[OPE] Sarkozy's stimulus plan

Der Spiegel has an article on this here: http://www.spiegel.de/international/europe/0,1518,594650,00.html

If deflation continues until interest rates hit zero, then as Mr Roubini notes, state monetary policy is substantially ineffective. In that case, all that is left is what they call "fiscal expansion" (additional state spending or deficit financing by some route). The problem there is, that the state can in principle spend money on all kinds of things - it can try to stimulate or maintain investments or consumption, it can try to create jobs etc. What you then need is some kind of model of cumulative economic growth, a model of "what causes what" in the economy, so that you know what is most likely to stimulate economic growth durably (for example, Edward J. Nell provides some models of "transformational growth"). But about this question there is no real consensus anymore, and it's also a highly political matter ("who benefits?") about which different social classes have their own opinion. Everybody would obviously like some extra cash from the state, but whether this actually creates more jobs or output in a durable way may not be easy to establish. In a "financialized" economy, investors invest primarily in assets for yield or capital gain, with some kind of risk calculation, but this does not necessarily have anything to do with what's necessary for a cumulative economic growth process, that's the problem. As regards France, well only about a fifth of the labour force is employed in industry, and that industry is very much integrated in the world economy, highly dependent on imports and exports of capital goods and intermediate goods. Economic "globalisation" just sets serious limits on what "economic nationalism" can achieve.

J.

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Received on Mon Dec 8 04:24:36 2008