Reaganomics Spreads to … the Communist Chinese?

Could it be that the Chinese Communist Party now considers tax cuts and supply-side economics viable policy options? In this at times astonishing op-ed article from China's State-controlled Oriental Morning Post, the writer rejects the flirtation of another Chinese economist with Reaganomics, likening the immediate adoption of such a policy to 'throwing a sausage to a hungry dog and running away.'

By Mr. Xiaoming Yuan, Special Correspondent on the U.S. for the Oriental Morning Post

Translated By Mark Klingman

March 31, 2006

China - Oriental Morning Post - Original Article (Chinese)    

In regard to the battle between [Chinese economists] Weiying Zhang and Lieshan Yan's over "rationality" versus "intuition," I add my own views with this short account. I originally thought Mr. Yan's "intuition" more or less reflected the general sentiment of the people toward reform, but after reading his recent article in the China Economic Times entitled "Please Take Rationality Down from the Altar," I thought everything he said about "intuition" went too far - especially his reference to how American President Ronald Reagan won experts over to his policy of tax cuts by using his "intuition." That was really taking things too far.

Mr. Yan commits the error of Taking Down Mr. Zhang's "aloof rationality" and replacing it with his own "intuition," and for this he cites the Reagan economic policies of the 1980s as an illustration. According to Mr. Yan, Reagan depended completely on his own "intuition" to draw up and carry out his economic policies, and he obtained successful results.

"Starting from the beginning of 1983," he says, "the roller-coaster American economy suddenly left behind the 'stagflation ' of the 1970's, and entered into 6 years of continuous, high-speed growth, leading to the prominence of Reagan and the continuation of his policies."

Mr. Yan correctly described the effects of the Reagan administration's policies, but his explanation for it's success is all wrong. Reagan's economic policy by no means stemmed from his own "intuition." Rather, it was a rationally thought-out and executed plan called "Reaganomics []."

Reaganomics took so-called "supply–side economics []" as its rationale. At the time economists of the supply-side school were certainly not in the majority - they had only begun to promote their theories in the 1970s. The term "supply-side economics" was coined by American economist Jude Wanniski [] in 1975. Besides Wanniski, Robert Mundell and Arthur Laffer are two other esteemed "supply-side" economists; Robert Mundell [] is a renowned Canadian economist, currently professor at Columbia University, and Arthur Laffer [] is an American economist who was a member of the Reagan Administration's Economic Policy Board [and his budget director. Just as the name suggests, supply-side economics contradicts the Keynesian tradition of "demand []." Its emphasis is on the supply side of the supply-demand equation, since, as its proponents hold that, "supply creates its own demand."

The ascendancy of supply-side economics in the 1980s can be attributed to two main reasons: first, the defeat of Keynes' "demand" theory during the 1970s, and second, the impact of Reagan's conservative ideas on the American political arena.

The supply-side policies of tax cuts happened to coincide with Reagan's own economic values and ideas. Reagan's greatness lay in his ability to use plain talk, at times even emotional, to explain a very complex economic theory to the American public. For example, he would say that tax cuts stimulate the economy and create employment, and that revenue could be maintained through the general increase in wealth under low taxes - the government and the people would get rich together. At the time, most American voters accepted the idea of tax cuts under Reaganomics, because they identified with the ideas and understood the "intuition" behind his economic policies. Without a doubt, if it were some economist rather than Reagan putting forth the idea of supply-side economics to the populace, Reagan's supporters would not have been able to fathom the concept. Afterwards, Reagan even used his charm to convince the Democratic-led Congress.

As Mr. Yan points out, Reagan's economic policy was a product of democracy. On this point, I agree with him - an economist may be an expert on economic theory, but national economic policy needs to pass through the democratic process. A democratic system is not limited to politics, but includes economic policy as well.

The purpose of Mr. Yan and others, in stating at this critical moment how "intuition" reflects public sentiment, is to plead for reform that would help secure the interests and a few well-earned rights for the multitudes, the power to speak freely and profit from one's labor.

But "intuition" taken to extremes can also become "aloof" and disadvantageous to the people. If all we pay attention to are the ups and downs of sentiment, we will be unable to solve any problem or put any real plan into practice, and the danger of "unfair arrangements" always lurks.

As Reagan's economic policies had a firm rationale as well as "intuition," China's reform plan also needs an underlying economic theory. But in drawing up and carrying out such a policy, pure idealism is unrealistic. If the ideal and fair solution is to completely overthrow the current system and start from scratch, then all Chinese might start at the same level, but such equality would come at a heavy cost to China's economy. Obviously, this is neither feasible nor realistic.

From the rationalist standpoint, Chinese economists like Weiying Zhang are quite capable of making rational suggestions based on economic theory - rational indeed, to the point of ransoming authority for the sake of peace. This is because past revolutions brought about radical changes in the ways of holding power on the one hand, and making a profit on the other. But each revolution has demanded its own kind of payment.

Economists like Mr. Zhang cannot determine with certainty what the price that the authorities will have to pay, and neither can government policymakers; naturally, just like Mr. Zhang, other economists are permitted to suggest their own plans.

Government policymakers may draw up concrete economic policies, but in the end, these policies must obtain the approval of the people, through a kind of democratic process. Because after all, it is the population that will have to pay the price.

Everyone knows that there is no perfect plan for reform, but a plan that calls for no change at all would be disadvantageous to China's economic development and social harmony. The most important thing is not to hand over the ransom money [cutting taxes], which would be a case of "throwing a sausage to a hungry dog and running away" - that is the kind of reform which we absolutely do not want. A plan which has passed through the democratic process is the most suitable safeguard against ransoming off authority [the government giving up control of the nation's purse strings, as under Reaganomics].

Therefore, as the experiments in economic reform begun over 20 years ago suggest, first focus on a few small-scale problems arising from reform - for example, a few experiments with [private] property rights, while carrying through previously established capitalistic reforms, while controlling the stripping-away of state-control. It is no exaggeration to say that this stripping-away [of State control] will be the most important peaceful revolution in Chinese history.

This heavy burden of history will fall on the shoulders of China's politicians, economists, intellectuals, and its general population too, but no side can carry the unprecedented responsibility for and consequences of these reform by itself.

Chinese Version Below

“里根经济学”并非来自“直觉”

早报美国特约撰稿人 袁晓明 责任编辑 刘景 任大纲 单雪菱　  

2006-3-31 1:57:45  

  对于张维迎与鄢烈山关于“理性和直觉”的论战，我写过一篇理性ＶＳ直觉的短文，我认为鄢烈山的直觉比较真实地反映了广大民众对改革的民意和民情，但近日读 到鄢烈山在《中国经济时报》上发表的《将“理性”请下神坛》一文后，我觉得鄢烈山所说的“直觉”有些过了，尤其是鄢烈山更引用美国总统里根当年减税的经济 政策，以此来说明里根就是以直觉胜了当时的一些专家学者，这就更过了。
    鄢烈山这次犯的错误在于———他在试图把张维迎的“高高在上的理性”拖下来的同时，却将自己的“直觉”推得更高，并把里根在上世纪的经济政策拿来作为自己 的例证。按鄢烈山的说法，里根完全是凭自己的“直觉”制订和执行其经济政策，并获得了成功的结果，“从1983年初开始，美国经济峰回路转，一举走出70 年代的‘滞胀’困境，取得了连续6年高速增长的成就，里根也以绝对优势赢得连任。”鄢烈山正确地描述了上世纪80年代里根政府政策的功效，但他没有说明的 是，里根的经济政策并非出自于自身的直觉，而是在非常理性的经济理论之上制订和执行了“里根经济学”（Reaganomics）。
    在所谓“里根经济学”的背后，实际上是“供应学派”（Supply－SideEconomics）作为经济学理论基础。虽然当时支持“供应学派”的经济学 家并不占多数，但早在70年代，便有一些经济学家推行“供应学派”的经济理论，“供应学派”由美国经济学家JudeWanniski在1975年命名。除 了JudeWanniski外，罗伯特·蒙代尔（RobertMundell）和ArthurLaffer是另外两位极力推崇“供应学派”的经济学家，罗 伯特·蒙代尔是著名加拿大经济学家、哥伦比亚大学的教授，ArthurLaffer是美国经济学家、里根政府的经济政策顾问团成员。顾名思义，与凯恩斯传 统“需求”经济理论相反，“供应学派”强调的是，“供应”与“需求”关系中的“供应”一边，即“供应创造自身的需求”。
    上世纪80年代，“供应学派”能够得势主要归因于两方面，一是凯恩斯“需求”理论在70年代的失败，二是具有保守理念的里根在美国政坛上得势，“供应学 派”下的减税的经济政策正好顺应里根低税收的价值观和理念。里根的伟大就在于他能用极通俗的话，并富有感情地将复杂的经济学理论传达给美国大众，即减少税 收、刺激经济、创造就业，通过经济和财富的增量反而能在低税率的前提下增加国家税收，同时增加大众的财富。当时，美国的多数选民接受了减税的“里根经济 学”，是因为支持里根的选民在理念和直觉上对里根经济政策有了认同。毫无疑问的是，如果当时不是里根而是某位经济学家将“供应学派”经济学理论呈现给大 众，美国那些支持里根的选民是听不懂的。后来，里根又以自己的魅力说服了民主党领导的国会。正如鄢烈山所指出的，里根经济政策是民主的产物，对于这一点， 我是同意鄢烈山观点的，经济学家在经济理论上是内行，但国家的经济政策是需要经过民主的过程，而民主制度不仅包括政治上的民主，也包括经济政策上的民主。

 鄢烈山等时评家通过“直觉”反映民意和民情，其用意应该是在这改革的关键时刻为民请愿，为广大民众多争得一些应得的权益和话语权，但“直觉”走到极端，也 变为高高在上，反而对民不利，因为如果只求情绪宣泄得痛快，却不能有解决问题的方案并付诸实践，就会有更多的分配不公发生。与看似“直觉”但却又有理论基 础的里根经济政策一样，中国的改革方案也是需要经济理论作为基础，而在制订和执行经济政策上，理想主义是不现实的。理想中的公平方案无非是全部推倒重来， 所有中国人都有一个平等的起点，但那样的平等会对中国的经济造成重创，是不可行、也是不现实的。
    中国的经济学家如张维迎也是可以理性地根据经济理论拿出建议的经济方案来，甚至可以是和平的“赎买权力”之方案，因为过去变革中的权力和利益转换也都是付 出了不同形式的代价，但作为经济学家的张维迎不可以确定权力的交换价码，政府里的政策制订和决策者也不能随意确定价码，当然，其他的经济学家也可以建议与 张维迎不一样的方案。在经济学家所提理论方案的基础上，政府的决策者们制订具体的经济政策，但政策的最终出台必须通过一种民主的形式得到民众的认可，因为 民众要付出代价。当然，所有人都应该知道，没有完美的改革方案，而不改的方案却会对中国经济的发展、社会的和谐更为不利，但最需要注意的是，不要交出了 “赎金”却是“肉包子打狗一去不回头”，那是绝对不能要的改革，而经过民主过程所产生的方案应该是对所赎来权力的最适当的保障。
    因此，建议按20多年前的经济改革试点一样，先在一个小范围对改革中出现的一些焦点问题———例如产权问题做出试点，同时控制现有国有资产的改制，并对以 前的重点资产改革进行清理。毫不夸张地讲，这一次的改制将是中国最重要的一次和平的变革，是落在中国的政治家、经济学家、知识分子以及广大民众肩上的一个 历史重担，而单独任何一方都担当不起这史无前例的改革责任和后果