The Bank of International Settlement’s Claudio Borio, Who Warned About the Crisis, Says the World Economy Is About to Get Very Sick


Naked Capitalism has the article The Bank of International Settlement’s Claudio Borio, Who Warned About the Crisis, Says the World Economy Is About to Get Very Sick.

In addition to the inefficiencies brought about by growing inequality, fiscal policy has tended to be biased toward “trickle-down economics” in which the benefits of government spending/taxation decisions “trickle down” to the population as a means of stimulating employment and income gains, as opposed to focusing directly on programs that cover “labor gaps” through direct employment programs such as the Job Guarantee(JG). The virtue of the JG, as the economist Hyman Minsky argued, is that “instead of the demand for low wage workers trickling down from the demand for the high wage workers, [policy orientation] should result in increments of demand for present high wage workers ‘bubbling up’ from the demand for low wage workers.” This can be better achieved via the JG, than, say, tax cuts.

Monetary policy is the wrong tool to use when consumer demand is insufficient. John Maynard Keynes explained that all to the world in the 1930s. It is still true, no matter what monetarists try to fool you with. Tax-cuts and zero (or negative) interest rates are all tools from the monetary toolbox. Fiscal stimulus by government requires spending by government. Collecting less taxes is not the same as fiscal stimulus just as pushing on a string is not as effective as pulling on a string.

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