“The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking,” Mr Steinbrück said.
The German Finance Minister has a good turn of the phrase and makes a good point. We have moved from a muscular capitalism of suppl side cuts to massive government intervention in a matter of months. No one is talking about supply side cuts to solve the current problem. We are now in Keynesian fiscal policy and liquidity trap solutions 24/7. Policy-makers have put their supply side leanings in a dark closest.
Yet this activism is not bad in the short run. There are no other choices on the monetary side especially during banking crisis and with interest rates approaching zero. Fiscal policy has more choices but a strong response is necessary. The policies have to be combination of short-run effects which will help consumers to longer-term capital projects; nevertheless, there is need for discussing the end game of unwinding the fiscal policy to ensure there is not structural deficit problem. The important issue is making fiscal policy counter-cyclical and not a permanent fixture of the economy.
In the short-run, I will take some crass policy-making.
Yet this activism is not bad in the short run. There are no other choices on the monetary side especially during banking crisis and with interest rates approaching zero. Fiscal policy has more choices but a strong response is necessary. The policies have to be combination of short-run effects which will help consumers to longer-term capital projects; nevertheless, there is need for discussing the end game of unwinding the fiscal policy to ensure there is not structural deficit problem. The important issue is making fiscal policy counter-cyclical and not a permanent fixture of the economy.
In the short-run, I will take some crass policy-making.
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