Beware of a Cliff-Edge Economy After the Olympics (Part 1)

2008/8/3 21:23:54

Nothing going on this Sunday—here's a longer piece.

"Macro-regulation"—this term has been endlessly invoked over the past thirty years, worn threadbare through overuse. Yet how many people truly understand it? Even the regulators themselves—aren't they often off-topic and thoroughly confused? What is genuine macro-regulation? At its core, it is the regulation of human sentiment. If this is hard to appreciate in an economic system dominated by the real economy, then as the weight of the virtual economy grows, it will become increasingly self-evident.

Some people—especially the fundamentalists of Western economics—love to sanctify, deify, and reify the market economy. Before the market, human beings become slaves and puppets. In reality, the so-called market is merely an economic materialization of human relationships, and the market economy is ultimately nothing more than the resultant force of human sentiments. Without people, where is this market economy? Without people, aren't terms like "investment" and "demand" just empty words?

Human sentiment is the root of everything in the market. Of course, morally, we can use the most vehement language to criticize the market economy's alienation of human nature, but such words are ultimately useless and far from penetrating. The reality of the market is the present-moment manifestation of the collective force of human sentiments—where is the alienation in that? It simply is what it is.

The heart—it gathers, it pivots. And those who tumble through the market economy are all seekers who gather around opportunities. To regulate such creatures, suppression and even repression are futile. Those who do nothing but prattle on about this overheating and that overheating are merely scholars entombed by their own reading. Their ambition is even more extreme than suppression—they play the game of remaking humanity, trying to mold those opportunity-seeking gatherers into what they consider acceptable specimens. Alas, such ambitions can only ever remain ambitions.

Everything is the resultant force of human sentiments—the collective karma of all participants—and the market economy is no different. Regulation, whether macro or micro, is merely one component force among many, one condition among countless conditions. If regulators lack a clear understanding of this, they will forever be blind men groping an elephant.

Furthermore, though the regulator is but one component force, it is one with enormous influence. While it cannot alter medium- to long-term trends, it can create massive short-term chaos. This strictly demands that regulators harbor no personal biases or preferences. If someone with a distaste for the stock market imposes especially strict measures on stocks, while someone with real estate interests gives property a conspicuously loose hand, things will inevitably go awry. This is often not intentional—human likes and dislikes manifest in the subtlest ways, sometimes imperceptible even to oneself.

Yet none of this is the most important point. Upright, principled people often do foolish things—which, though more endearing than those who play dumb while knowing full well, still makes them agents of harm, doesn't it? Everything depends on having a thorough, root-and-branch understanding of the business of regulation and acting with wisdom in practice.

Whatever it may be—as long as it is a real-world thing or phenomenon rather than an imagined one—it is nothing more than a convergence of conditions, inescapably subject to the cycle of arising, abiding, decaying, and ceasing. In other words, nothing can stay hot forever. When the energy of ignorant aggregation is not yet spent, what good does forceful regulation or frantic suppression do? The midnight regulation of May 30th was so severe it became an eternal classic—and what was the result? Didn't the market still reach 6124? At 6124, conditions dispersed, and all the gathered opportunity-seekers scattered like startled birds. The aftermath was far more dramatic than the brute-force crackdown of May 30th. When they later tried to rescue the market, wasn't the result an even more violent decline? Why? The conditions for an upward move couldn't yet fully reassemble—what good is wishful thinking?

All regulation amounts to nothing more than guiding the rhythm that the regulatory component force desires within this cycle of arising, abiding, decaying, and ceasing. It's like a crowd of opportunity-seekers dancing to a frenzied tune—at the peak of a market economy hotspot, trying to stop the frenzy by cutting the music is futile. Even without the music, once a trend has formed, all the dancing will continue by inertia; cutting the music only creates greater frenzy. The only correct approach is to use a new tune to attract them. This attraction naturally follows its own cycle of arising, abiding, decaying, and ceasing, naturally drawing more and more dancers into its rhythm. And the old tune, even if still playing—to those reveling in the new music, isn't it the same as playing to empty air? Novelty-seeking is after all human nature—if you don't exploit this nature, what are you regulating?

The market economy is where human nature is infinitely amplified. Regardless of how morally questionable it may be, any attempt to regulate human sentiment that doesn't work with human nature is doomed to futility. Suppression can only stifle humanity's natural impulses, and once the enthusiasm for the market economy dissipates, rekindling it takes twenty or thirty years. Everyone is talking about the so-called Japan-style crisis now, but how many truly understand that the crisis was nothing but a man-made disaster caused by reckless regulation?

Then there's another breed—those whose brains have been deadened by Western economics—who proclaim the market's divinity. Since it's God, of course regulation is impossible, and thus arises the absurd theory of laissez-faire, of letting the market automatically work its magic. This merely lets human nature run completely wild, and the result is people dancing to one tune until they drop dead—everything cyclically arising, abiding, decaying, and ceasing. To still be infatuated with such quackery is truly to have had one's brain fried by book-learning.

China's current state is actually ideally suited for regulation, because its dual-track economic structure is naturally made for it. The alternation between overheating and overcooling is a chronic ailment of China's economy, stemming from two causes: first, too few sectors eligible to become hotspots; second, retail-investor-style regulators being trended by trends rather than trending trends.

What regulation ultimately monitors is whether the overall Chinese economic trajectory is stable. Since this economic structure was born from a pure, utterly pure planned economy, the marketization progress across the various sectors of the economy is completely uneven. The sectors unique to a market economy—especially those unique to the virtual economy—remain largely unestablished even today. Under these conditions, how can there be enough sectors eligible to become hotspots? When the economy heats up, everything overheats; when it cools, everything freezes—this is only natural.

Tired now. Will finish when I have time. Signing off, goodbye.