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By Root 1314 0

an economic recession; its national debt was two and a half times its GDP. Most unfortunately, in 1815, the Mount Tambora volcano in Indonesia erupted, the worst eruption in history, and spread volcanic ash all around the world. The next year was called ‘the year without a summer’ and there was virtually no agricultural harvest in Europe. The British prime minister at the time was Lord Liverpool, and who do you think his adviser was? None other than the celebrated economist David Ricardo. In the face of an imminent economic depression potentially leading to great social unrest, they instituted a program of crisis management. And what was it? Liverpool got Parliament to agree to a suspension of habeas corpus, Britain’s protection of personal freedom. The government could round up and imprison anyone who caused trouble or didn’t do what they were told, without following the law or legal procedures. In modern language, the government could trample human rights at will. The result of this policy was that during the entire period of economic decline, the usual troublemakers didn’t dare start anything, and in one year the national economy recovered. Wasn’t that pretty amazing?”

Little Xi and Fang Caodi sat grimly with their arms folded.

“Of course the people were going to suffer and be hungry during this crisis, and, besides, such recessions have always been a cyclical phenomenon of capitalism in the past; they would last a year or two, and after getting through them, everything would return to normal. But this latest crisis was like the great depression of the 1930s, and it might have lasted for a decade or more. The government couldn’t just ride it out; they had to go into action. My main point is that stability is always the number-one priority, but stability is not the ultimate goal—we need stability in order to accomplish great things. Therefore, in extraordinary times or emergency situations, we have to order a crackdown. We have to beat the grass to frighten the tigers. After that, while the effects of the crackdown are still in play, we are free to implement new policies.”

The Chinese model

According to He Dongsheng, the crackdown was the second phase of the “Action Plan for Achieving Prosperity amid Crisis.” The third phase was to put forth a set of five new policies.

Number One: Twenty-five percent of all the balance of every National Bank savings accounts was to be converted into vouchers for use in China only. One-third of these had to be spent within ninety days, and two-thirds within six months. Beyond that time limit they would no longer be valid.

The Chinese people’s excessive savings were one of the reasons for insufficient domestic demand. Personal savings equaled more than 20 percent of the nation’s annual GDP, and business savings were more than 30 percent. When the foreign economic environment was bad, people with surplus cash held on to their money and spent even less. With everyone doing this, how could the economy avoid recession? Merely lowering bank interest rates and moral suasion were no longer enough to make the Chinese people spend their money. The government had to rely on coercive measures of the sort Western countries would not dare dream of.

The greatest thing about this government order was that it was so simple to enforce. All the banks are computerized, so it was easy to cut into the savings accounts. The second virtue of this policy was that it affected only people who had money. It primarily impacted the urban middle or moderately well-off classes who had “got rich quick” in the Reform era. These included civil servants, professionals, white-collar workers, staff in government enterprises, small-business entrepreneurs, and pensioners. The government could easily get away with making them spend 25 percent of their savings on themselves in order to stimulate the national economy and help China make it through the crisis. Consumers and businesses all started spending money.

The third benefit of this policy was that it did not need the National Treasury to allocate major funds or follow