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How Many Economists Does it Take to Change a Light Bulb?

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As the western economies teeter on the brink of a second recession it is clear that everyone is no longer certain what the solution is? Nor is there unanimous agreement on what really causes growth especially at this moment in time.

In his new book The End of Growth, which has just been published in the UK, Richard Heinberg suggests that the two current economic theories which have dominated since the mid 1930s are no longer relevant. They are (i) Keynes/Keynesian - which oversimplify was where the Government (as in the New Deal) created public sector jobs especially large sector civil engineering projects and (ii) The Free Marketeers (cf The Chicago School) whose maxim is to let the Market correct itself and allow wealth to trickle down (alongside low taxation).  

The world took Keynes to their collective hearts in 2008 and introduced quantitative easing and increased borrowing whilst saving the whole banking system. Looking back this was wrong, wrong, wrong. The banking system, now protected by governments has gone on blithely ignoring its structural problems so another crisis may not far away. If it was right for Lehman's to go under then the same rules should have applied to Northern Rock and RBS. There should have been a carrot and stick approach not one or the other. 

Just where has the $2+trillion gone in the US economy? How was the funding pushed out to each and every one of the 50 states of America? If they were sent to the 50 Governors' Offices what then? Were old scores settled? Were budget deficits made good? How much actually made it to Main Street? Not much by the look of things.

In the interregnum we have had Ireland, Portugal and Greece go bankrupt: we are waiting on Spain and Italy. Five countries in the euro is bad for the euro which in itself is wildly over-valued.  

Now, the UK economy's growth has stalled because of the deep cuts to the public sector at a time when the world's economy (notwithstanding India and China) has had another dose of self-flagellation. Any recovery, Heinberg doubts if that will be possible, is going take five to ten years.




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