One of life’s more common frustrations is when experts don’t “get
it.” A sputtering global economy is in such a bind today. There are
three essential points political leaders worldwide still don’t get. And
this is holding us back from a 21st century that promises to be the most
successful ever.
The first point is that this is no run-of-the-mill industrial recession. This is a rare financial recession, whose devastation is acute and widespread in the world.
To listen to Finance Minister Jim Flahery’s hectoring of Europeans to get their fiscal house in order, or the conviction of British PM David Cameron and German Chancellor Angela Merkel that troubled nations would be best served by adopting their tough-love prescriptions (a view shared by most Republicans in the U.S.), is to conclude that these folks think the current difficulties lend themselves to expedient “solutions” and will soon blow over.
But as with the last financial recession, a Great Depression which also inflicted misery on every part of the economy, this epic downturn will take a decade to run its course. It is not uncommon for people made jobless by this recession to be out of work for 18 months to two years. And the only substantive remedy, as in the Depression, is a massive infusion of government stimulus. That’s because both consumers and captains of the private sector, the two other sources of economic stimulus, are unwilling or unable to make their contribution to economic vitality.
The second point is the false hope of austerity, unwisely embraced by governments worldwide. Early and effective state stimulus programs were prematurely curtailed. And so America’s dynamic recovery of 2009-10 has stalled. The aftershocks of the U.S. downturn have pushed Europe into recession. Even China this week slashed its GDP growth estimates for this year to a mere 3 per cent to 4 per cent, after close to a decade of double-digit growth. Japan remains mired in economic stagnation of two decades’ duration.
The latest failure of capitalism sucked demand out of the global economy. All of the world’s biggest economic engines have conked out, for lack of demand. And it’s that paucity of demand – or the spending that creates jobs and tax revenues – that is the immediate cause of unmanageable sovereign debt in Europe. The latter was a non-issue prior to a collapse in demand that drained public treasuries. Those treasuries have been abruptly starved of tax revenue even as requirements for emergency state assistance have soared.
All recessions end. But the Depression was brought to a close only with spectacular public spending – state stimulus of unprecedented magnitude – to fight a world war. Austerity, taking the form today of public-sector layoffs and sharp cuts in government aid to people in distress, is draining still more demand from the system. It doesn’t take a tree full of owls to grasp that austerity turns problems into crises.
There’s nothing soft-hearted about rejecting the austerity option in favour of stimulus. Austerity, or more accurately prudence, certainly is called for in good times. With 11 consecutive budget surpluses, Ottawa has been able provide necessary stimulus without ruinous damage to our public finances. But in a prolonged demand drought, stimulus is imperative to relieve household distress and to ensure essential public services from healthcare to education do not atrophy.
Which brings us to the third point, that investment in the future must continue even in tough times. Otherwise current generations will suffer the future consequences of deprivation of income, of child support (hungry children have difficulty learning), and of superior formal education (slashing school budgets is a sure route to lack of future competitiveness).
A range of social ills derive from the false economy of balancing the books on the backs of present generations, which are made to forfeit opportunities to flourish in mind and heart. There’s much work to be done in the world – replacing century-old infrastructure, to start – and a rare abundance of idled skilled labour to do it.
We can talk, as the austerity champions do, of long-term gains to be had from the imposition now of brutal economies. But as John Maynard Keynes said, “In the long run, we’re all dead.”
Somehow the business axiom that “it takes money to make money” has yet to inform our view of government spending. Sadly, that applies even in times like these, when government – which is to say our collective selves – is the sole source of both short-term relief and long-term prosperity.
The most peaceful, prosperous century in history beckons. But those clinging to an ill-timed obsession with government thrift are causing the promise of that bright future to recede on the horizon.
Original Article
Source: the star
Author: David Olive
The first point is that this is no run-of-the-mill industrial recession. This is a rare financial recession, whose devastation is acute and widespread in the world.
To listen to Finance Minister Jim Flahery’s hectoring of Europeans to get their fiscal house in order, or the conviction of British PM David Cameron and German Chancellor Angela Merkel that troubled nations would be best served by adopting their tough-love prescriptions (a view shared by most Republicans in the U.S.), is to conclude that these folks think the current difficulties lend themselves to expedient “solutions” and will soon blow over.
But as with the last financial recession, a Great Depression which also inflicted misery on every part of the economy, this epic downturn will take a decade to run its course. It is not uncommon for people made jobless by this recession to be out of work for 18 months to two years. And the only substantive remedy, as in the Depression, is a massive infusion of government stimulus. That’s because both consumers and captains of the private sector, the two other sources of economic stimulus, are unwilling or unable to make their contribution to economic vitality.
The second point is the false hope of austerity, unwisely embraced by governments worldwide. Early and effective state stimulus programs were prematurely curtailed. And so America’s dynamic recovery of 2009-10 has stalled. The aftershocks of the U.S. downturn have pushed Europe into recession. Even China this week slashed its GDP growth estimates for this year to a mere 3 per cent to 4 per cent, after close to a decade of double-digit growth. Japan remains mired in economic stagnation of two decades’ duration.
The latest failure of capitalism sucked demand out of the global economy. All of the world’s biggest economic engines have conked out, for lack of demand. And it’s that paucity of demand – or the spending that creates jobs and tax revenues – that is the immediate cause of unmanageable sovereign debt in Europe. The latter was a non-issue prior to a collapse in demand that drained public treasuries. Those treasuries have been abruptly starved of tax revenue even as requirements for emergency state assistance have soared.
All recessions end. But the Depression was brought to a close only with spectacular public spending – state stimulus of unprecedented magnitude – to fight a world war. Austerity, taking the form today of public-sector layoffs and sharp cuts in government aid to people in distress, is draining still more demand from the system. It doesn’t take a tree full of owls to grasp that austerity turns problems into crises.
There’s nothing soft-hearted about rejecting the austerity option in favour of stimulus. Austerity, or more accurately prudence, certainly is called for in good times. With 11 consecutive budget surpluses, Ottawa has been able provide necessary stimulus without ruinous damage to our public finances. But in a prolonged demand drought, stimulus is imperative to relieve household distress and to ensure essential public services from healthcare to education do not atrophy.
Which brings us to the third point, that investment in the future must continue even in tough times. Otherwise current generations will suffer the future consequences of deprivation of income, of child support (hungry children have difficulty learning), and of superior formal education (slashing school budgets is a sure route to lack of future competitiveness).
A range of social ills derive from the false economy of balancing the books on the backs of present generations, which are made to forfeit opportunities to flourish in mind and heart. There’s much work to be done in the world – replacing century-old infrastructure, to start – and a rare abundance of idled skilled labour to do it.
We can talk, as the austerity champions do, of long-term gains to be had from the imposition now of brutal economies. But as John Maynard Keynes said, “In the long run, we’re all dead.”
Somehow the business axiom that “it takes money to make money” has yet to inform our view of government spending. Sadly, that applies even in times like these, when government – which is to say our collective selves – is the sole source of both short-term relief and long-term prosperity.
The most peaceful, prosperous century in history beckons. But those clinging to an ill-timed obsession with government thrift are causing the promise of that bright future to recede on the horizon.
Original Article
Source: the star
Author: David Olive
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