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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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  • Zimmermann, Thomas A., 2010. "The dangerous rise of economic interventionism," MPRA Paper 37262, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:37262
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    References listed on IDEAS

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    More about this item

    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);
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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