Reload of the economy as a salvation

How to save Europe from the default?

In brief: A new wave of crisis may engulf the whole of Europe. The Old World is not ready for the new economic problems and defaults.

Global economy is really collapsed … The world can still be saved. Keynesian economic theory is preparing for the last parade. Stimulating the financial package approved last year, the Obama administration, crumbling before our eyes under the pressure of those countries from the Big Twenty, who themselves have it confirmed a year ago. Now that the background of the sovereign credit crisis develops, we need to abandon the short-term thinking in favor of long-term investment, without which no sustainable recovery.

Keynesian stimulus based on four questionable assumptions: that they need to prevent global recession, that short-term financial growth will move the economy off the ground, that are ready to implement its projects can be woven into short-and long-term agenda, and that the rapid growth of public debt as a result of stimulation does not should cause concern. The popularity of these ideas must ensure that the politicians for a long time attracted a tax cut and spending increases. In fact, all this talk about the Great Depression in the past year were idle chatter: the policy just started to panic. Resourceful experts from central banks to stave off a recession. Scratch stimulus packages have been a relic of naive Keynesianism. Of great importance is the fact that the United States, United Kingdom, Ireland, Spain, Greece and other countries for decades lived on credit, so the decline in consumption in 2007 was an anomaly, which must be fought, but a simple adjustment.

Counter-cyclical spending are crucial in social terms. But such incentives, as a temporary tax cut for households and programs to replace old cars were nothing more than a waste of scarce resources. They were based on the hope that the interim financial “bridge” will lead us to greater consumption and recovery of the housing sector. This is a very questionable assumption, given that the old “normal” times differed financial instability. There have and will have conversations about the meaning of “environmentally clean” recovery in which the lower consumer spending will be offset by investments in renewable energy. However, the policy quickly dropped him off, stressing that the need to prepare for implementation of projects. Switching to renewable sources of energy – it is extremely important, but long-term issue. No one says that it can be solved quickly. But the finished projects in the U.S. either. Along with the presidency Barack Obama has inherited the largest budget deficit in the history of America in the postwar period. By increasing it even more, he made it his own. He and his advisers have forgotten about one of the cardinal rules of modern macroeconomics: the result of monetary policy depends not only on operating costs and taxes, but also on their future trajectory.

The U.S. did not have enough public trust to “temporarily” raise the already huge deficit, because the prospects for future debt reduction remain obscure. America can not achieve unanimity about how to restore the balance of the budget. The country is torn by the contradictions between the state, which makes too little investment, and society, which is almost maniacally afraid of raising taxes. It is impossible to build a reliable long-term financial policy, as he walked in the wrong direction, namely, increasing deficits instead of reducing them. So now we wait weak demand in the U.S. and Europe, growing budget deficits, the downgrade of debt and the reluctance of consumers to borrow. The authorities are struggling to restore confidence to the market with hard to reduce costs. This is wrong. Simple savings after unpretentious incentives last year – is not an option. Here are some suggestions.

First, governments need to plan a budget for five years, and the strategy for economic transformation – to ten. To begin reducing the deficit should be right now, by 2015 to achieve acceptable correlation between the level of debt and GDP. Secondly, the authorities need to explain to society that in a short term economy are unlikely to create high-quality jobs. They are the result of quality education, advanced technology, reliable infrastructure and affordable cost of private capital, in other words, require a sustained public and private investment. The State should actively promote higher education. Thirdly, of course, can not do without a reliable system of social welfare: financial support for the poor, universal access to education and health, a large number of training courses and promotion of higher education. Fourth, governments should run their economies to long-term structural change. Countries with external deficits, such as the U.S. and UK in the next few years should focus on export development, while all the nations of the world – in developing renewable energy and infrastructure development. Fifthly, the state and society must insist that the rich pay a luxury tax. Pedigree redistribution of wealth the past 25 years has transformed the economy into a playground for the fat cats. Both the left and right-wing politicians in the U.S. and Britain wags his tail in front of those who pay their election campaign in exchange for lower taxes. But with such playgrounds, sandboxes sit where billionaires, need to take charge.

In general, we need to restart the macroeconomy. If you do not get rid of the economic illusions, a miracle will happen. In reforming the economy a key word should be “investment” rather than “encouragement”.

Ukrainian Globalist
2010-06-15 20:04, Economics.

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