It is fairly obvious that in the immediate future, and probably for some time to come, the United States cannot continue to be the engine of growth for the world economy. For various reasons, consumption demand (especially that emanating from wage incomes broadly defined) is likely to remain suppressed for some time, and this will prevent a more balanced recovery. Household savings rates have already started rising from their very low levels. It was expected that increased public spending would substitute for the repairing of private balance sheets, and that has actually been the case in the past year. However, the remarkably rapid political backlash against “excessive” government spending – even though it has little validity within a Keynesian macroeconomic framework – seems to have already affected the ability and the willingness of the US government to engage in further spending to ward off potential recession. The dangers of early withdrawal of stimulus measures are thus very high.
Emerging from Financial Crisis: A return to “normalcy” without fundamental changes?
Andong Zhu
Guest Blogger, Tsinghua University, Beijing, China
After the biggest, multi-trillion dollar stimulus plan in human history was implemented by the governments of many countries, financial indicators, world trade volume and industrial production all show positive signs. According to a recent calculation by American economist Barry Eichengreen, world equity markets, world trade, and world industrial production all recovered from the trough (50%,20%,13% below the previous peak, respectively) to the current situation (25%,8%,6% below the previous peak, respectively). The latest World Bank forecasts of world GDP growth in 2010 and 2011 are 2.7% and 3.2%, after a decline of 2.2% in 2009.
Clear Economics
The United States Congress is expected to take up the Carbon Limits and Energy for America’s Renewal (CLEAR) Act in the coming months. The bill – a potential breakthrough in U.S. climate policy – was proposed in December by Senators Maria Cantwell of Washington and Susan Collins of Maine. In preparation for that debate, Matthew E. Riddle and I have analyzed the household-level impacts of the bill’s cap-and-dividend climate policy and how these differ across the income spectrum and across the states.
A new report, Clear Economics, shares our findings that the CLEAR Act delivers positive net benefits to the majority of households in every state: what these households will receive in dividends exceeds what they will pay as a result of higher fossil fuel prices. We also suggest ways in which the interstate differences in impacts could be further reduced or eliminated altogether, and assess state-by-state job creation that will result from public investments in the clean energy transition.
Macroeconomic Policy: The Elephant in the Room
International conferences on poverty and the environment come and go. There’s always a big pachyderm in the meeting room. It’s got the words “macroeconomic policy” written on its forehead. Nobody wants to talk about it.
Consider the following. The Millennium Development Goals were debated in many conferences, but nobody spoke about the macroeconomic policy framework needed to achieve them. As if reducing hunger and extreme poverty, generating employment and providing health services and education had nothing to do with fiscal policy, monetary policy and financial deregulation. Aside from some pious words about financing and overseas development assistance, the implicit message was to carry on with the same macroeconomic policies. That could only have been based on faith in the trickle-down potential of neo-liberal globalization.
Financing the fight against climate change: Where are the governmental shareholders?
According to UNDP, limiting global warming to less than 2° Celsius above the pre-industrial era is estimated to require about $250 billion a year in additional investment to “green” the world economy in 2010-2015. Governments would be wise to meet this target by investing in low-carbon development – particularly since the cost of the alternative is much more expensive. However, high and rising government debts will significantly preclude this path.
Not Your Grandfather’s IMF: The emergence of policy space in the wake of global economic crisis?
When things have been so bleak for so long, when yesterday’s mistakes routinely become tomorrow’s blueprints, it is understandable that we fail to recognize change when it begins to unfold. This is certainly true of those of us who for so long have railed against the extension of neo-liberalism across the global South at the hands of the IMF/World Bank, Wall Street, leading governments, neo-liberal reformers in the developing world and the economics profession. Faced with a juggernaut of this sort, surely we can forgive ourselves for failing to recognize, let alone take any hope in, signs of change.
Forgiven, that is, if the stakes weren’t so high. But they are very high—and so we can’t be quite so self-forgiving if in fact our pessimism leads us to discount too readily evidence of aperture that could be exploited to bring about the kind of change in ideas and policies that the developing world so badly needs. This insight should warn us against premature conclusions that nothing has or can change.
Employment in the "Recovery"
Despite scepticism about its sustainability, attention is focused on evidence that the crisis of 2008-09 is behind us, because of the fiscal stimulus put in place by governments across the world. But figures from the International Labour Organization (ILO) indicate that the impact of the stimulus on employment is uneven. In its January 2010 update, the ILO estimates global unemployment at 212 million in 2009, or around 34 million above its 2007 level, with most of the increase having occurred during 2009. In sum, the impact of the fiscal stimuli delivered by many governments does not seem to be, as yet, adequate to stall, let alone reverse the employment decline resulting from the crisis. This increase in unemployment was unevenly distributed, with Developed Economies and the European Union, Central and South-Eastern Europe and former Soviet states, and Latin America and the Caribbean accounting for more than two-thirds of the increase in the number of unemployed during 2009. In other words, Asia and the Pacific were much less affected.
Employment in the “Recovery”
Despite scepticism about its sustainability, attention is focused on evidence that the crisis of 2008-09 is behind us, because of the fiscal stimulus put in place by governments across the world. But figures from the International Labour Organization (ILO) indicate that the impact of the stimulus on employment is uneven. In its January 2010 update, the ILO estimates global unemployment at 212 million in 2009, or around 34 million above its 2007 level, with most of the increase having occurred during 2009. In sum, the impact of the fiscal stimuli delivered by many governments does not seem to be, as yet, adequate to stall, let alone reverse the employment decline resulting from the crisis. This increase in unemployment was unevenly distributed, with Developed Economies and the European Union, Central and South-Eastern Europe and former Soviet states, and Latin America and the Caribbean accounting for more than two-thirds of the increase in the number of unemployed during 2009. In other words, Asia and the Pacific were much less affected.
The Greek Present
The Brazilian expression “Greek Present” (Presente de Grego) means unwelcome gift, an obvious reference to the infamous Trojan Horse. The current crisis in Greece might show that the euro was just one of those presents. If the European Union (EU) does not provide sufficient resources to preclude not just a default, but also and more importantly a profound recession, then the advantages of the euro for Greece and other countries in the periphery of Europe should be seriously questioned.
The Greek financial crisis is an exemplar case of the perils of macroeconomic orthodoxy, and of the exceedingly narrow measure of the changes that have taken place since the global financial crisis started. The same conventional ideas about fiscal adjustment are repeated, no matter that their record in the past has been dismal. The price tag of learning, once again, about the limitations of conventional wisdom is the staggering human suffering, in this case of the people in Greece, that European authorities are demanding.
Volcker Rule May Not Be the Right Rule
President Obama’s decision to support what is now called the “Volcker rule” has opened up a Pandora’s box of difficult issues—and may yet force policymakers to face some hard truths. It is unlikely the president fully understood that this would happen. What’s less likely is that some on his economics team didn’t understand. Increasingly, there is a sense that the combination of the old Clinton guard, most of them deeply linked at one time or other to the banking community and the deregulation movement itself, and a somewhat conservative University of Chicago group of Washington newcomers, led by Austan Goolsbee and Cass Sunstein, are not providing the president a full plate of options or adequate analyses of those he does get.