Sovereign Debt Crisis and Economic Sustainability
The free enterprise capitalism and market economy is said to have created miracles in raising the economic prosperity and the quality of life of people worldwide, particularly in the developed economies of the West and Japan starting from the post-war period. In an age of globalization and commercialization, I wondered if we could continue to enjoy what we are endowed with, particularly when the debt inflicted nation-states of the West find it difficult to sustain the status quo.
Whether we accept or not, the postwar boom and prosperity in the developed world is said to have attained with an unprecedented level of corporate, consumer and sovereign debt. The commodity called credit,an invention of the capitalist bankers, remained vital in this regard. This valuable resource has been over-exploitedand the world is facing the dire consequences of its unsustainable level of consumption.
The management of the national economy and public finances also requires vision and innovation. Nation-states are no longer closed entities and their economies are sub-systems of the global economic and financial system. With the credit crunch and other unforeseeable events unfolding during 2007-2012, the Global Financial System has been in serious trouble.
Moreover,in a market economy, public revenue that is derived mainly from taxation is also becoming less adequate when the economy tends to decline and less effective when companies and individuals can evade and avoid paying taxes relatively easily. Falling national revenue is causing problems in meeting the public expenditure needs especially when the provision of essential services requires more funds, particularly in the developed economies. In the meantime, the overall tax burden on the average wage-earner is also becoming unbearable.
The post credit crunch recession in the USA and UK lasted for years and the leaders and policy makers seemed run out of solutions other than printing money under the disguised concept of‘quantitative easing’. The traditional tools of monetary and fiscal policy regimes do not respond effectively today. Zeroing interest rate and the downgraded national debt instruments are not helping the state borrow money in the market either. You may wonder what else they could do. I am doubtful whether the extraordinary measures aimed at boosting consumption and the stimulus packages designed to kick start the stumbling economies by the governments can produce any beneficial effects.
In addition to proposing some innovative ideas to generate public revenue using the market principles to sustain the status quo, I strongly believe that the West should adopt the concept of Regulated Market Economy along with new monetary and fiscal policy measures suggested.
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