all macroeconomic regulation and control are wrong

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Eight, all macroeconomic regulation and control are wrong

Abstract: The mistake ofmacroeconomic theory is mainly because it is based on the wrong assumptions,and excludes the influence of all supply factors on the economy. The wrongtheory of regulation is naturally not good. Specifically: the regulation of expanding demand is wrong. The financialstabilizer is actually a set of "wrong", "lazy" and"bad" mechanisms. The economic cycle itself and the macro-controlhave a "time and space" contradiction.  Therefore, all macroeconomic regulation andcontrol is wrong.

First of all, it should be notedthat macroeconomic regulation and control in economics is the regulation oftotal quantity. It is an economic term, not a vocabulary of "macro"such as "large-scale", high-level, and top-level.  The object of criticism in this paper is thedrawbacks of total regulation.

The author also knows that to dosuch a topic, the topic is a bit large, and it is simply an enemy of themartial arts of the entire economics.  Ifthere is no shackles, allies, or weapons such as the Dragon Slayer and theEternal Sword, they will certainly be outnumbered and drowned by the people'ssaliva.

Therefore, before officiallycriticizing the total regulation, we must first introduce our allies, the"differentiated" economic theory.

I believe that everyone is nostranger to the microeconomic difference. From a micro perspective, the realsociety is a world full of differences, the world of products is verydifferent, and the world of people is ever-changing.  Different products have different forms,performances, uses, values ​​and technical contents, etc. Different people have different personalities,hobbies, ideas, talents, work abilities, and so on.

What impact does the micro-worlddifference have on macroeconomics?

In the state of productdifferentiation, in terms of demand, when the individual's income increases,the quantity used to purchase products in various industries does notnecessarily increase in proportion; when the expenditure for purchasingdifferent products increases, the price of different products will also bedifferent. Reaction.  Therefore, thetotal expenditure is changed, and the corresponding expenditures for productsin a single industry generally do not change in the same proportion. Inparticular, there is a big difference in the elasticity of demand betweenemerging industrial products and traditional industrial products.

In the state of labor differences, thetransformation of workers' skills is not an easy task. In particular, the laborof many special positions cannot be exchanged in different industries, so therewill be some surplus labor in the sunset industry. Some of the laborers in thesunrise industry are in short supply. Therefore, both the macroeconomic output and the employment volumecannot be increased or decreased in the same proportion.

If the product differentiation ismoved into the industrial economy, it is a set of "product life economiccycle theory."  The product lifecycle theory was created in 1968 by Harvard University professor Mond Vernon.It compares the state of the economy to life: it believes that products, likehuman life, experience a cycle of formation, growth, maturity, and decline.

Specifically, a product is generally divided into fourphases in its economic life cycle:

Introduction period: The product is put into production from the time ofdesign and put into production.  Theproducts at this stage are obviously scarce in production and have a largemarket growth space.

Growth period: Whenthe product passes the introduction period and the sales test sales succeeds,it enters the growth period.  Productsupply and demand at this stage have grown strongly, and product output hasbeen increasing rapidly.

Maturity: After the growth period,in terms of supply, the products enter the mass production and enter the marketsteadily; on the demand side, as the number of people purchasing the productsincreases, the market demand becomes saturated, and the products enter themature stage.

The recession period means that the product hasentered the slow-moving stage.  With thedevelopment of technology, the emergence of alternatives and new products inthe market, the customer's consumption habits have changed.  At this time, the products have been aging inthe market and cannot meet the market demand. The market has been replaced byother new products with better performance and lower prices, and the salesvolume of the products continues to decline.

How does a product affect themacro (total) economy during its life cycle?

Duringthe introduction period, although the product grows fast, due to the lowoutput, the contribution to the total economic growth is a small amount ofplutonium;

In the growth period of the product, as the mass productionbegins, the output value will rise rapidly, which will lead to a rapid increasein the total economy;

Although the output growth during the product saturationperiod has begun to slow down, as a pillar industry, the base is large, and itwill become the main force of economic growth;

In the recession period and slow-moving period ofproducts, the output value begins to decline, so it will become a force foreconomic recession.

The above is a brief descriptionof the "differentiated" economic theory. Those who are interested inlearning more about this theory can refer to my own monograph "Thehomogenization" and "differentiation" of countercyclicalregulation, through comparative differentiation and the same The regulationeffect in the qualitative environment analyzes the shortcomings of allmacro-control policies.

8.1 expanding the demand is wrong

Expanding demand is the mostimportant policy tool in macroeconomic regulation and control, according to theinference of macroeconomics in the textbook: Assume that in the economiccrisis, the government expands consumption by increasing spending by 100million yuan.  The standard thinkingparadigm under the premise of Keynesian homogeneity.  In a marginal propensity to consume 0.8,regardless of taxation, the economy can produce a multiplier effect of 5 times.

The entire fiscal stimuluswill increase the income of the economy by 500 million yuan and the consumptionof 500 million yuan. The savings (or inventory) will not change at all, and theoutcome will be perfect.

However, this so-called "perfect" is only under the assumptionof "homogeneity", macroeconomics says the propaganda of theinvestment multiplier in the textbook. If we put the same expenditure in a "differentiated" context,we can at least find three places that are "not perfect":

First, in the context of “differentiation”, there is a difference in residents’ income and consumption propensity. In the“ineffective demand”, the daily consumption of the affluent classis saturated, and they only participate in income distribution in the effect ofexpanding demand. , but will not increase consumption.  Therefore, the actual multiplier effect ofexpanding demand may be less than half of the theoretical expectation, and itsinvestment multiplier is less than 2.5 times;

Second, in the multiplier effect of expanding demand, it will also promotethe increase of savings, which means that the inventory of surplus productswill increase, and the problem of surplus will be more serious after thestimulus;

Third, in the context of “differentiation”, investment in the introduction, growth, maturity,and recession industries has significantly different multiplier effects atdifferent cycle stages.  If the samefunds are used to invest in the development of new products, the investmentmultiplier may reach several times the effect of expanding the demandmultiplier. It is also possible to optimize the industrial structure and reducethe excess capacity without the government's sequelae of simply expanding thetotal demand. .  Therefore, the"industry upgrade" type of intervention mode should be significantlybetter than the total intervention mode of expanding consumption.

Of course, the theoretical derivation of this is very complicated.Interested friends can refer to the counter-cyclical regulation of"homogeneity" and "differentiation" published by myself.

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8.2 The financial stabilizer is a mechanism of “wrong”, “lazy” and “bad”.
In macroeconomic regulation and control, there is a set of mechanisms known as the combination of taxation and transfer payments to form an automatic stabilization effect on the economy, referred to as the financial stabilizer mechanism.
According to their elaboration in classic textbooks, the principle is as follows: During the economic boom period, → due to the increase in aggregate demand, national income increased, taxes automatically and timely increased, and unemployment insurance, poverty relief, agricultural product price support Such transfer payments can reduce sputum accordingly, and ultimately inhibit inflation and economic overheating; during the recession, → due to the decline in total demand, national income is reduced, causing taxes to be automatically and timely reduced.  The increase in various transfer payments has helped to ease the economic downturn.  They have turned taxes and transfers into mechanisms that automatically reduce economic volatility into fiscal stabilizers or automatic stabilizers.
Of course, this is still a kind of propaganda that macroeconomics says about its policy tools. It is a kind of wishful thinking mechanism and does not exist in the real society.  The principle is derived from a series of unreasonable assumptions.
First, under the assumption that “technology, resources and costs are established”, for example, technology will not improve or consider the impact of technological progress on the economy; resources are homogeneous, interchangeable, and scarce; costs There is no change or need to consider the impact of cost changes.  This eliminates the need to consider supply factors and only considers the automatic increase and decrease of taxes and transfer payments to affect the change in aggregate demand.  The main motivation is to be lazy. In other circumstances, the supply factor is neglected. Just like when doing math problems, a 13-element nine-order equation is cheated and replaced into a ternary quadratic equation. The calculated result is calculated. .
Of course, this special situation is very short-lived in reality, and it is an ideal in Utopia after being treated by the "short-term" assumption.
Second, the fiscal stabilizer mechanism itself undermines its "short-term" assumptions.
Because the financial stabilizer mechanism is not a short-term policy tool, it needs to adjust the fluctuations of the economic cycle for a long time - tirelessly suppress the height of the peak, and raise the height of the valley.  Not only will it be used to "emergency" in the short term, but it will also rely on its long-term "rule of governance", which has exceeded the initial intention of Keynes's initial short-term stimulus.  This is like a businessman selling spears and shields. When maintaining the "homogeneous" hypothesis, I said that our theory is only suitable for short-term use. If it takes a long time, it will fail. Now we say that we The fiscal stabilizer mechanism is a long-term mechanism that guarantees the stability of our economy for thousands of years.  Let people sound very contradictory, wondering whether the spear is sharper or the shield is stronger.
Of course, the above one, two or two points, can only show that the financial stabilizer is a wrong mechanism based on the absurd assumption. It cannot be said that it is a lazy mechanism, a bad mechanism, to explain that it is a lazy mechanism, a bad mechanism, but also By comparing this mechanism in the context of “differentiation”, we can find its serious consequences.
Third, the consequences of the financial stabilizer mechanism are very serious.
In the context of “differentiation”, according to the product economic life cycle theory, when the product evolves from the introduction period → growth period → maturity period, → GDP will have a momentum of growth. When the relevant departments expand, the economy will enter a boom period. .
During the period of economic prosperity: → All enterprises in various departments are fully operational, → workers are fully employed, → wages are rising, → corporate costs are rising.
Due to the shortage of supply during the introduction period and growth period, and the higher profit margin, → the price increase can be digested by price increase; the supply of mature and slow-moving products is saturated or surplus, → because the profit margin is low The rising cost will force some manufacturers to withdraw from the production of mature and slow-moving products.
In the context of economic prosperity, government tax revenues have increased, → undoubtedly enhanced the ability of their investment and transfer payments.
At this time, the government has two choices. One is to choose to take precautions, use sufficient financial resources to increase investment in the development of imported products, and → promote the labor force from the slow-moving period → maturity period → growth period → introduction period transfer, → through uninterrupted Industrial upgrading maintains sustained economic growth.
It is also possible to follow the financial stabilizer mechanism, → reduce government spending, → watch the new product development, and wait for the resources to withdraw from the sunset industry; wait for the economy to fall back from the peak.  Then, when the recession is over, the government's tax revenue will decrease, and the demand for social security will increase. → The government will increase the expenditure by borrowing money, → stimulate consumption, and stimulate investment... to confirm the cyclical fluctuations of the economy.
The quality of the two options is self-evident.  Therefore, when should fiscal policy be positive?  The fiscal stabilizer mechanism is a "wrong" mechanism based on the premise of absurd assumptions. It is a "lazy" mechanism for instigating the government's inaction during the economic boom. It is a "bad" that causes the government to fail to manage and cause frequent fluctuations in the economy. mechanism.

8.3 The "Time and Space" Contradiction between Economic Cycle and Macro-control
The above 1, 2 can only show that it is wrong to expand the demand and financial stabilizer mechanism. Why do all macroeconomic regulation and control are wrong? To prove that all macroeconomic regulation and control are wrong, it also needs to be controlled from the economic cycle and macroeconomic regulation. "Time and space" contradictions to illustrate the problem.
Let us first talk about the economic cycle:
When it comes to the cyclical fluctuations of the economy, people with common sense in economics will agree that this is the basic law of operation of the modern economy. The differences are only the causes and types of the cycle.
In the economics industry, there are “long-period”, “building cycle”, “medium cycle” and “short cycle” in the classification of economic cycles, which are 50 to 60 years long and 3 to 4 years in the shortest sub-cycle. Belongs to "long-term".
Let's talk about macro regulation:
Because Keynes has set the supply factor of “technology, resources and cost” as “established” in the expectation, the reasons for the economic cycle are attributed to the insufficient effective demand and the psychological factors affecting it. The anti-economic cycle policy also focuses on the demand.
What are the drawbacks of adjusting the demand to influence the economic cycle and supply reform to influence the cycle?
Generally speaking, in the process of supply reform affecting the economic cycle, the main body of investment is the enterprise, which is the decision made toward the return on investment.  For example, by promoting technological innovation, long-wave economic growth, related companies have achieved good economic effects, and also led to the growth of government tax revenue and the improvement of financial status, which is a benign development.
By expanding demand to influence the economic cycle, the background is the failure of technological innovation in enterprises, resulting in economic downturn. From the perspective of treating patients and saving people, the government is in a state of emergency without considering the rate of return on investment.  For example, increasing public construction, granting living allowances to the poor, etc., although the goal is to stimulate consumption and improve macroeconomic conditions, there is no specific expectation of return on investment.
Of course, in the absence of a return on investment, such a stimulus cannot be used for a long time, because every time the stimulus is stimulated, the government must complete the debt. The stimulus will become more and the government’s debt will become heavy, causing a debt crisis. After the credit crisis, the national debt crisis broke out in the EU countries; after the 4 trillion stimulus in China, the problem of excessive local government debts indicates that it is unsustainable to stimulate the economy by expanding demand.
Keynes, assuming that the supply factor such as “technology, resources and cost” is “established” and proposing the idea of expanding demand to influence the economic cycle, also acknowledges that his policy of stimulating demand is only suitable for short-term treatment, emergency, and no need for long-term Responsible, as he said: "The long-term is misleading about the current affairs. In the long run, we are all dead."
Then, how can the government influence the economic cycle by stimulating demand in the short term, so that there will be no sequelae?
To do this, the only viable option is to ask the government to take immediate shots at the “peak” and “bottom” of the economic cycle, and the policies that must be introduced can “cut the middle and the whole body and retreat”, thus flattening The difference between “peak” and “bottom” extends the length of the economic cycle.  To achieve this goal, there must be a premise to ensure that the policy effect affecting demand cannot exist with time lag, so it is logically reasonable.
It’s just that people are doing things, things are in the sky, and the impact of this time lag on policy effects is ubiquitous.
Friedman used to use time lag as a weapon and resolutely opposed the counter-cyclical policy of the Keynesian school to "act against the economic trend."  He believes that the change in the money growth rate takes an average of 6 to 9 months to cause a change in the nominal income growth rate. After another 6 to 9 months, the price will be affected. Therefore, there is generally a change from the money growth rate to the price change. Time lag of 12~18 months.  The time lag of fiscal expenditure also exists. For every round multiplier effect of fiscal expenditure, it has to go through a turnover period from distribution to production to sales to consumption. The time of several rounds of multiplier effect adds up. Even more than the time from the change in the amount of money to the change in prices.
Due to the existence of time lag, the short-term policies implemented at the “peak” and “the bottom” are no longer the “peak” and “bottom” needs, and it is impossible to stabilize the “peak” to the economic cycle. The bottom of the valley, the length of the economic cycle.  Therefore, Keynes’s policy of “short-term” impact on demand has not changed the role of the economic cycle.
The Keynesians have always emphasized the meaning of "short-term emergency": if a person is dying, he will die, of course, give the patient a "strong heart" to save and say that there are sequelae that are better than life! As Keynes said: "In the long run, We are all dead."  However, due to the existence of time lag, this strong heart needle may take a long time. After this patient can only exert its effects after death, then this "strong heart" will lose its meaning.
After all, Keynes's macroeconomics ruled out the hypothesis that the effects of supply factors such as technology, resources, and cost on volatility began to be wrong. All subsequent inferences and explanations were merely to cover up the truth.

8.4 Solving the problem of overproduction through supply innovation
If there is no supply factor in economic fluctuations, then the fluctuations in the economic cycle can only be repeated repeatedly according to the expansion and contraction of demand, that is, fluctuations on a horizontal line.  But in reality, the fluctuations in the economic cycle are running on a rising slant.  What is causing the economy to continue to rise in an upward trend? It is by no means a propensity to consume and a psychological factor, but because it is affected by supply factors such as “technology, resources and costs”.
In response to the impact of supply on the economic cycle, Schumpeter once proposed the "innovation theory". He used historical and statistical analysis methods to explain that the cause of the economic cycle was innovation.  Including the introduction of new products, the introduction of new production methods, the opening of new markets, the development of new materials and the realization of new forms of corporate organization are achieved by entrepreneurs rather than government officials.
Every revolutionary technological innovation, maturity and proliferation will lead to long-term fluctuations in the economy, such as the “steam and steel period” from the 1880s to 1842, from 1842 to 1897, “Electrical, Chemical”. In the period, from the "car period" after 1897... every small innovation can cause small fluctuations in the economy, and the economy is moving forward in the "industry mutation" caused by these innovations.
I think Schumpeter's "innovation theory" best explains the fluctuations in the economic cycle.
From the perspective of industrial upgrading, innovation activities can improve production efficiency on the one hand, and on the other hand, they can cultivate emerging industries.
Whenever innovation is active, → a large number of products are introduced in the market, and productivity is also increased simultaneously. → The product is evolved from the introduction period → growth period → maturity period → slow-moving period, and the production factors are continuously delayed from the slow-moving period to the mature period → the growth period. →Introduction period transfer, →In the expansion of relevant departments, →The economy will enter the boom period.  However, as a result of the evolution of the product from the introduction period → growth period → maturity period → slow sales period, many products will eventually become unsalable commodities, so as the economy scales up, the pressure of overcapacity also increases.
When the activity of innovation declines, → in the market, the introduction of product interruption during the introduction period, → production factors from the slow-moving period → mature period → growth period → introduction period transfer obstacles, → maturity, slow-moving period production exceeds the “relative demand” warning Lines, → may lead to a crisis of overcapacity in the mature period and slow-moving period of industry →, after the economic recession.
Therefore, even if it is innovation, the innovation of production efficiency is far less important than the innovation of industrial upgrading. Simply increase production efficiency, → can increase production, but cannot control excess capacity.  Industrial upgrading will not only increase production through the addition of new products, but also absorb production factors through new industries, → realize resource transfer, and thus relieve the overcapacity of the sunset industry, and → maintain upward fluctuations in the economy.
By analyzing the impact of supply factors on the economic cycle, we can see that the impact of insufficient effective demand on economic cycle fluctuations is not as important as Keynes said, or that expanding demand does not solve the fluctuations of the economic cycle.
Why can't expansion of demand regulate the economic cycle?
Because the root cause of overproduction is the diminishing marginal utility, rather than insufficient effective demand.
If within a certain period of time, the whole society is artificial n, the average consumption of a product by a single person reaches q, and the marginal utility is "0", then the maximum demand of the whole society for a product is n.  q, if the output of a product exceeds n.  q, there will be absolutely excess.  Due to the gap between the rich and the poor and the consumer's preference in society, the average person's consumption of a product reaches qd (d is greater than 0, which is a relative surplus), and the marginal utility is “0”. When the output exceeds n (qd), a product will have a relative excess.
The above paragraph can also be understood as: if the demand is n.  When q, the effective demand is n(qd).  Insufficient effective demand means that because n(qd)<n.  q, resulting in a relatively surplus production.
If the demand is insufficient to solve the problem of insufficient demand, the actual demand is expanded from n(qd) to n.  q.  Then, the relative surplus is solved, and the economic scale is expanded, but it is restricted by the law of diminishing marginal utility, and the maximum demand is n.  q can no longer rely on expanding consumption to break through, the pressure of overproduction still exists, but it has evolved from a relative surplus to an absolute surplus.
Fortunately, the supply factor can solve the overproduction problem caused by insufficient effective demand.
As I said before, to avoid overproduction, we must control the output within n(qd), so how to deal with excess capacity beyond n(qd)? In fact, the answer is very simple. One is to add one through innovative products and industries. To undertake the carrier of excess capacity, the second is to promote the production factors from the slow-moving period → maturity period → growth period → introduction period, and transfer the resources of excess capacity into the new industry in time.
However, in the market economy, manufacturers will consciously complete the conversion of products from the introduction period → growth period → maturity period → slow-moving period, but the development of A products and the labor force from the slow-moving period → maturity period → growth period → introduction period is not enthusiastic Often, the market mechanism is out of order, that is, the government needs to participate in regulation and control to maintain sustained economic growth.
Therefore, in the anti-economic cycle, the government temporarily adjusts demand, it is better to focus on managing supply.

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