Crisis to be overcome by individual efforts: French University Professor of economics

Azerbaijan, Baku, Feb. 13 / Trend /

University Paris-Dauphine Professor of economics and Mont Pelerin Society Ex-President Pascal Salin specially for Trend .

The US recovery plan proposed by president Barack Obama has just passed the Senate. It may amount to about $ 800 billions both in tax cuts and public spending. It is expected by US officials that it may give an important stimulus to the US economy where industrial production has declined by 11.5 % and the unemployment rate has risen to 7,6 %.

Unhappily, this plan is a pure illusion, as are all stimulus plans all over the world. Why that ? It is inspired by popular views which can be labelled as "Keynesian" and according to which, whenever there is unemployment and a decrease in economic activity, the solution consists in increasing total demand. The increase in demand would make possible for producers to increase their production, so that unemployment could be cured.

Now, it is well known - or it ought to be well known - that in any field of activity, a solution to a problem cannot be found if one does not care about the cause of the problem. And what is the cause of the present economic crisis? It ought to be obvious to everyone that this crisis has been mainly caused by the past expansionary monetary policy of the US and the corresponding excess creation of debt. This, in turn, caused distortions into the production structure, since some activities benefited more than others from the excess creation of debt. With very low interest rates, investors have decided investments which, in fact, would not have been considered as profitable with a normal interest rate, which in fact appeared when interest rates increased from 2004 to 2007. The crisis is nothing else than a period of adjustment to come back to the desirable structure of production and there is, unhappily, no other solution that to let it take its course.

We must not evaluate the effects of the stimulus plan without considering its financing. The plan does not create any additional wealth, it just shifts resources from private hands to public hands. It is clearly the case if it is financed through increases in taxes. But, if ever it is financed by debt, it also means that individuals and firms have less resources to invest. And financing by money creation also implies an inflation tax on people and the risk of a new business cycle. It is in fact quite paradoxical to increase public debt, as the crisis has been created by an excess of debt.

From this point of view, the stimulus plan can do nothing, except postponing the necessary adjustments. In a time of economic difficulties, one ought to care about the most efficient allocation of existing resources. Spending just to spend and to finance anything is not a wise answer. Keynes had said that one might even spend money to dig great useless holes in the earth in order to increase demand and stimulate production. This is completely foolish.

Now, the illusory character of the plan does not prevent us from evaluating its various aspects. From this point of view, it is preferable to have a decrease in taxes - which is one part of the US stimulus plan - than public spending. However, the US plan provides for a decrease in taxes of people with the lowest incomes, which seems to be justified. But president Obama had previously said that, meanwhile, he would raise taxes on higher incomes. This is dangerous, since it creates disincentives to innovate and to invest among some of the most dynamic entrepreneurs. There are no increases in wages and employment, if there are not enough incentives for entrepreneurial activity.

In short, the crisis will be overcome by individual efforts to adjust to a new situation, not by badly informed public decisions. But people do believe that the government has the possibility to solve all economic problems and public authorities have the feeling that they have to do something, whatever it is. A stimulus plan seems to be founded on a precise expertise, which is not the case. But this creation of illusions is one of the great challenges of our time.

Subscribe to Trend in Google News! Subscribe
Uzbekistan, Kyrgyzstan discuss creation of trade-logistics complexes in border areas
Uzbekistan, Kyrgyzstan discuss creation of trade-logistics complexes in border areas
Price indexes of industrial, construction sectors at Uzbek stock exchange fall
Price indexes of industrial, construction sectors at Uzbek stock exchange fall
Kazakhstan to build hybrid solar power station
Kazakhstan to build hybrid solar power station
Loading Bars
Latest
Azerbaijan represented at III Pacific Alliance International Cooperation Forum
Iran top nuclear negotiator, Mora meet ahead of Vienna talks
Uzbekistan, Kyrgyzstan discuss creation of trade-logistics complexes in border areas
Twitter CEO Jack Dorsey to step down
Azerbaijani, Saudi Arabian foreign ministries hold consultations
Famous artist receives Azerbaijani citizenship
Azerbaijan holds expanded meeting of Operational Headquarters for Combating COVID-19 (PHOTO)
Azerbaijan approves COVID-19 certificates
Azerbaijan discloses state budget revenues through State Customs Committee
Volume of loans issued in Azerbaijan’s real estate sector increases
Price indexes of industrial, construction sectors at Uzbek stock exchange fall
Kazakhstan to build hybrid solar power station
Azerbaijan's foreign trade turnover increases in 10M2021
Some CSTO members’ congratulations to Azerbaijan show Armenia's insignificance in CSTO - analyst
Interest rates on consumer loans in Georgia increase
Uzbekistan starts construction of new branch of Gazli-Kagan gas pipeline
Kazakhstan eyes increasing container shipments
SOCAR projects increase in local manufacturing of fuel products from 2023
IRENEX shares data on sales of Bandar Imam Petrochemical Company
Turkmen Ministry of Textile extends tender for modernization of cotton-spinning factory
Snam to increase spending on energy transition activities
Iran eyes decrease in passenger transportation via Bandar Abbas International Airport
Turkmenistan becomes Uzbekistan’s second largest gasoline supplier
Azerbaijan adopts new state standard on farming activities
Azerbaijan Deposit Insurance Fund reveals number of loans of liquidated banks
Uzbek Statistics Committee shares data on import of cement
Azerbaijan rapidly continues construction of Barda-Aghdam highway (PHOTO)
Iran discloses details of its daily gasoline production
Snam reveals investment plans by 2024
Snam expects to achieve sustainable growth of main indicators in 2021-2025
Snam raises methane emissions reduction target
Azerbaijan’s economy minister talks projects submitted for country's industrial parks
New deputy ministers of Youth and Sports of Azerbaijan appointed
Georgia’s Partnership Fund to be renovated – minister
Iran resuming exports to Tajikistan through Turkmenistan's routes
SOCAR returns part of loans through its activities in Turkey
Issue of building railway, highway along Araz River resolved – Turkish President
Ankara is ready to take steps to normalize ties with Israel – Turkish President
Azerbaijan confirms 857 more COVID-19 cases, 1,091 recoveries
Iran’s Bahar Azadi gold coin price skyrockets
Azerbaijan shares data on number of vaccinated citizens
Number of Turkish citizens seeking jobs in Uzbekistan greatly increases
EV maker Phoenix Motors files for U.S. IPO
Turkmenistan pays special attention to boosting transport, transit communications - president
Kazakhstan's KMG Engineering to buy batteries via tender
Gulf bourses regain some ground after Omicron battering
Iran shares data on generation of Shahid Rajaee TPP
ADB to finance export projects of Turkmen SMEs
Data on new Omicron coronavirus strain analyzed by crisis center - Kremlin
Georgia sees increase in persimmon exports
Kazakhstan’s oil-producing company opens tender for equipment repair services
Portugal finds 13 cases of Omicron variant at Lisbon soccer club
Turkmenistan ready to provide its port facilities in Caspian Sea for ECO countries
Cargo transportation via Iran’s Ahvaz International Airport climbs
Israel's Partner Communications swings to Q3 profit
Foreign assets of Azerbaijan’s commercial banks increase in 10M2021
Civilian injured in mine explosion in Azerbaijan's Jabrayil district
Georgia expects slower monetary policy normalization pace – TBC Capital
SOCAR to optimize fuel production at Baku refinery based on international standards
Iran reveals COVID-19 data for November 29
Turkey reveals volume of cargo transshipped via its local ports in 10M2021
SOCAR expects progress on Heydar Aliyev Baku Oil Refinery reconstruction project by late 2021
Mortar and artillery units of Azerbaijani army hold live-fire tactical exercises (VIDEO)
Kazakhstan-Turkmenistan bilateral trade up for 9M2021
Weekly review of Azerbaijani oil market
Iran membership in ECO expands regional economic ties
Azerbaijani Economy Minister talks land allocated for Aghdam Industrial Park
Uzbek Central Bank notes growth in volume of non-performing loans
Russia detects 33,860 daily COVID-19 cases
Georgia’s tangerine exports double
Iran looks to use new methods to export crude oil, gas condensate
SOCAR Turkey announces time of making final decision on Merkury project
Price of apartments in Iran’s Tehran rising
Kazakhstan reports increase in cargo transport by air
National Bank of Georgia shares data on loans interest growth
Azerbaijan records growth in prices for hotel services - Hotels & Restaurants Association
Georgia’s GDP shows unprecedented growth – PM
Azerbaijan’s volume of loans issued to industry, manufacturing sector decreases
OPEC+ countries expected to adjust future plans at upcoming meeting - analyst
Azerbaijan’s SMBDA and "ASAN Radio" launch radio programs for entrepreneurs
Russia can fully increase oil production under OPEC+ deal - Deputy Prime Minister
Iran sees increase in exports via customs of Sistan & Baluchestan Province
Turkey discloses number of ships received at local ports in October 2021
Turkey discloses number of cars transshipped via local ports in 10M2021
Kazakhstan records decline in prices of several main food products
President Ilham Aliyev signs order to recall Consul General of Azerbaijan in Russia’s Yekaterinburg
Number of Turkish citizens seeking job in Turkmenistan grows for 10M2021
How will gas swap from Turkmenistan to Azerbaijan via Iran benefit participants?
Trilateral contract to help strengthen Iran's relations with neighbors – MP
COVID-19 vaccination certificates in Azerbaijan have no expiration date, TABIB says
Uzbekistan takes over chairmanship of organization of ECO summit
Russia plays very important role in normalization of relations between Armenia and Azerbaijan - President Aliyev
Azerbaijan looks to export diesel fuel to Turkish, Georgian markets (Exclusive)
President Ilham Aliyev gives interview to Rossiya-1 TV channel (VIDEO)
UNDP representative talks measures to protect rights of women in Azerbaijan
Galt & Taggart shares overview of Georgia’s banking sector
Bank of Israel accelerating preparations for digital currency
Bulgaria asks Azerbaijan to extend timeframe for gas supplies via alternative route
Swapping of gas from Turkmenistan to Azerbaijan to start in winter – Iranian Oil Minister
Bulgaria receives 1/3 of agreed gas volumes from Azerbaijan
All news