The Depression 2.0 was foreseeable and preventable

So here’s the story: a number of economists predicted the current global depression, and specifically the problems of the European Monetary Zone as currently constructed, even BEFORE the Euro was introduced:

“L. Randall Wray (1998, pp. 91–92):

Under the EMU, monetary policy is supposed to be divorced from fiscal policy, with a great degree of monetary policy independence in order to focus on the primary objective of price stability. Fiscal policy, in turn will be tightly constrained by criteria which dictate maximum deficit-to-GDP and debt-to-deficit ratios. . . . Most importantly, as Goodhart recognizes, this will be the world’s first modern experiment on a wide scale that would attempt to break the link between a government and its currency. . . .

As currently designed, the EMU will have a central bank (the ECB) but it will not have any fiscal branch. This would be much like a US which operated with a Fed, but with only individual state treasuries. It will be as if each EMU member country were to attempt to operate fiscal policy in a foreign currency; deficit spending will require borrowing in that foreign currency according to the dictates of private markets.”

The neoliberals claimed otherwise and pushed through all those policies that lead to the current crisis. Now their predictions have been proven wrong, repeatedly, since 2009 at the latest.

But instead of turning to the people whose predictions came to pass, those very same neoliberals are not tasked with arresting the depression, use the very same toolkit, and make the same mistakes over and over again.

Real World Economics Review — The Premonitory Five: Godley, Wray, Forstater, Mosler and Bell

This entry was posted in deficit spending, economic policy, eurocrisis. Bookmark the permalink.

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