Davos Diary: China & Europe Are Clueless

It's comical listening to my colleagues here in Davos wax and wane about the “mood” of this year’s World Economic Forum. Of course, we as journalists get paid to report on such things, as fatuous as they may be and given the dearth of real news that comes out of this event every year, mood stories are in abundance.

But let’s set the record straight: there is no discernible mood here—in fact I bet there never has been one in the forum’s 45 year history. The panels consisting largely of like-minded government bureaucrats, crony capitalist bankers and left-wing celebrities rarely deviated from their script of pre-packaged left wing propaganda.

In their world view, big government solutions i.e. spending, taxing and control of markets by bureaucrats across the globe actually work better in solving economic problems than the free market, when of course, the evidence shows just the opposite is true.

As Europe has been and China is now demonstrating, economic bureaucrats are failing, and failing miserably at reversing economic trends. Europe’s massive welfare state and adherence to multiculturalism (both widely celebrated here) has produced a new normal of high unemployment and massive debt not to mention a radicalized Islamic minority.

As you might imagine, people here have lots of faith in the Chinese bureaucrats in figuring out how to reverse the country’s economic slide (GDP has fallen to 6.p percent in just three years, budget deficits are rising and the Chinese stock market in wobbly).

Yet where is the evidence that this micro-managing is working? GDP continues to fall, deficits are going up not down and China’s stock market remains shaky even as its economic bureaucrats seem to look for reasons to shut down trading amid the volatility.

I am reminded here time and again that the US and the rest of the world would love to have China’s nearly 7% GDP. My response: That’s only if you believe the country’s economy is actually growing at that rate. Who, after all, is auditing all these government controlled companies that contribute to the country’s economic miracle? Well, it’s the Chinese government, which as has every incentive to create growth even when it doesn’t really exist.

Of course you won’t hear much of this discussed at the conference center where one of China’s economic officials told credulous attendees that he and his colleagues, “have the means (to fix the economy) particularly on the fiscal side that we can expand quite a lot."

The crowd, based on what I can tell, liked what they heard for the simple reason that he was preaching to the choir.

After all, if the Chinese fail how will their like-minded souls in the Eurozone, or in the Obama Administration like Treasury Secretary Jack Lew, expect to convince voters they will be successful in reversing lousy economic growth, declining wages and massive under employment through the same big government solutions?

With that it should come as no surprise that one of the headline acts here featured an actor with no economic background, Leonardo DiCaprio, being cheered by attendees as he attacked oil companies as “greedy” presumably because they make money without the government’s help.

DiCaprio never mentioned that oil companies produce great working class jobs as well, and with oil prices falling thanks to market forces, not government intervention, the world’s poor and working class have been handed a nice, fat tax cut.

But why deviate from the script that has worked so well for nearly half a century?