Guideposts: Guess We Can Stop Worrying About China Swallowing the World

You are receiving this email because you signed up to receive our free e-letter Gilder's Guideposts, or you purchased a product or service from its publisher, Eagle Financial Publications. [Gilder Guideposts] [Technology Report]( [Tech Report PRO]( [Moonshots]( [Private Reserve]( Guideposts: Guess We Can Stop Worrying About China Swallowing the World by George Gilder and Richard Vigilante 09/20/2023 SPONSORED CONTENT [Have You Seen This $11 Trillion 'Tech Strip?']( While many folks today are wondering what to do with their money… a revolutionary “sheet” of new technology has quietly sparked an $11 trillion tech revolution. Investors who get in FIRST have a rare chance to position themselves in front of a tsunami of profits. [Click here to see how anyone can profit fast.]( The China Hawks are about to get their wish. They are going to see what the world looks like with China poor, backwards and communist. The Chinese economy is at even greater risk than the headlines suggest. Western analysts are missing the gravity of the collapse because, just as in their analysis of the U.S. economy, they vastly overestimate the power of monetary policy and government stimulus to affect growth. And they vastly underestimate the true source of economic growth: the freedom of entrepreneurs to create the upside surprises that drive progress. The financial media is obsessed with two almost irrelevant questions. The first is the effects on the economy of China’s supposed real estate bubble popping. The second is whether Chairman Xi will do enough to stimulate the economy by opening the monetary floodgates or by giving consumers more yuan to spend. The media notes that monetary loosening so far has done little to revive the economy and laments that Xi stubbornly refuses to spread cash via social programs on the grounds that this would be “welfarism.” Their analysis of the Chinese economy goes wrong for the same reason their analysis of the U.S. economy has gone so badly wrong. The great lesson from Ronald Reagan's restoration of the American economy is that what economists misleadingly call fiscal policy always trumps monetary policy. Monetary policy can provide one background condition for economic growth: stable prices. Sponsored Content [Man Gets Into a Self-Driving Tesla... What Happens Next is Shocking]( "Hi, I'm Teeka Tiwari...I'm about to get in this Tesla and drive up to a facility just a few miles from here to show you what could be the secret behind Elon Musk's new AI project... What happens next will shock you...". [Click here to see what happened.]( What is called fiscal policy really comes down to how much latitude the government allows private businesses to allocate capital and innovate new products, services, and production methods. The Reagan tax cuts, viewed conventionally as just another form of monetary stimulus, were effective primarily because they freed investors to allocate capital into productive investment. Even the Fed tightening under Paul Volcker, to the extent it restored price stability, had as its primary effect improving capital allocation. In the 1970s, with inflation running into double-digit percentages and capital gains taxes as high as 35% (confiscatory when levied on inflated dollars), real, after-tax returns on investment turned negative. Investors preferred accumulating Renoirs and real estate to investing in new enterprises. The Reagan reforms released a flood of capital out of inflation hedges and into the productive economy. Also crucial were 30 years of relative regulatory restraint starting under President Carter and continuing until the Obama administration, increasing the freedom of entrepreneurs to energize the economy. What ails the U.S. economy today is not primarily bad monetary policy, neither Fed laxity from 2008 through 2021, not the tightening since. What’s driving slow growth and rising prices are drastic government-imposed inefficiencies, especially in the energy and labor markets: too little energy produced and too many Americans still out of the job market. The devastation of the auto industry by mandates and subsidies for electric vehicles is just the latest wound. As with establishment reaction to Reagan, the confusion about China’s current problems begins with misunderstanding its prior success. The China Hawks credit the fantastic expansion of the Chinese economy since 1978 to clever Chinese central planning. Bizarrely, they imagine that for once, against all precedent and logic, socialism worked. Missing the true source of Chinese prosperity, they now miss the source of its decline. The real story of the Chinese stall is socialist revanchism, starting at least a decade ago under Chairman Xi (earlier by some accounts). Chinese state-owned enterprises that had shriveled in previous decades have been massively refunded and subsidized by the Chinese government. According to China-watching economist Nicholas Lardy, the effect has been to pull China’s average national return-on-capital down into the low single digits. Even this, however, was not enough to thwart the Chinese economy. Most governments of approximately capitalist nations similarly waste massive amounts of capital, cf. windfarms and solar fields and trillions in green subsidies of all sorts, not to mention the CHIPs bill, or ethanol, or, or…. These harm the economy by diverting entrepreneurial creativity into the destruction of wealth. (Ethanol, for instance, damages car engines and consumes agricultural land and resources.) But if genuine entrepreneurs and the free economy can get the capital they need, they typically more than compensate for government waste. As Yasheng Huang documented 15 years ago in his great book “Capitalism with Chinese Characteristics,” the explosive growth of the Chinese economy was driven by the relatively small portion of Chinese businesses most free from government control: smallish rural enterprises and foreign controlled companies. As Huang, Lardy, and Nobel Prize winner Ronald Coase, among others, have shown, it was the unplanned, often extralegal liberation of farmers far from Beijing that first reinvigorated the Chinese economy. As agricultural productivity increased exponentially, fewer farm laborers were needed. Local prosperity and excess labor spawned tens of thousands, then millions of “town-and-village enterprises,” officially “owned” by local governments but controlled by local entrepreneurs. These enterprises were financed in part by informal intermediaries that grew into a “shadow” banking system loathed by the Xi regime as beyond its control. The most visible became Jack Ma’s Ant Financial, which used advanced credit rating algorithms to make millions of sound micro-loans to Chinese businesses and consumers. [Join George Gilder at the Orlando MoneyShow on October 29-31, 2023]( Join financial expert George Gilder live at the [Orlando MoneyShow]( from October 29-31, 2023. Gilder will have two discussions on “The Age of Carbon, the Coming Transformation of Human Life, and the Biggest Investment Opportunity of our Lifetimes” and “You Ain't Seen Nothing Yet! Why the Future of Semiconductor Investment Will Make the Past Look Like a Slow-Motion Movie”. [Click here now to reserve your spot!]( In November 2020, Xi shut down Ant’s planned IPO and forced a restructuring that crippled its entrepreneurial style. That was only the most well-publicized attack on the shadow banks, which have been largely neutralized. Though we have no reliable data on the impact on small Chinese businesses, the constriction of the shadow sector bodes ill. The other great source of Chinese economic growth was foreign controlled firms. Foreign Direct Investment is credited even by establishment economists for aiding China’s growth. Its sudden decline amidst U.S.-China tensions is always listed as a worrying point by established analysts. Here again they largely miss the point. As the massive, renewed subsidies to state-owned enterprises show, China was not short on capital. It was short on freedom. As Huang shows, foreign-controlled or financed firms disproportionately contributed to China’s prosperity because they were largely exempt from the government interference and corruption that plagued indigenous firms. The importance of this freedom of operation was largely missed, says Huang, because western China watchers vastly overestimated the number of large Chinese enterprises that were free from government control. Former state-owned enterprises that were allowed to “go public” and sell shares were often counted by observers as part of China’s private, free economy. In reality, as with public companies in the West, management remained in charge. For these Chinese firms, “management” means the government. When foreign investors flee China, the capital they take with them is a small loss compared to the freedom sacrificed. If the real estate bubble pops, it will not be because loose money became tight, but because the growth that would have sustained demand for improved real estate didn’t happen. The people who would have made it happen have been driven away. The China so hated by the Hawks is imploding. The socialists the Hawks pretended were always in charge have returned with a vengeance. If they are not stopped, China and its shrinking population will head back toward poverty and insignificance. The immediate result may be to tip the globe into recession. The long-term results of losing a billion of the most enterprising people on earth back to socialism will be worse. P.S. We have an amazing opportunity for you! An investment we believe could go up 100 to one or better! As you probably know, over at [Gilder’s Private Reserve](, we cover venture capital opportunities: still private companies with potential 100X or better upsides. Alas, most of those deals are available only to “accredited investors.” That typically means you must have investable assets of $1 million or more, or an income of $200,000 or more. Happily, THERE IS AN EXCEPTION TO EVERY RULE!!!! In our most recent issue of Gilder’s Private Reserve published just last week, we focus on one of our favorite graphene companies which happens to be open to all investors, not just accredited, for an investment of just $250! However, this deal closes on Sept. 28. We really don’t want you to miss this opportunity, but we are not allowed to name the company here. The information is strictly for Gilder’s Private Reserve subscribers. Fortunately, our esteemed Publisher, Roger Michalski, has found a way around this by creating a special introductory six-month subscription deal at a huge savings from the publication’s regular price. The moment you subscribe, you will our most recent issue with this great graphene opportunity. Roger is making this offer now specifically because he wants you to have the opportunity to take advantage of this investment… we normally sell Gilder’s Private Reserve only for a full year, so he’s not only cut the price, but also your time commitment. You need to hurry though, both this offer and the funding deal ends on Sept. 28. So, call Grant Linhares now at 202-677-4492 to take advantage of this offer! P.P.S. You’ve got to come to COSM 2023, Nov. 1-3 in Bellevue, Washington. COSM 2022 and 2021 were probably the best tech gatherings we’ve ever been to, and the 2023 version is not to be missed. COSM is the ultimate expression of George’s worldview, the Gilder Team’s insights into what is happening in tech, how it matters to the world and especially to our readers and tech investors. Save the dates of Nov. 1-3: The focus this year is on AI and all its works. Key speakers include: - The Wall Street Journal’s Andy Kessler on the economics of AI. - Juan Lavista Ferres, Microsoft’s chief scientist on AI’s potential for global problem solving. - Ray Kurzweil will shock you with the prospects for AI immortality. - Archana Vemulapalli, head of solutions architecture at Amazon AWS, will plunge into the AI open or closed debate. - Michael Milken will propose a new AI-enabled high-yield healthcare system. - …and more Plus, you will meet lots of key folks from the companies we cover. - Ariel Malik, the venture capitalist backing a dozen graphene companies spun out of Jim Tour's Rice University Lab, will give important updates on the graphene revolution. - Steven Balaban, of Lambda Labs, a George Gilder favorite, will cover the prospects for companies enabling AI on the edge. - DO NOT MISS Vered Caplan, CEO of Orgenesis, on the amazing prospects of affordable cell therapy. - Another half a dozen start-up heroes. Speaking of heroes, the brilliant and brave Michael Shellenberger (recently harassed by Congress People of Limited IQ) will speak on Free Speech in the Digital Age. As always, Carver Mead will give a riveting reflection on our three days together. Social time is great—meet old friends and fellow subscribers and investors. George and Nini, of course, and the rest of the Gilder Team, John, Steve, Paul and Richard will be there, too. DON’T MISS IT. FOR A SPECIAL DISCOUNT FOR OUR SUBSCRIBERS ONLY [GO HERE](! Sincerely, [The Editors] George Gilder, Richard Vigilante, Steve Waite, and John Schroeter Editors, Gilder's Guideposts, Technology Report, Technology Report Pro, Moonshots, and Private Reserve About George Gilder: [George Gilder]George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives. 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