As the Minister for Finance, the Economy and Investment, the Hon. Tonio Fenech prepares to deliver his first budget he will be well advised to learn the lessons of history.

I am not referring to Maltese history but to global economic history.

The financial and economic crisis the world is in at present can only be compared to the Great Depression of 1929 -30. Then the stock market crash lead to a prolonged period of economic recession and it was only the visionary policies of Franklin Roosevelt’s New Deal which began to change the economic tide.

An authoritative academic assessment which I read while I was up at Oxford too many moons ago had this to say about that era; “Keynesian macroeconomic theory also helped provide acceptance for the New Deal industrial relations system. This theory can be traced to the underconsumptionist view of the Great Depression. In brief, this view held that the Depression was caused by insufficient aggregate demand and a failure of purchasing power to keep pace with the productive capacity of the growing mass-producing industries. This was to be cured by Keynesian fiscal polices and government demand for war material and, after World War II, by the expansion in consumer purchasing power spurred by the reconstruction of western economies.” (Kochan T.A., Katz H.C. and McKersie R.B., 1994: 26)

What this meant in simple terms was that, apart from ensuring stable industrial relations, Governments were to see to it that they put, or at least left, money in people’s pockets.

Following the Great Depression and World War II, therefore, the governments of the industrial western democracies did all in their power in order, to borrow a phrase used by the Prime Minister, Dr Gonzi, before last March’s General election, to give their countries a much needed and sustained economic stimulus. This came from spending on reconstruction, investment in the infrastructure and creating the social welfare state that was the model for all emerging and developing nations at the time.

That model stood the test of time until Reagan and Thatcher decided that they would rather go for monetarist economic policy. That led to unprecedented levels of unemployment and the creation of a generation of financiers whose greed knew no limits. The result was the stock market crash we have seen and experienced since last September.

The way out of this, even in Malta, is not to go listen to those who say that the Government must balance its books at all costs but to keep the economy going by leaving enough money in people’s pockets to do so.

In my humble view, therefore, Mr Fenech would be well-advised to put his accounting background aside and take heed of the lessons of macro-economic history before he finalises his Budget Speech.