Cause and cure of the crisis

Thomas Colignatus (tc-tc@kpnmail.nl)

MPRA Paper from University Library of Munich, Germany

Abstract: The welfare state was created after 1950 with counterproductive mechanisms and this caused high inflation and high unemployment and stagnating growth by 1970, called stagflation. Since 1970 governments redressed the welfare state but did not succeed in finding workable mechanisms. They rather fought stagflation with the ideology of the day, shifting from vulgar Keynesianism first to monetarism and then to neoliberalism, and now ‘muddling through’. The deregulation of financial markets seemed to solve stagflation but only repressed it and resulted into the crisis since 2007. The return of regulation also causes the return of stagflation: what was repressed before now is into the open again. Re-regulation is required indeed but the fundamental cure lies in focussing on workable mechanisms for the welfare state. Return to the 19th century laissez-faire will generally be rejected. If economic management had made better use of the available information then these policy errors could have prevented. A mixed economy requires a constitutional Economic Supreme Court to monitor the quality of information for policy making.

Keywords: Great Depression; Great Stagflation; Great Moderation; stagflation; inflation; unemployment; Phillipscurve; poverty; subsistence; minimum wage; labour market; welfare state; mixed economy; social security; productivity; tax; insurance; tax void; regime switch; Keynes; vulgar keynesiansim; fiscal policy; monetarism; monetary policy; neoliberalism; regulation; deregulation; financial crisis; economic crisis; muddling through; repressed stagflation; Economic Supreme Court; Trias Politica; Tessera Politica; National Investment Bank; economic cycle; counter-cyclical; economic structure; Eurozone; euro; gold standard; fiat money; European Central Bank; ECB; no bail-out; national debt; bank balance sheet; global warming (search for similar items in EconPapers)
JEL-codes: A1 E60 P16 (search for similar items in EconPapers)
Date: 2014-09-14, Revised 2010-05-19
New Economics Papers: this item is included in nep-mac
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