For much of the past 50 years, economists have fiercely debated which economic policies would be most helpful in attempting to prevent another Great Depression. The Keynesian School, founded by British economist John Maynard Keynes, advocates stimulating the economy through large spending increases and tax cuts that are financed by large budget deficits. By contrast, the Monetarist School, founded by US economist Milton Friedman, believes that overly restrictive monetary policy caused the Great Depression; therefore, aggressive money printing by central banks would be the best antidote to economic depression.

If current policy trends continue, economists may get a chance to resolve this debate, because a controlled policy experiment is being conducted by three major economic blocs. Over the past decade, the United States, the United Kingdom, and most of developed Europe pursued economic policies that encouraged borrowing to finance excessive consumer spending. All three economic blocs now face a painful adjustment process away from debt dependency. They have all bought time to implement needed adjustments by running unprecedented peacetime budget deficits, but their policy prescriptions for the next several years could not be more different. Europe is ignoring both Keynes and Friedman's advice by refusing to provide either fiscal or monetary stimulus to its troubled PIIGS (Portugal, Italy, Ireland, Greece, and Spain). The US, with the recently enacted tax and spending compromise between President Obama and Congressional Republicans, is going full bore on both types of stimulus. Finally, the UK is combining aggressive monetary stimulus with a credible, specific plan for deficit reduction. Judging by prior instances of excessive debt in the US, we think that the UK's policy is likely to prove most successful.

David Fuller's view Various subscribers may have a slightly different take on the prescriptions and paths followed by Euroland the USA and UK. For instance, my own concern for the UK is that it needs more exports, created by entrepreneurs and financiers attracted by a competitive business envorinment, including lower taxes. That latter incentive or retention carrot is not something which the coalition government can deliver, for political reasons. These are challenging but also interesting times, and I think the outcome of these monetary experiments will be discussed for decades to come.

Michael Jones has provided a good outline and summary, in my view, and I commend his report to you.