The Orthodox Answer Given by Neo-Neoclassical Synthesis - Panden's Notes on Macroeconomics
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The Origin of Current Mainstream Macroeconomics (Neo-Neoclassical Synthesis)
classical theory
The publication of "The Wealth of Nations" by Adam Smith in 1776 marked the emergence of economics as an independent discipline. The period from the publication of The Wealth of Nations to the approximately 100 years that followed is known as the "classical" period. Adam Smith, David Ricardo, Thomas Malthus, John Mill were the masters of economics during this period. (In which Marx also appears, who took a different view of classical theory). However, the masters of classical economics focused on the economy and macroeconomics, and all believed that the price of commodities was determined by the cost of commodities.
From the early 1870s, with the rise of the marginal revolution, economists realized that the price of a commodity is determined by both supply and demand. The three founders of marginal schools, Jevons in England, Menger in Austria, and Walras in France, independently put forward the subjective value theory at almost the same time. In Jevons' view, value is determined by "final utility". Geer believes that value is determined by "the least important use", and Walras pointed out that value is determined by "the degree of final desire satisfaction". They all believe that value is determined by the ultimate utility of goods, and utility is the degree to which people want to be satisfied. This period is known in the history of economics as the "neoclassical" period.
萨伊定律： 供给创造自己的需求。 萨伊定律不想它初看上去那样天真。恰恰相反，萨伊定律包含着对市场的深刻洞察。在萨伊看来，尽管人在市场中以货币为媒介进行着各种交易，但这些都是障眼法。通过货币进行的交易与原始社会中的以物易物没有本质区别。
在原始社会的以物易物的市场中，我们生产一个产品，如果不是为了自己用，一定是要用来交换其他自己需求的东西。如果一个人没有需求，那么他就不会生产任何东西。
所以生产的目的不是生产，而是为了满足自己的需求。有产品生产出来了，一定是因为先有需求存在。所以如果供给找不到需求，那就说明生产的目的是为了生产，是不会发生的。
引入货币作为价值储藏手段之后，一个人可以将其收入储蓄起来留待未来使用。这样产品的出售似乎就未必会带来对产品的等量需求。但是，古典经济学家相信，灵活变化的利率会时刻保持借贷市场出清。这样萨伊定律已让成立。
所以古典经济学家看来，货币只是在实体经济上蒙上一层货币的面纱。把这层面纱揭开，会发现货币无非是表现在名义价格上的一个计数符号，并不会改变实体经济的运行状况。 现代经济学中的“古典二分法”反映的就是古典经济学家的这种观点。
Keynesian theory
In 1936, Keynes's "General Theory of Employment, Interest, and Money" marked the emergence of macroeconomics as an independent branch of economics. Macroeconomic thought prior to Keynes is collectively referred to as "classical theory". Most classical economists had a high degree of faith in the efficient functioning of the market mechanism and in Smith's "invisible hand" .
After the Great Depression, Keynes argued that markets were not always as efficient as classical economists believed. The market cannot always match supply with demand. On the contrary, the economy may fall into a situation of insufficient effective demand and excess capacity. Therefore, when the "invisible hand" of the market cannot effectively balance supply and demand, the "visible hand" of the government must play a role.
Keynes' theory stands in stark contrast to classical theory. Classical theory believes in the market, so it is believed that the government should only play a good role as a "night watchman" and create conditions for the market to operate by ensuring the implementation of law and order. Keynes believed that the market would fail, so the government must do something to make up for the lack of the market.
To a certain extent, Keynesian theory is a negation of market beliefs, while Hayek holds a negative attitude towards Keynesian theory. Hayek believes that it is impossible for the government to obtain enough accurate information to make effective allocation of resources. In addition, the more the government does in economic activities, the more likely it will lead to the infringement of individual freedom by public power, and eventually lead to totalitarianism that still loses freedom. Hayek's thoughts are embodied in "The Road to Serfdom". The war between Keynes and Hayek lasted for decades. During the decades of debate, the strength and weakness of the views of the two factions dominated the trend of the global economy.
Neoclassical synthesis
在黑格尔的辩证法中，认知总是通过“合题”对“正题”和“反题”的融合来实现螺旋形上升的。如果把凯恩斯的理论作为正题，那么哈耶克的就是相对的反题，最终，在市场和政府之间需要得到折中调和的合题。
这个合题，就是萨缪尔森提出的“新古典综合”
The neoclassical synthesis believes that the market and the government should be combined. Even when markets work efficiently, there are imbalances that fail. The government can always guide the market to the track of effective operation through its macro-control policies. During this period, the discovery of the Phillips curve provided the government with a handy tool. Combining Keynes' ideas with the Phillips curve, it was the IS-LM-AS-AD model, the core analytical framework of neoclassical synthesis. In this framework, the IS-LM model determines economic aggregate demand, while the Phillips curve determines aggregate supply because it links the unemployment rate (which is negatively correlated with output) with the inflation rate. Together, they determine the output and price levels of the economy.
In neoclassical synthesis, the macroeconomy is a machine, and the task of economists is to clarify the structure and parameters of this machine. So economists look for correlations in various economic and market data and estimate statistical relationships between variables. Such studies lead to models describing large-scale simultaneous econometric equations. Therefore, the government only needs to press the button of the economic machine (control the macro policy) and adjust the operation of the machine to a satisfactory state.
The neoclassical synthesis has also had a significant impact on the methodology of macroeconomic research. Under the framework of neoclassical synthesis, macroeconomics is dominated by models similar to IS-LM-AD-AS, which focus on describing the quantitative relationship between macroeconomic variables, which is very different from microeconomics, which focuses on solving optimization problems.
New-neoclassical synthesis
The disappearance of the Phillips curve in the 1970s and the emergence of "stagflation" in which economic growth stagnates and high inflation coexist triggered another revolution in macroeconomics—the rational expectations revolution . The symbol of this revolution is the "Lucas Critique" "The advent of. Lucas believed that human behavior would change with the environment. So those economic analyzes based on the assumption of human behavior are invalid. However, a large number of equations in the IS-LM-AS-AD model assume and estimate human behavior.
The disappearance of the Phillips curve is a good example. Human behavior changes due to changes in the surrounding environment. Therefore, the relationship between macroeconomic variables is not stable-when people's expectations change, these relationships will break down. Therefore, macroeconomic analysis must proceed from the rationality of micro-subjects, and derive macroscopically stable relations by solving the optimization problems of micro-subjects.
In terms of economic thought, the revolution of rational expectations brought back the revival of classical economic thought. Based on the assumptions of rational expectations, micro-subject optimization and market clearing, the macro-general equilibrium model rediscovers the conclusions of classical theories. In the Ramsey model, we see the equivalence of economic equilibrium and Robinson's economy, and the recurrence of Say's law. These macro models based on the optimization of micro-subjects and flexible price changes are collectively referred to as " New classical macroeconomic theory (New classical)".
The neoclassical macroeconomic theory was further developed and evolved into the "real business cycle" (RBC theory) in the 1980s. RBC theory is essentially a neoclassical macro model based on micro foundations. However, scholars have found that in this dynamic model with rational expectations, if random technological shocks (Solo residuals) are added, the model can realistically simulate the operating dynamics of macroeconomic variables in the real world.
However, like classical theory, RBC theory's overly idealistic assumptions do not match reality. No one believes that the 25% unemployment rate in the United States during the Great Depression was caused by American workers who thought their wages were low and took voluntary vacations. Keynes' denial of classical theories was not entirely unreasonable, which gave birth to the " new Keynesian" theory.
New Keynesian theory does this by "sanding" the neoclassical model. The New Keynesian theory assumes that there are various "nominal rigidities" that hinder the flexible adjustment of prices. Therefore, when faced with external shocks, the market cannot respond optimally, at least in the short term. Similarly, due to the existence of nominal rigidity, the market cannot fully respond to government policies in a timely manner, and thus cannot fully hedge the policy impact. Therefore, in the short term, macro policies can have an impact on the economy, thereby improving the overall welfare of the economy;
Fusing together RBC theory and New Keynesian theory results in a neo-neoclassical synthesis. The neo-neoclassical comprehensive macro model is simply the core of the RBC theory, coupled with the resistance brought by the nominal rigidity to the market operation in the short term. In the short term, the price has not been adjusted in place, and macro policies can and should be done. In the long run, price adjustments are in place, so long-term macroeconomic policies cannot and should not be taken. In this way, the market and the government have achieved a balance. So far, the modern mainstream macroeconomic model and the corresponding world of modern mainstream macroeconomics have surfaced.
Drivers of macroeconomic development
As a discipline with strong practicality, the ideological trend of macroeconomics changes with the changes of macroeconomic operation situation to a large extent. According to the method of supply and demand analysis, the simultaneous rise and fall of price and volume in the market is a constraint on the demand side, and the reverse fluctuation of price and volume is a constraint on the supply side. From the correlation between economic growth rate and inflation, it can be deduced that the tight constraints of economic operation are on the supply side or the demand side;
- From the Great Depression in 1929 to the explanation of World War II, the two have a long-term high positive correlation, indicating that the demand side constrains the development of the US economy, and it is natural that Keynesian thought focusing on demand management will emerge during this period;
- During the period from the end of World War II to the outbreak of the subprime mortgage crisis in 2008, the long-term negative correlation between US economic growth and inflation indicated that the US economy was constrained by the supply side. It is not surprising that macroeconomics will abandon traditional Keynesian ideas and embrace some concepts of classical economics.
- After the subprime mortgage crisis, economic growth was highly positively correlated with inflation reprogramming, indicating that constraints on the demand side once again restricted economic development. During this period, Keynes’s thought was re-emphasized;
Neo-Neoclassical Synthetic Worldview
The Policy Implications of the "Neo-Neoclassical Synthesis" World View
- Aggregate macroeconomic policies (aggregate fiscal and monetary policies) are ineffective for long-term economic growth
- Aggregate macro policies cannot smooth out fluctuations in the level of potential output itself, nor should they attempt to smooth out such economic fluctuations
- Aggregate macro-policy can speed up market convergence to an efficient state, thereby smoothing out economic fluctuations that deviate from potential output levels in the short run—but only in the "short term" (short term, that is, a few quarters)
The Influence of Neo-Neoclassical Synthesis on China's Economy
The Policy Implications of the "Neo-Neoclassical Synthesis" World View to China
- The long-term growth deceleration of China's economy after the subprime mortgage crisis was brought about by the decline in the potential output level—because the economy fluctuates around the potential output level for a long time, the long-term growth slowdown can only be brought about by the decline in the potential output level
- The long-term growth deceleration of China's economy after the subprime mortgage crisis is caused by supply-side factors—the bottleneck of long-term growth lies on the supply side
- Facing this slowdown in long-term economic growth, aggregate macroeconomic policies are helpless, and they should not try to change the slowdown
- "Structure adjustment" is more important than "stable growth"; "supply side" is more important than "demand side"
Those who hold this view are the above-mentioned naive marketers in China. They seem to have just copied the complete and rigorous economic theory system from the West after learning something, without modifying and applying it in a realistic way.
- GDP growth rate is positively correlated with inflation, indicating that the bottleneck is on the demand side
Looking at China's economy with a neo-neoclassical comprehensive world view, my country's long-term steady growth policy (actually correct) in the post-crisis era is wrong and has created many side effects. Accordingly, we should liquidate these policy mistakes and shift the policy focus to technology level A which is really meaningful for long-term economic growth. The "supply-side reform" that China is vigorously promoting includes "cutting overcapacity, destocking, deleveraging, reducing costs, and making up for shortcomings" (commonly known as "three cuts, one reduction, and one supplement"). Among them, the "three eliminations" are obviously the negation and liquidation of past stimulus policies. As for my country's long-standing calls for structural reforms and calls for the release of reform dividends, it more or less reflects the proponents' concern for technology level A.
power of thought
“经济学家以及政治哲学家之思想，其力量之大，往往出乎常人意料。事实上统治世界者，就只是这些思想而已。许多实践者自以为不受任何学理之影响，却往往当了某个已故经济学家之奴隶。
狂人执政，自以为得天启示，实则其狂想之来，乃得自若干年以前的某个拙劣学人。我很确信，既得利益之力量，未免被人过分夸大，实则远不如思想之逐渐侵蚀力之大……
或迟或早，对形成善良或丑恶的观念而言——更危险的是思想，而不是既得利益。”
—— 约翰 · 梅纳德 · 凯恩斯，《通论》，24(V)