Why are prices in catching-up economies low?

In addition to comparing CPI year-on-year and month-on-month in the time dimension, prices also need to be compared in space, that is, the domestic price level and the international price level. For example, the consumption level in large cities is generally high, and the consumption level in rural areas is low. This is the distribution of prices in space.

On the surface, the difference in price levels lies in local income, etc., but more importantly, an environment with low price levels is more conducive to backward economies to quickly accumulate capital through savings. Therefore, for developing countries with a strong desire to catch up with developed economies, they will inevitably tend to control residents' income and labor surplus to complete the rapid accumulation of original capital.

We often say that development can cover up all problems, but there is no eternal development. The economy itself has cycles, and suppressed residents' income and domestic demand often break out during counter-cyclical times. At this time, if the government continues to maintain the idea of ​​​​investment to stimulate the economy, it will suffer a great loss, because the money transmission chain is too long. It is more reasonable to focus more on ensuring people's livelihood, such as improving pension and medical benefits for people outside the system, increasing the duration and amount of youth unemployment benefits, and stabilizing asset prices by using special bonds to repurchase foreclosed properties and build long-term rental housing.