EXTRACT FROM
Czech President: Neosocialism Threatens Europe
From the desk of The Brussels Journal on Fri, 2009-08-28 11:27
Václav Klaus
Thank you for the invitation to come to Aix, for giving me a chance to address this reputable audience where I see many friends and, above all, thank you for continuing to organize the Summer University. I only don’t understand why you call it Summer University of the New Economics. Which one is the old one? We have only one, good, old economic theory and it is our adversaries who use the term “new economics” as an attack on our views.
The last topic I would like to mention here today is the current financial and economic crisis. The economic profession, the politicians, as well as the public did not expect it to come. They all accepted the validity of the so called “Great Moderation” hypothesisbased on the belief in the omnipotence of central banks and governments to control the macroeconomy and in the feasibility, rationality and positiveness of microeconomic regulation, especially in financial and banking sectors. This hypothesis was, of course, wrong and the dream about the eternal removal of business fluctuations did not materialize.
The current crisis is a consequence of a combination of government failures. On the macroeconomic side, it was the unprecedented build-up of imbalances in the world economy and the unusually long period of low real interest rates. On the microeconomic side, the existing partial and very imperfect regulation distorted the behavior of banks and financial institutions and motivated them to look for ways to escape it by means of various “financial innovations”. They found it relatively easy to move their activities outside the regulatory perimeter, the most known example of this is the securitization of subprime mortgage credit.
I am convinced that the current crisis is not the result of a market failure or of any inherent deficiency of capitalism. It is a government failure, resulting from the immodest and unhumble ambitions to control such a complex system as society and economy.
The current crisis is a consequence of a combination of government failures. On the macroeconomic side, it was the unprecedented build-up of imbalances in the world economy and the unusually long period of low real interest rates. On the microeconomic side, the existing partial and very imperfect regulation distorted the behavior of banks and financial institutions and motivated them to look for ways to escape it by means of various “financial innovations”. They found it relatively easy to move their activities outside the regulatory perimeter, the most known example of this is the securitization of subprime mortgage credit.
I am convinced that the current crisis is not the result of a market failure or of any inherent deficiency of capitalism. It is a government failure, resulting from the immodest and unhumble ambitions to control such a complex system as society and economy.
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