The Paradox Of Narrowing The Gap Between The Rich And The Poor And Curbing Inflation

At present, the CPI ratio is still rising, although the M2 growth rate of the broad money supply in August has reached a new low of six years, and the growth rate of M1 has decreased by nearly half of that of last year. However, the momentum of price rise has not been effectively suppressed.

Why the 12 increase in the deposit reserve rate and the five increase in interest rates, or can not control inflation?

Why is inflation not affected by monetary tightening as a monetary phenomenon?

The reason is that inflation is not only caused by the rapid expansion of the total volume of money, but also has a greater impact on inflation.

According to the theory of quantity in traditional currency, assuming that the speed of money circulation in a country is basically unchanged or stable, the growth of money supply in the country should be equal to the sum of the rate of price increase and the rate of economic growth, that is, M= Y+ P. When the growth rate of money supply exceeds the rate of price increase and the rate of economic growth, that is, when the delta M > Y+ Y+ P, it means that the country has excessive money supply.

The existence of a large amount of excess money often leads to severe inflation or inflationary pressures.

However, China's average M2 growth rate over the past 2000-2010 years is over 18%, while the GDP growth rate is about 10%, but the average increase of CPI is about 2.5%, which has not caused serious inflation.

In 1993, Mackinnon, an American economist, called the phenomenon of coexistence of a large number of excess money supply and low price level as "the mystery of China", that is, money somehow disappeared.

In fact, from the perspective of asset price rise, it is easy to explain the "currency mystery".

If we further quantify the evidence that China's excessive base money has been caused by the increase in foreign exchange reserves, we can start issuing central bank bills in April 2003.

Therefore, over the past 10 years, China's excess money has actually been absorbed by the expansion of asset prices and has little impact on the prices of ordinary consumer goods, such as pork prices, which have increased by about 1.1 times in the past 10 years in 2000-2010 years. On the one hand, as a big manufacturing country, China's capacity has increased significantly over the past 10 years, and the supply surplus has restrained the price rise; on the other hand, the widening gap between the rich and the poor has also inhibited the rise in the prices of low-end consumer goods. From the income gap between urban and rural areas, it has increased from 2.8 times in 2000 to 3.3 times in 2010, while the gap between the rich and the poor has been widening.

From the babysitter to the shortage

It is said that the nanny gap in Shenzhen has reached 150 thousand in 2011, and the nanny wage has increased by 50% in the past year, the biggest increase in all industries.

In fact, the substantial increase in Nanny wages is due to the low wages of the low end labor force, and the increase in the number of affluent groups and the increase in income, stimulating the demand for domestic services, and ultimately raising the market price of domestic services, and resulting in a shortage of housekeeping personnel.

While the income of domestic service personnel is raised, the opportunity cost of rural migrant workers has also been raised.

According to statistics, the income of rural migrant workers has increased by 20.1% since the beginning of this year. Wage formation is changing from "cost of living cost" to "market type bargaining for labor and capital".

The growth of the income of migrant workers has increased the opportunity cost of farmers, leading to the increase in the cost of agricultural products (13.83, -0.37, -2.61%).

Logically speaking, the cost of labor in different types of agricultural products has a higher proportion of labor costs.

With the rapid rise of the urban land price, the suburban land price has been pulled and further pmitted to the agricultural land price.

In addition, a large number of agricultural leading processing enterprises and large growers have also increased the rural land prices to a certain extent, thus raising the production cost of agricultural products and pushing up the prices of agricultural products.

In addition, such as fertilizer, agricultural machinery products and so on, will also push up the prices of agricultural products.

Therefore, the main feature of this round of inflation is cost driven, and the promotion of labor costs is the main reason for the high inflation. On the one hand, it has stimulated the rise in prices of goods and services. On the other hand, because of the increase in the income level of low-income groups, the demand for daily consumer goods should also be increased, thus leading to a rise in food prices over the increase of non food items such as household appliances. For example, pork in August increased by 45% over the same period last year, far exceeding the CPI increase.

If the annual average price of vegetables in the wholesale vegetable market in Beijing in 2000 is compared with those in September 14, 2011, it is found that potatoes have risen by 43% in the past 11 years.

As the grain and vegetable prices have not increased substantially in the past, this is also the reason for the low income of farmers. In order to narrow the gap between the rich and the poor in the future, we must let the prices of agricultural products go up.

Another means is to increase the proportion of agricultural industrialization, that is, to increase agricultural labor productivity and reduce rural population, which is conducive to narrowing the income gap between urban and rural areas.

It can be seen that there is a paradox between narrowing the gap between the rich and the poor and the stability of grain and vegetable prices.

The convergence trend of urban and rural income gap has been formed in China, which means that inflation pressure will persist for a long time.

The best way to deal with inflation: less intervention and more subsidies

Since this year, the proportion of China's financial expenditure on people's livelihood has increased significantly, indicating that when China's Gini coefficient reaches about 0.5, the social stability will not be maintained without increasing investment in social welfare and security.

At the same time, the market economy itself will adjust the income structure automatically, so that the gap between the rich and the poor will tend to converge.

Based on such a judgement, it is estimated that the CPI will still have a long way to go. The CPI will be around 6% in September and about 5% in November, but next year it will probably remain at a high level of about 4%.

Inflation is caused by excessive amount of money, but the excessive amount of money also leads to structural problems besides inflation, such as uneven distribution of income and widening gap between rich and poor.

If we intervene too much in order to curb inflation, we can not only solve the structural problems of the economy, but also lead to the aggravation of the price structure and the mismatch of resources.

For example, excessive intervention in exchange rate to lower the RMB exchange rate, resulting in high export growth, large inflow of foreign capital and hot money, thus overthrowing the base currency, resulting in asset price inflation and ultimately triggering inflation.

In order to cope with inflation and reduce complaints from the middle and low income groups, they dare not increase the price of water and gas related to the lives of ordinary people, resulting in the reluctance of power generation companies to generate electricity and man-made electricity shortage.

At the same time, imports of agricultural products such as grain and pork are also used to stabilize domestic prices, resulting in the loss of farmers' interests.

Therefore, whether the exchange rate, interest rate in the financial field or part of the commodity sector related to the national economy and people's livelihood, there is a "managed" phenomenon. The result is that the price is distorted, and all kinds of institutional and structural problems are intertwined, thus becoming a huge obstacle to economic pformation.

Therefore, since we have chosen the mode of market economy, we must solve many problems through marketization. Only the problems that can not be solved by the market will belong to the scope of government functions, such as fiscal and tax policies adopted to narrow the gap between the rich and the poor, which are used to pfer payments, increase public services and public welfare, and subsidize low-income groups.

Since there is a paradox between narrowing the gap between the rich and the poor and curbing inflation, we should not adopt the way of controlling prices artificially to curb inflation. Instead, we should straighten out the prices in the financial and commodity fields through the marketization mechanism, and let it rise if the price goes up. If it falls down, it will fall. As long as the corresponding price subsidies to the middle and low income groups are given to the financial sector, we can make up for the loss of the rising cost of living caused by inflation.

China has adopted price subsidies in the 80s of last century and adopted measures to preserve and subsidize deposits and purchases of treasury bonds. Now it should be more capable of implementation, because the growth and scale of fiscal revenue are much higher than in the past.

This year's fiscal revenue is expected to exceed 10 trillion. Taking 2% of it as a price subsidy for low-income families in China can basically offset the negative impact of inflation on low-income families.