What helps and what doesn't help rebuild economy

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I think I would like to share some aspects of the history of my country.

After WWII all the Europe was damaged and extremely poor.
Due to geopolitical situation, Europe was split between two powers carrying different economical ideologies.
40 years later, the western part was rich but struggling with social unrest and the eastern part was poor and strugglling with completely different kind of social unrest.
Poland in the 1980s was one of the poorest countries in the Eastern Block.
Poland in the 2010s was a fully blown first world country.
The change was happened before my eyes.

What helps and what doesn't help economies out of deep crises?
What doesn't help: Centrally planned economy. It just sucks.
What helps: Deregulation. Different small businesses flexibly look for market niches and try to quickly fill them. Some succeed, other bankrupt but overall goods are provided, new workplaces appear and generate sustainable income and ultimately you climb out of shortages and poverty.

In Eastern Block Poland, it used to be the state which was blocking resourcefullness of citizens. But I don't think it's the only power that can do this.
I'm afraid, in the capitalist world, patent laws are the biggest obstacles. Big companies have capability of destroying smaller players with lawsuit battles. I think those players would be more willing to help fund universal income than to give up this power.
But universal income does not provide goods. Eastern block has been there, people had lots of money and nothing to buy for it. Resourceful and flexible small-scale entrepreneurs provide goods.

TLDR: Based on modern history of Poland:

What does not help: (1950s-1980s in Poland)
Massive government projects
Handing money to the citizens

What helps: (1990s and 2000s in Poland)
Deregulation of small, flexible businesses

What concerns me:
Patent holders practising lawsuit battles massively limit resourcefullness and flexibility of small businesses

Oooh! Super-contentious thread!

Yes, I’ve thought for a while that the idea that the now-defunct eastern bloc system can be conceptualised as a singular corporate omni-monopoly is not entirely without merit.
Not so much for it’s accuracy as a historical description, but for the potential of such a notion to shine a light on structural problems within contemporary market-oriented capitalism.

———————-//———————-

(Moving to a different tack now)
A little of my countries recent history: we had a heavily state oriented form of democratic socialism in Britain from 1945-79.
The same period also saw the disintegration of the British Empire.
I’ve never been entirely convinced by any attempts to pin the blame for this countries relative economic decline over the period on either one or the other: in fact I’d maintain that this entanglement makes the UK an unusable example for arguing the merits or demerits of the policies pursued at the time.

However, over the subsequent period we have seen a range of both positive and negative effects of the pro-market reforms initiated in the 1980s, and continued since then.

This could get quite lengthy so I’ll restrict myself to one vignette for the purpose of illustration:

In 1979 somewhere between 70 and 80% of the British population lived in council owned state housing complexes: these were sold off at discount rates to their tenants “right to buy” being the name of the policy.
This gave many families, for the first time in this country’s history a genuine property of value as security against hard times: a very good thing.

However, this policy was also accompanied by deregulation of the banking industry and thus easier access to mortgages.
From this developed an increasing tendency on the part of banks, estate agents and television companies to push the idea that buying a house with borrowed money, under the assumption that someone else would borrow even more money to buy it off you later constituted not commodity speculation, but sound investment.

From this basis the price of living indoors, and the average level of familial indebtedness has climbed in an almost unbroken rise.
This has left this country with a culture where indebtedness is normalised, and with a deeply uncompetitive minimum cost of labour to business.
A situation where no quick simple fix can be applied without destroying the retirement, old-age care & inheritance bequest plans of millions of citizens who have spent their working lives engaging in these practices in good faith having been assured of the responsibility of doing so.

We also now have sections of our media encouraging a bitter ‘blame your parents/children” antagonism in relation to this: moralising the problem rather than analysing... and making any solution of any type harder to think through and implement.

So, whilst I’m not disagreeing with the need for flourishing markets full of thriving businesses of many different shapes and sizes, I am in short ambivalent about deregulation: the long-term consequences of how the network of regulations, tax codes and so forth structure incentives and behaviours at a large scale within whichever particular culture one is seeking to apply them would seem to me to be the question of greatest moment for the generation of a prosperous, peaceable and stable society.
I’ve watched (am watching still) the deregulated free-market backfire around me due to misapplication, and the rise of (mistaken, self-destructive) attitudes which see the market and the business sector as the source of all ills as a result.

this is meant as the submission of the experience of the same period at the other end of the continent, and noy as an attempt to disagree or deny.

Thanks, Karamazov, I appreciate sharing your history.

It's a fact that Poles didn't really catch the debt culture that seems to be another problem of current Western societes, at least not nearly to that extent. "Spending slightly less than you earn" is still believed to be the right lifestyle here.

I think that this is kind of a mistake to make blanket statements over what helps an economy is to limit government projects and just keep deregulating. If you want to look at what helps an economy rebuild flourish, then one needs to especially look at the great depression for the lessons we need to internalize. Economists recognize that a major contributing factor to what caused economies around the world to struggle from quickly bouncing back was actually a lack of government intervention, they were all afraid to spend much on things like projects to build and the like, cutting their spending. This in turn mean less people are getting money because people are saving, meaning no one buys anything to get the economy working.

It is Keynesian economics that when you have a downturn in the economy, the government should increase its spending and lower taxes, this of course means a government is going to go into debt, which might sound like bad idea for a business but a government is not a business. The inverse with Keynesian economics also follows that when you are a boom, when the economy is performing at its best, the government should cut its spending while also increasing the taxes, this will help pay when it will need to spend more than it is getting from taxes, but it will also help stabilize the economy. You really don't want an economy to have an out of control boom where every one is trading well, the government spends big and there are little taxes, because it will eventually make it crash all the harder and remove the tools that the government could have to get out of the recession.

People don't seem to understand that policies like at any time cutting or creating government programs, or raising or dropping taxes should not be a blanket choice done at any time, one needs to watch where the economy is on the economic cycle.


It is my perception that the Right wing are particularly bad at this, where most of the time, where most of the time you have parties that want to be conservative with government programs at all times and cut back on taxes. A lot of what this can cause is an easy hoarding of wealth by the already rich or that have a market, and especially paired with deregulation that could have businesses try and pay its workers as little as possible you can have the poorer get poorer. Creating this wealth inequality in turn can lower or even remove the buying power of the poor, in turn making them unable to afford things they might otherwise spend on, which means those industries are not paying its employees, crashing an economy.

The good government programs that help with this problem are things like free healthcare that can keep the poorer part of the economy able to both be healthier and not have to worry about spending their meager money on just staying alive, things they cannot avoid. Also have minimum wages that can keep up with the cost of living, so there are more people willing to trade. Stimulus packages are great when you are nearing a recession, this was part of the reason why Australia was able to avoid most of the GFC, you want people, even the poor, to spend when it looks like people are about to be scared about the economy falling. I imagine this is what most governments are looking to do now during the corona virus epidemic, find a way for people to keep spending after and create jobs after so many might be loss from all these travel bans and drops in tourism.

I said earlier that I find the Right as particularly bad with economics, but I won't pretend to not be aware that Left leaning governments can completely fail with economics. For the last few years the example has been repeated often with Venezuela, that people were aware of more on the Left and especially saying it is socialist like it is a bad word. To my knowledge the big problem with Venezuela was that it's economy was centralized around a single market, oil, that the government even had state ownership of, and its economy crashed when the price of oil fell, that a good portion of the population were out of jobs from a domino drop in buying power. It was not the Socialism that would have things like government programs to help the people, it was building an economy on a house of cards.

And while this can sound like the answer is to deregulate the markets, letting them all do what they want to spur economic growth, it should not be forgotten that it was deregulation that caused the 2007 GFC. This was where you had a lot of banks be immoral in giving loans to people that they had no hope in paying back, many of which were tied to things like mortgages, and were traded around in the finance sectors as valuable before it was suddenly recognized that the entire thing was a powder keg that exploded and everyone started defaulting on those loans. You need regulation to make sure that businesses are not taking advantage of the people. Because I follow American politics as much as I do, I am aware that many are recently pointing towards the student loan industry, where many that come from the lower end of the economy have to take to get half decent jobs, and have an incredibly difficult time paying back even if they manage to get a job in the industry they were aiming for.

Was any of this relevant? Both micro and macro economics were parts of my finance degree that I found interesting.

Well, I guess the important part is the "rebuild" part in the topic. It indicates a particular part of the economical cycle - rebuilding after a crisis and I mean a disaster-like crisis, not a bubble-pop-like crisis - I think the two are two separate species. A disaster-like crisis is characterised by general shortages of basic goods. A bubble-pop-like crisis is characterised by massive loss of ability to buy on a market full of goods.

Different illnesses need different remedies.
Honestly, I suspect encouraging spending instead of saving creates bubbles that then inevitably pop but that's a different issue.

How your education views the above?

@Bradleigh Did your course include any study of the British attempt to use Keynesian theories during the ‘45-‘79 period?
Don’t want to push any conclusion on you, and like I said above I’m skeptical as to how much clarity can be given from our example due to other factors, but if you haven’t I’d recommend cross-referencing a few reasonably in depth economic & political histories of my country during that period.
(Pick a mix of outlooks of course: although since you’ve graduated in the field that probably goes without saying!)

I would not say that they are entirely separate, it is all the markets. A disaster crisis you just need to find a way push the markets in the ways to meet the needs of the population, producing or procuring food, build housing, fix the infrastructure. If a disaster happens that impacts things like this, you end up with problems in the bubble-pop cycle if everyone suddenly decides to save rather than spend. If people decide to stop buying furniture, then those furniture companies have to let those people go, then you have more people who can't afford things so they don't spend, repeated to where the industries that would be required to help rebuild the economy are too afraid to hire more people to meet demands or that those people would be able to pay because they are out of or getting less money.

Productivity is the key, an economy needs to keep itself productive, whether it is shifting to particular demands after a physical disaster, or keeping everyone calm that they won't lose their source of living to keep the wheels turning. After basic necessities are met, you need to insure that everyone has an income so they can afford those necessities, even if their industries seem frivolous. Even if people go into short term debt to do things like get a house to live in or a car to get to places. Even kinds of universal income could be the answer as long as supply kept up with demand and affordable. Along with innovation also being important to create growth.

The amount of people you could a couple hundred years ago keep employed in farms for basic needs of food because that was how many people were required to man them. But now with technology through innovation you need to create other kinds of demand to keep everyone with spending power. At least here in Australia during this whole virus thing, so many people that are part of the tourism sector are having their buying power totalled due to a crash in international travel. Those people either need to be paid by the government during this so they can keep spending like normal, or you need to open a whole bunch of new job markets in demand for them. Sure you can say the market will fix itself, but a lot of people can fall through the cracks.

@ Karamazov
I don't particularly know of a focus of British history in that way, my course was after all not in Brittan. But I could imagine a few things from Brittan being led by a bunch of aristocrats who might more care about their selfish wants, or ideas of imperialism that I think that period saw the empire pretty much collapse.

Creating a culture of dependency is bad all around.

This has proven to be true throughout history.

The Scandinavian model/Social Democracy has actually worked very well for Northern Europe.

Socialism hasn’t worked so well for places like Spain and France.

Do you like the idea that if your house is on fire you could trust the firemen to come and save it? Or if someone broke into your house you can trust on the police coming to deal with it? All that without having to pay a private agency that promises to only protect your property?

If you do, you benefit from a kind of socialism and a level of a culture of dependency on the state.

Making a blanket statement that you could call every possible program as encouraging dependency is irresponsible. Especially when every other first world country outside of the USA has a level of socialized medicine so people do not have to worry about medical bankruptcy. The key is having programs that meet ethical needs while a level of awareness in could cause economic collapse, and if everyone's needs can be met while staying productive, or even encouraging it, it is fine economically.

Not exactly... it’s more of a case of using fiscal stimulus as a substitute for restructuring the economy away from producing basic goods such as steel and cloth for a massive tariff-walled empire...
And then using fiscal stimulus as a vote-winner before every election, then austerity afterwards.

The ideas were arguably abused in this country, and the fact we are still largely governed by a small group of hereditarily wealthy folks is most likely a factor in that.

I was more thinking that knowledge of how economic theory can be abused, and has been abused is as important as knowledge of the theories themselves.
And proffering my country as a case study!

Based on what I've seen, if there are large-scale shortages, you don't need to push anything, the shortages naturally pull the economy. All you need to do is not to block it and not let others block it.


Here you openly promote consumerism.


So you promote pretending nothing's going on and people should go on with their consumerist lifestyles?

I think magz is right to highlight the important role that deregulation, business-friendly policies, and a market economy can have in growing wealth.

I also think Bradleigh is right to say that different tools are necessary in different situations, or will work faster. It is naive to say that something that didn’t work in one situation won’t work in another. For example, taking as read that Poland met its citizens’ needs in the communist era, that simply means that meeting your citizens’ needs doesn’t make up for not having a market economy. It doesn’t mean that meeting those needs wouldn’t benefit the economy if you did have a market economy. The major factor limiting consumer spending and consumer saving is consumer income - raise income and both those things will probably go up.

Here are some policy prescriptions identified by developmental economists.

Paul Collier in “The Bottom Billion” identified four issues (traps) and four solutions. He particularly looked at countries that remain trapped in poverty today.
The Issues:

- Conflict.
- Over-reliance on natural resources
- Being landlocked and having neighbours who are not good trading partners.
- Corruption and bad governance, particularly in small countries.

(None of these things apply to Poland, which helped it grow a lot following reforms. Although there is some corruption, it is a large country with strong links to Germany in particular which will have helped attract investment)

Colliers’ solutions:
- Aid agencies should be prepared to take risks that might fail.
- Military intervention should protect democracies against coups.
- International charters encourage good governance.
- Countries should pursue free trade. Trade policy should provide preferential access to exports from developing countries.

In Why Nations Fail, Daron Acemoglu and James Robinson argue that nations need inclusive institutions in order to succeed. This means that as many people as possible should have a say in how the country is run in order to stop elites using the country as a means to hoard wealth for themselves. Again Poland is a good example here, it went from a centrally managed economy where people had very little control over their lives, to one where people could more or less spend their money how they pleased.

Finally, we come to “Dead Aid” by Dambisa Moyo. This calls for aid to be supplemented and gradually replaced by direct investment, bond markets, remittances, and well-structured finance.

Important to note that Moyo and Collier are only talking about developing countries, while Acemoglu and Robinson are taking a slightly broader look.

What do you mean by “socialism” in the context of Spain and France?

I meant in the context of their government policies.

Bradleigh.....how in the world would you conclude that I wouldn’t want firemen to put out my fire, and for the police to protect me? Why employ hyperbole? Of course, even most ultra-capitalist societies employ SOME sort of socialism.

All I’m saying is that Social Democracy seems to work better than the policies of the “Socialist” parties of various other nations.

I once talked to a Swedish guy who said he believes his country took the best from both systems.