Economy needs to break from its past

The financial crisis is teaching us that the nation's long-held growth patterns could make its financial system very vulnerable. Economic growth that mainly depends on investments and exports could cause insufficient domestic demand, exorbitant savings and investments rates. This in turn will trigger a surplus liquidity, asset bubbles and even inflation.

So what tactics should the government adopt to overcome an economic crisis? Generally, fiscal and monetary policies in place now are adequate remedies. To expand demand through relief and take government credit as a substitute for vanished market credit is indeed a short-term solution, but it's not sustainable. It actually might lead to an outbreak of a second crisis because the market has been braced by large amounts of currency issued by the authorities and more virtual wealth has accumulated in the financial system.

Capital and natural resources (land) have been the main production elements fueling our economic growth in the past. Well, now it should turn to employment and human capital. Under the current system, the total social income are mainly allocated to owners of capital and land, namely governments at various levels - which are the de facto holders of land and the major holders of capital - as well as the rich, who invest heavily to make a profit. But domestic consumption could be boosted mainly by laborers and professionals, which means the government should increase the demand for professionals.