H* Reading the English newspaper

8. l. Read the article and do the exercises.

Restoring the Fiscal Option

“The Economist”

Governments seem unable to use budgets to temper recessions.

The traditional Keynesian remedy for recession -- deficit spending, and plenty of it -- went out of fashion years ago. As it had come to be applied, it deserved to. Many governments were using budget deficits not merely to cushion recessions but, fatally, to boost economic growth year in year out. That did not work, for the result was chronic inflation and higher taxes. But such past abuses should not blind governments to the role that budgetary policy can play in tempering the economic cycle. The fiscal option is often useful-and sometimes vital.

Yet politicians everywhere, it seems, are intent on denying themselves this option. Europe’s governments were so worried that their new single currency would promote fiscal irresponsibility that they devised a “stability pact,” which sternly discourages deficit spending. In the United States, nine months after the recession began, Republicans and Democrats are quarrelling over which ill-conceived measures to include in their stimulus package — as if to prove right of those who say that fiscal expansion always comes too late to be of any use. And in Japan, where fiscal stimulus has been tried and tried, the policy has apparently been a total failure. Governments of the world’s big economies have either rejected the idea of active fiscal policy, or are proving that it would be better if they had.

Money Has Its Limits

This is a dangerous state of affairs. Monetary policy cannot carry the whole burden of stabilizing economies, especially when it has succeeded in driving inflation right down. Low inflation means low interest rates over the course of the cycle; and, since interest rates cannot fall below zero, they cannot then be cut by much should recession strike.

However desirable this cushioning might be, does Japan not show that fiscal policy is impotent in the face of powerful deflationary forces? Actually, no. Japan used fiscal policy hesitantly and incompetently during the 1990s. When a big budget stimulus was briefly delivered, in 1995, the economy picked up; but fiscal policy then turned contractionary again. Budgets have not been used in a sustained and determined way to spur recovery. Now the government fears adding to its debt burden (the result of years of stagnation and contraction, note, not of years of seriously attempted reflation). The fear is misplaced. Fiscal reflation combined with monetary easing — “monetisation” of the deficit — would increase debt held by the central bank, not by the public. Even now, then, it is neither too late nor too costly for Japan to use fiscal policy.

What about the shambles over America’s economic-stimulus bill? Does that not prove the folly of fiscal activism? It shows the dangers, no question. If fiscal policy is to play its part in softening a recession, without jeopardizing the goal of budget balance over the longer term, Congress must be ready, when circumstances require, to pass simple measures that are politically undemanding and plainly temporary, and to do it quickly. With urgency at a premium, bigger one — off tax rebates, for instance, would make better sense than a bitterly contested rejigging of taxes and spending, with bad long-term implications for the budget whoever wins. Is it too much to ask that Congress “prioritie”: deal with the recession first, and argue about long-term taxes and spending later?

Let us hope the politicians can rise to the challenge. If low inflation is here to stay, governments need to learn to use fiscal policy more intelligently. Japan shows how bad the alternative can be.

8. 2.
   Answer the following questions.
9. Why did the traditional Keynesian remedy for recession go out of fashion?

2. Why did Europe’s governments devise a “stability pact”?
3. Why can’t monetary policy carry the whole burden of stabilizing economies?
4. What would increase the debt held by the central bank?
5. Why do governments need to learn to use fiscal policy more intelligently?

8. 3. Decide whether these statements are True (T) or False (F).
9. Budgetary policy can play an active role in tempering the economic cycle.

2. Japan failed to use fiscal stimulus effectively.
3. If recession strikes interest rates will be cut by much.
4. The congress must be ready to pass undemanding and temporary measures if fiscal policy jeopardizes the goal of budget balance.
5. Japan managed to use fiscal policy with careful consideration.

8. 4. Match up the words and definitions and translate them into Russian:

1. reflation;              a)              to urge or encourage forcefully to work harder;
2. contractionary;              b)              great disorder, (as if) the result of destruction;
3. to spur;              c)              an amount of money that is paid back to you when you

have paid too much;

4. to pick up;              d)              policy of increasing the amount of money being used

in a country, usually leading to more demand for goods

and more industrial activity;

5. shambles;              e)              to rearrange especially so as to perform different work

or to work more effectively;

6. to jeopardize;              f)              if business or trade picks up, it improves;
7. rebate;              g)              to put at risk or in danger;
8. to rejig.              h)              showing or causing contraction, and especially causing

a reduction in business activity.

8. 5. Read the article once more, find the sentences containing the gerunds and translate them into Russian.

8. 6. Make up the outline of the article and then render it.