Economic crisis 2011: the solution is to realize that the economy operates in a new scale and not reducing the public spending

The measures of austerity adopted by the industrial countries might cause a global recession at short and mid term.


If the United States reduces its public spending and some countries of the European Union do the same, in too few months the world might fall in a great depression. It is important to remember which were the main causes of the Great Depression of 1929; among them, the reduction of the public spending and the diminishment of the workers capacity of purchase.

Is the economy in a similar scenario?

There are similarities, among them the followings: a) the pressure that exerts orthodox economic sectors to impulse reductions in the public spending in the industrial nations, b) crisis in the stock markets worldwide, c) reduction and/or insignificant increase of the consumption in the United States, d) growing unemployment in the industrial countries, e) the attack against the U.S. dollar made by S&P that has provoked doubts about its strength like international currency, f) financial crisis in nations like Greece, Spain, Ireland, Italy and Portugal; these countries are reducing its public spending, provoking more recession, g) expressions of social conflict in the mentioned countries and now in unexpected countries like England (recent riots) and Israel (serious protests against the economic system), h) the possible rupture of the Economic Union unity, caused by the privileges of nations like Germany and France and the disadvantages of the other members of the Union.

The solution for the crisis that the orthodox economic sectors has found is to reduce the public spending, this mean more unemployment and less consumption; then, the solution is worse that the illness. Many countries, among them Greece, have been obligated by the International Monetary Fund and the European Union to reduce its public spending. A similar situation occurred in the 90s years in Latin America, and like a consequence of that policy, in 9 countries of the region the leftists sectors won the government, among them, in the biggest economies like Argentina, Brazil and Venezuela and also in small economies like Bolivia, Ecuador, Uruguay, Honduras, Nicaragua, Dominica and, in Mexico, almost the leftist sectors obtained the victory in the past elections. All those leftists’ governments in Latin America are a consequence of the policies of austerity imposed by the International Monetary Fund in the 90s.

The economic crisis is caused, moreover, by the economic prejudices, because many people, even politicians and economists, believe in wrong concepts like the balanced budget, the false idea that the amount of money determines the inflation, the false idea on organic and inorganic money; all them are simply concepts that impulse the poverty and the unemployment.

The solution

The solution is to think the contrary; to realize that the economy operates in a new scale and to work in that sense.

How?

Simply: issuing more money, in cash and in bonds and increasing the public spending regarding the new scale of the economy.

The politicians and economists should realize that there is a new economic scale in the world caused by many factors, among them, the quick population growth, which demand new resources and the globalization process of the 90s years. The world economy is now more integrated, the population grows and, also the needs grow. That is the new economic scale that must be understood.

Which are the limitations to reach the new scale?

The limitation is the availability of natural resources, because man can not create them; you can not make water, petroleum, etc. (1) but, on the contrary, man can issue money to satisfy the economic needs.

Money is only a simple mean of interchange; money is only metal and paper without intrinsic value (2) and the human beings must employ money in its exact sense: like mean of payment, not more. It does not exist none cause to limit the issue of money claiming reasons of austerity; money is a mean, like a hammer, like a car, like any other good, and must be used to satisfy the economic and social needs of the population and not to cause damage to the population.

The public spending is the unique force that cans impulse the global economic recovery.

The new economic and monetary scale will promote the consumption and, in consequence, the employment and prosperity. That was the formula used by the most important economist of the 20th century, John Maynard Keynes, to solve the consequences of the Big Depression in the 40s years.

(1) Running Out: How Global Shortages Change the Economic Paradigm. Algora Publishing, New York, 2008.

(2) Money is only metal and paper without intrinsic value http://pablorafaelgonzalez.blogspot.com