Stable Economic Growth Should Aim to Make Three Growth Rates Equal

Ren Shouxu

The economic growth theory proposed by economists Harrod and Domar suggests that the rate of economic growth is closely related to the savings rate and capital output ratio, and that achieving stable and continuous economic growth requires making three growth rates equal. These three growth rates are actual economic growth rate (determined by investors' collective willingness to invest), natural economic growth rate (required for full employment), and guaranteed economic growth rate (determined by investors' confidence and expectations). Harrod and Domar's theory has some reference value, but it is extremely difficult to achieve this balance. This means that the process of economic growth is a dramatic fluctuation. Investors' collective willingness to invest is closely related to their confidence and expectations during an economic cycle. The earliest signal of recovery is often seen in rising stock prices. Rising stock prices can bring confidence and positive expectations to investors, stimulating them to increase investments. A stable housing market is also crucial because the real estate industry has a strong driving effect. Economist Burns pointed out that residential housing is not sensitive to short-term fluctuations in the economy and that it takes a relatively long time for oversupply to be noticed. During periods of prosperity, investors tend to ignore risks, which can have negative impacts on macroeconomic operations. The key to stabilizing the housing market after it has stabilized lies in stabilizing demand, which is influenced by many important factors, including population growth rate. From the perspective of historical experience, the economic performance of the United States in the 1980s can illustrate the key factors that affect economic growth. First, consumer spending power is crucial for solving overproduction, as seen in the correlation between GDP and consumer spending during the entire decade. From a superficial perspective, excess production seems to be a quantity problem, but it is actually a structural issue. Optimizing supply structure and promoting consumption upgrading are crucial for resolving supply-demand balance. Second, ensuring that everyone's income continues to rise is key to guaranteeing sustainable consumer spending power. The United States relied on strong consumer demand from 1982 to 1986 to achieve stable economic growth. However, residents' incomes did not experience high growth during this period, so residential housing expenditures became negative during the subsequent period (from 1987 to 1990), and other consumption expenditures also declined. Third, investment power is closely related to economic growth. During the period from 1982 to 1990, non-residential fixed investment growth rate showed a complete correlation with GDP growth rate. When investment growth rates were high, GDP growth rates were also high, as seen during the period from 1987 to 1990. To achieve stable Chinese economic growth, we should pay attention to making three growth rates equal at the same time: actual economic growth rate, guaranteed economic growth rate, and natural economic growth rate. We should also balance investment rates, consumption rates, employment rates, and income growth rates. China should take advantage of the new wave of technological revolution and vigorously develop high-tech industries, promoting industrial upgrading and structure optimization. This is a correct direction and an inevitable direction. Participating actively in the new round of technological revolution will affect some jobs, but from the results of previous technological revolutions, each technological revolution has created new industries and provided new job opportunities. The key issue lies in the government providing training for workers affected by job changes during the transition period, creating new job opportunities for them, and providing social welfare guarantees during the transitional period. This column article only represents the author's personal opinions.