Resuming economic activity: approaches and their limitations.
Actualizado: abr 21
There has been a clear debate throughout contemporary economic history about what policies are to be carried out to resume economic activity during a period of crisis.
According to many people, the State must encourage activity through public spending. By contrast, many others argue that the best way to get stronger from crises is to push the state away and make way for private enterprise. This article aims to explain and evaluate both approaches from a critical point of view, analyzing both the advantages and limitations of each proposal.
Those who believe in greater state intervention during periods of crisis agree that the state plays a key role in resuming economic activity. These people believe that the state is able to resume activity by increasing public spending, arguing that this increase in spending would create a lot of jobs and these jobs would give people income. As a result, the money people will receive would be spent and this would help resume activity.
Similarly, the people who argue in favor of this position also explain that greater state intervention during periods of crisis could alleviate the country's poverty and inequality. As a result, there would be less social tension and a potential social collapse could be avoided. In addition to that, the State would also be responsible for providing resources to citizens to mitigate the havoc they may suffer from losing their jobs.
From a critical and objective point of view, this stance on state intervention in the economy during periods of crisis has both advantages and limitations:
The main advantages of such an intervention are those mentioned above; it would create jobs, increase consumption and alleviate the consequences of the crisis on people's lives.
However, the most notable limitation of this approach is that the state cannot normally afford to spend such amounts of money, especially when it is in a recession and does not receive the revenues it would normally receive. The second drawback of state intervention during a crisis is that the jobs created by the state are usually precarious and of short term duration, so a solid employment base is not being created. On top of this, state intervention leads to a crowding out of private activity, forcing many firms to close temporarily or indefinitely because they are unable to compete against the state and its resources.
The second position argues that the state should not intervene in the economy, as private enterprise is capable of managing crises efficiently, creating quality employment and laying the foundations for the future. In their view, the role of the state in crises should be minimal in terms of public spending. Furthermore, they believe the state should be responsible for regulating private enterprise as little as possible, offering it maximum flexibility and lowering taxes to encourage private activity.
Again, there are advantages and disadvantages to this approach:
The most notable advantages of this approach are that it is intended to create a solid employment base for the future, as well as avoiding the waste of public state spending that often occurs. In addition to this, it is reasonable that recessions can be overcome more quickly if the labor market is made more flexible and taxes are reduced, as a lot of employment should be created.
However, some limitations of this position are that if the labor market is made very flexible, it is easier for firms to exploit workers. Also, even if taxes are lowered and the labor market is made more flexible, there is no certainty that companies will resume activity if there is no consumption to support such activity. On top of all this, if taxes and public spending are cut, many public services will have to be cut, and this would generate a lot of resentment and unrest among citizens.
In conclusion, the best response to a crisis is not based on either one approach or the other, as both have advantages and disadvantages. In my view, the right thing to do during periods of crisis is to make a very detailed analysis of the country's economic situation in order to be able to take the measures that best suit the situation, be they from the point of view of the state intervention, the opposite approach or a mixture of the two.