COMMENT: "Bad loans could take their toll on China's growth," by Michael Pettis, Financial Times, 22 April 2010.

Beijing commited itself to a massive government stimulus, second only to our own. To some, that proves--yet again--the "superiority" of authoritarian capitalism.

To me, it proves the Chinese read Keynes.

Last time China faced a great wave of bad bank loans about a decade ago, it pursued a series of policies, detailed here, that essentially represented a transfer of wealth from unlucky depositors to the state, banks, and businesses. As a result, household income declined to alarming levels.

No question that China's got the bucks to fund any rescues. It's just that the average person will end up paying in the end--again. That means the quest for more domestic consumption will be thwarted.

Despite the current fads in thinking, there ain't no such thing as a free lunch--or a government smarter than markets.