Recently in the world with new urgency of the discussion around the feasibility of large-scale infusion of the economy of developed countries. On the one hand, without stimulating way out of depression is not possible, on the other - it provokes inflation.
"Economic truth" is the latest publication on the subject of one of the most eminent contemporary economists Joseph Stiglitz.
Today he serves as professor of economics at Columbia University and also heads the expert committee on the reform of the international monetary and financial system, appointed President of the UN General Assembly.
As far as how the "green shoots" economic recovery, which many saw this spring, fade, started to emerge as a policy issue regarding handling of the economy through large-scale external financial incentives. Will was proved wrong models Keynesian economics after the test?
This question would be appropriate if the Keynesian model is tested again. In fact, we now need another dose of financial incentives. If we do not get, you should expect a longer period during which the economy will operate with negative indicators and high unemployment.
Obama administration looks surprised and disappointed high unemployment, which, moreover, continues to grow. This is despite the fact that there is no reason for dyvuvannya. All this was quite predictable.
The real success of the use of incentives - not the actual level of unemployment, but the fact that unemployment would be without them.
Obama administration is always clearly made it clear that she would create 3 million jobs more than would be created without their participation. The problem is that the financial crisis so badly hit by the economy, that perhaps even the huge financial incentives Obama was not enough.
But there is another problem. In 2009, planned to spend only a quarter of U.S. stimulus package - 800 billion dollars, but use of these funds, even for "ready for implementation" projects took place very slowly.
Meanwhile, U.S. states are experiencing major deficit of income that exceeds 200 billion dollars. Most states face constitutional requirements regarding the availability of a balanced budget. This means that they now have to either increase taxes or cut spending. This negative incentive, which blocks some positive incentives the federal government.
One third of all incentives includes tax cuts that, as correctly claims Keynesian economic model does not give the desired effect. While the pension savings shrinking, and the prospects for a job spectral debt-ridden citizens only partially benefited from tax cuts.
In the United States and other countries a lot of emphasis on the restoration of the banking system. Perhaps it is necessary, but not enough. Banks are not lending, and citizens will not take them, if the observed decline in the economy.
Almighty American consumer has been the engine of global growth, but probably it will continue to behave very modestly, even after restoring the banking system. So you need some incentive from the government.
Some worry about the increasing U.S. government debt. However, if the new incentives to develop properly, when the majority of funds spent on assets, the financial condition and future growth could be stronger.
Mistakenly consider only debt and thus ignore its assets. Of course, this argument against poorly designed rescue banks from the crisis like the one that was held in America. It cost American taxpayers hundreds of billions of dollars, most of them never returned.
Public debt has increased, but it was not replaced assets credited to the balance of the government. But do not confuse corporate welfare of Keynesian stimulus.
Someone else worry that such large-scale government spending will lead to inflation. However, a more urgent problem is deflation due to high unemployment and excess production capacity.
If the economy ohovtayetsya faster than I assume, the costs can be lifted. And even better if most of the next stimulus package will focus on automatic stabilizers - such as compensation for the deficit of state revenues. Then if the economy is still otyamytsya, these costs simply do not have to. There is little downside risk.
However, there are some concerns about the fact that inflation expectations could lead to higher long-term interest rates, reducing to naught the economic effect of incentives. In this case, monetary authorities should control and be ready to continue their "unconventional" intervention - as regulating short-term and long-term interest rates.
Any policy related to the risk. Failure to prepare for the second package of incentives may weaken the economy. Her promotion takes time, as evidenced by the difficulties Obama administration using reserved funds. To feel the full effect of these efforts may take six months or more.
Weaker economy means an even greater number of bankruptcies, abandoned homes and higher unemployment. Even if you reject the human suffering, which means more problems in the financial system.
And, as we have noticed a weak financial system means a weaker economy and, possibly, the need for even more unexpected costs of its rescue of another disaster. If we save money today, we spend a lot more risk in the future.
Obama administration made a mistake by using too small an incentive. Another mistake she made in the design of saving the banking system from the crisis that gave too much money with too small and limited to very favorable terms to those who led to the emergence of economic chaos.
This policy will spoil the taxpayers to spend more money.
But it is - politics. From an economic point of view, everything is clear: the world needs that all developed industrialized countries had another major round of actual use of incentive packages. This question has become one of the central topics at the next summit of the Great Twenty "in Pittsburgh.
Author: Joseph E. Stiglitz
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