Is interference the answer?

The economy is currently slowing down and this is a fact. UK economic growth slows to 0.5% in third quarter. Premier Li Keqiang has set a growth target of about 7 percent for 2015, which would be the slowest annual expansion of China since 1990. J apan is officially back in mild deflation for the first time since 2013. And the IMF expects Brazil to shrink by 3% this year, and 1% next which means suffering two straight years of contraction since 1930-31.

Accordingly, the question is: “who exactly should tackle with the issue of such a worldwide importance and therefore, what sort of economic approach should be implemented?” The supporters of J. M. Keynes would probably say that government intervention in shape of the action taken by fiscal policy and central bank is needed. In general, this means that the programme of austerity should be implemented.

who exactly should tackle with the issue of such a worldwide importance and therefore, what sort of economic approach should be implemented?

But can people be certain that the idea of a utomatic stabilisers will really improve the economic situation? According to the article written by Buttonwood for T he Economist, before making a statement in this case, we should answer such fundamental questions as: “Whether the recovery of the British economy in 2013 and 2104 showed that its policies worked?” “Whether the government changed course in 2012, and whether it was only this change of course that led to the recovery?”

In fact, central banks set very short-term rates in 2015 and have tried to influence long-term rates via Quantitative Easing (QE) but the Fed and the Bank of England stopped buying bonds a while ago, with no apparent impact on yields!

Also, a s surprisingly Paul Krugman explains in T he New York Times: “the ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem” of the global saving glut which, I personally believe, may be the reason for the current slowdown in the economy.

the ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem

Accordingly, on the other side of the idea how to recover from the economic recession is the Hayekian belief that “markets are highly organic and any interference with the spontaneous order of free market would distort their efficient operation”.

However, “stagflation of the sort Brazil is experiencing presents central bankers with a dilemma between raising interest rates to quell inflation might push the economy deeper into recession and lowering them to foster growth might send inflation spiralling out of control”, as one of the writers of

The Economist states. Still, some countries are not afraid to give private institutions more freedom in order to overcome the current slowdown.

Probably the best current example of such an approach is China which exerts a huge influence not only upon the economy of Japan, but also the world. Accordingly, the country has been slowly liberalising rates for well over a decade. Trying to fight with economic recession, “it allowed banks to set lending rates above its benchmark and it eliminated the floor on lending rates too. In recent years, it even started raising the ceiling on deposit rates.” Nevertheless, such liberal actions did not prevent the country from its economic slowdown.

Hence, as one may conclude, the real life examples do not provide a simple question whether more or less governmental interference is needed in order to stabilise economy and therefore, recover from the economic slowdown. “To interfere or not to interfere: that is the economic question” which is still valid.