mises.org/pdf/econcalc.pdf

[2] Why a Socialist Economy is “Impossible” by Joseph T. Salerno
http://mises.org/econcalc/POST.asp

[3] The Pretense of Knowledge
http://mises.org/daily/3229

[4] “The Use of Knowledge in Society,” American Economic Review, XXXV, No. 4; September, 1945, pp. 519–30.
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