Xu Xiaonian: I originally intended to talk about macroeconomics, but since I cannot agree with the views of several people just now, it is very unreliable to predict macroeconomic policies. I have been studying and teaching macroeconomics all along. I advocate that macroeconomics should not be a required course but an elective one, or even be abolished, which I don't oppose. In fact, macroeconomics is a pseudo-science. It is very frustrating to do macroeconomic forecasting, not because I always lose to Song Guoqing. Later, I found out that Song Guoqing just has better communication with the statistics bureau. This is a very unreliable matter, requesting the State Council to fine-tune the economy, achieving the exact right balance without overdoing or underdoing it. Such a thing is impossible to achieve. The prerequisite for such a task is having accurate predictions of the economy, so the policy can be forward-looking. We know that predictions are full of errors, personal judgments, and undetermined factors. Moreover, in China, to make reliable predictions, we need dependable data. How reliable are our numbers? Song Guoqing understands this better than me because he communicates more with the statistics bureau. For our macroeconomic regulation, we find ourselves amazing - when we want inflation to go down, it goes down. The CPI 4.9% is impossible to reach, but the CPI is indeed declining. However, no matter how we add up individual items, we can never get the total. When we say controlling inflation, it goes down. When we say stimulating domestic demand, it rises. In August, the total retail sales growth was inexplicable - it increased by more than 20%. After deducting inflation, the actual growth was 16-17%, which is unclear where it came from. Last year, GDP grew by 11.9%. If we add up investment, consumption, imports and exports, etc., and compare it with electricity consumption and 11.9%, they basically don't match. If we calculate based on consumption, investment, and imports and exports, last year's GDP growth was between 14-15%. Therefore, such data is full of unconscious errors. Conscious macroeconomists like us might as well be unemployed. How can we predict the future development of macroeconomics? If we cannot predict well, how can our policies finely adjust to the right extent? So, macroeconomics is truly a pseudo-science.
Now, I think the issue we need to discuss is not the decline in GDP growth rate. I agree with Guoqing's observation that the economy is continuously weakening. Whether we need to recalibrate monetary policy and loosen again, I think this is not the key issue. Even if you loosen, there will always be issues of loosening too early, too late, possibly insufficient, or excessive. As long as we do not have complete and error-free data, only capturing a small part of the economy, our predictions will inevitably have deviations. On this issue, I return to my point. This big event in the U.S. happened because the U.S. had overly loose monetary policy, releasing too much liquidity, distorting market capital prices entirely. Under the guidance of distorted capital prices, investment banks started financial innovation, creating various innovations due to Greenspan's approach. Greenspan's historical position changed dramatically within months – from the greatest central banker in history to the culprit of the subprime crisis and the American financial tsunami. The greatest central banker in history is not Greenspan but Volcker, who was controversial during his tenure. So, why did Greenspan, such a smart person, everyone thought of him as a god-like figure, have such significant problems with monetary policy? Therefore, what level can we control monetary policy? It is already extremely fortunate if monetary policy does not have major issues. The goal is not to micro-adjust the economy with macroeconomic policies, but rather how macroeconomics can avoid making major mistakes and ensure the stability of the national economy's macro environment. That would already be quite good.
Everyone, take a look at Friedman's "Monetary History of the United States." In the "Monetary History of the United States," Friedman meticulously reviewed the U.S. monetary policy with data, unlike our empty debates today. With data, he showed that U.S. monetary policy in the 70s and 80s did not smooth out economic fluctuations; on the contrary, the U.S. economic cycle followed the U.S. monetary cycle. In other words, monetary policy is not the stabilizer of the economy but the generator of economic cycles. Money itself is the root cause of economic instability. Therefore, Friedman said that the best monetary policy for stabilizing the economy is for monetary policy itself to remain stable. Thus, it is the source of economic fluctuations. You can see this very clearly through correlation analysis: the fluctuations in monetary policy come first, followed by economic fluctuations. The cause and effect are obvious. This had a great impact on Greenspan. He didn't want to be the Federal Reserve Chairman who caused economic instability. Monetary policy needed to change its direction, resulting in excess liquidity.
Therefore, in front of macroeconomics and the market, we should not always try to penetrate the situation of the market and should not have such illusions. What is the market? The market surpasses our cognitive abilities. What is nature? Nature surpasses human material capabilities. After the Industrial Revolution, humans became delusional, thinking that understanding nature was for reforming nature. Now we don't say that anymore, right? Why? Because in front of nature, everyone realizes that nature cannot be reformed. What is the core of the monetarist school? What is the philosophical meaning of Friedman? It is that there are many forces in this world that exceed human capabilities. In front of these forces, we should not fantasize about being smarter than the market, nature, or God, trying to control the market or reform nature. After being punished, people become honest. The best way for humans and nature is to adapt to nature. Understanding nature is for adapting to and protecting nature. Also, we talk about controlling the market. Macroeconomics is designed to control the market. If controlling the market is impossible, then macroeconomics can be abandoned, but microeconomics must be taught. Our economy and enterprises lack flexibility in response, lacking sufficient agility. This is our problem. To cope with the intense changes in the current macro-environment, I feel that micro-reform is necessary. Why can't our small and medium-sized enterprises survive after a 10% appreciation of the RMB? Why can't companies survive after a 10% increase in costs due to the Labor Law? Why have profit margins been so thin for a long time? What methods can enhance the risk resistance of SMEs? What methods can improve China's economy in responding to the macro-environment? These are the questions we need to ask. Therefore, for us, the urgency of micro-reform far outweighs the prediction of macroeconomics.
I have finished speaking. What should I talk about next? The market? There is nothing left to say about the market. Everything that needs to be said has already been said. They don’t listen, and the stakes keep getting higher. We’ll see how it ends. Now, state-owned enterprises (SOEs) have been brought in, and it’s only a matter of time before the State Council and the Ministry of Finance buy stocks themselves. What else can be done? Do you know whether the bottom has been reached once you’ve bought in? If the bottom hasn’t been reached, the day you stop buying will be the day the market dumps everything. In a rational market, when SOEs stop purchasing, the market will surely sell everything before their final purchase. Any rational investor would do the same. How do you determine the market has hit the bottom? First, you need to judge whether the profits of listed companies have hit the bottom. To judge the profits of listed companies, you need to judge whether China's economic growth has hit the bottom. As mentioned earlier, it’s impossible. No one can successfully buy at the bottom. Everyone talks about buying at the bottom, but who really does it in the market? Those who sit at home usually succeed. Those who deliberately plan to buy at the bottom often crash into mountains. If the market could be bought at the bottom, it wouldn’t be a market. A significant portion of the market remains unknowable to us. In economics, there is something called diminishing returns on policy effectiveness. Party publications publish editorials, and CCTV encourages everyone, but the market doesn’t budge. Taking away 25 million yuan, who are you fooling? Let’s calculate how many assets SOEs have. Our capital market is also experiencing state advancement and private sector retreat. After nationalization, who will play? Is the market still a market? If we continue down this path, how will it proceed? Without considering these issues, we keep talking about how the U.S. is saving the market, so we should save the market too. What is the difference between the U.S. saving the market and China saving the market? If the U.S. doesn’t save, the financial system will collapse. That’s why I saw online that Paulson knelt down to Pelosi. If Goldman Sachs collapses, who else won’t? So, can he not save it? Who should China save? I don’t know what they are saving. If the index falls to 2000 and we don’t save, will the Chinese system collapse? Will the Chinese economy be over? I don’t know what they are saving. Of course, journalists report with restraint; otherwise, I wouldn’t be able to walk the streets tomorrow. We need to consider some issues. Regarding such methods in the market, I completely agree with Yu Ying's remarks. When a child starts walking, you push out a wheelchair. When a child can start eating solid food, you give them Sanlu milk powder. When will the market mature? Market maturity is not about whether the index is at 6000 or 2000. Market maturity is when investors can price assets based on risk and return. We see our investors starting to look at fundamentals. When everyone feels worried about the future of the economy, the stock market begins to reflect the fluctuations of the economy. The value of the market finally moves downward. Then the government comes in and disrupts it. "Don't look at the fundamentals; look at my policies." Everyone follows the policy again. When will the market only reflect value through price to effectively allocate resources? We always look at normal functions, but when we finally have normal functions, we knock them down again. What is the foundation? The foundation is to rationally analyze assets and decide trading actions based on rational analysis, forming prices that reflect the intrinsic value of assets. These prices guide the allocation of resources throughout society using price signals. The market has real economic functions and should not be treated as a factory or a tool for people's livelihood. It is for resource allocation. I'll stop here.
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