Below are few paragraphs from a secondary school textbook on Earth economic history published in 2110.

“Earth in 2010 was a developing world. Fragmented rule of law, low level of income, galactic-high income inequality, low level of technological development (imagine that they needed roads or rail-tracks for mass travel). Earth was terribly inefficient, instead of using one currency, each section of the Earth called a country had its own currency (although there were some blocks of countries sharing the same currency, euro for example). Earth was in a massive crisis in 2010 amid a series of policy mistakes in the previous fifteen years. In the beginning of the 21st century they allowed for emergence of massive bubbles:

  1. global imbalances, when United States run massive trade deficit financed by capital inflows from China and oil exporters
  2. banking bubble, when banking sector has grown to become a quarter of US stock exchange capitalization, and it grew not by serving its customers base but by developing and trading complicated and dodgy financial instruments
  3. greed bubble, when income of some fund managers topped 1 billion dollars (which is equivalent to fifty million galactors today)
  4. policy bubble, when they boxed themselves intellectually into all possible stupid decisions, the starkest example was when United States and United Kingdom nationalized their financial sectors and assumed sector’s bad debt, and then found themselves unable to borrow, and consequently declared bankruptcy. The same happened to several European countries, member of the so-called eurozone.
  5. Earth has ended up with no globally recognized store of value, in deep recession, with cross-border trade and investment collapsing on unprecedented scale and with unemployment and poverty rising rapidly in all countries.

Fortunately the Earth was not left alone with its problem, in our egalitarian galactic we never leave alone a developing planet in trouble. In 2010 a Galactic Monetary Mission was sent to Earth, and the following stabilization plan was imposed to save the imploding Earth economy. As you see the plan was based on a set of rules called the “Galactic consensus” at the time:

  1. Bad people in charge of policy-making and in financial sector were fired, good people, who deserved to be trusted, were hired
  2. Global constitution was enacted, which contained only few lines:
    • We the people of the Earth, in order to form a more perfect living place, establish justice, promote the general welfare, and secure the liberty to ourselves and our posterity decide as follows:
    • We establish four freedoms: a freedom to trade, a freedom to travel and work, a freedom to invest and a freedom to have access to broadband internet
    • No tax or duty shall be laid on articles and services exported from any country
    • No barriers to free movement of goods, services, capital, information and knowledge can be raised
    • Every Earth citizen has a right to chose the place to live and work
    • All currencies of the world are replaced by the “global” at the market exchange rates
    • The Earth Central Bank (ECB) is established. It has three goals: issue the “global”, the only legal tender on Earth, maintain stable prices on Earth, preserve financial stability of Earth. National central banks become ECB branches.
  3. A loan from the Galactic Central Treasury was extended to Earth to facilitate the creation of the Earth global currency and the Earth Central Bank.

As a result of the program the confidence was quickly restored, and rising knowledge, labor, capital and goods mobility facilitated rapid recovery that lasted the entire century, to this day.

Homework:

Please write an essay, not extending two standard galactic pages which addresses the following issues:

  1. Was it possible for Earthians to avoid the costly policy mistakes that led to bankruptcy of so many governments? Explain what should have been done  in 2009-2010.
  2. Imagine there was no Galactic Monetary Fund. Design a set of policies for the Earth that would lead to the same positive outcome.

This is a basic, very easy essay that secures the lowest pass grade, to obtain hire score you need to consider solving less basic problems presented below …

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Is it possible that 14 year old kids in 2109 are smarter than top brass politicians and economists were in 2009?