International Economic Policy In Times Of Crisis

1387 words - 6 pages

Governments face all kinds of crises every day, the approaches may be different but the goal is always the same—maintain stability. While, wars and crimes against humanity tend to take a toll on the population, infrastructure and terrain quite literally, financial crises can psychologically cripple a country. There’s something about a financial crisis that conjures a level of panic that could rival the outbreak of a deadly disease. Maybe this is caused by a lack of visible end, as it seems the light at the end of the tunnel is only made clear at the end of the crisis. Even with examples from history to refer to, each financial crisis seems to take on a version all its own like a new strain of a deadly virus. The government tries to administer the correct corresponding solution, but often it feels as though one might as well have gone in blind; as the policies’ true impact are unclear until several years later. Like a vaccine each new version is adjusted and reconfigured in hopes to take care of the new symptoms. Each formula is saved and stored so that experiments and tests can always continue in the future. Today in the modern world we would like to believe that some of these vaccines have reached a status of 100% confidence level. Though, as with the commonly used tools in times of crisis, one can never fully count on a one size fits all packages.
When a financial crisis infects a country they have a few remedies to stabilize the economy: import tariffs, industry subsidies, fiscal stimulus and monetary policy adjustments using interest rates. The method or combination of methods chosen coincides with the current trusted economic school of thought in the country. The American School believes that economic policy should protect domestic industries through selective high tariffs, and including some subsidies; government investments in infrastructure creating targeted internal improvements; and a national bank with policies that promote growth of productive enterprises instead of speculation (). The Austrian School, support free market but believe there are too many variables and the shifts in equilibrium occur too quickly to rely on models instead use logical deduction based on fundamental axioms (). Monetarists believe that the emphasis should be on the role of governments in controlling the money supply (). Keynesian economics and its modern variations remains a common school of thought in the U.S. that focuses on analyzing macroeconomic elements in the short term using models (). The protectionist inclined schools, like the American School and at times the Austrian School, prefer to use import tariffs and/or industry subsidies to calm the economy (). While, believers in free trade, like the Keynesian School and Monetarists, are partial to adjusting interest rates and fiscal stimulus in order to restore the economy.
The Great Depression of the 1930s is often used today as a point of reference to learn from failed protectionist policies....

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