Thursday, 20 August 2009

Pro-cyclical economics

Slí Eile: Today's excellent article by Michael O'Sullivan in the Irish Times (Crash may offer chance of a 'Second Republic') raises an interesting point: In an economy that is expanding too quickly, the normal approach is to try to slow it down; and when it is contracting, the typical response is to support or even stimulate it. In the early years of this decade, our politicians and policymaking “elite” responded to a very “hot” economy by lashing on more fuel. Now they respond to one of the sharpest contractions ever in a developed economy by squeezing harder on the brakes. In essence, they are trying to do something that very few countries have tried before and that is to implode an asset bubble.

No comments: