There is a palpable sense of gloom and impending doom in most discussions of the world economy today. Even before, several economists had argued that the excessive optimism about ”V shaped recovery” that was being used to describe the economic revival in 2010 was premature and misplaced, especially as none of the fundamental contradictions of global capitalism that led to the previous crisis had been adequately addressed. But they were once again written off as Cassandras by the financial media, which desperately sought sources of ”good news” and future engines of growth particularly among the emerging markets.
Now even the most stalwart establishment voices are expressing growing concern and pessimism. Oliver Blanchard, Chief Economist at the IMF, has issued what must be an unprecedentedly sombre and even dismal statement at the close of the year, noting that recovery is at a standstill in the advanced economies and recognising that 2012 may face even worse economic conditions than 2008. Read the rest of this entry »
I was at an Occupy Wall Street demonstration this weekend and many clergy addressed the group. One nun told the crowd it was Christmas season and that it was time for something new to be born in America.
It was a nice thought, and I hope that the “something new” is good sense, because it has been a year in which some of the worst economic ideas ever have gained support and are being applied around the world. So here’s my list of the 10 worst economic ideas of 2011:
1. Taxes should be more regressive.
At the top of the list for sheer scandalous insensitivity are Herman Cain’s and New Gingrich’s tax plans for America. Cain and Gingrich are both flat tax advocates. Cain proposes “9-9-9” — a 9 percent sales tax, 9 percent income tax, and 9 percent corporate tax. He would also eliminate most deductions. Would this raise more or less money? The romantic conservatives claim the lower income tax rate would mean more growth. Never mind that the evidence to support that claim has been found profoundly lacking time and again.
Gillian Tett (“Fears of worse to come fuel debate over capital controls”, December 16) highlights the new and important Bank of England paper on capital flows and financial crises that argues how cross-border capital flows continue to plague the world economy and will continue to do so in alarming ways to 2050. The Bank rightly argues for cross-border regulation and co-ordination on capital flows – traditionally referred to as capital controls.
Triple Crisis blogger Patrick Bond was recently interviewed by the Real News Network on why market-based mechanisms combating climate change, like carbon markets and the Green Climate Fund, are failing.
In 1992, when the world met to discuss an agreement on climate change, equity was a simple concept: sharing the global commons—the atmosphere in this case—equally among all. It did not provoke much anxiety, for there were no real claimants. However, this does not mean the concept was readily accepted. A small group of industrialised countries had burnt fossil fuels for 100 years and built up enormous wealth. This club had to decide what to do to cut emissions, and it claimed all countries were equally responsible for the problem. In 1991, just as the climate convention was being finalised, a report, released by an influential Washington think tank, broke the news that its analysis showed India, China and other developing countries were equally responsible for greenhouse gases. Anil Agarwal and I rebutted this and brought in the issue of equitable access to the global commons. We also showed, beyond doubt, that the industrialised countries were singularly responsible for the increased greenhouse gases.
The World Trade Organisation’s Ministerial Conference was held in a calm and relaxed atmosphere in Geneva last week.
Past WTO ministerials had been tension-filled, with some Ministers (usually from developed countries) often aided by the Secretariat, trying to push for mandates to launch talks on new rules or treaties, and Ministers of developing countries resisting.
The decisions would be made by a small group of 20, usually selected by the Secretariat or the host Minister, and there would then be great tension to as to whether the whole membership would agree to what the small group of 20 had decided. Sometimes the small group could not agree among themselves.
Thus, WTO ministerial, or more recently “mini-Ministerials” of 30 or so members, could end in induced success or inglorious failures, with the failures exceeding the successes.
The WTO ministerial meeting in Geneva last week failed to take any decisions on the question of food security. Indeed, we knew this would be the outcome even before the meeting began. As the ICTSD reported, two proposals on food security – both calling for exemptions from export restrictions for the world’s least developed and net food importing developing countries and for humanitarian food purchases by the World Food Programme – did not gain sufficient support at the WTO General Council meeting in late November to make the Ministerial agenda.
The fact that WTO members could not even support discussion of these specific measures does not bode well for the adoption of a broader and more comprehensive food security agenda at the WTO. The disagreements over rules on export restrictions have in fact served as a distraction from the broader food security issues that the WTO is already supposed to be working on.
From 1980s through the early 2000s developing countries faced repeated demands to get their financial houses in order as a condition of financial assistance from the international financial institutions (IFIs) and the world’s leading economies. The Washington Consensus codified the standard conditionality. It tied financial rescue on all manner of draconian policies that were designed to ensure that developing country governments could meet obligations to their international creditors. In pursuit of solvency, few public sector expenditures were exempt from the neoliberal axe. Social welfare spending was slashed, taxes on all but the wealthy and large firms were raised, markets were liberalized, enterprises were sold off to the presumably more efficient private sector (though often the “private sector” were domestic elites with privileged access to the assets at bargain prices), and barriers to international trade and financial flows were rescinded. All of this was done with the expressed goal (among others) of demonstrating worthiness for continued lending by IFIs.
It’s the Christmas season, so why not indulge ourselves? Let’s ask for a few miracles. In fact, we in America have had a miracle and everyone has noticed it, Occupy Wall Street. There was another even bigger one in the Mideast. Not only an Arab spring in Egypt and Libya, but peaceful voting in Tunisa. There may even be a Slovak spring.
So here is my wish list for miracles—ASAP. More or less in order of importance.
Self-awareness in Germany
I wish that Germans would realize their economic dominance is dependent on their indebted neighbors. An economic model that emphasize net exports as a major source of growth is, internationally, a debt led model. It will require buyers of those exports to borrow. Imbalances in the eurozone are not sustainable.
It gets worse. Germany also believes it has the moral right to demand that others suppress wages and government borrowing, ensuring slow growth among their European partners. So I also wish Germany a modicum of rationality in their public discourse. Even right wing columnists recognize that if Germany were on its own due to a break up of the eurozone, the value of the Deutsche Mark would have been driven up, undermining its export advantage. Now Germany is imposing recession in Europe. The flight to German debt, which is keeping their interest rates low, may soon end.
Looking back now that the dust has settled, South Africa’s COP17 presidency appears disastrous. This was confirmed not only by Durban’s delayed, diplomatically-decrepit denouement, but by plummeting carbon markets in the days immediately following the conference’s ignoble end last Sunday.
Of course it is tempting to ignore the stench of failure and declare Durban “an outstanding success,” as did South African environment minister Edna Molewa. “We have significantly strengthened the international adaptation agenda,” she explained about the near-empty Green Climate Fund. “The design of the fund includes innovative mechanisms for bringing private sector and market mechanisms into play to increase the potential flow of funding into climate change responses.”