The way out of crisis is already found – it goes across the bridge
I gave all these things a serious title to show you that the war between Keynesians and monetarists (Milton Freedman, “Chicago school”, and modern libertarians’ kindred spirits) finished with the defeat of the last mentioned ones. The main principle of monetarism – policy of non-interference in economics and regulating it only with monetary policy – is already in the past. In addition, I think that meddling in economics and issue bail outs became the best business.
When Polson issued 350 billion dollar, Obama added 838 billions and in my opinion this is not the last aid. It does not have the end. Keynes is celebrating in the grave; he told them that it was necessary to fix and regulate the problem immediately, but they even didn’t listen to neo-Keynesians. In early thirties John Maynard Keynes was telling to spend as much money as we could during recession. His logic was very simple – let’s say that the prices and salaries are fixed during the recession (the last mentioned are already fixed in Georgia long ago) to fix the balance between demand and supply. During recession there appears a lack of demand on the market, as it is in Georgia or in the world nowadays. In such kind of period everybody is interested in the future actions of Gilauri’s government, how to revive market and recover demand (I will just mention that Obama’s team is busy with sorting out the same problem). Can he rehabilitate the demand? Keynes has a very simple answer – yes! According to his point of view, the only necessary thing is to increase the government’s expenses. For instance, this can be done by reconstructing bridges and new roads, or constructing new buildings or cities. In this case, construction companies and their employees gain additional income. Let’s say that these people will spend 80 Tetri from each GEL they get and save 20. According to Keynes, the demand in economy will increase up to 1 GEL, at the expense of construction plus 0.8 GEL, 0.8 GEL spent by workmen, plus 0.8 multiplied by 0.8, at the expenses of those who sell their products to workmen. In the lump, GDP increases 1+0.8 +0.8X0.8+0.8X0.8X0.8=5 GEL. This effect is called Keynes multiplier, when the state spends 1 Gel and it increases GDP by 5 GEL. To tell shortly and to return to our budget, if Georgian government spends 1 billion GEL on building bridges, the GDP will increase up to 5 billion GEL. Was it all? Will we save our economics in this way? There is one more thing to do.
During recession we must decrease taxes and as the employment is the most actual problem of 2009, we must reduce taxes on the labor. Was it told by Keynes? No, it wasn’t. American economists, Mark Bills and Pitt Kleno, expressed their opinion in their works. They say that if the tax on the labor decreases to 5-6%, it increases employment up to 4.2%. And what has the government done? They reduced taxes from 25% to 20%. That means that they fulfilled this promise and got the result; the unemployment reduced by 2.8%. That’s absolutely right! Obama’s team and our government are rubbing shoulders. Who is in Obama’s team? You may ask. Lawrence H. Summers, Christina D. Romer, Paul Walker and others. Who is in Gilauri’s team? The same type of people! Everything seems to be so easy, glory to Keynes’ name! Down with Freedman and Monetarism! Neo-Keynesianism time has come and nowadays whole world is seized by Neo-Keynesianism (I knew it and that’s why Keynes portrait is hanging on the wall of Arveladze cabinet and not in my own. Who knows what is going to happen.
Is it otherwise? Don’t be a prophet of doom! How is it then? Keynes multiplier isn’t 5? How much is it then? Who said this? Experts? Who has asked those weak-headed experts? We want and it will be. Keynes doesn’t know and Georgian expert do? We and Obama will spend 1 billion on bridges and increase GDP, economy and market by 5 billion. Moreover, we will support construction and increase demand. They think that I believe in these greenhorn experts’ forecasts and not in Keynes! Generally, after Galaktioni there should have been no other poets, as he has exhausted the poetry, the same is about Keynes, as after him there shouldn’t have been any other experts. Keynes should be dead and some of the experts alive? It is a pity! What the TV screen is bearing? Where is the justice? Beggars, loafers, and they are begrudging of multipliers! This man left to us legacy – 5 is this multiplier! These ignorant people are obstinate. Don’t believe?
I hope you remember who was reporting in Switzerland last year’s Davos economical forum. (This year they were so hard up of economists that the main reporter was Putin (maybe they want him to share the fate of the previous reporter) Lehmann Braider was the main reporter last year – the president of 160 years old investment bank. I remember how all the businessmen and economists were looking at him with respect and writing down his forecasts and prospects of 2008 economic development. However, after nine months in September 2008, everybody was bombarding him with abuse and called him a swindler and ignorant. This is all what your expert can do! Down monetarism and long live Keynes! We will find way out of crisis – this way is passing through a bridge!