comic book store Economy in half an hour. Chapter 9. The economy cycle and policies againts the crisis

(Voice Alejandra Sande Belmonte) We are already in the ninth chapter of Economy in half hour. In chapter 8, we saw how our patient, Economy, had been hospitalised. Two great specialists were taking care of it: Hayek and Keynes.

However, the situation becomes critical and Keynes steps forward applying measures of fiscal stimuli: reduction of the interest rate, reduction of taxes and an increase in public spending; everything in order to rise the demand incorporated in the economy ( what was called Rooselvelt’s New Deal, “fattening up the bomb”).

Hayek , who witnessed how hyperinflation destroyed the German and Austrian middle class in the 20s, is afraid of the prices’s ascent caused by the stimuli. He thinks the cure can do more harm than the illness and thus reduces stimuli as the patient stabilises.

In the diagram we see the economical cycle: economic activity does not grow constantly, but suffers from ups and downs.

Until Keynes, everyone thought that this oscillations were as unavoidable as tides but thanks to his contributions we are learning to somehow control it.

Fiscal policies, which work on taxes and public spending, and monetary policy, which works on the interest rate, are the two main tools to soften the cycle.

Structural measures are also extremely important, as they increase economy’s production rate from mid- to long-term.

Lastly, a thought upon the difficult of creating business: is Spain closer to New Zealand than Suriname to Spain?

In absolute terms (measured in days), Spain is closer to New Zealand, but in relative terms we observe that we do it 47 times worst than in New Zealand, but only 15 times better than Suriname. Certainly something to think about…

comic book store Economy in half an hour. Chapter 9. The economy cycle and policies againts the crisis
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