Glamor Economics

Chapter 83

Chapter 12 From "Night Watchman" to "Intervener"—Government Behavior

Section 1 Why "digging pits" will drive economic development——Government Intervention Theory

In Keynes's book "The General Theory of Employment Interest and Money", he derived the theory of government intervention through a fable of "digging a pit".

Utopia is in chaos, the economy of the whole society is completely paralyzed, factories are closed, workers are unemployed, and people are helpless.At this time, the government decided to build public works and hired 200 people to dig the pit.When 200 people are hired to dig a pit, 200 shovels need to be distributed; when the shovels are distributed, the enterprises that produce the shovels start work, and so do the enterprises that produce steel;By digging pits, the entire national economy has been driven.The big hole was finally dug, and the government hired another 200 people to fill the big hole, and another 200 shovels were needed... The depressed market finally recovered a little bit.After the economy recovered, the government passed taxes, repaid the bonds issued when the pit was dug, and everything went back to business as usual.

In Western economic circles before Keynes, it was generally accepted that Adam?The viewpoint of the classical school represented by Smith is that in a market economy of free competition, the government only plays an extremely simple passive role - "night watchman".Under the influence of the market economy mechanism, the government should not be allowed to do anything that can achieve higher efficiency by relying on the market.State institutions only perform essential tasks, such as protecting private property from encroachment, and do not directly intervene in economic operations.

However, facts have proved that the market economy of free competition has led to serious wealth inequality, cyclical economic shocks, and sharp social conflicts. The global economic crisis that broke out between 1929 and 1933 was the result of the outbreak of the ills of liberalism.Therefore, government interventionists represented by Keynes surfaced. They proposed that a prominent feature of modern market economy is that the government no longer just plays the role of "night watchman", but should act as a "visible watchdog". hand".The government must balance and adjust the major structural problems in the operation of the economy.This is the theory of government intervention.

The main task of government intervention in the economy is to maintain the balance of the total economic output, curb inflation, promote the optimization of major economic structures, and achieve stable economic growth.The main means of regulation are price, taxation, credit, exchange rate and so on.

From an economic point of view, macro-control is macroeconomic policy, that is, the government can improve market outcomes at certain times.Of course, the fact that the government can sometimes improve market outcomes does not mean that it can always regulate markets.When can it be controlled and when can it not?This requires people to use the economic principles of macro-control to judge what kind of policies can promote a virtuous circle of the economy and form a fair and effective economic system under what circumstances, and when macro-control cannot achieve the set goals.

Compared to Adam?Smith's liberalism and Keynesianism believe that wherever government regulation can provide better services than the market, and where individuals cannot compete on an equal footing, government intervention should be used to solve the problem.Keynes emphasized the role of the government, and believed that the government can coordinate the contradiction between the total supply and demand of the society, formulate the national economic development strategy, and carry out important resource coordination and industrial adjustment.His most basic economic theory is that the country adopts an expansionary economic policy to promote economic growth by increasing demand.

However, in the 20s, some developed capitalist countries in the world fell into a state of "stagflation". No matter how the government waved the "visible hand", the economy always stagnated, while prices continued to rise. rise.This is the case of "government failure".

In the development of modern market economy, in order to overcome "market failure" and "government failure", people believe that "two hands" should be used together.We should correctly view the positive aspects and limitations of government intervention.

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Keynes' Law British economist Keynes put forward in the 20s that demand can create its own supply, so the government takes measures to stimulate demand to stabilize the economy.This was the argument Keynes put forward for his policy of state intervention in the economy, based on his analysis of the relationship between aggregate supply and aggregate demand.Keynes believed that the free market mechanism alone cannot guarantee stable economic growth and achieve full employment, and state intervention must be strengthened.

(End of this chapter)