Treating New Problems with Old Solutions

Two key problems exemplify the failed attempts to rescue economies from the global crisis:

1. All are based on the same paradigm, combining fiscal and monetary expansions. The theoretical basis for the current economic paradigm was established in the early 1900s and has changed very little. However, since then the economic and the financial systems have radically changed. The process of globalization has accelerated exponentially, bringing with it growing financial risks wrought by the development of technology, abundance of cheap funding for speculations, financial engineering, and greed.

Experts are struggling to accurately assess the risks embedded in such a global financial system. The human element is its most unpredictable component, along with mankind’s uninhibited desire to maximize profits. Classical economic theories are unable to deal with the new challenges that the world is facing. The interrelations among financial markets, the real economy, and the firms’ activities only complicate the picture and make it even harder to find a suitable solution inside the familiar arsenal.

2. The race to find “practical solutions” continues to fail. “Practical” means something that can be measured and quantified. People expect suggested changes in the budget, in the interest rates, in division of resources, in tax cuts, in imbalance between direct and indirect taxes, in school curricula, in welfare, mortgages subsidies and so forth.

However, without a thorough understanding of the reasons for the crisis and the required changes in human interrelations in the current global and integral reality, these solutions will fail.

An aggregate of “practical” solutions of unprecedented scope in both budget and character, undertaken worldwide by both governments and central banks over the last three years, have failed to produce the anticipated result. The current global economic crisis is not only a natural extension of the crisis of 2008, but is bigger and more threatening. All U.S. government recovery plans [19] since 2008 have not only failed, but aggravated the crisis because they prevented us from treating its roots, and planted in us false hopes. Those plans settled for trying to cope only with the symptoms of the crisis rather than with its actual causes.

[19] http://www.recovery.gov/Pages/default.aspx