Home

Crisis Resuscitates Keynes, Central Planning

PARIS: Huge state spending to prop up economies threatened by the financial crisis contrasts with the doctrine of market forces in vogue in recent years and carries with it a resurgence of Keynesian regulation or even economic planning.

European governments have launched stimulus plans which, in the case of Germany, exceed 100bn euros ($129bn), and lawmakers in the United States are conisdering a plan worth roughly $800bn.

These programmes, particularly the proposals of US President Barack Obama, involve investment in infrastructure, research, new technologies and "green" energy, and are redolent of big public works programmes launched under the New Deal for the US economy in the 1930s.

Keynesianism also dates from that period, as a result of the lessons drawn, and theory developed, by British economist John Maynard Keynes.

His main finding was the state must act as the provider of funds, or lender of last resort, when the economic system is under severe stress, in order to avert the risk of domino failures throughout the system.

In this way, the state must stimulate and guide the economy until it recovers, when the state can recover the exceptional funding it has provided.

At the beginning of the 1930s, governments responded by doing the opposite because tax revenues were falling: they cut back on expenditure in the interest of sound public finances, thereby helping to turn downturn into slump.

The other central lessons of misjudged policies then are to avoid protectionism and competitive devaluations, which also greatly worsened economic conditions.

The head of the Bruegel Institute, a policy think tank in Brussels, Jean Pisany-Ferry, commented, "We are in a Keynesian moment." But he said that "there has not really been any change in the intellectual approach" because "the United States has always made use of budgetary policy."

He said, "It is more in Europe that there was the idea that attention had to be focused on absorbing deficits."

Since the financial crisis began, US and European authorities have also put in place schemes amounting to hundreds of billions of dollars and euros to rescue banks.

European governments have provided capital to several banks or have even nationalised some of them.

Even in the United States, the idea that the authorities should assert authority over the sector is under consideration, marking a reversal of the free-market approach given a new lease of life by President Ronald Reagan 30 years ago.

In terms of market rules and regulations, countries which took part in the G20 crisis meeting in Washington in November undertook to work for greater clarity and transparency and said they wanted to harden their line against so-called tax-havens.

The auto sector is receiving state help which, in the United States, has assumed huge proportions.

But in return, the state is putting pressure on manufacturers to speed up the development and production of vehicles with low fuel consumption and low carbon emission levels.

All this amounts to central planning, in the view of Eloi Laurent, the deputy director of the French observatory of the economic outlook (OFCE).

Pisany-Ferry said, "in the auto sector, we are seeing the return of industrial policy on a national basis, which we haven't seen since the steel plan in Europe in the 1980s."

At the French centre for prospective studies and international information (Cepii), economist Benjamin Carton said "we are going back on the period opened by Reagan," but he did not believe that there was a fundamental change in doctrine.

"It is not certain that we are seeing a long-term movement to a return of state (intervention) or regulation, beyond two to three years," he said.

"Take the example of the rescue of banks in Norway in the 1990s. The government intervened strongly and then withdrew. It is not the role of states to be bankers."

Carton said, "There will not be a change (in the type of) capitalism but there will be efforts to improve regulation. The same questions have been asked for four centuries.

"After the crisis of 1929, a guarantee for bank deposits came into being and this prevents people from withdrawing their deposits massively.

"The question is, where will the next financial crisis arise?"

Pisany-Ferry took the view that theories favouring open markets and self regulation by institutions in the financial sector had suffered scars which would last, and he worried about signs of rising protectionism, notably in the United States and Britain.

"The question hanging over governments is whether, in the face of this crisis, they can manage to hold together the factors of international integration," he said. (By VERONIQUE DUPONT/AFP)

MySinchew 2009.02.08

 

广告

Copyright © 2018 MCIL Multimedia Sdn Bhd (515740-D).
All rights reserved. Contact us : [email protected]