R. New Open Economy Policy Perspectives: Modified Golden Rule and Hybrid Welfare

Abstract

Economics is facing serious challenges after the Transatlantic Banking Crisis, which has almost brought the capitalist system to a financial meltdown in the wake of the Lehman Brothers crisis. Why did so few economists from the USA or Europe anticipate this crisis—some notable exceptions were RAJAN (2005) and ARTUS/VIRARD (2005) whose warning against excessive required rate of return on equity of banks was published in French in the book “The Current Self-Destruction of Capitalism”—went unheard? The sharp global recession of 2009 caused by the Transatlantic Banking Crisis was followed by a strong recovery in 2010 on the one hand, on the other hand the massive recapitalization expenditures of several governments of OECD countries for ailing banks and the massive cyclical deficits occurring in the context of expansionary fiscal policies brought a confidence crisis among the sovereign debt market, with Greece being the first victim—partly due to the fact that the outgoing conservative Greek government had produced fake statistics for deficit–GDP ratios in 2009 and in earlier years, therefore the confidence crisis shaking the government bonds markets brought Greece to the brink of bankruptcy.