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After the 2008 global financial crisis, a consensus emerged that the public sector had a responsibility to intervene to bail out systemically important banks and stimulate economic growth. But that consensus proved short-lived and soon the public sector’s economic interventions came to be viewed as the main cause of the crisis, and thus needed to be reversed. This turned out to be a grave mistake.

In Europe, in particular, governments were lambasted for their high debts, even though private debt, not public borrowing, caused the collapse. Many were instructed to introduce austerity, rather than to stimulate growth with counter-cyclical policies. Meanwhile, the state was expected to pursue financial sector reforms, which, together with a revival of investment and industry, were supposed to restore competitiveness.

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