Ensuring Effectiveness of Economic and Monetary Policies through Considering Economic Schools of Thought: Lebanon 1990-2010

Georges N.  Nehme

doi:10.4236/jss.2014.24020

Georges N. Nehme

Abstract: Decision makers and executives should have a macroeconomic approach in planning and fixing economic and monetary policies for their countries. A national economy should be considered as a system including three interdependent markets: Financial market, Labor market, and Goods and Services market. Any attempt to practice an economic or monetary policy emphasizing on one or two of these markets and neglecting the third will lead to public debts, high unemployment and/or inflation rates. This neglect will also increase the financial crises risk especially for developing countries. These developing countries are suffering from being not able to apply liberal policies, compete in the international multilateral trade system, and benefit from globalization. Why Lebanese government is still insisting on applying liberal policies, high tax rate, low government expenses and investments, fixed exchange rate, and high interest rate? Is it reasonable and possible to have a developed financial market with bank deposits equaling three times the Lebanese GDP, and at the same time, a very weak labor and goods and services markets characterized by 18% unemployment rate and a very low consumers’ purchasing power? How does Lebanon have a huge public debt equaling twice its national GDP and be considered by the IMF as the fourth country in economic growth progression in the region? Why not considering Mundell’s incompatibility triangle and Kaldor’s magic square to analyze this critical economic situation? Is switching from a currency board to a forward-looking crawling PEG one of the factors to break this vicious circle?

Keywords: Unemployment; Economic Growth; Inflation; Interest Rate; Exchange Rate

Cite this paper: Nehme, G. (2014) Ensuring Effectiveness of Economic and Monetary Policies through Considering Economic Schools of Thought: Lebanon 1990-2010. Open Journal of Social Sciences, 2, 197-205. doi: 10.4236/jss.2014.24020.

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