If government projects can't make ends meet and the service quality is poor, the principle of free market can't help them out of the predicament. The government usually fills the loopholes by raising taxes. In this way, it not only wastes social resources, but also lowers people's living standards.
In addition to free trade, there are also the same wrong ideas in trade. Opponents of free trade try to protect American jobs from overseas competition, but they ignore the benefits of imports and the potential losses to consumers caused by limiting the scope of choice.
For example, if imported T-shirts are cheaper than those made in America, Americans can spend less money on T-shirts, and the money saved can be used to produce other things, such as skateboarding. This is very beneficial to American excellent skateboard manufacturers.
But what about the unemployed workers who make T-shirts in America? If their employers can't find a competitive advantage in producing T-shirts, these workers can only find other jobs. However, providing employment is not an economic purpose. The purpose of economy is to continuously improve productivity.
Maintaining inefficient labor and capital use is not good for the whole society. If the United States has no competitive advantage in the production of T-shirts, it should find its own industries with advantages.
If these jobs are protected by trade barriers, the production cost of T-shirts will remain high. Then people will not have more money to buy skateboards, and skateboard manufacturers will suffer losses. Therefore, although this practice retains the above jobs, we have not seen the loss of potential jobs.
It is meaningless to waste labor to make foreign products with higher productivity. If you focus on producing your own products with higher productivity, you can exchange products that others are good at manufacturing and eventually get more.
Of course, the problem is that there are not many areas where we have advantages because of artificially high exchange rate, high tax rate, wage law and labor law. This situation needs to change.
The hand of God of the government and the central bank.
Interpretation of "Small Island Economics", today is the fifth program. This beautiful tropical island has become more and more rich in material and happier in life. Everyone began to have more fish, so the storage of fish became a problem. In the past, there were not many fish anyway, and they were all kept at home. But on the one hand, it is very dangerous, because there may be a problem of burglary. On the other hand, the utilization efficiency of fish is very low, and everyone is still willing to let their fish appreciate by investing and borrowing, but most people have neither the time nor the ability to do so.
Where there is demand, there is supply. A man named Max. Goodband appeared. Mequez. Mr. goodbank. You can know what he is going to do from his name.
Mequez is very experienced in storing fish, so he built a huge storage room here for everyone to store fish and hired the strongest person on the island to guard it. The fish is safe in the storage room, which really solves the problem of stealing fish on the island perfectly.
In addition, Mequez also saw that most people need help when they borrow fish to collect returns, because good islanders are often deceived by those cunning people. He knows, if you only charge a little management fee, how much can you charge? The profit margin is limited. He understands the value of savings, and he is better at borrowing than other islanders. Then use everyone's savings to lend, and part of the proceeds will be used as the interest of depositors and the salary of doormen, and the rest will be their own income. In this way, a good bank deposit and loan company in Meggers was born.
We see the same result. What about Mayquez while pursuing his own interests? It also solved the thorny problem of deposit and loan theft on the island.
Now the islanders give their fish to the bank and let Mequez take the responsibility of investing for himself. And if anyone needs a loan, it's Mequez, not patchwork everywhere.
In order to successfully implement this banking plan, Mayquez needs to solve the following problems:
To ensure the profitability of the loan business, that is to say, he needs to carefully screen borrowers to ensure that he can recover the principal and interest. And the loan needs collateral, just in case.
Pay appropriate interest to depositors to ensure that everyone is willing to deposit fish in his bank.
In order to make the business sustainable, he needs to attract more depositors and ensure that there are enough fish in the bank.
Since Mequez's personal interests are closely related to his bank operation, he will try his best to be responsible for the fish kept by depositors in the bank. The most powerful baton in his hand is called interest rate.
In terms of loans, he charged lower loan interest rates to borrowers with strong repayment ability and higher loan interest rates to borrowers with high risks as compensation for high risks.
In terms of deposits, the deposit interest rate increases with the increase of deposit years. The longer fish are kept, the lower the risk of fish shortage in banks. So banks will give depositors higher interest rates.
Although this baton is in Mayquez's hands, the overall interest rate should be adjusted with the changes in the market.
For example, sometimes the productivity is greatly improved, and the fish on the island will increase accordingly. Then the bank's storeroom will be full of fish. At this time, banks have a strong ability to bear losses, and a healthy economy also provides a good environment for the development of new enterprises. What about now? The loan interest rate will be lowered, attracting more people to borrow fish. At the same time, the loan interest rate determines the interest that banks can pay to depositors. So now the deposit interest rate has also been lowered, which has curbed savings.
Once there are fewer fish in the bank, savings will fall back, which is very dangerous to the economy. You need to be extra cautious when lending in Mayquez, because once someone defaults on the loan, the consequences will be very serious. In order to offset the losses caused by high risks, Mequez will charge higher interest rates and raise deposit interest rates to stimulate savings. At this time, the loan interest rate and deposit interest rate rose, encouraging savings and replenishing the bank's assets. Eventually the fish in the bank will accumulate again, and then the interest rate will fall again.
In addition, when the deposit interest rate is low, it shows that everyone is willing to use fish in the near future, thus inhibiting investment to meet future consumer demand.
This periodic interest rate mechanism is conducive to market stability. To sum up, the operation of this mechanism depends on three points:
The desire of banks to maximize the return on assets.
Bank's concern about the loss of high-risk investment.
Time preference of personal consumption.
More importantly, the security and convenience of banks have prompted people to postpone consumption and increase savings. This provides funds for investment projects and contributes to economic growth and the improvement of living standards. Under the prudent management of Mr. Mayquez Good Bank, the island's savings have been increasing and the economy has been developing.
Realistic Enlightenment —— The Federal Reserve's Hand of God
In the author's opinion, the government not only makes laws, inclines to certain loan types and people, disturbs the credit market, but also affects the credit flow in another more fundamental way: manipulating interest rates. In recent 100 years, the Federal Reserve has been setting the benchmark interest rate, and the entire interest rate structure in the United States is based on the benchmark interest rate.
Speaking of the Federal Reserve, in short, it is called the Federal Reserve System of the United States. He is equivalent to the central bank of the United States. However, what most people don't know is that the Federal Reserve is really a private institution, not a state-owned institution. How can a country's central bank be privately owned? There may be a little explanation here. As our socialist country and the opposite capitalist country, the concept of private ownership is different under the two economic systems. We often say that private enterprises are private enterprises and state-owned enterprises are two relative concepts. In our ideology, private ownership means non-public, and privatization corresponds to nationalization.
In capitalist countries, private enterprises are not state-owned enterprises, but listed enterprises, that is to say, the ownership of the company belongs to individuals, the government does not participate, and the company does not open to the outside world to trade ownership, that is, equity. Therefore, privatization under the capitalist economic system corresponds to public listing.
Then we say that the Fed is private, which means 1. The US government does not own the Federal Reserve; 2. The Federal Reserve does not publicly trade its equity. So as far as ownership is concerned, the Fed does not belong to the US government. But in function, it is still similar to a government agency. The members of the Federal Reserve Committee are the core of his power and need to be nominated by the President of the United States and appointed by the Senate. Moreover, he also needs to accept the supervision of Congress and consult with the White House bosses when formulating financial and monetary policies. The Federal Reserve can be seen as an extension of the US Treasury.
The adjustment of the federal funds rate by the Federal Reserve will not directly determine the loan interest rate of all banks, but will affect the direction of the whole market. Generally speaking, the interest rate charged by banks to the public is higher than the interest rate paid to the Federal Reserve. That's how you make money. Therefore, once the Fed raises the benchmark interest rate, enterprises and individuals still need to pay more when borrowing.
He was granted this right, claiming that it was to ensure that the economy remained stable in both prosperity and depression. And what is the theoretical basis of this rhetoric? It is the economists of the Federal Reserve who can use their wisdom to calculate the optimal interest rate level in a specific period, thus making the economy run normally.
And this basis is exactly where the author wants to vomit. This mechanism has two fatal defects:
First, the premise is that a handful of people in the Federal Reserve know more about the appropriate interest rate than millions of people who make independent decisions, that is, than the market. But the loan company of the Federal Reserve is different from the good bank of Mexes. He doesn't generate savings, and he won't suffer losses because the loan can't be collected. Savings belong to the people, and whether banks can make profits is directly related to their own survival.
Second, the Fed's decisions are always based on political considerations, not economic considerations. Many people like low interest rates, because it can make the economy perform better on the surface, reduce the pressure of repayment and help financial companies make money, including presidents seeking re-election. For the decision makers of the Federal Reserve, they naturally want to be regarded as good people to save the economy, not misers who push the economy to the bottom.
So there is a prejudice in American society that interest rates should be very low. However, the author has repeatedly reminded us that low interest rates will stimulate lending and inhibit savings, so now the United States has changed from a high savings country to a high debt country.
Third, low interest rates will send a wrong signal to the market, telling us that the economy is in good condition and everyone is coming to invest. But the fact is that if interest rates fall, consumption should be delayed, but this has not happened. Naturally, under the deception of the wrong signal, it is difficult to succeed in the investment that meets the future demand. The result is a huge crisis immediately after the false prosperity, just like the stock and real estate markets we experienced in 2008.
Continuing the story of the island, let's look at infrastructure construction and foreign trade.
Island tap water project
In the past, islanders used mountain streams to transport them to their huts in various ways, so no one would choose to live far from water sources.
One year, there was a drought on the island and the stream dried up. Severe water shortage makes it almost impossible for people to survive. After the disaster, the islanders tried to find a solution to prevent such a tragedy from happening again.
Abel's fifth grandson Abel V inherited the wisdom of his ancestors. He proposed a solution. He wants to build a huge pool to collect rainwater for a rainy day. Then pipe the swimming pool to all parts of the island. Build a huge project to supply water to the whole island. This tap water project is not a trivial matter, and it needs 6.5438+0.8 million fish, which is the rations for 250 workers for two years.
Albert V found a good bank in Mexes and planned to borrow money from it. Mequez is very optimistic about this project. Although the project cost is high, the potential benefits in the future are huge. So Mequez and Albert V reached an understanding and started the tap water project on the island.
Later, the project was completed. As expected, tap water was delivered to all parts of the island. Islanders are willing to pay a certain amount of fish every year in exchange for running water. Mayquez also got back the loan and interest.
The tap water project has achieved great success and brought great benefits to the economy of the whole island. Tap water service charges are reasonable, so that places far away from water sources can also use water, and farmers can now be planted in the former barren land. Because people don't have to carry water, they have more time to produce products, provide services or develop new projects. The island's economy has improved again.
Cross-island trade in drums and sunscreen.
With the economic development of the island, many cargo rafts were soon filled with fish, transport vehicles, surfboards, spears and canoes on the high seas. Because of their high quality and low price, these goods enjoy a high reputation in the whole ocean. If free trade develops freely without restriction, it will bring benefits to everyone.
We can imagine that some islands usually have a relative surplus of some products, while others? These products are just lacking. Therefore, everyone, every country, or every island will make use of their own advantages to maximize their interests.
For example, there is a small drum island nearby. As can be seen from the name, there are many small drums on the island. The local people's skill in making drums can be said to be the pinnacle, and there are many trees suitable for making drums on the island. On the island, the sales of small drums are naturally not ideal, because there are too many.
There is a crazy dance island at 0/00 km from Xiaogu Island/Kloc-. The residents of this island like dancing, so they have a soft spot for their sister-in-law. But there are no trees suitable for making drums on this island. Therefore, drums are rare and precious commodities on Crazy Dance Island, but there are a lot of coconut sunscreen on Crazy Dance Island. But people on the island have dark skin and don't need sun protection. So sunscreen is worthless in rave island.
After the two small islands came into contact, they immediately started a big trade in vats and sunscreen. In this arrangement, residents of both islands benefit. People in Kotanishima use sunscreen, while people in Kirishima alone have a strong sense of rhythm.
In fact, there is no essential difference between international trade and individual division of labor. Everyone or every country has its own products that are redundant or good at production, in exchange for products that it lacks or is not good at production, which is beneficial to everyone.
Enlightenment from Reality —— The Government's Hand of God
Through the above story, we find that the island in the story is much more complicated than when three people catch fish with their bare hands. But the principles governing the economy have not changed, just as the mathematical principles will not change with the size of the problem, so will the basic economic principles. The relationship among self-sacrifice, savings, lending, investment, economic stimulus and social development will never change.
The first is infrastructure, and investment in infrastructure construction will have a huge impact on the economy. However, this kind of investment is only effective if the income exceeds the expenditure. As an infrastructure construction, we really need to see the benefits of these investments in the future, but this premise is that the investment must be successful.
If Albert V and Mexes' tap water projects do not achieve the expected results, although the starting point is good. However, after investing a lot of capital, it did not send water to the islanders' homes, nor did it improve the drought. Then this project is wasting resources and hindering economic growth.
In the early history of the United States, projects like waterworks were usually initiated by the private sector. However, it is difficult to predict the success of these projects. In this era when the government controls almost all infrastructure construction, it seems incredible that the financing, construction and final operation of such a project are all completed by private companies for profit. But this was the case in the past.
For example, the new york subway is basically built by private companies, which have been in operation for nearly 40 years. Although the subway is expensive, it is still profitable. What's more worth mentioning is that the ticket price has never risen for 40 years.
Nowadays, voters can easily believe that large-scale public facilities, such as sewers, expressway, canals and bridges, should be run by the government, which can provide convenience for everyone. However, politicians have succeeded in convincing people that mercenary private companies will squeeze people's hard-earned money whenever they have the chance.