##ed economists until john maynard keynes offered an explanation that was to influence policy practitioners for generations to come. he argued that, contrary to the tenets of smith and his followers, market systems did not always converge to full employment. they often appeared to settle at an equilibrium in which significant segments of the workforce were unable to find jobs. in the place of smith's laissez - faire approach arose the view that government action was required to restore full employment and to rectify what were seen as other deficiencies of market - driven outcomes. a tidal wave of regulation soon swept over much of the american business community. labor relations, securities markets, banking, agricultural pricing, and many other segments of the u. s. economy became subject to the oversight of government. the apparent success of the economy during world war ii, which operated at full employment in contrast to the earlier frightening developments during the depression years, led to a considerable reluctance to fully dismantle wartime regulations when the hostilities came to an end. however, cracks in the facade of government economic management appeared early in the post - world war ii years, and those cracks continued to widen as time passed. at the macro level, the system of wage and price controls imposed in the 1970s to deal with the problem of inflation proved unworkable and ineffective. and at the micro level, heavy regulation of many industries was increasingly seen as impeding efficiency and competitiveness. by the early 1980s, the long - prevalent notion that the centrally planned economy of the soviet union was catching up with the west had begun to be discredited, though it was not fully discarded until the collapse of the berlin wall in 1989 exposed the economic ruin behind the iron curtain. 1 / 6 starting in the 1970s, u. s. presidents, supported by bipartisan majorities in the congress, responded to the growing recognition of the distortions created by regulation, by deregulating large segments of the transportation, communications, energy, and financial services industries. the stated purpose of this deregulation was to enhance competition, which had come to be seen as a significant spur to productivity growth and elevated standards of living. assisting in the dismantling of economic restraints was the persistent, albeit slow, lowering of barriers to cross - border trade and finance. as a consequence, the united states, then widely seen as a once - great economic power that had lost its way, gradually moved back to the forefront of what joseph schumpeter, the renowned harvard professor,

the secretariat to the esrb and give analytical and organisational support. the crisis is forcing us to undertake careful analysis to identify where mistakes were made, and to correct them, even in the face of resistance from the political domain. at the same time, however, we should also identify what has proved itself to be of worth and what should be maintained as is. at the macroeconomic level, as i have already said at another occasion, there is one conclusion that should certainly not be drawn from the financial crisis, namely that higher rates of inflation should be targeted in future. there are no discernible macroeconomic benefits that would compensate for the obvious costs of increased inflation – higher risk premia and higher long - term interest rates, to name just two. and we should never forget that low inflation preserves the purchasing power of our most vulnerable and poorer fellow citizens. the financial crisis has not brought about any change in this fundamental assessment : contrary to the fears of some critics, the non - conventional monetary policy measures taken by the ecb had exactly the desired effect, even in an environment of temporarily negative inflation rates, so that they can now – given the normalisation of the outlook for inflation and the prospect of a general market recovery – be phased - out, step by step. the ecb will uphold its definition of price stability. one characteristic of the ecb and the national central banks of the eurosystem is that their activities are oriented towards the long term. in an environment generally characterised by short - term horizons, the ecb ’ s long - term approach differentiates it from what occurs in both general politics and the private financial sector. it is not surprising that political behaviour in democracies is strongly dependent on election cycles. in the field of fiscal policy in particular, this might encourage short - term action focused on election dates, resulting in a tendency to engage in deficit spending and growing government debt. as emphasised in the political economy literature, this short - term approach is, in fact, built into the political process itself, which demands that political actors are re - legitimised by means of elections at regular intervals. however, short - termism can and should be corrected through fiscal rules that work towards the sustainability of public finances. examples of this include the stability and growth pact and the recently agreed, and much to be welcomed, “ debt brake ” built into german law. activity in the private sector is often governed by the quest for short - term profits. seeking profits