To get rich is glorious. To go into debt is...

Imagine the looks on their faces, when Deng Xiaoping sold them out.

The old commies in China had tried to make steel in backyard barbecues. They’d carried the fat Mao on a litter, on a long march to nowhere. They’d pretended his Little Red Book was more than drivel. They’d endured one absurdity after another…purges, starvation, and misery…all for the cause.

And now this…

“To get rich is glorious…” Xiaoping is alleged to have said.

Whether he said it or not, millions of Chinese took it to heart. They got richer, faster than any people ever had. The economy is now 10 times larger than it was then; it grew 300% just in the last 10 years. Incomes rose every year. There are now more millionaires in China than in France. Three times as many as in Britain. And more people are becoming millionaires there than anywhere else on earth.

Three decades ago, the world’s hinge creaked. Deng Xioaping opened a door in 1979. He announced a new oddity, a “socialist market economy.’’

We can imagine the looks on faces in Washington and London too. And why shouldn’t they gloat? They had won the Cold War; they had no idea that their victory would be fatal.

China took the capitalist road in 1979. Russia was not far behind. By the mid-’80s, it was already spending half its entire output on its military. And then the Americans started talking about neutron bombs and a “star wars” program. Leonid Brezhnev had a stroke. His successors faced the challenge, first with perestroika and finally with capitulation.

Meanwhile doors opened and shut in England, France and America, too. Maggie Thatcher moved into #10 Downing St. in 1979. Ronald Reagan brought ‘Morning in America’ to the White House in 1980. Like Thatcher and Xioaping, Reagan was determined to reduce the government’s role in the economy. And in 1981, Francois Mitterand entered the Elysee Palace in France. His stated goal was the opposite – to increase state involvement in the economy.

No matter what direction they claimed to be going, all the western economies ended up in more or less the same place – on the road to debt serfdom. While China got rich by encouraging (or perhaps merely allowing) capital formation, western nations got poorer, relatively, by consuming capital.

In France, and much of the rest of Europe, government led the consumption boom. While households continued saving at relatively high levels, Mitterand raised the cost of the welfare state. Minimum wages went up 10% immediately. Then, he cut the workweek and added so many benefits for the workingman that the system barely worked at all. French government debt rose from 20% of GDP in 1980 to 80% now; in a couple more years, the government will have spent an entire year’s output that France had not yet put out.

In Britain and America, government spending rose too. But household spending went up even faster. The resulting boom was almost magical; the effects were diabolical. Britain went from a debt/GP ratio of 43% in 1980, to over 65% today. Its deficits rose up too and now are projected to be the highest in the European Union – as much as 13% of GDP. But the big expansion in both Britain and America was in private household debt. Combined with government borrowing, it pushed total debt from about 150% of GDP in the mid-’80s to as high as 400% today.

Japan – the other major ‘western’ economy – has total government debt of nearly 200% of GDP. Its deficit is now so large that it must borrow an amount equal to the total it collects in income taxes. It is said, of course, that Japan has much debt but also much savings. The trouble is, the savings and the debt are largely the same money. Households saved. Government borrowed the money. The savings that are supposed to offset the debt have already been spent.

All together, Europe, America and Japan have total government debt of about $32 trillion, compared to total output of $34 trillion. Add $50 trillion or so of private debt, and you begin to see the bottom of the hole. In other words, the developed economies have borrowed nearly 3 years’ worth of future output. At 5% interest, (investors recently wanted Greece to pay 16%!) this means the western world must give up all the output from January 1st to the end of February just to stay in the same place.

Meanwhile, back in China, last week’s visit to Beijing revealed a glorious transformation. In the early ’80s, a visit to China was a hardship. The streets were drab. The people were drabber, in their grey clothes and grey towns. They stared at tourists as they had never before seen a capitalist. Minders still accompanied tourists. Most of the country was off-limits. There were few private automobiles and few roads deserving of them.

In just 3 decades Beijing has become one of the world’s most dynamic, forward-leaning cities, with new Audis and Mercedes bumper to bumper…as far as the eye can see. There are sparkling office towers with millions of earnest workers…and gleaming hotels with sleek prostitutes in the lobbies. Chinese entrepreneurs hustle deals at every table.

China is still an emerging economy. Europe, Japan and the USA, on the other hand, are submerging – sinking in a sea of debt. Getting rich is glorious. Getting poor is a damned shame.

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