History never simply repeats itself, but it always treads a similar rhyme.
In the first quarter of 2021, the dragging effect of the new crown pneumonia epidemic on the global supply side became apparent, and the slowdown in the flow of factors of production and rising supply chain costs together led to a sustained rise in the prices of major commodities, with new supply shocks quietly on the horizon and set to have a major impact on the global economic recovery and the operation of financial markets. 2021 has seen a general increase in the prices of raw materials in major global commodity markets, and as of the end of March, crude oil As of the end of March, the prices of crude oil, asphalt, plastics, polypropylene, power coal, ethanol, urea, pulp, soda ash, copper, rebar, aluminum, cobalt, iron ore and aluminum alloy have increased by 26%, 13%, 11%, 10%, 10%, 21%, 10%, 19%, 17%, 15%, 14%, 14%, 52%, 10%, 19%, respectively, compared to the beginning of the year, taking into account the appreciation of the US dollar index by more than 3% during the same period , this rise in commodity prices is more reflective of an important change in fundamentals.
The persistence of the epidemic has led to a new supply shock in the making. Compared to the supply shock that triggered stagflation forty years ago, the new supply shock in 2021 poses a more complex challenge to economic development and the global order through a similar mechanism of action. In the face of these challenges, there is an urgent need to shift the philosophy of global policy regulation from “Keynesianism” to “new supplyism”.
The epidemic not only caused the global economic recession and loss of livelihood, but also brought about deep concerns about the sustainability and long-term effectiveness of the ultra-loose policy, which even directly led to the deep pullback of the global stock market after the Spring Festival. The root cause of the loss of policy confidence that accompanies ultra-conventional policies is that there is a directional mismatch between the focus of policy and the core of the problem. Currently, the global economy is facing a “new supply shock”, while the response policy is focused on the demand side, this mismatch brings difficult to crack the structural problems.
In fact, the oil price is the core of the supply shock is not the first time, the 1970s, by the OPEC production restrictions, oil prices rose sharply twice, not only brought inflation and recession stagflation, but also triggered the mainstream economics of the post-war dominance of the “Keynesian” comprehensive rethinking and doctrinal revolution. However, unlike forty years ago, the “new supply shock” in 2021 is reflected in three dimensions: first, oil prices have previously run at absolute low levels for a long time, and the negative effects of market disorder continue to emerge; second, oil prices are so unstable in the short run that it is difficult for the real economy to make orderly adjustments to costs and prices; third, oil prices The long-term trend is too variable, and this uncertainty has created a dilemma for decision-making.
The new supply shock in 2021 is posing two major risks: geopolitical risk and structural stagflation. On the one hand, the new supply shock deeply changes the distribution structure of the benefits of the global recovery, and the game of interests may evolve toward geopolitical conflict in an irrational state. The sharp rise in oil prices has brought about three kinds of interest transfers: first, the transfer of recovery benefits from oil-using countries to oil-producing countries, second, the transfer of monopoly benefits from low-cost oil-producing countries to high-cost oil-producing countries, and third, the transfer of policy benefits from exchange rate stabilization countries to competing currency devaluation countries. Under the pattern of benefit redistribution triggered by low oil prices, geopolitical risks are increasing due to confrontation between major powers and regional turmoil. On the other hand, new supply shocks potentially change the shape of the Phillips curve, and the global economy is evolving quietly from full deflation to structural stagflation. since 2021, rising inflation expectations and their accompanying changes in policy forward guidance have had an impact on the global economic recovery and the operation of financial markets, with the rise in U.S. Treasury yields triggering a series of knock-on effects, traumatic market confidence, recovery shadows and policy dilemmas Simultaneous emergence. Stagflationary pressures from new supply shocks will mainly be seen in emerging markets due to their relatively greater fundamental vulnerability, high long-term inflation base and greater oil price sensitivity.
The supply shocks of the 1970s brought significant changes to global economic policy, with Keynesianism, which emphasizes demand-side intervention, suffering the fatal blow of “lack of microfoundations” in academic terms and facing the serious challenge of being unable to cope with the stagflationary pattern in reality, which led to the development of the rational expectations school, neoclassical economics and neo-Keynesianism. The rational expectations school, neoclassical economics and New Keynesianism have been developed.
The author believes that the new supply shock in 2021 will have a similar impact on global economic policy. At present, Europe and Japan are already using negative interest rate policy, and the United States has zero interest rate, the debt ratio of the United States and Japan have exceeded the technical bankruptcy line, and the emerging market currencies have a certain degree of overshooting in the direction of competitive devaluation, the global economic policy on the demand side is close to the bottleneck, and the Keynesian paradigm of demand stimulus policy has been difficult to cope with the complex challenges brought by the new supply shock. This Keynesian paradigm of demand-side stimulus policies has been difficult to cope with the complex challenges posed by new supply shocks.
In this context, demand-side policies can only create the conditions, but can not fundamentally reverse the situation, global economic policy needs a supply-side change. From a global perspective, global supply-side changes include: first, accelerating the paradigm shift from offline to online in the post-epidemic global economy; second, shifting the focus of economic policy from the macro level to the micro level; third, promoting timely changes in global governance under the new normal through multilateral dialogue mechanisms; fourth, breaking through the long-term bottleneck of international monetary system reform through the digital currency revolution; fifth, diversifying commodity pricing power to The fourth is to effectively promote the fourth global industrial revolution; the eighth is to optimize tax incentives on a global scale.
The core of supply-side change is to enhance total factor productivity, and the strength and effectiveness of supply-side change will determine the future of each country in the new global landscape. Under the new supply shock, the more attention is paid to microfoundations and supply-side changes, the more hope there is to get out of the quagmire of weak global economic recovery as early as possible and to dominate in the new long-cycle recovery.