Economic policy during crisis: lessons from history

Abstract

The nature of the recent Greek economic crisis is mainly politic and related to 180 years of clientelism. Our main thesis here is that the answer to the crisis cannot be less state but a more effective state. History teach us that there is not any historical precedent of a country that escaped from a total depression of more than 23% without an active economic policy aiming at regenerating the aggregate demand. In the first part of this paper, we present the causes of the Greek crisis as well as the consequences of the first two programs of austerity emanating from the MOU’s between Greece and its creditors. In the next section, we present briefly specific historical examples of countries that have pursued active policies to escape the three biggest economic crises. In our conclusion, we suggest seven policy objectives for a more efficient state. A necessary condition to reach these objectives is the institutionalization of specific reforms in the Greek economic and political system.