Development and Finance from issue 2009/4

László Gazdag

2008: The Great Crisis. Lessons for Hungarian Economic Policy too!

- Abstract -

JEL E-32

Unexpected developments took place in the United States in September 2008: suddenly, and quite spectacularly, the mortgage loan market collapsed. The trigger for the worldwide crisis that erupted in 2008 was the poorly conceived tax cutting scheme of US President George W. Bush between 2001 and 2003. These tax cuts which then totalled the equivalent of 15% of the USA’s GNP (USD 1.5 trillion) did not result in investments – as expected – but instead chose the ‘easier’ route of speculative capital. They manipulated the oil market, created significant capacities in the production of biofuels with low efficiency and substantial amounts of government funding, but most of all they exerted an influence on the mortgage loan market. The outcome of it all was irresponsible monetary expansion that generated severe fluctuations in the real economy, and it is this fluctuation that we are now experiencing as the current crisis! This chain of events contains important lessons for Hungarian economic policy that are well worth taking into consideration!

László Gazdag, economist, associate professor (Pécs University of Sciences)

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