Chen Yanbin is the vice president of Capital University of Economics and the main member of the China Macroeconomic Forum (CMF).
This article is from Finance & Trade Economics, Issue 12, 2023.
Number of words: 4161 words.
Reading time: 11 minutes.
Macroeconomic policy space management is an important part of macroeconomic regulation and control policies, and macroeconomic regulation and control need to save policy space and better maintain policy continuity. A correct understanding of policy space is of great practical significance and theoretical value for the necessity of macro policy formulation and implementation. If the policy space is insufficient, the macroeconomic policy is prone to a sharp turn, which will hit market confidence and greatly reduce the effect of macroeconomic regulation and control. Therefore, macro-policy space management can help maintain policy sustainability and stability and help achieve policy objectives. The report to the 20th National Congress of the Communist Party of China stressed the need to persistently integrate the basic tenets of Marxism with China's specific reality and with China's excellent traditional culture. Financial regulation and control is an important part of macroeconomic regulation and control, and the 2023 ** Financial Work Conference further pointed out that it is necessary to combine Marxist financial theory with the specific reality of contemporary China and the excellent traditional Chinese culture. In June 2023, the general secretary of ** pointed out in an important speech at the symposium on cultural inheritance and development that "the 'second combination' is another emancipation of the mind, allowing us to make full use of the precious resources of China's excellent traditional culture in a broader cultural space and explore future-oriented theoretical and institutional innovations." As one of the most influential ancient philosophical masterpieces in Chinese history, Tao Te Ching is a treasure of excellent traditional Chinese culture. Today, the ancient Tao Te Ching has a certain reference significance for the macroeconomic regulation and control of modern countries. In view of this, the author tries to absorb the beneficial ideas on the management of macro policy space in the Tao Te Ching, in order to provide new ideas for innovating and improving macroeconomic regulation and control with Chinese characteristics, and help macroeconomic regulation and control with Chinese characteristics to make better use of policy space and better improve policy effects.
1. The connotation and policy operation mechanism of macro policy space management
Macro-policy space management measures and evaluates the policy space, and uses the evaluation results to design the optimal combination of policy strength and policy space, so as to achieve the expected macro-control effect. Macroeconomic policy space can generally be divided into monetary policy space and fiscal policy space. The main instruments of monetary policy are the regulation of the statutory reserve requirement ratio and the policy rate. Therefore, the size of China's monetary policy space can be comprehensively evaluated by judging the size of the space for RRR reduction and interest rate cut. Fiscal policy space is manifested in the policy operation space of the fiscal sector to reduce taxes or increase fiscal expenditure, whether it is to reduce taxes or increase fiscal expenditure, it will be reflected in the increase in the scale of debt, so the debt ratio of the first sector is usually used as a measurement index of fiscal policy space.
The important value of macro policy space management is reflected in the following aspects. First, it will help improve the countercyclical adjustment capacity of macroeconomic policies. Countercyclical adjustment is the comprehensive use of monetary policy and fiscal policy and other stabilization policies to smooth short-term economic fluctuations, so as to achieve short-term stable operation of the economy. In order to achieve the goal of counter-cyclical adjustment, it is necessary to make a scientific prediction of the macroeconomic policy space. Through the scientific prediction of macro policy space, it can provide guidance for countercyclical adjustment. If no prediction is made or a wrong prediction is made, it will affect the effect of countercyclical adjustment. During the international financial crisis in 2008, the short-term interest rate in the United States was rapidly lowered to near the zero upper limit, and the policy space of conventional monetary policy contracted rapidly. This fully reflects the importance of policy space management for counter-cyclical adjustment.
Second, it will help improve the cross-cyclical adjustment effect of macroeconomic policies. In order to do a good job in the cross-cycle adjustment of macro policies and maintain the continuity, stability and sustainability of macro policies, it is necessary to give full play to the role of macro policy space management and strengthen cross-cycle adjustment through policy space management. In addition, macro policy space management can provide policy focus for cross-cycle adjustment. Macroeconomic policy space management usually focuses on short-term regulatory tools such as fiscal policy and monetary policy, and can provide support for the role of long-term cross-cycle long-term adjustment tools such as long-term development planning, population policy, and science and technology policy.
Third, it will help to enhance the coordination between monetary and fiscal policies, as well as between stabilization, growth and structural policies. Coordination between macroeconomic policies includes multi-level coordination and is a complex system. On the one hand, in the stabilization policy, monetary policy, fiscal policy and macro-prudential policy need to coordinate with each other to achieve the short-term stability goal in an integrated manner. On the other hand, stability policies, growth policies, and structural policies need to be coordinated with each other to achieve the three major goals of short-term economic and financial stability, long-term economic growth, and economic structural optimization. If the individual policy space is not properly managed, the coordination capacity of the entire macroeconomic policy system will be greatly weakened. For example, when monetary policy space is insufficient, it is difficult to coordinate monetary policy and fiscal policy, which makes it difficult to achieve short-term stability goals and makes the overall effect of stabilization policy poor. This, in turn, will make it more difficult to coordinate stabilization, growth, and structural policies, thereby reducing the coordination capacity of the entire macroeconomic policy system.
2. Learn from the beneficial ideas in the Tao Te Ching and improve the management of macro policy space
Although there have been some useful explorations in the management of macro policy space in practice, there are still few systematic theoretical studies. It is necessary to dig deep into the valuable ideas on policy space management contained in the Tao Te Ching and other excellent traditional Chinese cultures, so as to help continuously improve the theoretical research and practical exploration of macro policy space management.
(1) Macro policy space management should be appropriate
Chapter 44 of the Tao Te Ching points out the idea that too much is bound to be wasted: "Who is the name and the body? What is the body and the goods? Sickness or death? Great love will cost a great deal; If you hide more, you will die. According to the enlightenment of this idea, "contentment" with the current policy space will be conducive to the sustainability of the future space: "Contentment is not disgraceful, and it can last for a long time." ”
Therefore, macroeconomic policy space needs to be appropriate and moderate. If the policy space is too small, it will lead to poor sustainability of macroeconomic policies. Taking the fiscal policy space measured by the debt ratio as an example, in response to the downward pressure on the economy, whether it is an increase in fiscal spending or a reduction in taxes and fees, it will be transformed into an expansion of debt. If the debt burden is too heavy, the fiscal policy space will be narrowed, and the active fiscal policy will be difficult to sustain. This has a good reference significance for China's current macro policy making. With the continuous advancement of China's aging population and the continuous improvement of the social security system, China's first-class sector debt ratio will show an upward trend. This requires a reasonable evaluation of China's current debt ratio and a reasonable prediction of the future debt rate, so as to prevent the problem of insufficient policy space caused by the narrowing of fiscal policy space. Conversely, if the policy space is too large, it may lead to insufficient policy efforts to deal with the downward pressure on the economy. Taking monetary policy space as an example, in the economic downturn, if the reserved policy space is higher than a reasonable level and the policy intensity is insufficient, it will be difficult for the economy to be at an optimal economic growth rate. At this time, interest rates, reserve requirement ratios, and foreign exchange reserves will all be at too high levels, which is not conducive to short-term economic stability and long-term sustainable economic development. Excessively high interest rates will lead to high capital costs and high operating costs; Excessively high reserve requirement ratios will lead to higher costs for banks and weaken financial competitiveness; Excessively high foreign exchange reserves can lead to over-issuance of base currency and low return on investment.
So, how to set the strength of macro policy is appropriate? Macro policy intensity setting needs to achieve the best balance between policy effect and policy space. Chapter 30 of the Tao Te Ching states: "Good has results, and you don't dare to be strong." Don't be discreet, don't cut down, don't be arrogant, don't be strong. If things are strong, they are old, and they are not Tao, and they are not Tao. This has reference significance for the policy effect, policy space and value standard of macroeconomic regulation and control. First, macroeconomic governance should be followed to achieve policy effects, rather than forced. Second, morality is the value standard for evaluating the effectiveness of policies and the actions of macroeconomic regulators: "Don't be cautious, don't cut down, don't be arrogant, don't be strong." Third, it is easy to premature aging if it is not in line with the Tao, and irregular and overly strong macro policies will quickly consume policy space and affect the sustainability of the policy.
(2) The management of macro policy space needs to be adjusted across cycles
The ancient sages observed that neither heaven nor earth could sustain storms, and thus questioned whether macro governance could continue strongly. Chapter 23 of the Tao Te Ching states: "Hope is natural. Therefore, the wind does not end, and the rain does not end. Which one is this? World. Heaven and earth can't last long, but what about people? "The policy intensity should not only achieve the policy objectives, but also reserve policy space for the future. If the macroeconomic policy is insufficient, it will be impossible to achieve the policy effect and policy objectives. On the contrary, if the macro policy is too strong, it will overdraw the future policy space, which is not conducive to policy continuity.
Since the international financial crisis in 2008, the macroeconomic policy regulation and control of Western countries with counter-cyclical adjustment as the core has been in a predicament, and it is difficult to help the economy get out of the sluggish operating state, which has triggered a deep reflection on the idea of counter-cyclical adjustment in the academic circles. Since the 18th National Congress of the Communist Party of China, China has innovatively put forward new ideas for cross-cycle adjustment of macro policies. The core of cross-cyclical adjustment is to focus too much on the shortcomings of counter-cyclical adjustment, break through the traditional counter-cyclical adjustment paradigm, and pay more attention to structural and trend problems in the medium and long term, so as to achieve sustainable economic growth in the medium and long term, and its theoretical value and practical significance are very far-reaching. Therefore, the management of macro policy space needs to adopt a new idea of cross-cycle adjustment.
(3) The macro policy exit mechanism is conducive to improving the management of policy space
The macroeconomic policy exit mechanism refers to the fact that when the financial crisis has ended or is nearing the end, the expansionary monetary and fiscal policies adopted in response to the crisis should be abolished. Unconventional policies such as quantitative easing monetary policy adopted by the United States and other countries should have an exit mechanism because of their temporary and intense nature. The advantage of the exit mechanism is that it is conducive to savings and policy space. Chapter 9 of the Tao Te Ching also contains the wisdom of life and governance related to the exit mechanism: "Holding on to the profit is not as good as that; It cannot be kept for a long time. The house is full of gold and jade, and Mo can keep it; Rich and arrogant, self-blame. After retiring, the way of heaven is also. "Although in practice, it is more difficult to choose the timing of macro policy exit, it is still necessary to set up an exit mechanism. There are two main reasons for this. First, if these unconventional macroeconomic policies are retained, the macroeconomic policy space will continue to be compressed and their sustainability will be affected. Second, in the new economic environment, the benefits of retaining these macroeconomic policies have significantly outweighed the costs.
(4) Absorbing the eternal ideas of the Tao Te Ching may create more policy space for macro policies
Chapter 81 of the Tao Te Ching states: "The saint does not accumulate, but since he thinks that he is a man, he has more; and with others, the more you are. The way of heaven is beneficial but not harmful; The way of the saint is indisputable. Chapter 7 states: "Forever and ever." Therefore, those who can live long and long in heaven and earth can live forever because they do not generate by themselves. It is the body that comes after the saint and the body that exists outside. Isn't it because of its selflessness? Therefore, it can become its own selfishness. "Macroeconomic regulation and control is people-centered, people's happiness is the ultimate goal, and by strengthening policy coordination to improve policy efficiency, the space for macroeconomic regulation and control will not shrink, but will survive or even expand. The sixth chapter of the Tao Te Ching thus concludes: "The immortality of the god of grains is called mysterious." The gate of Xuanqi is the root of heaven and earth. If it exists, it is not used diligently. ”
Specifically, through the implementation of the "three-in-one" macroeconomic policy, growth policy and structural policy can not only increase the potential growth rate, but also improve the efficiency of regulation and control, thereby broadening the space for stabilization policy. Expansionary monetary and fiscal policies, while raising the numerators of M2 GDP and debt GDP, can increase the denominator of these two ratios more sharply, so as to control the rise of these two ratios. Macroeconomic regulation and control should be people-centered and people's happiness as the ultimate goal, and efforts should be made to improve the efficiency of regulation and control, so as to help the scale of GDP rise faster. According to this operation, the space for fiscal and monetary policy will not only not shrink but will be larger, so as to realize the "Tao Te Ching" emphasized that "the sage does not accumulate, and since he is a man, he has more;."and with others, the more you are.
3. The enlightenment of policy space management to China's current situation
The policy space index in the "three-in-one" index of macroeconomic policy measures the monetary policy space and fiscal policy space in China in each quarter. The data show that in recent years, China's monetary policy space index and fiscal policy space index have shown a narrowing trend. According to the theory of "three policies in one" of macroeconomic policy, we should objectively look at the narrowing of the space for stabilization policies with a systematic concept. First, the narrowing of policy space shows that monetary and fiscal policies are responsible and effective in the face of downward pressure caused by adverse shocks. Second, the space for stabilizing policies is not as large as possible, and the fundamental goal of policy regulation and control is to eliminate downward pressure on the economy, so the best balance should be achieved between policy strength, policy space and regulatory effects. Third, it is necessary to examine the changes in policy space from a dynamic perspective and a cross-cyclical perspective, and do not need to worry too much about the narrowing of policy space in the short term. Although intensifying policy efforts will lead to the loss of policy space in the short term, it will promote the continuous improvement of economic growth and regain more policy space in the long run. Fourth, on the whole, the combination of the strength, space and regulation effect of the current stabilization policy can be further optimized, that is, greater policy intensity should be adopted in the short term to achieve better regulation and control effect, and in the long run, it will regain greater policy space.
Generally speaking, the world is undergoing major changes unseen in a century, with the rise of anti-globalization ideology, the sluggish recovery of the world economy, and the intimacy and uncertainty of the global economy. China's reform, development and stability are faced with many deep-seated contradictions that cannot be avoided or bypassed, and various "black swan" and "gray rhinoceros" incidents may occur at any time. In the face of a complex international and domestic environment, macroeconomic regulation and control with Chinese characteristics are needed to achieve economic stability and economic growth. In this context, as an important part of macroeconomic regulation and control with Chinese characteristics, macro policy space management can play an important role in promoting the smooth operation of economic and social development. Therefore, drawing on and absorbing the macro policy space management ideas contained in the excellent traditional Chinese culture such as the Tao Te Ching, doing a good job in the space management of macro policies, improving the sustainability of policies, and better coping with the current challenges of economic development will help to better promote the smooth operation of the economy and society and ensure the high-quality development of the economy.
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