Mao: Reward more fines and less moral hazard in the financial industry
KeywordsMoral hazard rewards more punishment less
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This reporter Wang Yang, the famous economist, Mao, director of the Economic Research Institute in Beijing, said the regulatory bill can be a certain degree of restraint on Wall Street greed, but the moral hazard of the financial sector cannot be eliminated. The root of the problem, he said, is that the financial industry rewards less, and high profits encourage speculative household risk-taking, and that, in the event of a loss, its huge economic and social consequences have to be borne by the whole society. Mao said the market must pursue profits, otherwise there would be no market economy. But people are not only chasing profits and wealth, there are other needs, can not make money to become everything. 21st Century: The current financial crisis can be largely attributed to Wall Street greed-turning investment into speculation. May I ask whether the recent US financial regulation system can fundamentally curb Wall Street's impulse to pursue unlimited profits? Mao: There's nothing wrong with chasing profits. Now the main problem is that the punishment is not to say, rewards more punishment less. It was speculators who made the money, and it was not their responsibility that encouraged Wall Street to make money by taking the risk. Moreover, the problem cannot be solved at present. The loss of the financial sector is not a small amount, not an individual speculator can afford it (but the problem is the whole society), so the consequences can only be borne by the whole society. Of course, through regulatory reform can be restricted, but it is difficult to fundamentally change the financial sector of this inherent contradictions. 21st century: Changing the way the economy grows is the second lesson that the financial crisis has brought to the world. China's export-led economic growth model is at a critical juncture. But many people believe that this change will reduce employment and bring a lot of social problems. What do you think about that? Mao: We must see that the aim of the Government to guarantee employment is to raise people's living standards, and now the export-oriented development model (the excessive exploitation of the Chinese labour force) is not conducive to the improvement of people's living standards. In fact, the so-called export-oriented is to use the comparative advantage of international trade, does not mean that the pursuit of high surplus. We are exporting too much and importing too little. To change this phenomenon, the renminbi needs to appreciate, and the renminbi's appreciation is also a trade protection. The renminbi does not appreciate is an export subsidy, the trade surplus caused by the world economy brought great imbalance. "21st Century": sustainable development is a long-term development of the economic growth model, refers to both to meet the needs of modern people, without compromising the ability of future generations to meet their needs. But given the different pace of development in both developing and developed countries, the moral nature of sustainable development (such as in the areas of climate change) should have different implications for the two. Is it morally ethical for Western countries to stand on the moral high ground and demand that major developing countries such as China and India follow suit? Mao: Tackling climate change is ultimately about keeping our lives alive. What is the point of sacrificing the present life for the sake of future life?Developed countries have developed and enjoyed the fruits of development, and it is unreasonable to limit the development of developing countries on the grounds of emission reduction. However, I do not think that the strong appeal of the developed countries is mainly due to the decline of manufacturing industry, eager to seek new economic growth, to maintain high profits. Developed countries have developed, and no significant increase in carbon emissions will be made, and future emission increases will come mainly from developing countries. They are mainly for the purpose of saving the Earth and saving all mankind. Climate warming is real, largely caused by human activity, and these conclusions are fine. However, the consequences of climate warming, its impact on the entire human society and the world, in my view is very vague. Of course, I also advocate a certain measure of climate warming. However, the extent of the measures, whether the developing countries to greatly restrain their own development, are debatable. And, according to economic principles, the benefits of emission reduction and the cost of reducing emissions are equally marginal. Now that the cost of cutting emissions can be calculated and the benefits of reducing emissions are not clear, climate change is still a question to be discussed. "21st Century": The basic assumption of economics is economic man hypothesis. How does sustainable development, in theory, reconcile the nature of chasing profit and the moral of growth? Mao: Market behavior must chase profits, give up this point there is no market. If there is no self-interest, there will be no market economy. However, people are not only chasing profits and wealth, there are other needs. The problem now is that making money is everything, surpassing all other considerations. Economics does partly explain the behavior of people in the family and in society, but economics cannot explain everything outside the economy, or it is essentially a profit-chasing economic act. This is economic imperialism.
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