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Playing with FireDeepened Financial Integration and Changing Vulnerabilities of the Global South$
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Yilmaz Akyüz

Print publication date: 2017

Print ISBN-13: 9780198797173

Published to Oxford Scholarship Online: July 2017

DOI: 10.1093/oso/9780198797173.001.0001

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Policy Response in Advanced Economies

Policy Response in Advanced Economies

Neo-liberal Fallacies and Obsessions

Chapter:
(p.23) 1 Policy Response in Advanced Economies
Source:
Playing with Fire
Author(s):

Yilmaz Akyüz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198797173.003.0001

The world economy is in a bad shape, largely because of misguided policies in the United States and Europe in response to the crisis. The crisis is taking too long to resolve, leading to unnecessary losses of income and jobs. Recovery has been sluggish and unbalanced between labour and capital, and between industry and finance. This is mainly because governments have been unwilling to remove the debt overhang through timely, orderly, and comprehensive restructuring, and fiscal policy has acted to restrain recovery, resulting in excessive reliance on unconventional monetary policy. The ultra-easy monetary policy has led to speculation and asset bubbles and created a global debt trap rather than stimulating consumption and productive investment. This policy approach has not only failed to boost growth, but also aggravated global systemic problems, including financial fragility in both advanced and developing economies, and inequality, underconsumption and structural demand gap.

Keywords:   crisis, fiscal orthodoxy, ultra-easy monetary policy, speculation, debt overhang, inequality, financialization, underconsumption, stagnation

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