Financial Crisis: Similar Solutions, Old Recipes
What would economists Hayek, Keynes and Myrdal recommend?
Alfredo Ascanio (askain)
Published 2008-10-12 11:57 (KST)
"The United States has a special role to play in the response to this crisis," President George Bush has said. "That's why I convened the meeting this morning here at the White House and that is why our government will continue to use all tools at our disposal to resolve this crisis."
The question that we do in this article is this: President Bush, Barack Obama and John McCain are following some of the ideas of important economists who for years recommended possible solutions?
Let's see the thought of three famous economists to know whether there were similar solutions to solve the crisis of 2008.
Economists Hayek, Keynes and Myrdal changed the content of the economy of their time. But what would be the recommendations of these economists in relation to the current financial crisis.
During the year 1939, Hayek said that the root cause of the crisis lay in excess of interventionism and suggested that it was better to establish a restrictive monetary policy and cancel some subsidies that were not important, to achieve a government austerity.
On the contrary, the Swedish economist Myrdal, a supporter of social democracy and state intervention, and would recommend now to avoid conflicts of classes through some Strict controls. He said that the causes of the problems are circular and cumulative, and then stabilize Automatic a crisis is impossible. The changes are cumulative and ever produce news; at least that is what history teaches us. Besides the crises are intertwined with each other, and the basics know what is the factor most relevant and less relevant.
Myrdal said that the political predilections and value judgments for a type of economy shows us that there was always that connection between ideology and economy. The public can express their preferences, but the politician has to make explicit assumptions of its value when seeking solutions to a crisis. The politician wants equal social opportunities? The politician wants a democratic form of government? The politician wants the harmony of interests or a harmony created by state intervention?
Another reflection of Myrdal is that if market forces operate freely, the expansion of a geographic place in a country produces stagnation of other places, there is a need to promote greater regional equality, stimulating the driving forces for coordination and control the forces that produce economic delays.
The crises are not solved by individuals or institutions that produced the crisis, but by the demands and pressures of those most affected, at the version of the current crisis which are located in the Main Street, as "the people is the measure of all things".
If the crisis is a problem then it is necessary to resolve it. The solutions are usually structural changes often drastic depending on the size and complexity of what has happened and the articulation of its components. Resistance to change in some institutions such as banks and the same Wall Street is a normal behavior in already established institutions.
J.M. Keynes says that capitalism has many defects to be corrected without affecting private ownership of the means of production. To this economist national income and the size of the occupation may depend on the consumption, the efficiency of capital and the interest rate, then it is necessary to monitor and encourage these variables and special the investment.
If growing income then increases consumption but not in the same proportion because people also saves. The entrepreneur is a speculator shareholder with fear of risk and then he is a cautious person. But financial advisors are the technocrats who know how to play if the stock market, these experts are the decision makers of the purchase and sale, according to the fluctuations of the stock market.
When the crisis is in banking and financial sectors then it is necessary to create demand and stimulate the system, including establishing a policy of cheap money to stimulate private investment and partly solve unemployment. They also had to encourage savings and investment of the people.
The state wrapped in a severe financial crisis has to be a big investor to promote and sustain employment, then it is necessary to reduce the interest rate to stimulate private investment, promoting public investment and nationalize companies that went bankrupt.
These actions will prolong the vitality of capitalism, saving the production regime, encouraging spending and investment. If in the future appears inflation is due to lower civilian spending and prices control in some way.
Alfredo Ascanio is a professor of economics at Simon Bolivar University in Caracas, Venezuela.