China Turns to Economic Controls

An article from AP via Newsweek discusses China’s approach to its inflation problem, and also explores the possible consequences of the use of governmental controls in a capitalist economy.

Fighting stubbornly high inflation, China’s leaders dusted off a blunt tool from its pre-market reform era and commanded utility companies to freeze electricity prices.

Households got temporary relief after that September order, but the capitalist-style economy produced unwanted consequences. Coal shortages cropped up as power companies cut back on buying and mines reduced production. Freak snowstorms over the past month caught power plants with dangerously low stocks, resulting in blackouts and factory shutdowns.

While the easy ability to rule by fiat often makes the communist government appear nimbly responsive to crises, economists warn that the approach does not always work in an economy as headily capitalist as China’s.

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