econ110bbh - Through the influence of Gunnar Myrdal in the...

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Through the influence of Gunnar Myrdal in the early 30’s, the Stockholm School of commerce invented the ideas and improvements for the fiscal policies that later became to be known as the first Keynesian ideas that was able was able to influence the reorientation of the economic policy of a leading government. Social Democrats shaped the cabinet in Sweden successively from the early 1930's until the late 1970’s, at times in coalition with the smaller parties. Although the economic impact of the stabilization measures taken in the 1930's can be questioned by other economists, it is generally agreed that the Swedish government was among the first to implement the idea of countercyclical fiscal policy. In a depression there is a fall in all sorts of income. Maintaining the tax rates the same means a reduced tax income for the government, meanwhile a rise in public expenditures are needed to fire up the steam engine of the economy. According to Myrdal, the traditional way of tackling recessions in the 1930’s was to increase taxes and lowering the standards of public activity. The efforts to remain a balanced budget during a deep recession are as useless as riding a bike without wheels. They try to conceal deficits in budget wholes through deferring costs to future periods and hide surpluses by allocating income to previous years. “It is a play of fictitious economies” (Myrdal, 183). Myrdal’s solution to the problem, according to his article Fiscal policy in the business cycle, is transparency and increased governmental influence. There should be increased investments by the government on self-sustainable projects, such as social housing, railroads, power plants, mines, and forest preserves. All the folks in charge of the investments has to create ten year plans, in order to have a blueprint ready for governmental stimulations by deficit spending during recession times. The budget should be split up to two, with one main budget and a second called the capital investment budget. This is to reduce the effect of political cycles and create transparency. Through annual payments from the running budget the capital investment budget invests into self-sustainable investments, which in its turn pays back in dividends. The capital investment budget will be completely separated from the running budget,
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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econ110bbh - Through the influence of Gunnar Myrdal in the...

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