Exclusive Interview With Nobel Laureate Thomas Sargent: There Is No Need To Worry Too Much About The Slowdown. This Is A Sign Of China'S Economic Maturity.

"China is already an important part of the world and a leading role in the story of world economic growth. Although the current economic growth has slowed down, this is not a problem, it is just a sign of economic maturity. "

In December 5th, the 2019 Southern financial international forum was held in Guangzhou by the central broadcasting and TV station, the Guangdong and Hongkong Macau Bay headquarters and the southern financial and media group, and the twenty-first Century international financial forum. In 2011, Nobel Laureate in economics and Thomas J. Sargent, an economics professor at New York University, accepted an exclusive interview with the twenty-first Century economic report reporter. When it comes to the background of global economic slowdown, some countries discussed the hot topic of "negative interest rate" policy to boost the economy. At the same time, the deep-seated reasons behind the political and economic phenomena in some countries were analyzed.

Sargent holds fairly optimistic expectations for China's future. He believes that China's slowdown should not be too concerned. Just like the road of Korea and Singapore, the economic development will slow down to a certain extent. Some view that the economic growth rate to 5% is a "disaster", Sargent totally disagrees.

He believes that there is still room for China to maintain a relatively fast growth rate, because China has not only the world's rich cities such as North and Guangzhou, but also many small but relatively backward areas. If more and more regions achieve the same development, it will be a promising prospect.

From historical experience, Sargent believes that Sino US trade friction will eventually be resolved.

Thomas Sargent Gan Jun photo

China's slowdown is a sign of economic maturity.

Twenty-first Century: China's economic downturn this year is more obvious. Some people say that it has reached a new low, and the growth rate is expected to be around 6%. Do you think it will go down again?

Thomas Sargent: there is indeed a downward trend, but about 6% is still a very high growth rate. I think there will be a downward trend. In the long run, the trend may be more like that of Korea and Singapore, and ultimately the trend towards a more stable us. As we all know, it is very difficult to maintain 6% speed. Look at historical data and models, which will happen sooner or later.

But this is not a problem, but a sign of economic maturity. The US has never even had such a sustained high growth record. We need to take a long-term view of this problem.

Twenty-first Century: but many Chinese worry about the so-called "middle income trap" problem. For a big country, economic transformation and upgrading is not easy. What do you think is the most important thing for China now?

Thomas Sargent: this topic has been discussed for a long time. China does not need advice and has done well.

Looking at what has been achieved, Chinese leaders have been very pragmatic since 1970s. I have repeatedly seen the key word "pragmatism" from their speeches. They are down-to-earth and not idealistic. They always say that they will try to practice the successful experience of other countries that they see. If they see some experiences fail in other countries, they will stop trying and continue to try new things. This is the attitude. As long as China keeps this way, I am very optimistic about China's development.

I saw everything that happened in China. At the age of thirty or forty, China was still a very poor country. When I arrived in Hongkong in 1983, there was nothing in Shenzhen opposite. Now, when you walk to Shenzhen, you will see a beautiful modern city where people's vision is broadened. This is a miracle.

The central bank's impact on the economy is not that big.

Twenty-first Century: since the beginning of this year, central banks have relaxed monetary policy. The Federal Reserve is no exception. It has completed the three interest rate cut to prevent the economic downturn. Europe even entered the era of negative interest rates. What do you think of negative interest rates?

Thomas Sargent: that's a good question. Strictly speaking, negative interest rate is a relatively new thing. The reason why European interest rates are so low is that many smart people are baffled. In fact, it is closely related to many things. Generally speaking, if the economic productivity is relatively high, the interest rate will be relatively high, there are many good things to invest, and investment can also promote productivity. When interest rates become very low, it is as if the economic system is telling us that we can not find investments that are really high returns, which is a bit of a problem.

Northwestern University professor Robert Gordon (Robert Gordon) and Harvard University professor Larry Summers (Larry Summers) also believe that such a low interest rate may be caught in the Western often said that the long-term stagnation, is no longer in front of high productivity, we will face a long time of low growth. I hope not. If this happens, it will bring about all kinds of problems. For example, it will be very difficult for old people to get some kind of reward with savings.

Twenty-first Century: negative interest rates are often seen as the last resort to stimulate the economy. My question is, what can policymakers do in monetary policy or fiscal policy against the backdrop of global growth?

Thomas Sargent: Milton Friedman (Milton Friedman) is one of the greatest economists of the twentieth Century. As a monetary policy expert, he wrote a paper on the fact that monetary policy's ability to influence the economy is very limited. He believes that the driving force for economic growth is not in the hands of monetary policy authorities.

In establishing a stable policy framework, the monetary authorities have many things to do, but they are not the ones who decide the growth rate of the economy. Freedman believes that the decisive factors are technology, education, competition and so on. Neither the Fed nor the Central Bank of China, they are not working outside the factory, no longer taking the risk of creating new things. Freedman believes that this is the real place for market economy activities, and that the market plays a decisive role. The central bank has some influence, but far less than expected.

As for fiscal policy, there are different opinions. It has a lot to do with the tax structure, including what taxes are taxed, how smart the tax is, and how much the tax rate is. Taxation often has a negative impact on economic activity, because it reduces incentives. But the government has to levy taxes, so the smart government will spend a lot of time figuring out how to increase taxes and increase revenue and minimize the impact on incentives. There are many things that can be done at this point. There are many areas in our country that need improvement. Relatively speaking, European countries have a smaller tax system than the United States.

The US debt ceiling is a farce.

Twenty-first Century: look at the US in the history of the longest economic expansion cycle. Some people say that the expansion cycle will not disappear because of "age growth". But some people see the reasons behind it. Do you think the expansion cycle is coming to an end? Is there a bubble in the longest bull market cycle in history?

Thomas Sargent: it is very difficult to predict the business cycle and the turning point of the recession. Although there are some statistical characteristics of prosperity and decline, even the top statisticians can hardly predict the turning point accurately. I can only say, I don't know. It has been predicted that the economy will fall into recession, but facts have repeatedly proved that they are wrong. Of course, they will eventually be right. After all, all expansion has an end.

As for the bull market in the US stock market, the answer is the same. There are many smarter people in the central bank. They have been trying to find out whether there is a bubble. Among my Chinese friends, there are also excellent economists who work in the central bank or government agencies, and so do they. In a strict sense, it is very difficult to find out if something is a bubble, and if it is a bubble.

So far, economists and financial circles have not had a good record in diagnosing bubbles. Smart economists like former Federal Reserve Chairman Bernanke also said they could not predict in advance.

Twenty-first Century: as of September this year, the US federal debt scale has exceeded 22 trillion and 600 billion US dollars. Is it worth worrying about whether the federal deficit or high debt problem is so high?

Thomas Sargent: of course. On the one hand, government expenditure exceeds tax revenue, on the other hand, the way of government borrowing expenditure leads to the continued expansion of debt. For any country, there is a ceiling on this issue. Interestingly, you cannot predict where the upper limit will be. But every country that has long been saddled with high debt is bound to get into trouble, like Argentina and Brazil.

In the long run, it is only a matter of time before the government pays for the government expenditure. The accumulation of debt means more debt paying obligations in the future. To pay your debts, you have to bear higher taxes. It must be done at some time in the future. As for when, who knows? At present, such a huge debt has accumulated, in fact, has been on such a road. Harvard University scholars have done some research on this issue, and they are very worried about it. So do I.

Twenty-first Century: the US government seems to start debating the debt ceiling every once in a while.

Thomas Sargent: This is another matter. My friends and I have studied the debt problem of the United States. This is a very strange thing, not as simple as it looks. We all know that there is a debt ceiling, but we all know that it is not an upper limit because it will eventually improve. Long ago, it used to be meaningful, but now it has been meaningless for many years. A French word is a farce. This is a political farce, everyone knows.

Levy "rich tax" is to attract eyeballs.

Twenty-first Century: when it comes to taxation, there are many discussions about the "rich tax" in the United States this year. What do you think of the slogan of raising the tax rate of the rich?

Thomas Sargent: This is a slogan that is out of touch with the real economic data. Like any other country, a country like the United States wants the government to pay for something and the people to pay the bill. In the past 10-15 years or so, the situation in the United States is that government expenditure is greater than tax revenue.

Democrats and Republicans have promised to bring benefits to some people through some government spending. If other people, such as rich people, pay, ordinary people do not have to pay, but that is impossible. You can count on not many rich people to raise your tax revenue substantially, even if you can raise it a little. If the government wants to continue spending this way, it is necessary to raise taxes for ordinary people like me, not just the very rich. Wise economists are familiar with this.

Now, the two party candidates are afraid to say such a thing. But eventually they have to say it, because this is a practical arithmetic problem and accounting problem. The slogan of Taxation on the rich is quite attractive, but for me, it is unreasonable and impossible to get enough income from it. Moreover, historically, whenever the government tried to impose taxes on the rich, they could always come up with tax evasion, only to make lawyers and accountants richer.

Twenty-first Century: Although you are willing to pay higher taxes, many ordinary Americans may not be willing to. Figures show that the gap between the rich and the poor has widened to a high level in recent years. Is the gap between the rich and the poor a big problem?

Thomas Sargent: there are many differences in wealth measurement. As time goes on, the prices and values of all kinds of things will change. For example, today's mobile phones are small computers, which can not be very rich, but it is difficult to be statistically reflected. Some things will become cheaper and cheaper, and some will become more and more expensive, such as housing. This will make the people who own real estate look relatively rich, but make the young people worse off. Before this problem, we must have an in-depth understanding of the role of price changes.

If people think that the gap between the rich and the poor is a problem, then it is a problem. The key is to see the real data. As far as I am concerned and the people around me, sometimes the American political system is like this. For various reasons, at this time, candidates will try to "pick things" and try to create some topics, create some problems, and create some solutions at the same time. Basically, what they say is that this is a big problem. I will solve it in some way, without any investment, and it will bring you benefits.

If we want to get the total health care paid by the government, we can refer to other countries such as Britain and France. We can learn from the same way of payment, but this means that the middle class needs to pay a price.

Life is like this, you need to pay will be harvested. In a market economy, you have to pay for what you get.

I believe Sino US trade friction will eventually be solved.

Twenty-first Century: how do you see the global uncertainties in Sino US trade friction?

Thomas Sargent: it did create a lot of uncertainty. But looking back on the past seventy or eighty years of world history, taking the United States as an example, Trump has been in a long-term trend of lowering tariffs and lowering trade barriers before taking office. It began before World War II and strengthened after World War II. The United States has always supported free trade and has done many things for this purpose. If the United States threatens to impose tariffs on other countries, such as Japan, South Korea and other European countries, it is to reduce tariffs. The United States has played such games. As a result, trade barriers were broken. This is a long-term trend. Later, as China opened the door to the world, a bigger trade barrier also disappeared. This is also a long-term trend.

Why is that? Is it God's will? Is it an accident? Is there anyone else who needs this? In fact, there are a group of people in the United States who want to free trade and believe in their own competitiveness. Other countries also have such a group. They see the benefits of free trade. Therefore, they gradually promoted the reduction of trade barriers.

The question now is, what has changed? What led to the emergence of a group of people who did not want to trade in the US or China? In fact, many people in the United States do not like trade wars, or even do great harm. It is easy to see that they complain a lot from media reports, and many of them are from the Republican Party. Trump can actually hear these voices. Of course, some people want a trade war.

Those who do not want to trade are typical, those who do not want to compete. They want to protect domestic monopolies. Has the influence of these groups strengthened in the US? To look at other countries, it can be said that a similar situation exists to some extent. After World War II, Americans stood up and believed that they could participate in fair competition and hope to trade. If that is the attitude, then the trade war will be resolved. This is true for both sides.

Twenty-first Century: you seem optimistic about this.

Thomas Sargent: I hope to remain optimistic. There are many reasons why you think so that trade makes many people better off. This is the result I want. I have many Chinese friends. I am a consumer of Chinese products. I am still an exporter. In the United States, I have many overseas students from China. I can say that they are contributing to my university and paying my salary. Personally, I have benefited a lot from free trade. I believe there are many people like me.

Twenty-first Century: many people are puzzled about the behavior of the United States, because the United States led the establishment of rules and multilateral system supporting free trade after World War II, but now it destroys it personally.

Thomas Sargent: I do not support this. For the United States, this is not a good omen. If we do not want to compete, we will become protectionism. We hope that the problem will eventually be solved.

Twenty-first Century: do you think it's a short-term phenomenon?

Thomas Sargent: I hope it's short-term. If you live to my age, you will see things coming and going. Once, we had similar situations with Korea and Japan, and finally solved them. Now there are reasons to look forward to this. But in the US, there are people who do not want to compete. They want tariffs, but while they seek their own interests, they hurt most of their fellow Americans. I hope this is just a few people.

Twenty-first Century: data show that many blue collar workers have lost their jobs due to the large number of factories moving out of the US.

Thomas Sargent: some people have done specialized research. In fact, they lost their jobs because of technological change. An example is iron and steel factory. President Trump said he will bring these manufacturing jobs back to China from China, but that is impossible. He is very clear about that. Many jobs are lost because of technological change. If the steel mill moved back to the United States, it now needs much less workers.

Of course, if you lose your job to earn a living and be forced out because of technological change, you will surely lose a lot. The question is, what can you do? What can the government do? Blocking trade can not bring work back. If you tell people so, you are deceiving people.

If we really want to help them, we will set up government projects to transfer resources for them. Progress often leads to winners and losers. Like my father, the work he has worked for his life has vanished completely. What can we do about it?