By Donald Marron
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Extra info for 30-Second Economics
The government should boost aggregate demand. In particular, it should boost its own spending to fill the gap in aggregate demand from the private sector. By spending on new projects, making transfers to people in need or cutting taxes, the government could boost demand. Firms would then employ more workers to produce more. Those workers would spend their paychecks, and you would have a virtuous cycle of growth that would get the economy out of the recession and reduce unemployment. Keynesianism became the most popular economic doctrine of the “golden age” of capitalism (1945–1973).
It also worked in Poland, whose economy has largely caught up with western Europe’s since shock therapy was used in 1990. However, it doesn’t always work: In post-Soviet Russia, privatization led to massive corruption when people grabbed for lucrative gas and oil ownership. 3-SECOND CRASH The best way to fix a broken economy is in one fell swoop. 3-MINUTE BOOM Is it really best—or even possible—to change an economy from government run to market oriented overnight? Critics say change should be more gradual, and point to China’s success as an example.
It’s the wise thing to do, or so claims the Washington Consensus. The term was coined by economist John Williamson in 1989 to describe a set of policy recommendations for developing countries. S. Treasury—the key to development was deregulation and fiscal discipline. Stabilize: Keep inflation down, reduce trade deficits, and keep the money supply in check. Privatize: Turn public goods, such as water, over to private companies to improve efficiency. Liberalize: Open your borders to free trade and attract foreign direct investment.
30-Second Economics by Donald Marron