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The dangerous rise of economic interventionism

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  • Zimmermann, Thomas A.

Abstract

This paper reviews the economic interventions by governments and central banks in response to the 2007-2009 financial and economic crisis. In the area of trade policy, we find that protectionism has increased substantially, with governments targeting in particular the products of declining industries and financial services. Nevertheless, spiralling protectionism as in the 1930s has so far been avoided. In investment policy, the crisis has not led to a general increase of protectionist pressures for the time being, although the long-term general trend towards liberalisation has recently been complemented by a parallel trend towards re-regulation. The main areas of economic interventionism, however, have been fiscal policy (mainly through stimulus programs and emergency actions to stabilise the financial system) and monetary policy (mainly through interest rate cuts, quantitative easing and various other actions). Given their cumulative size, these interventions hold a substantial potential for distortions and undesirable side-effects on both the microeconomic and the macroeconomic levels. These include protectionism, political mismanagement and state failure, the degradation of government finances and the threat of future inflation. These concerns can be addressed, but this requires constant monitoring of the policy areas affected and decisive actions towards achieving a timely exit.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37262.

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Date of creation: 20 Jan 2010
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Handle: RePEc:pra:mprapa:37262

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Keywords: Journal of Economic Literature (JEL) Classification Codes: E52 (Monetary policy); E58 (Central banks and their policies); E62 (Fiscal policy); E63 (Comparative or joint analysis of fiscal and monetary policy; stabilization); F13 (Trade policy; international trade organizations); F21 (International investment; long-term capital movements);

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