舊文新讀 | “理性預(yù)期失靈”：立論、邏輯梳理及其“供給管理”矯正路徑

（本文發(fā)表于《財(cái)政研究》2014年第10期，英文版本附后）

（英文版發(fā)表于 International Business Research-Vol. 13, No. 1-Jan 2020）

Failureof the Rational Expectation: Argumentation, Logic and Suggestions onSupply-Side Management

Jia Kang1, Feng Qiaobin2, SuJingchun3

Abstract:Rational expectation isknown as the sixth revolution in economics. Based on a brief review of rationalexpectation, this paper puts forward the proposition of failure of rationalexpectation. The so-called failure of rational expectation means that when themarket entity predicts future events, it is impossible to form a completelyaccurate expectation and then adjust its actions accordingly due to incompleteinformation and other reasons. On the contrary, due to various irrationalfactors, the actions of the market entities based on individual rationsometimes may be mad and loss of control, producing devastating effects on theeconomic system. This paper expounds the concept and formation mechanism of thefailure of rational expectation, and conducts a preliminary empirical analysison this in combination with China’s economic practice. On this basis, itproposes that rational supply management, which the government can play a rolein, should be combined to correct the failure of rational expectation andrealize the dynamic balance and stability of the economic system.

Keywords: failure of the rational expectation, supply management, lemon market,animal spirit

1. Introduction

The rational expectation iscalled the sixth revolution in economics, and its representative Robert E.Lucas was the winner of 1995 Nobel Prize in Economics. Since the 1970s, therational expectation, as a major amendment to Keynesianism, has been regardedas one of the theoretical sources of long-term liberalism in major European andAmerican countries. However, after the global financial crisis in 2008, thetheory of free market, including rational expectation, is seriously questionedat the practical level. In economics, this indicates that the time window ofsome major theoretical innovations and breakthroughs has emerged. In China, onone hand, since the reform and opening up, the Chinese economy, which hasobvious characteristics of government orientation, has experienced rapid growthfor more than 30 years. The mainstream economic theory is weak in explanation thisphenomenon. On the other hand, after years of stimulus policies, the Chineseeconomy has stepped into some kind of high growth trap, and the expectations offuture optimism (including overly optimistic factors) are turning in theopposite direction. The international and domestic realities present signs andevidences of various challenges for rational expectations. We believe that thediscussion from the rational expectation to the failure of rational expectationis the essential of economic theory innovation, and it is enlightening at thepolicy level. This paper attempts to make efforts in this regard.

2. A Brief Review onRational Expectations

The rational expectationsemerged in the early 1960s. At that time, the western countries had alreadyfelt the pressure of stagflation, and Keynesianism faced unprecedentedmartyrdom. In 1961, John F. Muth published an article entitled Theory ofRational Expectation and Price Fluctuation in the American Journal ofEconometrics, which first proposed the concept of rational expectations. In theearly 1970s, Robert E. Lucas in the University of Chicago, Thomas J. Sargent inStanford University, and Robert Barro in Harvard University, etc. made a majordevelopment, forming the rational expectations and the school of rationalexpectations.

The so-called rationalexpectation refers to people’s well-founded predictions about future events,and the so-called basis, in addition to psychological intuition and experience,more importantly, refers to the support of economic theory. The assumptions areas follows. First, prices and wages are sufficiently flexible in marketcompetition. Second, the people make full use of all available information tomake decisions. Thirdly, the expectation that is emphasized by neo-classical macroeconomicsis the expectation without systematic prediction of errors, which can be calledunbiased expectations, that is, rational expectations.[1]In terms of the policy, the school believes that if there is a rationalexpectation, then the government’s economic policy is ineffective. According tothe inference of relevant policy, it is precisely the rational expectations ofthe market players and their corresponding behavior adjustment that resolve allthe policy intentions of the government to manage the macro economy. On thecontrary, the economic macro regulation and management measures of thegovernment in a short-term vision advocated by Keynesianism are ineffective inthe overall and long-term. Compared with the short-term economic policiesselection based on various opportunities, what the government should do is toformulate long-term policy rules with consistency to reasonably guide people’srational expectations.

The rational expectation hasimportant theoretical enlightenment value, and is even called the sixthrevolution in the history of economic development. It has two maincontributions. The first is to build modern economics on the basis ofinformation theory, thus making macro and micro economy opened and connected ina specific sense. The second is to introduce the expectation into the economicprediction model and make it measurable and calculable. Both of these areconsidered to be important advances and achievements in economics. At thepractical level, the rational expectations also had a major impact. During theperiod of more than a few decades, the rational expectation had been regardedas the source of living water in the western countries in pursuit ofneo-classical liberal economic thoughts, and supported the popularity of theeconomic concept of new liberty in the next few decades from the fundamentaltheoretical logic.

Despite such brilliantachievements, criticism on the rational expectations has always existed. Inshort, the first is three impossible. One of the prerequisites of rationalexpectation that people can make reasonable predictions is completeinformation, which is impossible in real life. The second prerequisite ofrational expectation that people can make reasonable predictions is thehomogeneous distribution of economic forecasting knowledge, which is alsoimpossible. In addition, the rational expectation is based on the premise ofcomplete market competition and automatic market clearing, and in many cases,this is impossible. Second, at the application level, the rational expectationrecognizes the risks but rejects uncertainties, focuses on long-term instead ofshort-term and advocates government inaction, etc., which actually denies therole of government policy and has little guidance for the optimization of governmentpolicies that cannot be avoided in the complicated practical world.

3. Argumentation on Failure of Rational Expectation:Hypothesis, Path and Mechanism Analysis

It should be acknowledgedthat the rational expectation has a certain milestone for the development ofeconomics, and has a major impact on both theory and practices. However, whenit is connected with practice and used to guide practice, we can easily findthat it is difficult for rational expectations under many assumptions toresponse sufficiently and verify in real life. Under the circumstances ofincomplete competition, inflexible prices and wages and the limitations ofinformation asymmetry, we must make decisions. Thus, a related proposition thatneeds to be discussed and recognized logically is the failure of rationalexpectation. In the process of reinterpreting reverse selection, incompleteinformation and animal spirit, it is not difficult to outline a clear logicalclue of failure of rational expectations following the research sequence ofGeorge A. Akerlof, Michael Rothschild, Joseph E. Stiglitz, Sanford J. Grossman,and Robert J. Shiller, etc. with relevant thinking on game theory.

3.1 The Concept of Failure of Rational Expectation

We believe that it isnecessary to clearly put forward and discuss in depth the failure of rationalexpectations. The so-called failure of rational expectations means that whenpredicting the future events, due to the effects of incomplete competition,incomplete information and incomplete rationality, the market player cannotmake completely accurate expectations and then adjust their actionsaccordingly, which has a significant correlation and influence on theoptimization of government economic management policies. This proposition ismainly based on the following three theoretical assumptions.

First, the assumption ofincomplete competition. The assumption of complete competition has greatsignificance for us to understand why the market can play a decisive role inthe optimization of resource allocation. However, in the human society, eventhough the market economy has developed to the current state, the real case isstill incomplete competition, even for the most developed and mature economythat admires the government inaction the most. Among them, the competitionfactors can be divided into administrative monopoly factors from the governmentbody and oligopoly factors from the development of the market itself. Fordifferent countries and different stages, the formation reasons and combinationstatus of these monopoly factors are different. Although this brings complexityfor the analytical framework and analytical methods under the assumption ofincomplete competition, we believe that from the original meaning of theoriesclosely related to reality, it is essential for us to research the challengesof complexity, which will make unique cognitive contributions.

Second, the assumption ofincomplete information. The incomplete nature of the information in the realworld mainly comes from three aspects. First, information collection is costly,and people cannot pay indefinitely, thus it is often difficult to obtaincomplete information. Second, the people’s ability to process information islimited, different and non-homogeneous. It is impossible for everyone toprocess the relevant information to the same extent. Especially in a broadsense, knowledge, economic theory, and economic model are also kind ofinformation. For market entities, such information is incomplete, and economicknowledge and models can not be evenly distributed among all market entities.The extent to which different individuals master relevant theories andcognitive laws is extremely significant. Third, even economists who have beentrained for a long time have to face a vast and unknown world in informationprocessing. In most cases, economists themselves do not know the true economicmodel and have great controversies over the understanding of the same thing.

Third, the assumption ofincomplete rationality. The major crises that have occurred many times ineconomic history have repeatedly shown that what driving people to take anaction is not only rational motivation based on prudent cost-benefitcalculation, but also various irrational motives of animal spirits, such asfear, optimism, herd, illusion, etc., which is another type of motivation thatdrives people to act. In most cases, people are rational, and the results ofeconomic activities are generally predictable, but in the case of a fewincidents with significant consequences, both irrationality and rationalityinfluence our actions. Even at specific stages, the irrationality plays aleading role, for example, the social disorder brought by the bubble and thebursting of the bubble, which is represented by the crazy tulip (in theNetherlands hundreds of years ago) and crazy clivia (in China after the reformand opening up).

3.2 The Mechanism of Failure of the RationalExpectations

The mechanism of failure ofrational expectations can be divided into three levels under the premise ofincomplete competition. First, there is some kind of factors triggeringfailure, which can be called the first factor. Second, after being triggered,the system has two kinds of reactions, one is transmission, the other isinteraction, and complex reactions occur between various subjects in thesystem, which can be called the second stage or intermediate process. Third,for the results, the output of the system after the reaction is significantlymagnified and multiplied, which have a significant impact. We will discuss thisin detail in the following.

Economic theory hasrelatively and fully elaborated the impact of incomplete information on thefailure of rational expectations. In the 1970s, economics ushered in arevolution around the assumption of loosing complete information. The resultwas that information economics officially became a branch of economics, whichindicated that people have fully accepted the new economic assumption ofincomplete information. In addition, incomplete information is also reflectedin the economic models used by countries for macroeconomic management. SinceJan Tinbergen created an econometric model for the Dutch economy in 1936 and aneconomic model containing 48 equations for the United States in 1938, it hasbeen the main tasks for the national macro administrations in various countriesto predict the future economic trends with models and adjust policiesaccordingly. Over the past half century, economic models have become more andmore complicated. For example, the econometric model system of the UnitedNations includes thousands of equations, which are connected to the econometricmodel of every major country in the world, running day and night to help peopleobtain information about the global economy. Even so, in 2008, there was aglobal financial crisis that was not predicted by the model (and, shortlybefore the crisis, the model gave optimistic predictions).[2]This shows that even in today’s highly developed information technologyand knowledge explosion, even well-trained first-class economists, even withworld-class computers and the most complicated economic models, the expertsstill have many unknown, chaotic and misjudgment for the real world and futurescenarios, not to mention thousands of individuals who rely mainly on intuitionand experience.

Compared with abundantdiscussion on incomplete information, there has been almost blank in thediscussion on incomplete rationality or irrational factors. It was not until2000 that the book Irrational Exuberance published by Robert J. Shillerintroduced the irrational factors into the economics officially. In theeconomic sense, the more direct expression of irrationality is animal spiritthat is put forward by Keynes the earliest, who only describes the phenomena. Shillerstudied the source of the term animal spirit. According to him, the termoriginated in ancient Greece, and the philosopher George Santayana constructeda philosophical system focusing on the animal belief. He defined the animalbelief as a pure, absolute spirit and a cognitive energy that could not beperceived, the nature of which was intuition. But the animal spirit inShiller’s work is of great economic significance: “In modern economics, animalspirit... refers to the elements that lead to economic turmoil and volatility.It is used to describe the relationship between humans and ambiguity oruncertainty.”① According to Shiller’sinsights, animal spirits are mainly manifested in five aspects: confidence andits multipliers, fairness, corruption and fraud, currency illusion, and others’success story. Greenspan summarizes the animal spirits that have had a majorimpact on macroeconomic operations in the following areas: fear and fanaticism,time preference, herd behavior, dependence, interaction, family orientation,competition, values, optimism tendency, the tendency to cherish the loved ones,self-interest and self-esteem, and so on.②

The trigger of the firstfactor is mostly accidental, but it will transfer the distorted information anddistorted emotions, etc. between economic individuals in reality like thefalling of “dominoes” gradually to backward from 1, 2, 3 … to n-1, n, thusaffecting more and more subjects (as shown in Figure 1).

Figure 1. The Transmission after the AccidentalTriggering of the First Factor

At the same time oftransmission, all the objects are easy to interact with each other, and thewhole system is stirred in a complicated and irregular way. Compared with thebeginning, the system often presents an unimaginable amplification effect,which is shown in Figure 2.

Figure 2. Interaction Between Objects

The process of failure ofrational expectations described above is often seen in other disciplines, suchas the herd and the effect of sheep flock in psychology, infectious diseasemodels in epidemiology, and even positive feedback and oscillation circuits inphysics. In economics, the principle of multiplier in Keynesian theory canbetter describe the above. The so-called multiplier refers to the multiple ofthe change of one variable caused by the change of another variable due to thechain reaction. According to its application in different fields, there aredifferent multipliers, such as investment multiplier, fiscal expendituremultiplier, currency multiplier and foreign trade multiplier, and evenincentive multiplier and management multiplier. The failure of the rationalexpectations and its occurrence and amplification mechanism described in thispaper can also be called the irrational expectation multiplier.

It must be pointed out thatcompared to the investment multiplier, tax multiplier, etc. that can be modeledand relatively and accurately measured, the factors resulting in the failure ofrational expectations are mainly certain psychological or emotional state thatcannot be measured and calculated in the existing economic analysis or modeledin quantitative. But this does not affect our preliminary summary of what wecan do at the observation level, and we must not ignore its existence. How tobreak the doctrine of immeasurable irrationality that many economists have longbelieved in, and to incorporate the behaviors that may have a significantimpact on the economic system resulted in by various irrational factors intothe economic model and quantify will be an important direction in the field ofeconomic quantitative research in the future. As Greenspan pointed out,“repeated observations show that many animal-based behaviors are alsopredictable and quantifiable... Economics needs to create new economic modelsthat must include human’s irrational factors”.[3]However, it is still necessary to make long-term efforts to achieverelatively mature results in this direction.

4. Investigation on the Phenomenon of Failure ofTheoretical Expectation

4.1 Lemon Market and Adverse Selection Caused byIncomplete Information

The so-called lemon market[4],in fact, is the defective market, also known as Akerlof model market (in 1970,the economist George Akerlof put forward this expression in his paper. The wordlemon means defective or useless things in American slang.) Relying on theeasy-to-understand second-hand car market, the cognition of the lemon marketillustrates the logic that the quality of the goods is not always guaranteedand there are often uncertainties to a large extent. Obviously, the sellershave more information than buyers, and the information between them isasymmetric. These lead to the so-called reverse choice, that is, the goods aredecided by the supplier instead of the buyer to be sold or not. Consequently,in the lemon market, there is phenomenon similar to “bad money driving out goodmoney” in Gresham’s Law. Thus, the low quality goods flood the market, highquality products are expelled from the market, and finally result in thedecline in product quality and the shrinkage in the market. The reverse choicecaused by uncertain product quality and asymmetric information between thebuyer and the seller can be the first logic observed in the failure of therational expectations.

4.2 Incomplete Information Market andGrossman-Stiglitz Paradox

On the basis of the lemonmarket, the research on the incomplete information market goes through twostages, which together constitutes the observation aspect of the logic offailure of the rational expectations.

Stiglitz et al. studied theequilibrium problem of competitive markets under incomplete information. Thereare three classic conclusions: “In the incomplete information market,competitors with complete information may limit the number of productspurchased by the consumers, this is not out of intention to establish amonopoly, but only to improve their information status; equilibrium may notexist; competitive equilibrium is not Pareto optimal.”[5]It can be seen that in the incomplete information market, even under theassumption of rational expectations, rational people can not first obtaincomplete information and make rational choices. Secondly, they are influencedby the choices made by rational people with complete information, that is, thestatic or dynamic games under the incomplete information, thus resulting ingreater deviations from rational choices under the assumptions of completeinformation and rational expectations. Taking China’s real estate market in thepast 20 years as an example, if the micro-subjects in the market were simplydivided into high-risk preference consumers and low-risk preference consumers,then 20 years ago, high-risk preference consumers would invest in real estatewhile low risk preference consumers would choose to live on their own. Underthese two different preferences, there was a game between the behavior of thehigh risk consumers and that of the low risk consumers, and the preference ofthe high risk consumers would directly affects the behavior choice of the lowrisk consumers. For example, if the risk preference value of the high riskseeker is A, and the price of the property determined by A is P, then when Abecomes smaller, P will drop to the price that is more acceptable to the lowrisk seeker, thus encouraging the low risk taker to buy a house and changetheir decision of not buying a house because of risk avoidance. Although thehigh risk seeker and the low risk taker reach their own Nash equilibrium in thegame at that time, the Pareto optimality is not achieved. Under the influenceof incomplete information, with the rising of real estate prices, there will behuge gap of wealth between the high risk seeker and low risk taker.

Through the introduction ofprice analysis, the flow of information in the incomplete information market isstudied. The study concludes that prices do not fully reflect all availableinformation, especially the information of information owners, and based onthis, the Grossman-Stiglitz paradox is proposed. If the equilibrium price fullyreveals private information, then because of the motive of free rider, everyuninformed person is not willing to pay the cost to become a person withinformation, let alone the price mechanism of information. This paradoxstrongly refutes the idea of the efficient market hypothesis that individualscannot rely on collecting information to obtain excess returns. Since thechoice of the information owner will be better than the choice made by theuninformed person, the uninformed person will choose to become the informationowner. In this process, rational people can’t get complete information firstand then make rational choices. Secondly, they are influenced by the choicesmade by the rational people with complete information, their own rationalchoice from without information to with information and the impact of the costof obtaining information on their own behavioral choices.

4.3 Irrational Behaviors such as Animal Spirit

Different from the focus ofthe debate on complete information in the 1970s, after the global financialtsunami triggered by US subprime mortgage crisis in 2008, the wave of variousrestoration and development initiated by the economic theory circle also turnedtheir focus to rational assumption, which is represented by Akerlof’s animalspirits. In addition to the animal spirit, the effect of sheep flock, thetheory of reflexivity and the Paradox of Wang Qin that we have noticed alsoreveal the irrationality in economic behavior and become another observationalaspect of the logic of failure of the rational expectations. The so-calledeffect of sheep flock[6]was first part of the research category of animal behavior and psychology, andthen included in the research of psychology or management psychology, and laterused in microeconomics to analyze the behavioral characteristics of microscopicsubjects, also known as the herding effect. It means that microscopic subjectsare often influenced by the majority, and follow the public’s thoughts or actions,which directly affect the consumer preferences and influence the behaviorselection of price preferences in the theory of supply and demand[7],thus deviating from the rational assumption of microscopic subject. Theso-called theory of reflexivity[8]means that the investors anticipate trends based on market information theyhave mastered and act accordingly. At the same time, the actions of investorswill in turn influence and change the possible trend of the market, and thismutual influence will continue, so that no one can ever grasp the completeinformation and make a rational choice. Similar to the logic of theory ofreflexivity proposed by Soros, Wang Qing proposed the Paradox of Wang Qing[9]based on a more macro perspective. It is believed that people are moreoptimistic about the future economic development expectations and form a highdegree of consensus. The more they discount the forward income to the currentcapital market, the more unlikely it is to realize the expectation.

5. Corrective Path to Failure of the RationalExpectations

Basedon the above analysis, combined with China’s practice, in order to achieve thegoal of correcting failure of the rational expectations, it is far from enoughto rely solely on the demand side of monetary policy and aggregate adjustment.It is necessary to attach importance to rational supply management in China'smacroeconomic regulation and control. To implement the policies, it can beconsidered from the following four aspects.

First, implement the conceptof scientific development. Rational supply management should first formulatethe outline and promote the overall coordination under the guidance ofscientific development in the broad coverage. The development pursued by thescientific outlook on development is comprehensive, coordinated andsustainable, emphasizing the holistic and balanced development, focusing on thesustainability of the combination of current development and long-termdevelopment. The concepts, the direction of guidance and the goals required byscientific development are in fact more targeted at the structural aspects ofthe national economy that are uncoordinated, unbalanced, and “one leg is shortand the other leg is short”, far from being achieved by single regulatory requirementand the total amount of regulation. Therefore, the implementation of thescientific outlook on development will require macroeconomic regulation andcontrol to exert force from the supply side, optimize the structure throughrational supply management, promote coordination and balance, and promotescientific development. Overall coordination is an important scientific andideological method and working method for handling major relationships. It isalso the fundamental method for implementing the scientific outlook ondevelopment. At the level of economic development, it mainly covers fiveaspects of urban and rural development, regional development, economic andsocial development, harmonious development of people and nature, domesticdevelopment and opening up to the outside world, as well as the coordination ofvarious interests. To achieve overall coordination, it is particularlynecessary to rely on scientific, innovative, and multi-faceted institutionalsupply under rational supply management. Despite the existence of failure ofthe rational expectations, the mainstream of economic development and futuredevelopment trends of an economy are still expected to follow the main line ofrationality, but it is necessary to inhibit the irrationality. The essence ofcorrecting and resolving the failure of the rational expectations by China’smacroeconomic rational supply management is to promote the structuraloptimization of Chinese economy in an active and forward-looking way, to createan upgraded version of Chinese economy, and to focus on the improvement of thequality of economic development while focusing on the scale of economicdevelopment so as to catch up with and surpass the first comers in themodernization process and realize the Chinese Dream of the people’s betterlife.

Second, adjust the lemonmarket. In combination with the financing difficulties of Chinese SMEs and thedifficulty of employment of college students, we should strengthen the relevantinstitutional supply. The mitigation measures are as follows. First, it canprovide useful independent third-party support for financing evaluation of SMEsbased on principal-agent theory, for example, when SMEs use intangible assetssuch as intellectual property to mortgage or pledge loans, the third-party bodycan issue a persuasive proof for its financing or guarantee. Secondly, itshould make full use of the network platform to strengthen the channels ofinformation exchange and signal transmission on the basis of real andeffective, and alleviate the degree of information asymmetry. Thirdly, for thecollege students blindly labeling themselves to walk out of the lemon range,consideration should be given to incorporate valid information such as studenttranscripts and social activity records, etc. into the scope of considerationby employers, and optimize the competitive interview system to utilize andoptimize the existing human resources. Considering at the level of correction,the following measures should be taken. First, effectively transform governmentfunctions to create a sound environment for the branding, growth and chainoperation of SMEs, and pay attention to supervising and guiding industrydevelopment norms, and establishing a sound licensing system. Second,vigorously promote education reform, adjust the structure of higher educationbased on market demand, focus on improving the quality of higher education,reduce the number of lemon in the college student labor market, and get rid ofthe restriction of lemon market.

Third, rationalize the pricemechanism. In the incomplete information market, the logical path ofcompetition will be more complicated, the behavioral choice of micro-subjectsis more diversified than that under the theory of rational expectations, andthe price system, which is used as a means of transmitting information toachieve Pareto optimality of resource allocation, has not been straightened outin many details in practical uncompetitive market, let alone the situation thatthe price system cannot fully reflect the information. Based on this, we mustfirst focus on rationalizing the price mechanism to allow information to betransmitted smoothly. On this basis, competitive markets under incompleteinformation often fail to achieve Pareto optimality and have a negative impacton the increasing gap between the rich and the poor as described above.Therefore, the system construction and policy means should focus on clearingsignal channels, strengthen the exchange and sharing of information, establishan effective information platform, and minimize the distortion of behaviorcaused by information asymmetry.

Fourth, hedging the animalspirit. The countermeasures to correct and resolve the irrational behaviorscaused by the animal spirit, the effect of sheep flock and the Paradox of WangQing, etc. can be summarized into the following eight-word policies at fourlevels. First, scientific development and overall coordination. Under thebackground of scientific development and overall coordination and therestriction of related mechanisms, the virtual economic speculations generatedby confidence and confidence multipliers can be reduced with the optimizationand adjustment of the national economic structure. Mechanism fairness andpsychological fairness can be improved steadily through interaction andsupplement. Reduce the risk brought by the currency illusion, and solve theproblem of unsettled mechanism remaining in the process of rapid economicgrowth. Clearly understand our own stage of economic development and adhere tothe economic development strategy of the same line. Second, structureoptimization, upgrading and improvement. Although dominated by the animalspirit, the operation of the national economy is first and foremost based onthe rational expectations of information response to the macro-economy. Inother words, the economic development level and future development trend of aneconomy are still expected to follow the rational main line, but it should bemore proactive, positive and forward-looking to promote the structuraloptimization of Chinese economy and create an upgraded version of Chineseeconomy. While focusing on the scale of economic development, we should paymore attention to improving the quality of economic development. Third,institutional supply and mechanism innovation. To correct and resolve theanimal spirit, special emphasis should be placed on strengthening institutionalsupply and promoting institutional innovation, that is, releasing the reformdividends. This can effectively guide the public’s confidence and rationalizethe confidence multiplier, solve the problem of institutional fairness andpsychological fairness to a large extent, especially help straighten out theoriginal mechanism and reduce the loophole type of fraud. By providing real andeffective real-time information when necessary, help the public to reduce theirrational factors such as currency illusion to a certain extent. Fourth, theadvantage of the latecomer and the strategy of catch-up. Rational supplymanagement should pay special attention to grasping the development strategy ofthe national economy, and fully recognize the necessity and importance of therelative latecomer catching up with and surpassing the relative forerunner inthe modernization stage as well as the basic realization premise offeasibility. Give full play to the late-developing advantages of developingeconomies, and firmly grasp the center of economic construction all the time.Combine China’s ongoing three-step modernization strategy, develop conservativelyand unusually, and continue to implement economic catch-up in a firm andpragmatic manner.

1Chinese Academy of Fiscal Science, the Ministry of Finance, P.R.C., ChiefEconomist in China Academy of New Supply-side Economics, Beijing, China

2Department of Macroeconomic Research of the Development Research Center of theState Council of the People’s Republic of China, Beijing, China

3Chinese Academy of Fiscal Science, the Ministry of Finance, P.R.C., Beijing,China

Correspondence:Jia Kang, Chinese Academy of Fiscal Science, the Ministry of Finance, P.R.C.,China Academy of New Supply-side Economics, Beijing, 100142, China.

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[2] “In September 2008... the macroeconomicmodel suffered a complete failure when we needed it the most. In fact, thegovernment organizations and the private sector, such as the Federal Reserve,the International Monetary Fund, and JP Morgan Chase, etc. all releasedoptimistic economic forecasts.” [The United States] Alan Greenspan. The Age ofTurbulence, CITIC Publishing House, 2014, p.6.

[3] [The United States] Alan Greenspan. TheAge of Turbulence, CITIC Publishing House, 2014 edition.

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[6] Wilfred Trotter. Instincts of the Herdin Peace and War, 1916.

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[9] Definition of the “Paradox of WangQing”, China Business News, July 29, 2013.