Has GlobalEconomic crisis already started?

Every time there is a sharp social divide between rich and poor, the result is insufficient effective consumption demand, and the final result will make the whole society produce relatively excess. Things don't sell, workers don't get paid, the economy is in stagnation and crisis. Here I want to talk about how the economic crisis came about by reviewing the history of the crisis.

The problem of the gap between rich and poor

From ancient times to today, no matter in any era, the main line of social operation is economy. Most social problems are themselves an extension of economic problems. A country is essentially a company. If a company wants to grow, it needs to make money.

With profits, companies can give their employees higher wages and better benefits. Only when companies have money can they build a corporate culture that gives employees more of a sense of belonging and identity. They don't keep up with the benefits, they don't keep up with the culture, and people tend to jump ship and look for a better life outside. In fact, the same is true of countries. If the economic level is not developed to a certain extent, the sense of national identity will not be enough, so they always want to go to a more developed country.

Many things may look different on the surface, but from an economic point of view, the underlying logic is the same. It can be said that profit and income level are the basis of a company's development, and economic prosperity is the basic condition of a country's development and prosperity. However, from the historical perspective, after the economic development of the successive dynasties to a certain stage, the biggest problem is the widening degree of social polarization between the rich and the poor. And once this trend starts, it is basically irreversible and will eventually affect social stability.

After the human society realized that the polarization between the rich and the poor inevitably resulted from the economic development would have a great impact on the social stability, various scholars and economists tried to constantly seek feasible ways to realize the long-term development of the national economy and the long-term stability of the social structure. In retrospect, none of the solutions proposed have stood the test of time. The thinking and theories of these scholars and economists ultimately fell in the face of the problem of the widening gap between the rich and the poor.

In history, the rebirth, prosperity, decline and destruction of every country or dynasty are largely caused by the huge gap between the rich and the poor. Examples abound. In the past, the so-called three-hundred-year period of the dynasty, which we often hear about, is, in the final analysis, the problem of the polarization of the rich and the poor and the agglomeration of land.

Fu Sinian, a famous historian, once said when summarizing the three-hundred-year dynasty's periodic law: In the past, in the feudal era, the Chinese nation could defeat most of the rivals in sight as long as it rested for 70 years, and then began to accelerate the process of outward expansion, and finally experienced turbulence in the land concentration and hegemony, and finally went into decline.

The free market divide between rich and poor

Classical economics, also known as "classical liberalism", pioneered by Adam Smith, the father of modern economics, dominated Western capitalism before the Great Depression. According to this economic theory, the state can only regulate the economy with the invisible hand of the market. The state should hand over its enterprises to the market, which is the best way to regulate the economy.

Why did Adam Smith think the market was the best way to regulate the economy? Because in The Wealth of Nations, Adam Smith's fundamental assumption is that people are self-interested. In order to pursue personal interests, everyone will have great subjective initiative to participate in economic activities to obtain profits. If individual participation in economic activities is not interfered by the state, everyone must want to gain more benefits. Therefore, the state only needs to provide a free market environment and let the market economy develop freely. Everyone gives play to the subjective initiative to make money, the country will be rich, become rich.

What he said is that the market will use an invisible hand to regulate everyone's interests, and finally everyone can exert their subjective initiative to make the country rich and strong. Adam Smith's classical economic theory was widely used in most capitalist countries at that time. Classical economics dominated Western capitalist countries until the Great Depression of 1929.

But one of the most paradoxical aspects of Adam Smith's classical economic theory is that since it is everyone's self-interest to maximize their own profit, in the absence of state intervention, everyone will do anything to make money. With free competition without intervention, there is a problem of the strong and the weak. As the strong in free competition, under such circumstances must constantly come up with various ways to try to exploit more surplus value from the weak.

Under the Matthew effect, the weak are always the exploited, and the surplus must be divided among the strong. The reason is that people vary widely in their abilities, intelligence, judgment and execution, which will inevitably lead to a widening gap between the rich and the poor. This may be hard for many people to accept, but it is an objective reality in real life.

Some people used to think that the widening gap between the rich and the poor was largely caused by the inequity of the social system. However, even if the starting conditions are the same, as long as enough time, the wealth gap is still the law of nature. This is because individuals in intelligence, judgment and the implementation of these comprehensive qualities, there are huge differences.

Know that there is no way in the world to eliminate the differences in talents and abilities between people. In the context of free economic competition, this difference in ability will certainly be reflected in productivity and production efficiency. The net result is that money keeps going to those who can. This is also the reason for the widening gap between the rich and the poor in the course of economic development, which can only be delayed rather than solved.

Trying to force the difference away means the state needs to step in. If the state does not intervene, it is obvious that the strong will not provide the weak with a "free lunch". Because from the point of view of human nature, we are not saints, touching interests is a more difficult thing than touching the soul.

Since it is impossible for the powerful to voluntarily provide free lunches to the weak, there is no way to fundamentally address the widening gap between the rich and the poor. As a result of free regulation of the market and economy, the strong will take more and more of the cake and the weak will get less and less. With the development of economy, the gap between the rich and the poor in the whole society will become bigger and bigger, and the giant monopoly will be formed slowly.

Why does the state intervene

The law of competition in nature is natural selection and survival of the fittest. If an animal cannot live, it can simply die. But human society is not like this, because people do not choose to die in silence like animals, but choose to fight. It's like everyone is in the same boat. The rich fly first class while the poor can afford standing-room tickets. It was uncomfortable for those who stood, but at least they enjoyed the benefits of the ship. The gap between rich and poor is getting worse. The rich in first class are still in first class, while a lot of poor people are being kicked off the ship because they can't even afford a standing ticket. So the people who are going to get kicked off the ship, instead of waiting to get kicked off the ship and drown, they're going to work together to sink the ship, and they're going to sink together, and that's what we call the dynastic cycle.

So state intervention, taking money from the rich in various ways to subsidize the poor as transfer payments, became the inevitable way to maintain social stability. But because of the self-interest of human nature, most economists have long been pessimistic about reducing inequality. One reason they often cite is that such artificial state intervention violates market principles and is very inefficient.

Those who have studied economics should know that economist Mankiw's Principles of Economics begins by saying that minimum wage is very bad for economic development. What these economists fail to take into account, however, is that at a certain stage in every country's development, it is necessary to reduce the gap between rich and poor by means of state intervention and subsidising the poor by means of transfer payments. Otherwise, allowing the gap between rich and poor to widen indefinitely will lead to social disruption and instability.

If only efficiency, not fairness, choose the social Darwinian rule of survival of the fittest, efficiency must be the highest. The result, however, must be a rapid collapse of the dynastic cycle as a result of the sharp divide between rich and poor. The whole society has to start over. The high efficiency of social Darwinism must lead to the final inefficiency.

Moreover, after experiencing the intense social inequality caused by free competition and the subsequent Great Depression and World War II, Western countries found that the biggest advantage of the state to reduce the inequality and inject purchasing power into the bottom is to create a huge domestic market. Because ordinary people can only consume if they have money, there is no market demand, enterprises can not sell what they produce.

The larger the consumer group, the greater the demand. Only in the end can economies of scale emerge, further spreading costs and lowering prices. With economies of scale, enterprises can not only reduce costs, but also earn more money, which can be used for research and development and technological upgrading, thus achieving a virtuous cycle. All this development is based on sufficient demand, which is driven by what is called purchasing power.

Through poverty alleviation and transfer payments, our country has continuously injected purchasing power into low-income people and raised their income level. It is also essentially boosting domestic demand.