Tuesday, January 27, 2015

Weak Economy? 'They' Wouldn't Have It Any Other Way.

Take it from Joe.  Nobel laureate economist Joe Stiglitz to be precise.

The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies -- politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.

Nowhere is this clearer than in the Eurozone, which has officially adopted a policy of austerity -- cuts in government spending that augment weaknesses in private spending. The Eurozone's structure is partly to blame for impeding adjustment to the shock generated by the crisis; in the absence of a banking union, it was no surprise that money fled the hardest hit countries, weakening their financial systems and constraining lending and investment.

In Japan, one of the three "arrows" of Prime Minister Shinzo Abe's program for economic revival was launched in the wrong direction. The fall in GDP that followed the increase in the consumption tax in April provided further evidence in support of Keynesian economics -- as if there was not enough already.

...For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for de-leveraging, the thinking goes, means that fiscal policy must be shunted aside.

The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be). What monetary policy can do is create asset-price bubbles. It might even prop up the price of government bonds in Europe, thereby forestalling a sovereign-debt crisis. But it is important to be clear: the likelihood that loose monetary policies will restore global prosperity is nil.

This brings us back to politics and policies. Demand is what the world needs most. The private sector -- even with the generous support of monetary authorities -- will not supply it. But fiscal policy can. We have an ample choice of public investments that would yield high returns -- far higher than the real cost of capital -- and that would strengthen the balance sheets of the countries undertaking them.

The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.

In other words, just like that other great economic plague, inequality, is the bastard child of our political elite, so too is the global stagnation besetting every nation's economy.  It's the waste product of neoliberal ideology in practice.  If only a change of government would free Canada of that curse.


bcwaterboy said...

Look no further than to comment threads about the staggering job losses in Canada for how well engrained the neo-liberal thinking is in the Canadian Psyche. We've become so conditioned to hearing about it, the promises of jobs-and-economy out of harper's mouth trumps these losses and we go about our day. The truth of the matter is the "free-market" is anything but free and the house of cards economy with its chocked off demand and ever diminishing spending power and not to mention staggering government debt, we most certainly can blame harper for these staggering job losses and the economic disaster that awaits us.

Anonymous said...

An article appeared here in Mexico regarding PM Harper´s attitude toward the US President and the President of Mexico. Harper is reported to be very angry over Keystone not going through in the US and also angry since all vehicle manufacturing is moving into Mexico as well as the President here who is very upset at the Canadian PM over the new rules for visa requirement into Canada by Mexicans. So much for NAFTA. Will dig out the site and post tomorrow. Anyong

The Mound of Sound said...

@BCW - the term "free market" has been perverted to mean free from regulation, restraint and accountability. This freedom has been instrumental to the success of the plutocracy in 'capturing' the political process and the reins of power.

The Mound of Sound said...

@ Anyong. Most of that has been hashed over in the Canadian media save for the business about all auto production moving to Mexico. I think the Mexican press might be misreading that one.

Hugh said...

The Bank of Canada goes on and on, endlessly warning Canadians about their high debt levels, caused by low interest rates. Then they go and reduce the interest rate.