Hong Kong is currently the world’s most free-market economy. As such it is the recipient of much affection from classical liberals/libertarians the world over. And as I am currently spending my end-of-year-vacation here, I cannot deny I am in love with HK (the food! The booze! Oh my god, yes!).
However, it seems that during my stay in HK, I have come face to face with my arch-nemesis: the clergy. In particular, I have had the displeasure of reading some truly appalling and profoundly idiotic comments made by HK’s Roman Catholic Cardinal Jospeh Zen, and Hong Kong Island’s Anglican Archbishop Paul Kwong, currently on display on page A3 of the December 25th issue of the South China Morning Post.
Below will be the text of two emails I have sent, the first to Cardinal Zen, the second to Archbishop Kwong.
TO Cardinal Zen (email@example.com)
I like to recall the days when Roman Catholic intellectuals such as Pierre Abelard and St. Thomas Aquinas gave deep, considered thought to every issue they commented upon. Your comments in the South China Morning Post (December 25th, 2008) (concerning the cause of economic recessions) demonstrate that these days are over.
You commented that the cause of this economic downturn was over-consumption and greed. This is untrue. What actually caused this economic crisis was the period of unprecedentedly low interest rates that the US Federal Reserve set since the crash of the NASDAQ in the early 2000’s.
When interest rates are set at rates lower than what they would be set under a market-determined interest rate regime, businesses make longer-term investments than they otherwise would (lower interest rates reduce the pressure upon businesses to make profits quickly). However, the balance between consumer spending and consumer saving is unchanged, meaning business are investing for the long term when consumers are spending for short-term satisfaction. Since production of consumer goods is not being expanded, and inputs are being fought over by both long term and short term production processes, and these long-term investments are hiring workers (hence paying them), the prices of consumer goods are bid up. This creates inflation. Inflation then scares the Central Bank into increasing the interest rate, which suddenly makes long term investments much more expensive than they were initially. These investments must then be liquidated, the workers on the projects are fired, etc. This is the recession.
Central banks currently are further expanding credit to try to hold off the recession. However, the Neo-Keynesian economics that these central bankers subscribe to is flawed and creates business cycles. For more on how central banking creates business cycles, I advise you to read the articles on business cycle theory published at www.mises.org
As much as I can understand why you would like to see this recession as some sort of divinely-ordained punishment for greed, economic reality is not a giant morality play. The cause of recessions is much less mythological; the cause is central bank mismanagement of the money supply.
A piece of advice: next year, the inflation will hit, and it will be significant. So unless HK ends its fixed exchange rate regime with the US, I would advise pouring any cash lying around into gold.
B. Econ (2007), University of Queensland
TO Archbishop Kwong (firstname.lastname@example.org)
As someone that was raised in the Anglican Church (although is now a confirmed Atheist), I am familiar with the “three legged stool” epistemology, where Faith, Tradition and Reason are all given a role in settling disagreements amongst the faithful. Unfortunately, the comments that you made in your Christmas message concerning the current economic crisis demonstrate that the “reason” leg has been forcibly removed from said stool.
Your comments about “mythologizing rampant capitalism” are something I’d expect from Archbishop Peter Jensen, not from someone who is the Archbishop of a city that is a great testament to the beneficience of (relatively) laissez-faire economics. First, what causes business cycles is central bank control of the money supply; in this case the unprecedently easy credit that flooded the market ever since the NASDAQ crash of the early 2000’s. This credit expansion made long-term investments look relatively cheap, however the inflation generated by credit expansion would eventually force the central bank to raise interest rates, creating a ‘credit crunch’ and suddenly making long term investments much more expensive (forcing their liquidation). Ultimately, responsibility for this lies with the central bank (in this case the US Federal Reserve), and central banks are creatures of the state rather than the free market. It is not “rampant capitalism” that is responsible for this crisis, but rather government intervention. For more on this understanding of the business cycle, please see the works of Austrian School economists Frederich von Hayek and Ludwig von Mises. Commentary on the current economic crisis from economists like this can be found at www.mises.org
Finally, you seem to believe that a “booming economy” or a “steady skywards climb of the Hang Seng index” are irrelevant to poverty reduction. This is a fallacious position. If the Hang Seng index is climbing skywards, what it means is that investors believe that the companies listed will have more success in their future. This would imply that the companies themselves may be increasing in size, and as such employing more people. The avaliability of more jobs is in fact very good for reducing poverty. It may also imply that the companies are going to make more money in the future, and these companies frequently will use that money to expand the size of their operations (hence generating more jobs). If they don’t spend the money on more jobs, they will spend it on improving their productivity, which means the same amount of effort produces a larger quantity of goods, thus lowering the real cost of these products and allowing price drops to be passed on to the consumer. I am sure you can see the benefits of this in reducing poverty.
I am not denying that positive social relations are also an excellent support structure to help people get through difficult times. However, positive social relations and economic growth and productivity are not mutually exclusive, unless you want to mythologize rampant capitalism as some sort of soul-destroying, Gordon-Gekko producing, Lovecraftian horror that climbs up from under the sea in concert with the skywards growth of the Hang Seng index.
B. Econ (2007), University of Queensland
End text of emails
If anyone wishes to send any emails of their own to Archbishop Kwong and Cardinal Zen, they are more than welcome to.