Abstract
Decision makers and executives should have a macroeconomic approach in planning and fixing economic and monetary policies for their countries. A national economy should be considered as a system including three interdependent markets: Financial market, Labor market, and Goods and Services market. Any attempt to practice an economic or monetary policy emphasizing on one or two of these markets and neglecting the third will lead to public debts, high unemployment and/or inflation rates. This neglect will also increase the financial crises risk especially for developing countries. These developing countries are suffering from being not able to apply liberal policies, compete in the international multilateral trade system, and benefit from globalization. Why Lebanese government is still insisting on applying liberal policies, high tax rate, low government expenses and investments, fixed exchange rate, and high interest rate? Is it reasonable and possible to have a developed financial market with bank deposits equaling three times the Lebanese GDP, and at the same time, a very weak labor and goods and services markets characterized by 18% unemployment rate and a very low consumers’ purchasing power? How does Lebanon have a huge public debt equaling twice its national GDP and be considered by the IMF as the fourth country in economic growth progression in the region? Why not considering Mundell’s incompatibility triangle and Kaldor’s magic square to analyze this critical economic situation? Is switching from a currency board to a forward-looking crawling PEG one of the factors to break this vicious circle?
Highlights
During the twentieth century, economic sciences and policy practices had been dominated by a bipolar epistemological opposition between capitalism and socialism.Nowadays, explicit references to Liberalism and Marxism are becoming less frequent than they were before; these models became incompatible with the new international economic trends
After the 1973 financial crisis, many economists and decision makers considered that inflation was due to the practice of the economy of demand based on increasing salaries and decreasing interest rates
In 2010, the Lebanese economy is suffering from a high unemployment rate, high dollarization rate, high interest rate7, huge public debt8, low consumption and purchasing power, restrictive budget and monetary policies, weak market regulation, no indexation between wages and inflation9, fiscal deficit10 and trade deficit11
Summary
Economic sciences and policy practices had been dominated by a bipolar epistemological opposition between capitalism and socialism. Intermediate models adopted by some governments are either tolerant of unemployment or tolerant of inflation Governments should justify their political orientation in ensuring the country’s best interests. Social democrats stress on implementing political expansionism through improvement of productivity, high-wage policy and monetary policies’ impact on the real economy. If we go back and reconsider the general titles attributed to different ideologies and doctrines, it is worth to ask and think that why a monetary policy that considers the effective exchange rate to be considered liberal and less interventionist than an economic policy seeking employment. The main epistemological question remains on evaluating the intermediate practices, trying to explain why regulation policies or liberal policies should have succeeded or failed in different time periods [4]
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