Bringing Macroeconomics Back to Common Sense

A Review of Professor Xie Zuoshi’s A New Treatise on Macroeconomics

— by Weihua Yu on 1 December 2021

It has been some time since Professor Xie Zuoshi sent me his new book, A New Treatise on Macroeconomics. I have read it carefully once and often reflect on his views while taking walks. Having given some of the book’s ideas careful thought on several occasions, the time has come to write a review.

Professor Xie Zuoshi is a prominent figure in China. His fame is polarized, receiving deep admiration from his supporters and relentless criticism from his belitters. I count myself among admirers of his thoughts. I particularly favor the purity of his price theory and the clarity of his arguments which cut to the heart of the matter. That said, despite our similar academic philosophies, we diverge significantly on specific issues such as monopoly and property taxes. Such disagreements, however, diminish little of my respect for him. I find the prevailing culture of personal attacks on WeChat and Weibo deeply troubling. Differences in perspective are entirely normal; it is only by seeking common ground while respecting divergence that we can better understand the world — for we are all, in the end, blind men discovering an elephant by touch¹⁾.

The focus of Professor Xie’s research is widely recognized as the principles of microeconomics—the price theory. Most of his controversies arise from his interpretations of real-world microeconomic phenomena, after all. So when I learned he had published a macroeconomics textbook, including money theory, my first reaction was skepticism. In an era of ever-narrowing academic specialization, mastering even a single sub-field is a formidable challenge, let alone bridging two major fields. Yet upon reading it, I discovered that despite its introductory presentation, nearly every chapter offers a fresh perspective, fully living up to the new in its title. Where does this novelty come from? I believe it flows directly from Professor Xie's years of deep engagement with the foundations of price theory. That profound expertise allows him to spot conceptual traps embedded in conventional macroeconomics, and this, in turn, gives rise of his new theories.

Claiming novelty can be easy itself. Just recently, I re-posted an example of such striking innovation in economics: a man named Ouyang XX²⁾ published a book titled Farewell, Western XXX, which received endorsement from a research institute director at a university and a major newspaper. It is impressive by any measure. Yet on closer inspection, it was little more than the work of an uninformed amateur. I fail to see the point of such a pompous, baseless innovations, other than to waste social resources.

True innovation demands a logically consistent theoretical framework that holds up against real-world evidence. I have long told my students that economics—price theory in particular—is among the finest disciplines for training rigorous logical thinking. Professor Xie's sustained immersion in price theory has convinced me beyond doubt that logics in his work is coherent and consistent. This lends theoretical significance to Professor Xie Zuoshi’s innovation and positions them as a credible challenge to mainstream macroeconomics on empirical grounds. That is where the meaning of new lies in the book A New Treatise of Macroeconomics.

As Professor Xie himself acknowledges, his macroeconomics is not truly new—nor should it be. I agree entirely. The problem is that much of today's mainstream macroeconomics has drifted so far from common sense—from price theory—that errors have proliferated. A telling example is the familiar three-horse carriage theory that consumption, investment, and net exports are the three engines of economic growth. In fact, both consumption and net exports are drags on growth, not drivers of it. Yet, this fallacy has persisted for so long that it is regrettably seen as common sense. This is nothing short of a tragedy for the disciplines of macroeconomics. Professor Xie's new treatise is to clear away errors of such and return macroeconomics to the genuine common sense of economics.

I will reserve a fuller discussion of the book's content for a separate piece. For now, this brief, hastily written review will have to suffice as an expression of gratitude to Professor Xie Zuoshi for his gift of this book.

Weihua Yu, Professor at Jinhe Economic Research Center, Xi'an Jiaotong University, Ph.D. Advisor. Specialized in Econometric History, Industrial Organization and Energy Economics.