Averting the Worst

As usual, Paul Krugman comments in the New York Times about a topic of common interest. This time, he writes about the the role, his Government played in figthing the current crisis (→ Averting the Worst – New York Times).


Though recent news in the newspapers make us hope that the worst part of the crisis has come to an end, I am not really convinced that it is really over, how long it will take us to recover, and how many victims it will have produced at its very end.

However, comparing the crisis in 1929/30 with the current economic desaster, I think that Paul is obviously right in his statement that this time strong government-intervention, and they adoption of Keynes‘ ideas made the difference.

But I think it is unfair to now neglect the following:

  • This time, Governments all over the world acted together (and it was not just the US Government), while all politicans had the survival of the global economy in mind. In 1929 governments very soon started to protect their own economies, leading to the result that there was not any common approach. In this context, I think it it is unfair for forget the role of the European or Asian governments, to name such few, and to attribute the success to the US Government alone.
  • If we pull together the recent information about the bonus payments of large banks to few of their employees (as if Wall Street did not learn anything), and the large public debts, each affected country has to cover as a result of the crisis, I think that there is still urgent need for improvement. As in 1929, an insane system, with few key actors made many people in the real economy suffer. This time (and in difference to 1929) our Governments helped these banks to survive. I think it would be a wrong signal to these banks, and their managers, if we made them believe because they are too important to fail, they can do us what they want to. I think it is further not fair to talk about the stabilization, and to neglect the rest of the todo items, including the role of the banks, with their key employees.
  • A recent article (German) → Banken zähmen – aber wie? deals with the structural problems, our (shaddow) bank systems still continue to have. Although the worst part of the crisis might be over, we still need to reform our banking systems in a way that the greed is removed, and banks find their role as a service provider for people and companies in the real economy.

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