Will it be like the 1930s?

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28 Οκτ 2013 (πριν από 3 χρόνια και 9 μήνες)

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The future of the global economy:

A symposium on the financial crisis and its

consequences for growth and prosperity



Summary



Lars Jonung, Lund

My approach:


Will the
crisis

of today

(the Great Recession)

be like the
crisis

of the 1930s

(the Great Depression)?


New
theories

and new
policies
?

A
defining

moment?



The Great Depression of the 1930s


Major
impact

on
economic

activity


thus

on:


1. Economics as a science


(
macroeconomics



Erik Lindahl)

(Keynes


the Stockholm School
-

the
Austrians
)


2. Economic
policies



thus

on institutions for
framing

economic

policies


3. Society at
large


(Hitler, WW II
-


big

government
, New Deal, keynesianism,
the
welfare

state
)




Will it be like the 1930s?



A
crisis

for the
economics

profession
currently


1.
Why

did

you not
warn

us
?

(the
Queen’s

question
)


2.
What

is
wrong

with
prevailing

economic

theories
?

(the dark age
of

macroeconomics

-

Paul
Krugman
)


3. Who is to
blame

for the
crisis
?

( At
least

38
suspects



including

main

stream

macroeconomics

and
finance
)




An Agenda for Reforming Economic
Theory

Joseph E.
Stiglitz


Economics is in a sorry state of affairs. Most of the economics
profession failed to predict the most important economic event
to occur in the history of modern “scientific” economics. If
economics is a science, it is presumably to be judged by its ability
to predict. It has, by and large, failed that test.


Worse still, the standard paradigm gave rise to a set of policy
prescriptions that also have failed miserably.

Will it be like the 1930s?


The
answer

depends

on the
lessons

we

arrive

at
concerning
:


1. The
causes

of the
current

crisis

2. The
consequences

of the
crisis

3. The
cures

of the
crisis

Which

are the
lessons

in the 8
papers

presented

today

at
this

symposium?



The Great Recession of 2007
-
2011

Will it (
should

it) be like
the
Great

Depression
of

1930s
(new
theories

and new
policies
)
?






Robert
Barro



No,
cut

spending

and
government

Roger Backhouse


Yes
,
if

a
broader

change

in
society

Katarina
Juselius


Yes
,
we

should

change

economics

Bengt
-
Åke Lundvall


Yes
, a new
New

Deal,
inequality
, China

Robert Boyer



Yes
, ”relevant”
macroeconomics


Luis
Bertola



Yes
, Latin
America
,
democracy

Lars Calmfors



Yes
,
Europe
,
better

fiscal

discipline
, list


Seppo
Honkapohja


The Nordics,
learning

the
lessons

(
central banker)


from the
crisis

of

the 1990s




Crises

of

Governments
: The
ongoing

financial

crisis
/recession

Robert
Barro

on the US:


The problem:
T
oo

big

government



fiscal

stimulus ”a
waste

of

money


The solution: Tax
cuts
,
smaller

government
,
better

incentives


Outside

US
perspective
:

1. A
balance

sheet

recession
-

socialize

private
losses

, the N
-
word


(Nordic
lesson
: save the banks


not the
shareholders
)

2. US
taxes

are

low
, the
only

OECD
-
country
without

a VAT

3. The US
medical

system a
heavy

burden

-

18 %
of

GDP in the US vs 9 % in
Sweden


Bottom

line:
Dysfunctional

US
political

system




Barro

WSJ 23
A
ugust 2011:


And
there

is
zero

evidence

that deficit
-
financed

transfers
raise

GDP and
employment

not to
mention

evidence

for a
multiplier

of
two
.


October

1, 2009,
3:33 pm


Multiplying

multipliers

Mark Thoma
,
Menzie

Chinn
, and
The Economist

all
have

posts on the
question

of the
size

of the
fiscal

multiplier
.

Mark
already

provides
links

to my
various

commentaries

on
Barro
.
But

let

me

repeat

the gist.
Barro

makes a great deal of the
fact

that private
spending
fell

during

World
War

II,
rather

than

rising

the
way

it
should

in a
classical

Keynesian

(oxymoron?) story.

Will it be like the 1930s?



Answer

1:
Too

early

to

tell


The new GT
will

arrive

in 2013
-
14

Will it be like the 1930s?



Answer

2:
This

symposium?

Mixed
answers


The global policy
response

has so
far
built

upon

the
lessons

from the
1930s


The policy
lessons

from the 1930s:


1.
Expansionary

monetary

and
fiscal

policies



save the fin. system

2. No
restrictions

on
trade

3. No
restrictions

on
capital

flows

4. International
economic

cooperation



OECD, G20, EU


Missing

from the 1930s:


-

the euro
crisis

-

the dollar
crisis

-

IMF
-

global
imbalances

-

financial

economics

in
crisis

The Great Recession 2007
-
2009


A
learning

process is going on.

We

learn

that the
lessons

of
past

crises

may

not be the
correct

ones


Fiscal

policy a major problem

(
Barro
, Calmfors)

Financial

stability

a major
issue

(Boyer, Lundvall, Calmfors)





Figure 1. The policy
learning process. A
stylized picture.

Social
learning



not private


To
sum

up

this

symposium:


if

we

pay

proper attention
to

research on
economic

policies

we

may

face a
better

future



-

not a
crisis
-
free

future



-

but

we

will

be
wiser

when

we

face the
next

crisis





Where

is
Pufendorf

in
this

symposium?


C M Bellman:

A
young

student at Uppsala
around

1770:

Fredmans epistel sång 28:

”Med en vredgad min

han tog
båd

Pufendorf

och
Grotius


och dem bus i väggen slog …”


Q:
Should

we

do
this

with

mainstream
macroeconomics

textbooks

today
?

A: Not
yet






The future of the global economy:

A symposium on the financial crisis and its

consequences for growth and prosperity



Summary



Lars Jonung, Lund

Responding to economic crisis:

macroeconomic revolutions in the
1930s and 1970s


Roger Backhouse, Birmingham

Challenges for
macroeconomic

theory

Katarina
Juselius
, Copenhagen

The crisis and the changing global
knowledge

landscape

Bengt
Åke

Lundvall
, Aalborg

Latin America in the
crisis

Luis
Bertola
, Montevideo

Economic Policy and the Fiscal
Crises

Lars Calmfors, Stockholm

The Nordics in the 1990s and
today’s crises:

resilience

after
adjustment


Seppo

Honkapohja
, Helsinki

Bristen på internationellt samarbete under 1930
-
talet



Figure 1. The policy
learning process. A
stylized picture.