The way out of the crisis

1663.jpgJanuary 2009 | By Rafael Pampillon, Professor at IE Business School

Spain has the same symptoms as those that preceded the Great Depression. And just like then, the only way forward is to facilitate loans and increase public spending.

My colleague and friend Pedro Schwartz published an article (“Is Pampillón wrong?â?) here on 31 October in which he expressed his disagreement with the economic policy measures I propose for putting this economic crisis behind us. How does he differ?

1. Professor Schwartz disagrees with the diagnosis, and this is most important since a realistic diagnosis is fundamental if the right policies are to be applied. He considers that, although we are experiencing an ebb of the cycle, we are not on our way to a depression like that of the 1930s.

My diagnosis is different, since I consider that the Spanish economy is in crisis owing to an insufficient aggregate demand of unknown proportions and that, if we do not apply the right measures, we will very soon enter a long, deep recession.

We must remember that the Great Depression of the 1930s came from a fall in demand, which led to high levels of unemployment, negative economic growth and deflation. To overcome that crisis, expansive aggregate demand policies were applied, together with increases in public spending.