Raymond Torres
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This paper examines the perverse effects of incomplete crisis responses to the financial crisis which started in 2008 in the wake of the collapse of Lehman Brothers. Initial emphasis on the role of the government – through coordinated fiscal measures to stimulate the economy, cushion job losses and support vulnerable groups – was effective in averting another Great Depression, despite widening public deficits. However, a policy mistake was made by, first, bailing out banks without reforming the dysfunctional financial system that had triggered the crisis: concern over the financial markets’ reaction to growing public indebtedness has shifted policy towards a more traditional, market-oriented approach focusing on fiscal consolidation, smaller governments and weak social protection. Second, a more fundamental problem is that the growing income inequalities that preceded the crisis have not been addressed. The risks are both greater social unrest and renewed economic instability. Finally, the paper presents the main elements of a strategy which would rebalance income distribution while at the same time promoting sustainable economic growth. This includes a coherence package of employment-friendly social protection, well-designed labour regulations, skill development policies, social dialogue and measures that facilitate investment and innovation in the real economy.


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