Chapter 1461: Shock therapy

"Shock therapy" was originally a medical term. It was introduced into the economic field in the mid-1980s. The person who introduced the term was the American economist Jeffrey Sachs. At the time, he was being hired by the Bolivian government as an economic consultant.
Bolivia is a small economically backward country in South America. Due to the long-term turbulence in the political situation and the continuous failure of the government's economic policies, the economic problems that have been caused have accumulated without being resolved, which finally led to a serious economic crisis. In 1985, the Bolivian government’s budget deficit reached 485.9 trillion pesos, accounting for about 1/3 of the GDP, and the inflation rate was as high as 24,000%. In 1984, the foreign debt was 5 billion U.S. dollars and the interest payable was nearly 1 billion U.S. dollars, which exceeded exports. income. Between 1980 and 1985, the living standards of residents dropped by 30%, and the national economy was almost on the verge of collapse.
Faced with such a dangerous economic situation, Sachs, who was hired at the time of crisis, boldly proposed a set of economic programs and economic policies, the main contents of which are: implementing austerity financial and fiscal policies, reducing government expenditures, eliminating subsidies, and liberalizing Set prices, implement trade liberalization, achieve exchange rate stability through controllable currency devaluation, further reform the administrative and taxation system, privatize some public sectors and enterprises, rearrange debts and accept foreign aid, etc.
The implementation of this set of economic programs and policies has a strong impact. In the short term, it may cause huge shocks in the economic life of the society and even lead to a state of "shock". Therefore, Sachs will stabilize the economy and control inflation. China’s economic program and policies are called "shock therapy."
The initial battle of "shock therapy" in Bolivia has received incredible results. Less than a week after the implementation of the treatment, hyperinflation was effectively curbed, and prices have stabilized from skyrocketing. The inflation rate was only 10-15% from 1986 to 1987, 21.5% in 1988 and 16.6% in 1989. The national economy has gradually recovered after a brief decline. In the first year of the treatment, that is, in 1986, the GDP fell by 2.9%, but in the following years, it maintained a growth momentum of about 2.5%. In the same period, the debt problem was also significantly alleviated, and Bolivia went out of the serious Debt crisis.
Jeffrey Sachs achieved such amazing achievements in his first battle. The world even called it the "Miracle of Bolivia." His reputation spread naturally all over the world, because he was only 30 years old when he was in danger. In the financial world, he was only 30 years old. At his fledgling age, he was given a nickname: "Golden Boy in International Finance".
Of course, when the title of "Golden Boy" compares with the solid "Golden Triangle" of "Red Flag Capital", it seems a little bit inadequate. However, one is to formulate economic policies for the country and the other is to make money for themselves. The same drops.
After the "Miracle in Bolivia", Jeffrey. Saxophone's fame has risen, and many countries in Latin America have followed suit. They have invited this "golden boy" to make suggestions for the country's economic construction. He has become a guest of many governments such as Argentina, Bassi, Ecuador, and Venezuela. After the drastic changes in Eastern Europe, he appeared more frequently among the economic teachers of Eastern European governments who had suddenly changed their colors and were at a loss for entering the so-called "freely competitive world of finance and business."
"The theory of Jeffrey Sachs is nothing new. The reforms he promoted in Rakshasa will inevitably end in failure." When Guo Zhaode flew to San Jose to meet Tan Zhenhua and discuss the current Soviet Russia. Tan Zhenhua commented on the situation.
Then he explained: "I have seen the cases handled by Sachs. In a nutshell, the so-called "shock therapy" is actually aimed at the severely unbalanced total social supply and demand situation, starting from controlling the total social demand, and adopting strict administrative and economic measures. Means to forcefully reduce consumption and investment demand in a short period of time, so that the total social supply and demand can reach an artificial balance, so as to curb hyperinflation and restore normal economic order. This kind of policy regulation has an obvious emergency nature. In my opinion, most of the so-called success of Sachs is blown out."
"Eric, I find you are becoming less and less humble."
"Haha, Zhaode, because you have not lived in China Mainland, you will be confused by those bragging about the economic policies of Professor Sachs. Let me tell you, since the founding of the People’s Republic of China, New China has been adopting strict administrative and Economic means control the total social demand, so that the total social supply and demand can reach an artificial balance. However, the method used by New China is called "supply by ticket". Under this system, people who want to buy almost all commodities must be in the currency. It also pays for another limited-issue bill. It is precisely under this dual restriction that New China has not experienced large-scale hyperinflation for more than 40 years since the founding of the People’s Republic of China. Therefore, in our eyes, Professor Sachs’s theory is not new. Let me tell you, this kind of thing is just another form of "planned economy"."
Guo Zhaode thought about it carefully, and suddenly laughed: "It seems that this is really the case for you, but it stands to reason that the people in the former Soviet Union are also familiar with this set, why do they still welcome this so warmly? Professor Sachs and hope for his theory?"
"Because Mao Zi had only vodka in his mind, but now he has been poured into whiskey. The Americans now say that the moon is square and they will agree."
Tan Zhenhua couldn't help but spit out a big slot, and went on to say: "To achieve a balance between total supply and demand in society, not only needs to control the excessive social total demand, but more importantly, it is actually the control of currency issuance and debt. At the same time, the total supply capacity of the society is improved. In other words, it is necessary to produce as many goods as possible to meet the needs of the society. You see, Zhaode, Xinhuaxia has been canceling the ones I just mentioned in recent years. Why are the bills issued in limited quantities? Because the society has been able to produce enough goods and the supply and demand relationship is roughly balanced, these bills lose their meaning. This method is gradual and has a relatively gentle impact on the entire economic life. , People may not be aware of the disappearance of a certain bill-in my opinion, this is the correct solution. But if you look at Professor Sachs, in his plan, I only see the suppression of total social demand , But it has nothing to do with how to increase the total supply of society. It is a form of laissez-faire, so it can be done well, ha ha, I don’t believe it.

"But Zhenhua, he has achieved extraordinary success in South America, and in some countries in Eastern Europe, his suggestions have been adopted by the government. Now it seems that the economies of these countries are also showing signs of improvement. We have to admit, This professor is capable."
"Bolivia is a small country with a population of only over 10 million, and this country is extremely rich in natural resources. It is known as a "donkey sitting on a gold mine". As long as you don't mess around with the water, you can cut government expenditures and export large amounts of minerals. The simplest measures such as oil, gas, and natural gas can easily restore normal economic order, so Sachs can succeed very simply. This is completely out of luck, and I think that you are not worried about this. The ability of a professor, what you really worry about is the rubles we borrowed with high interest."