beyond Keynesians vs free-marketers

Columbia University economist Jeffrey Sachs has a very interesting, informative column in today’s Financial Times.

Macroeconomic debates are mostly ideological rather than empirical.  This is a shame.  The diverse experiences across the OECD economies can clarify a lot about the various schools of thought.  Of all the high-income countries, it is the northern European countries, including social democratic Scandinavia and the Netherlands, and social-market Germany, that have the most favorable combination of low budget deficits, high employment, and global competitiveness.  Of course the specific challenges and current conditions differ by country, and so too will the best packages.

Northern Europe, including Germany itself, rejects the swingeing budget cuts that Chancellor Merkel has advocated for the rest of Europe. The northern European countries balance their budgets through high taxation, not low government spending.  They use ample public outlays to ensure universal access to education, job training, and modern infrastructure.  They insist on environmental standards, not environmental deregulation. ….

Northern Europe shows that social democratic (or social market) structuralism – an active government that is socially oriented, environmentally friendly, and skill promoting — works best. Scandinavia was also exemplary a generation ago when it decisively cleaned up its bank sector after an ill-fated cycle of liberalisation, boom and bust.  Today’s tired debates between Keynesians and free-marketers greatly oversimplify the real options, especially now that banking reform, job training, and inequality are the key issues.  Perhaps Francois Hollande will facilitate a new growth orientation based on structural changes rather than a doomed flirtation with fiscal profligacy.

Jeffrey Sachs, “We must move beyond growth versus austerity“, The A-List, Financial Times, 8 May 2012.

There is much more in the full column.

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