The finance minister of Poland, Jacek Rostowski, has a piece in today's Financial Times arguing that monetary policy's smoothing out of small crises is what created a big crisis. "What drives the market is the balance between fear and greed. If economic policy eliminates fear, only greed remains, and there is no mechanism to limit 'irrational exuberance'. This was the fundamental cause of the crisis. Moral hazard and herd behaviour are natural consequences," he writes. "Weak regulation and supervision were not the fundamental problems, although they can and should be improved. Countries not in crisis – China, Poland and much of Latin America – were, above all, those with low leverage, not those with sophisticated financial supervision."
He's a stimulus skeptic: "The fiscal stimulus measures in 2008 and 2009 were hardly necessary. The recession is over and very little of the stimulus has yet arrived. It will do so in 2010 and 2011 when no longer needed. Automatic stabilisers – less tax collection and larger social transfers – were probably sufficient and certainly timely. Any additional discretionary public expenditures should have been avoided and should now be withdrawn. Instead, our major challenge is to contain public expenditure and restore fiscal balance. ...The world needs smaller and more rational entitlement systems, not more discretionary spending, which has a tendency to become permanent."