There is a simple answer: increased taxes.
When you're in a liquidity trap, fiddling with the tax code does you very little good: The problem is that one part of the private sector - the businessmen - are neutering another part of the private sector - the engineers.
The solution to that is for the state to take a more active and explicit role in maintaining industrial production. That happens on the sovereign expenditure side of the equation, not on the tax income side.
You won't get me to say that tax hikes on the wealthy are a bad idea, but right now it's distinctly secondary to the need for the public sector to start explicitly underwriting industrial production.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
the need for the public sector to start explicitly underwriting industrial production.
yes, but _ exclusively green_ industry, otherwise we remain in the same old paradigm of more polluting car sales making for good numbers, (and no regard for'externalities', like peoples' health, at all). ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
(why six? what's wrong with a "five year plan"?) It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
As the current crisis is showing, markets are showing at least some unwillingness to finance public spending (in some places). That door being closed, you can either go the political route by printing money, or the political route by raising taxes.
Raising taxes is compatible with German neuroses. Wind power
Here, the stabilization fund has similarly come at a time when it was the supposed alternative to some kind of collapse, but it's been sold as a sign of duty (to the European ideal) rather than a vital interest, and the (much more certain) profitability of the loans has been underplayed.
And note that in the two cases, the interests of the financial world are radically opposite - in the case of the bank bailout, the markets had no interest to continue to cause unrest; here there is the obvious benefit of cost cutting across the board, lower wages, pensions etc, and the added bonus of bringing down to size the European social model.
Collapsing GDP in one country is unlikely to touch the citizens of another that much, unfortunately. Wind power
Poorly, stupidly and corruptly done, any government action will be a disaster.
The reason many of the classical liberals of the Enlightenment opposed government intervention to the extent that they did was that poor, corrupt and stupid governments were the historical norm.
Honesty, integrity and competence in your legislature: Accept no substitute.
