Stiglitz: the worse is yet to come maybe (Guardian)

“……This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6% or 7% (the pre-crisis level of 4% or 5% is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems. On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis – and the euro crisis – will only worsen. And the long crisis that began with the collapse of the housing bubble in 2007 and the subsequent recession will continue. Moreover, the major emerging-market countries,

so sorry for so many people dead in pursuit of happiness RIP

which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Brazil’s growth has already stalled, fueling anxiety among its neighbours in Latin America. Meanwhile, long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown more severe. For example, high unemployment has depressed wages and increased poverty….’

BUT

“…..Even without widening the fiscal deficit, such “balanced budget” increases in taxes and spending would lower unemployment and increase output. The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur. Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top. Even before the crisis, there was a rebalancing of economic power – in fact, a correction of a 200-year historical anomaly, in which Asia’s share of global GDP fell from nearly 50% to, at one point, below 10%. The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the west’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow. As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions. With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next 12 months.”

I HOPE HE IS DEAD WRONG. I wouldnt bet on it.

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