New Concepts in Public Finance After the 2007-2008 Crisis

Summary

The crisis that erupted in 2007-2008 and the subsequent crisis management contributed new content to the approach to economics and public finances. Increase in governmental economy engineering and the shift towards tighter state supervision and regulation have introduced the model of an active state all over the world, and its scientific evidences are currently emerging. The monetary policy practice of a single mandate, prevalent in continental Europe for decades, has also come under review, and thus central bank policies facilitating financial stability and economic growth, in addition to the moderation of inflation, have been brought to the fore by FED, the Bank of England, the National Bank of Hungary, and even the European Central Bank. The author relies on the rich history of theories underlying all these practical changes and builds a scientific model of the rapid current changes.

Key words: new model of state finances, monetary policy, fiscal policy, economic history, period following the 2007-2008 crisis
JEL code: B1, E5, E6, F6

Review of the history of theories – the classics of institutional thinking

Although nearly all the most prominent personalities in the more than two hundred years’ history of economics were engaged in public finance issues, the approach that consciously endeavoured to integrate economic developments into the social and political reality only appeared about a century ago. Institutional thinking is especially timely today, as the financial crisis that erupted in 2007-2008 proved that the market should not be left alone, and economic issues cannot be interpreted considering their far-reaching consequences.

According to Ronald Coase,1 a British economist awarded the Nobel Prize in 1991, economics had neglected institutional questions for a long time and exclusively focused on supplementing and formalising what Adam Smith2 described in his undoubtedly revolutionary book The Wealth of Nations, published in 1776, which generated profound changes. This means that economists failed to devote sufficient attention either to what was going on in an organisation or a company – this is what Coase addressed –, or to the social and political environment and context in which economic decisions were made.

However, institutions do matter („Institutions matter”) – this was determined in a fairly to-the-point way by Douglass North3, who was awarded the Nobel Prize in 1993. Following in the footsteps of Thorstein Veblen,4 Walton Hamilton5 and John R. Commons6, this economic school regards all the factors that influence economic decisions as institutions: the formal rules, i.e. laws and other government regulations, and the informal factors, i.e. the culture and even the religious background. Today it is hard to believe, but it is a fact that economists were very far from the every-day reality for a long time, and did not consider the fact that people in different legal and cultural environments react to individual economic policy and public finance developments and decisions in different ways. The experiences gained in Hungary in the two decades following the change of regime prove the significance of this matter, as recipes that worked well in more advanced market economies and in countries that had been learning democracy for a longer time did not fit the features of the emerging countries, and often failed. It has been proven that an imported raw economic policy that is far from the domestic conditions is unsuitable for ensuring economic growth and financial stability over the longer term.

The institutional approach that emphasized the significance of rules and standards was pushed to the background to a certain extent when the ideas of John Maynard Keynes7 gained ground in the 1930’s. A few decades later, with the already mentioned Coase and North, as well as Coase’s disciple, Oliver Williamson8, who was awarded the Nobel Prize in 2009, institutionalists once again made their way to the mainstream economic thinking during the 1980’s and 1990’s. However, the ideas supported by a theory did not really make their way to every-day practice, and it did not seem to happen until the crisis of 2007-2008. The autarchy of schools praising market mechanisms was not broken for a long time, and the world needed a series of economic disasters to realise that there is no such thing as a self-curing market, unlimited rationality or an efficient public finance system without rules.

Undoubtedly, more attention should be paid to economic policy and public finances to the fact that economic and financial transactions incur costs and that one of the main tasks of economic governance is to cut these costs. Institutions, rules and laws must be created to reduce transaction costs. If we accept that fact that these costs are typically incurred from uncertainty and risks, then one of the goals of the state should be to create an environment in which market uncertainty is properly controlled and mitigated. Therefore, one of the main directions of institutional thinking was to find out what regulatory matrix was needed in order to create a well-functioning economy and state. According to Dani Rodrik,9 a professor at Harvard University, four institutional groups can be distinguished that are indispensable essential for economic and social development:

• Institutions and rules that guarantee the protection of ownership (market creating institutions): in a market economy, economic development is impossible without these, and the protection and guaranteeing of ownership are basic conditions of development.
• Institutions related to the regulation of markets (market regulating institutions): classical economics also acknowledges that there are market failures that need to be managed – they include the externalities, the information asymmetries, and the competition-restricting consequences of economies of scale.
• Institutions serving stabilisation (market stabilizing institutions): this covers all the institutions that aim at the provision of a stable economic environment, including price stability, reduction of macro-economic volatility or the prevention of financial crises (central banks, exchange rate systems, fiscal and monetary regulations).
• Legitimizing institutions (market legitimizing institutions): it is not enough to prove the superiority of market economy in textbooks and magazines, it has to be made accepted by society, too, which demands institutions that manage market fluctuations and negative features, and build and protect trust in society (social insurance, management of unemployment, social benefits, pension system, and supervision of public finances).

These groups organised in this institutional matrix have to be coherent and resilient, i.e. within one economic policy course, they should have an overlap in contents and ideology, and should resist to negative impacts in a flexible way.

Controversial issues in economic policy efficiency – the old and new ways of monetary regulation

Central bank regulation is an important tool in the institutional approach to the public finance system. This was the first area that underwent, and is still undergoing, significant renewal in response to the crisis. According to the Rodrik model, the central bank is one of the key stabilising institutions of the economy. In the classical approach, it ensures price stability, but these days the responsibility of central banks for general macro-economic stability and possibly for social stability is also mentioned as a key factor. The outbreak of the financial crisis put an end to the previous consensus on monetary policy. The effects of monetary policy on redistribution have come to the foreground; the modelling and transparency of central bank decisions now require the development of an interpretive framework that allows the complex interpretation of monetary policy decisions in a social context.

The way of thinking regarding central bank policies was rather simple in the 20-30 years preceding the crisis, and Barro and Gordon’s10 and Kydland and Prescott’s11 studies on central bank independence basically defined the frameworks of thinking. It is only now that more complex approaches that consider realities have emerged, although John Woolley12 determined already in 1983 the types of factors working through governments and outside governments, as well as the structural and less embedded factors, which may have influenced central bank decision-making. Experiences related to monetary policy and the related research may be useful because they point out the deep changes that may come in the forthcoming years at both theoretical and practical level, in connection with the whole issue of public finances – it seems we had better prepare for serious transformations.

According to the simplifying consensus before the crisis, central banks should operate within the frames of the „one goal – one tool” system, which meant that they had to watch the inflation only (one goal), and if they intervened to correct inflation processes, they had to do that through short-term interests (one tool).

The crisis has overwritten this paradigm13, and central banks now work with a wide range of tools, and in addition to the still primary inflation goal14 , they focus on other objectives, too, such as financial stability, loan incentives, growth, supporting the government’s economic policy. According to the consensus reached after the crisis, price stability is a necessary but not satisfactory condition of the sustainable and long-term growth of the economy, i.e. the central bank should use the tools available to it to create macro-economic stability. The theoretical foundations of this, however, have not yet been worked out, the reality is that central bank practice developed in this direction, and the price stability objective is still of primary importance.

The simplification used before the crisis – that the only thing the central bank should worry about is inflation – basically originates from the so-called “classical dichotomy”, which says that you cannot permanently influence the real economy with nominal variables, therefore it is not worth doing that. This can be explained by the fact that monetary policy and money are neutral on the long term. This theory says that monetary policy is able to influence economic growth on the short term – boost or restrict demand −, but its impact on real variables (employment, growth etc.) fades away on the long term. The balance of real variables is basically determined by developments in supply – such as the available technology, demography or the preferences of economic players.

According to the professional concept maintained before the crisis, monetary policy has only a temporary impact on the recovery of the real economy, i.e. the short-term increase in demand was annulled on the long-term by the increased price level. Over the short term, the central bank is able to boost or restrict the economy, i.e. to smooth the economic fluctuations. On the other hand, this cannot trigger permanent changes in the real economy processes, and the steps taken will be finally felt in the change in price level.

International compatibility can also be improved with monetary policy tools on a temporary basis only, i.e. by devaluing the currency rates. Sooner or later, all domestic prices and costs will be adjusted to the nominal exchange rate change, therefore the monetary policy cannot achieve a steady impact on real economy.

Potential growth is determined by the increase in the factors on the supply side (development of technology, available capital and extended workforce etc.). All that monetary policy can do to support it is to maintain price stability, nothing else.

All in all, the theoretical basis of the simplified approach used before the crisis and summarised above can be summarised in a way that if the central bank follows a growth and employment objective, it loses its credibility, and without the credibility of the central bank, the steps of monetary policy will be less efficient.15 As a result, the costs of achieving price stability may significantly increase in the future. The theoretical foundation of this was awarded with an economic Nobel Prize in 2004 for Finn E. Kydland and Edward C. Prescott (their relevant article on the theory was written in 1977)16.

Thomas J. Sargent and Neil Wallace created the neo-classical theory in 197517, which says that because of rational expectations, monetary policy is unable to influence output and employment permanently, as rational players indicate monetary recovery in advance, therefore wages and prices are raised immediately.

The new economic paradigm is the concept of the „high-pressure economy”.18 The latest comprehensive and empiric studies point out that in two thirds of the cases, recessions permanently reduced the level of GDP, and this phenomenon is called hysteresis. What is more, in one third of the cases, the lower levels compared to the previous trend are not constant in time, but increasing. There is not yet complete consensus on the explanation of this phenomenon, but in empiric way, it is getting more and more accepted that the growth trend of the economy that can be maintained on the long term is not independent from the cyclical course followed. The phenomenon of hysteresis adds special value to the anticyclical economic policy, as this way budgetary and monetary policy not only stabilises economy around the trend line, but it may have an effective impact on the long-term level of the GDP, too.

If recession reduces the long-term growth trend, the high-pressure economy will probably help the economy return to the course it followed before the crisis. The concept of the high-pressure economy appeared in economics in the early 70’ies, and it says that if the economic policy exerts an over-the-average pressure on the economy, constantly higher GDP can be achieved. In an economy that is permanently and predictably under a demand pressure, companies expect their markets to grow, so they increase their own demand for production factors, machines and equipment and workforce. Consumers’ demands for products may also increase steadily, because employment and incomes are predictable.

A general objection against the concept of the high-pressure economy is that it is risky from inflation point of view. Recently, however, because of two conditions, inflation dynamics has changed significantly, which reduces the potential costs of the high-pressure economy. On the one hand, inflation expectations are low and well anchored, and on the other hand, the Phillips curve that connects the real economy and the inflation has become flat recently. This process results in the fact that increased output has less and less impact on inflation. This school also refers to the fiscal policy mainly, but it can be interpreted for monetary policy, too. The concept of the high-pressure economy comes from Okun (1973)19. The concept is supported by the research of Fatás and Summers in 2016, too20 where the authors prove that in developed economies, in 2010-2011, each percent of the drop in GDP caused by fiscal restriction caused a 1 percent drop in potential output.

Public finance spheres of new type – higher value of the role of the monetary policy

Economic policy, as a comprehensive tool suitable for influencing the economic players, has four aspects in the classical concept, and its tasks are as follows:

• facilitate economic growth,
• ensure the balance of the budget and the current account,
• reduce inflation to a fair level, and keep it there,
• and facilitate the modernisation, the reforms and the structural changes in the national economy.

The facilitation of economic growth should have not only national economy aspects, but should affect companies, sectors and even households, in fact, all these together will give the potential of the national economy. When the financial balance is lost in certain areas, economic growth comes to a halt. Too much foreign loans and their interest burdens withdraw funds from investments, the indicators of the extended reproduction processes and from social extensions, i.e. from the sources of growth. Unstable foreign economy positions attack exchange rates, and cause an excessive outflow of incomes. A high and increasing budget deficit generates inflationary impacts. According to the classical concept, the central bank is responsible for reducing the inflation, but in fact it cannot do it alone. A fiscal policy proceeding in the direction of financial balance is also essential for the reduction of the price level, as the opposite of that, the increasing deficit may trigger inflationary impacts on its own. At the same time, public utility fees and turnover taxes reduced by fiscal measures are able to significantly control the rate of inflation.

If there is growth, and there is financial balance behind growth, and companies and employees are interested in extended reproduction, the economic policy may be successful. Success, however, does not last forever. Being part of the world economy, the national economy competes on external markets every day. The products emitted by the corporate sector of the national economy are tested on internal markets, too, especially in an open country that is liberalised from foreign trade point of view (too). The whole economic policy and the public finance system that is in the core of it should undergo constant renewal and modernisation, so that it could respond to the constantly emerging challenges in an efficient way. The national economy is competitive when its public finance conditions, i.e. its taxation, aid policy and monetary issues are able to get adjusted to the constantly emerging changes in the world economy, and thus ensure stability, or even the possibility of growth for the economic and retail sectors. Therefore the fiscal policy alone is not enough for the successful management of a financial crisis, and in the period after 2007-2008, central banks introduced their quantitative relaxation, asset acquisition and investment boosting programmes and with their low base rate policies, they positioned themselves as efficient crisis managing institutions.

The satisfaction of the four aspects of the objectives of economic policy requires the coherent operation of the fiscal and monetary areas that should work in the same direction. The crisis management after the first years of the crisis in 2007-2008 proved that economic growth depends not only on the tax system and the fiscal regulation, but also on the central banks’ investment support programmes and cheaper commercial bank loans based on the lower central bank base rates. The balance of the budget and the current account relies not only on the efficiency of the government’s tax and aid policy, and on the development of the export-driven company structures, but on the central bank base rate that influences public debts, too, and the direct-indirect tools of managing expiring public debts by the central bank, as well as the exchange rate policy and the stability of the national currency against other currencies. The moderation of inflation is a classic central bank tool, but in the years following the crisis, the enforcement of official price regulations and the reduction of indirect taxes were also able to achieve a significant drop in the price level within a short time21. The satisfaction of the requirements regarding the modernisation of the national economy is also the joint result of the government’s active monetary and asset policy tools, and central bank tools that guarantee the steady value of funds, incomes and savings helping the operation of the state, and the provision of not impaired funds for investment. It became apparent in the period following the crisis of 2007-2008 that the interpretation of the financial policy/economic policy is not feasible any longer within the frames of the government’s fiscal policy only. The four objectives (growth, balance, moderated inflation, ability to renew), which the government’s financial bodies attempt to achieve, were possible to ensure in the years following the crisis of 2007-2008 with the strong involvement of the central bank only. Central bank mechanisms, although they do not generate public funds and do not re-distribute public funds, have become the integral and supportive parts and organisational aggregates of the state financial system.22

On the role of the state and the active state model

The years following the outbreak of the crisis in 2007-2008 were primarily characterised with a stronger involvement of the state, as opposed to the previous raw neo-liberal course. While the crisis of 1929-33 was a crisis of over-production, the crisis that deepened by 2007-2008 was an over-lending crisis, but both recessions proved that autonomous market players (be it companies or banks) are not capable for self-regulation, for market co-ordination, and a state that leaves these corporate institutions alone is the primary source of information asymmetries, lack of control and regulation.

The dilemma of administration and governance in a strong and active or a week “yes” state is a long-standing issue. Quoting academician Antal Mátyás:23 the economists advocating neo-Keynesian views (representing the neo-classical synthesis) take an ambiguous position in connection with the automatic developments incapitalist economy. In the short term, they call into question the stability of the capitalist private sector. According to Tobin and his co-author, Buitner24 the under-employment of labour and capital is frequent and lasting enough to justify the opposition to intervention provided by economic policy.
Modigliani takes a similar position: monetarists are wrong when they believe the economy is already well protected against any shocks and there is no need for a stabilisation policy any more. Their claim that the stabilisation policies have failed to eliminate the problems but in fact they have generated more trouble is not supported, among other things, by the data of the United States and other industrial countries.25 And in addition to Modigliani’s experiences in 1988, the results of the fiscal and central bank interventions after 2007-2008 also prove that stabilisation policies resulted in the consolidation of the economy. Looking at historical prospects, we can see that whenever economic boom emerged, the economic players (banks, companies) attempted to reduce the regulating and controlling role of the state, but when symptoms of crisis were detected, they demanded the state’s role in influencing and assisting the economy.

Government and central bank interventions that were made in crisis management after 2007 and were definitely stronger and wider resulted in the rearrangement of the social science area, and within that made political science, dealing with the operation of the state, more important. In the management of the crisis, the state was given a stronger mandate to regulate and supervise the markets. Therefore the authority that concentrated on the prevention of the deepening of the crisis and the achievement of the consolidation started to focus on budgetary processes and financial markets, too. The co-ordination, influencing and supervision of the operation of economic organisations may by successful under well-organised economic governance only. In other words, crisis management may be successful with clear and transparent public finance and state finance subsystems and disciplined and controlled money markets. With its own tools, the government creates the legal frames for that, and demands and enforces disciplined management and guarantees control. In fact, they have started to build a scientific methodology of new contents from the practical knowledge. It so happened that being in the border areas of scientific disciplines that are essential for the operation of the active state, such as descriptive law and economics of “business approach” was not enough any longer. It so happened that the “operation” of the state through “permissive” legal regulations and the related passive law cadastre, and the business approach originating from the business-centred approach of economics, forced on public services and the operation of the state, too, became outdated categories in the period following the crisis. State property was re-interpreted, which, following its privatisation in the previous decades – especially in the Eastern and Central European region – was transferred to national ownership (by re-purchase) or national control again, at least this is what the trends showed. It can be proved that the operation of the state and the performance of state services cannot be profitable on purely market basis. The economic philosophy of the New Public Management (NPM), the DPM paradigm that was built on decentralisation, privatisation and the management (profit) approach of public services, have become fairly overwritten contents. Processes tend to move toward the higher importance of the active state model and the related new economic paradigm, i.e. centralisation, return to national ownership (by re-purchase), and the approach that enforces the serving of public well-being, and thus the DPM will likely be replaced by the CNPG26 concept. Interpreting the processes in European space, processes indicating a partial reincarnation of the social welfare state and etatist views used after World War II by Ludwig Erhard, Konrad Adenauer and De Gaulle can be experienced among European countries, especially the former Eastern and Central European countries.

Public finances as a comprehensive category, and state finance as a technical framework for the financial and asset developments in the government, form an organic part of the (content and techniques of the) study of governance, that is, public administration. They provide the organising principle and economic framework of the operation of the state. Using its own tools, law creates rules and encodes reigning practices into rules,27 whereby it promotes continuity, efficiency, transparency and accountability. With the role of the state gaining more significance, a new scientific methodology system has been created for the study of its operation in Hungary as well. The study of governance “created” at the interdisciplinary boundary of jurisprudence and economics brings together public law, public finances (state finances), the study of national economy as the economic basis of the operation of the state, the e-government, the science areas of public service professions, administration organisation, administration management, public service communication, as well as internal law enforcement and the military professional order that serves the state.

Figure 1: Draft of the new system of public finances
(Lentner, Cs. 2017)

The crisis of the neo-liberal system extended the role and importance of the study of public administration. The sound and transparent public finance conditions of a strong and active state resting upon a good theory provide the basis for a well-functioning state. The study of public administration is an area of inquiry constantly expanding as a consequence of the crisis and incorporating several disciplines. For instance, banking mechanisms and institutions, the regulatory and supervisory structures, i.e. areas that usually belong to classical finances and are typically included under the categories of banking are now shifting towards the domain of public administration, therefore crisis management used since 2007-2008 has proved under both international and national conditions that private banks are unable to support continuous business operation without state and international participation, cross-border regulation, effective supervisory control and occasional budgetary subsidy and state intervention. This means that banks operate successfully when they comply with regulations and utilise the opportunities offered by the regulatory frames in the best possible way, and not when they achieve their “own” success in the free market space demanded by them.

Conclusions

The active and practical operation of the state has made political science and state finances more important, and within that, the process of formulating the scientific contents is still going on, in which the ideas found in international technical literature, especially the thoughts of the pioneers of institutional thinking can be utilised efficiently.

Political and social demands focusing on sustainability, financial stability and the mitigation of economic and social vulnerability call for new economic and state finance paradigms. In the forty years before the crisis, economics moved closer to business sciences and business approach, and jurisprudence was limited to describing the operation of the state, but in the scientific policy of present days, these are already outdated contents. Preventive legislation that sets an efficient course for the operation of the state and prevents crises, and the modified economic contents and social expectations regarding the operation of the state and public services have become the content and organisational attributes of political science, and the mapping of this in education and science28 is one of the key challenges of the present time.

Under the conditions of recession, the enforcement of the economic policy criteria proved that the classic state finance instrument in itself, i.e. the government’s financial policy alone is not enough to ease the burdens of the crisis, therefore it is necessary to have a central bank institutional system that has multiple mandates assigned to it, and that operates in macro-economic and social context. Thus the state finance system has become a two-pole system, and the government’s financial policy has been extended with a central bank institutional system that is coherent with it, but at the same time, independent of it, too.

References

11 Coase, Ronald: The Institutional Structure of Production. Lecture to the Memory of Alfred Nobel, December 9, 1991. http://nobel prize.org/nobel_prizes/economics/laureates/1991/coase-lecture.html (2017.10.08.). Coase, Ronald: The Nature of the Firm, in Economica, New Series, Vol. 4. No. 16. (1937), pp. 386-405
12 Smith, Adam: An Inquiry into the Nature and Causes of the Wealth of Nations, 1776. In Hungarian see Smith, Adam: A nemzetek gazdagsága I-II. E gazdagság természetének és okainak vizsgálata, 1959, Akadémiai Kiadó, Budapest.
13 North, Douglas C.: The Historical Evolution of Polities, in International Review of Law and Economics, Vol. 14. Issue 4. (1994), pp. 381-391; North, Douglas C.: The New Institutional Economics and Development, 1993, Washington University, St. Louis. http://econ2.econ.iastate.edu/t esfatsi/New InstE.North.pdf (08.10.2017).
14 Veblen, Thorstein: A dologtalan osztály elmélete, 1975, KJK, Budapest.
15 Hamilton, Walton H.: The Instituional Approach to Economic Theory, in American Economic Review, Vol. 9. No. 1. (1919), pp. 309-318.
16 Commons, John R.: Institutional Economics, in The American Economic Review, Vol. 26. No. 1. Supplement, Papers and Proceedings of the Forty-eighth Annual Meeting of the American Economic Association (1936), pp. 237-249
17 Keynes, M. John: The General Theory of Employment, Interest and Money, 1936.
18 Williamson, Oliver E.: The new institutional economics: Taking stocks and looking ahead, in Journal of Economic Literature, Vol. 38. No. 3. (2000), pp. 595-613
19 Ld. Rodrik, Dani: Trade Policy Reform as Institutional Reform, August 2000. https://www.sss.ias.edu/files/pdfs/Rodrik/Research/trade-policy-reform-institutional-reform.PDF (08.02.2015). Rodrik, Dani – Subramarian, Arvind: The Primacy of Institutions, in Finance and Development, June 2003. http://www.imf.org/external/pubs/ft/ fandd/2003/06/pdf/rodrik.pdf (08.10.2017).
10 Barro, Robert J. – Gordon, David B: A Positive Theory of Monetary Policy in a Natural Rate Model, in Journal of Political Economy, Vol. 91. No. 4. (1983), pp. 589-610
11 Kydland, Finn E. – Prescott, Edward C.: Rules Rather than Discretion: the Inconsistency of Optimal Plans, in Journal of Political Economy, Vol. 85. No. 3. (1977), pp. 473-492
12 Woolley, John T.: Political Factors in monetary Policy, in Hodgman, Donald R. (edit.): The Political Economy of Monetary Policy: National and International Aspects, 1983, Conference Series 26. http://www. bos.frb.org/economic/conf/conf26/conf26i.pdf (08.10.2017).
13 Olivier J. Blanchard, David Romer, A. Michael Spence, and Joseph E. Stiglitz (editors): In the Wake of the Crisis Leading Economists Reassess Economic Policy MIT Press, Cambridge, Massachusetts, 2012, 174 pp.
14 In the case of the central bank of the US, it was not true either before the crisis, or after that, as the goal related to inflation is only one of many monetary policy objectives.
15 This kind of approach worked mainly for the central banks of the European continental area, it was not really a characteristic feature of the central bank of the US, as the primary monetary policy goal in the US is the maintenance of the healthy status of employment.
16 Kydland, F. E. – Prescott, E. C. (1977): Rules rather than discretion: the inconsistency of optimal plans. Journal of Political Economy. June 1977
17 Sargent, Thomas & Wallace, Neil (1975). “’Rational’ Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule”. Journal of Political Economy. 83 (2): pp. 241–254.
18 Based on the Growth Report of the Magyar Nemzeti Bank of December 2016.
19 Okun, A. (1973): Upward Mobility in a High Pressure Economy, in: Brookings Papers on Economic Activity, Spring 1973, pp. 207–253.
20 Fatás, A. – Summers H. L. (2016): The Permanent Effects of Fiscal Consolidations. NBER Working Paper No. 22374. Issued in June 2016. Reviesed in August 2016. NBER Program(s): EFG. http://www.nber.org/papers/w22374, Downloaded: 07.12.2017
21 See the example of Hungary with the central price regulation of the services of the public utility sector and the reduction of the turnover taxes on the prices of basic foodstuffs.
22 See the Quantitative Easing policy of the Fed, the Funding for Lending programme of the Bank of England, the asset acquisition programme of the European Central Bank, or even the Funding for Growth Scheme or the Self-financing (public debt financing) programme of the Magyar Nemzeti Bank. In the Anglo-Saxon world, the multiple mandates of central banks supporting state finances were common practice already in the period before the crisis, but this was not case on the European continent, where central banks tried to support the economic policy only by reducing inflation.
23 Mátyás Antal: A pénz semleges voltával kapcsolatos viták a közgazdaságtan különbözô irányzatainál, in Lentner Csaba (szerk.): Pénzügypoliti-kai stratégiák a XXI. század elején, 2007, Akadémiai Kiadó, Budapest.
24 Tobin, James – Buitner, Willem: Fiscal and Monetary Policies, Capital Formation and Economic Activity, in Tobin, James: Essays in Economics, Vol. 3., 1982, The MIT Press, p. 183
25 Modigliani, Franco: Pénz, megtakarítás, stabilizáció, 1988, KJK, Budapest, p. 126
26 The author’s (Lentner) original concept: Centralization, Nationalization, Public Good (CNPG).
27 This may happen with proposals of MPs or government proposals which may become acts of law. It was possible on a diorite stone column (Hammurabi), the essence is the same. These are technical tools in the operation of the state. The economic aspect of taxation is also a technical tool, as taxes are paid by taxpayers – basically – according to the fiscal requirements of the state, and not according to their own taxation abilities defined by an economic optimum. It is politics itself, the reigning political power, its intentions and values that ultimately formulate state finances. Therefore it is not an organic, bottom-up process, as „the political society is definitely not the product of a contract among individuals initiating the association. There has always been a social system…” Abélés, Marc: Az állam antropológiája, (The anthropology of state) 2007, Századvég, Budapest, p. 27. Therefore things are basically predestined. Law and economic control perform an activity that follows things and defines rules, than executes.
28 Fort he Hungarian aspects see: ZEMAN, Zoltán (2017): The New Hungarian Model in Hungarian Economic Science Higher Education, Civic Review, 2017:(13) pp. 271-280.