從雷根的「供給面經濟學」至捲土重來的「凱恩斯主義經濟學」 / From Reagan's Supply-side Economics to the Keynesian Resurgence

I read with interest my blog friend Inner Space's Feb 26, 2009 blog article entitled "目光遠大+ 志向宏大 = 花費巨巨巨大" in which he is seeking an answer to an economic policy question:

>> ... 作者蔡子強質疑問： 『好景不景都要派錢﹖有時我真的很困惑，經濟好景時，他們固然要政府派錢，美其名是「還富於民」；但相反，到了經濟不景時，卻一樣要政府派錢，理由便改作「紓解民困」，按著這樣的邏輯，究竟政府幾時才不用派錢呢﹖』... 以上這個問題我一直存有疑問，總是找不到答案，今天總算有人提出來了，看來這人也沒有答案。

Here is my attempt to answer his question by quoting some of the Wikipedia essays written by professionals (who are more qualified than someone like me) and to also provide some of my thoughts on the on-going world economic crisis.

I think the apparent contradiction of the policies of the HK govt mentioned in Inner Space's blog is due to a recent shift in thinking of the world's economic thinkers in the past year or so, from Supply-side Economics to Keynesian-based policies.

1. Supply-side Economics

1.1 Parts of Theory: "「還富於民」... 經濟好景，政府派錢" "supply creates demands for goods and services"

1.2 What happened recently:
"... In 2003, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003. Income tax rates were immediately reduced and rebate checks issued (without waiting for the new fiscal year). Federal revenues in FY2003 were $1,665 billion, $360 billion lower than in FY2000. Federal revenues in FY2004 were 1,707 billion, $318 billion lower than in FY2000. Federal revenues in FY2005 were $1,888, $137 billion lower than in FY2000, but by 2006 revenue had completely recovered (in inflation adjusted dollars), with receipts at $2,037 Billion, $12 billion higher than 2000. The cumulative total of federal revenues less than in FY2000 for the fiscal years 2001-2005 was $1.142 trillion, with that amount expected to be recovered by 2011, with 2012 expected to produce an additional $400 billion in excess revenue over 2000. ..."

(Source: Wikipedia http://en.wikipedia.org/wiki/Supply-side_economics)

1.3 My Thoughts (Feb 27, 2009):
With the economic downturn, the $1.142 trillion deficit obviously will NOT be recovered by 2011. Instead, the US govt's revenue will continue to decrease and the deficit, to increase. On Feb. 26th 2009, President Obama announced his $3,600,000,000,000 budget, stating heavy deficit is a necessary evil to turn the economy around. To many, 2008-09 marks the end of the supply-side economics and free-market economy that peaked during the Reagan era (Reaganomics - small government, big business). Suddenly, we see a come-back of the Keynesian supporters or converts.

2. 2008–2009 Keynesian Resurgence

2.1 Parts of Theory: "「紓解民困」... 經濟不景，政府派錢"
"... Keynes advocated what has been called countercyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays ... "
"... Two aspects of Keynes' model had implications for policy:
First, there is the "Keynesian multiplier", first developed by Richard F. Kahn in 1931. Exogenous increases in spending, such as an increase in government outlays, increases total spending by a multiple of that increase. A government could stimulate a great deal of new production with a modest outlay if:
1. The people who receive this money then spend most on consumption goods and save the rest.
2. This extra spending allows businesses to hire more people and pay them, which in turn allows a further increase consumer spending ..."

(Source: Wikipedia http://en.wikipedia.org/wiki/Keynesian_economics http://en.wikipedia.org/wiki/Keynesianism)

2.2 What happened recently:
"... In the wake of the Financial crisis of 2007-2008 the free-market consensus began to attract negative comment even by mainstream opinion formers from the economic right. In March 2008, free-market guru Martin Wolf, chief economics commentator at the Financial Times, announced the death of the dream of global free-market capitalism ... A series of major bailouts followed, starting on September 7 with the announcement that the U.S. government was to nationalize the two firms which oversaw most of the U.S. subprime mortgage market — Fannie Mae and Freddie Mac. In October, the British Chancellor of the Exchequer referred to Keynes as he announced plans for substantial fiscal stimuli to head off the worst effects of recession, in accordance with Keynesian economic thought. Similar policies have been announced in other European countries, by the U.S., and by China ... China was one of the first nations to launch a substantial fiscal stimulus package, and the Financial Times reports that both government officials and private investors are seeing signs of recovery, such as rises in commodity prices, a 13% rise in the Chinese stock market over a period of 10 days (at time of reporting), and a big increase in lending — reflecting the government's success in using state owned banks to inject liquidity into the real economy. The article also reports some analysts are saying it is too soon to be sure the Chinese recovery will last ...
... Senior analysts have not yet found similar grounds for optimism about an early recovery for western economies. Martin Wolf, financial editor at the FT, has said that the US stimulus package may not be sufficiently large, and has advocated "shock and awe" tactics, meaning much more robust intervention. Wolf also sees "temporary public control" of troubled banks as a necessity, and has criticized the ineffective policy of using public money to insure banks against loss or buy toxic assets ...
... For policymakers and their supporters around the world, Keynesian solutions are currently seen as representing the best option for shielding their populations from arbitrary market forces - and possibly as engines for addressing inequality, achieving social progress and accelerating the transition to a green economy. Nevertheless the Keynesian revival has attracted considerable criticism ..."

(Source: Wikipedia http://en.wikipedia.org/wiki/2008-2009_Keynesian_resurgence)

2.3 My Thoughts (Feb 27, 2009):
The global economy is so intertwined these days that no one country (e.g. China, USA, G-7 countries, OAS members) or major economic systems (EU, WTO, APEC, ASEAN, NAFTA, and other multilateral co-operations) can act alone and expects to isolate itself from the crisis. Even with the talk of interventions from the UN, IMB and World Bank, some countries have already gone bust or are in the process of going under (e.g. Iceland, Hungary). We can only hope that the resurgence of Keynesian-based policies and rescue plans will help the world's economic recovery in the "short-term", but whether we are fixing the symptoms or the cause of the problem is another question. Indeed, if the problem is an evolving one (depression in the 1930's, oil crisis in the 70's, and more downturns and Black Fridays in the 80's and 90's, and the present crisis), then the best we can hope for is to tailor the solutions as we move along and try to maximize the period of stability and ride out the inevitable troughs in the future.

I will end this blog article with the following (sorry, I can't remember where I read it): "In the past, our kids had a wish-list, and the adults would pay for it. But now, the adults have a wish-list, and our kids will pay for it, for many years to come !!" Hopefully, this will not come to pass.