Despite efforts by right-wing, fuzzy-math, austerity-fanatical, gold-obsessed politicians, the world economy remains stuck in the same rut that it has been in since emerging from the 2008 global financial crisis. This should be especially obvious despite seemingly strong government action in Europe and the United States, where both economies suffered deep and prolonged economic downturns.
In 1992, Bill Clinton based his successful campaign for the US presidency on a simple slogan: “It’s the economy, stupid.” In my humble opinion, I think it’s more along the lines of, “It’s the conservatives f*cking up the economy, stupid!”.
From today’s perspective, things then do not seem so bad; the typical American household’s income is now lower. But then, falling prey to his own warning, Clinton passed some of the worst economic laws since before the Great Depression: The Gramm–Leach–Bliley Act that essentially repealed Glass-Steagall, The Commodity Futures Modernization Act to name just a couple. The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “There is no global demand, stupid.”
The run-away inflation that’s been one of the many stupid mantras of the right-wing “sky-is-falling” klan has been how “printing money” by the Federal Reserve will end up making the U.S. dollar weak causing runaway inflation. That’s proven about as wrong as all the rest of their idiotic economic notions.
From trickle-down bullshit, to gold-standard bullshit, to runaway inflation bullshit, they’ve been wrong on the economy more times than Dick Cheney has told lies. In fact, the dollar is so strong it’s hurting our export business. While every other Western country (not to mention China) is racing to devalue their currency, the U.S. can’t hold its currency down enough. It might as well be hooked to a helium-filled balloon.
The near-global stagnation witnessed in 2014 is entirely man-made; the result of politics and policies in several major economies – politics and policies that choked off demand – with the United States following the same idiocy that the Eurozone had already proven to be an epic fail. In the absence of demand, investment and jobs will not materialize. It is just that simple.
Nowhere is this more clear than in the eurozone, which I have written about extensively since 2010, and which officially adopted a policy of austerity – cuts in government spending that augment weaknesses in private spending. Granted, the eurozone’s structure—multiple fiscal policies trying to operate with only one monetary policy—is/was 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–Greece, Spain, Ireland, etc.– weakening their financial systems and constraining lending and investment.
In Japan, Prime Minister Shinzo Abe’s program for economic revival was sprung 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 were not enough already.
The US introduced the smallest dose of austerity, and it has enjoyed the best economic performance. But even in the US, there are roughly 650,000 fewer public-sector employees than there were before the crisis; normally, we would have expected some two million more. As a result, the US, too, is suffering, with growth so weak that wages remain essentially stationary.
China is now the world’s largest economy (in terms of purchasing power parity), and it has long been the main contributor to global growth. But China’s remarkable success has bred its own problems, which should be addressed sooner rather than later.
The Chinese economy’s shift from quantity to quality is welcome, but economic growth has slowed even further, as paralysis grips public contracting, and there is less and less demand for its products. On the contrary, other forces undermining trust in China’s government – widespread environmental problems, high and rising levels of inequality, and private-sector fraud – are growing exponentially and China will not be able to shore up global aggregate demand in 2015 by themselves. If anything, there will be an even bigger hole to fill.
Meanwhile, in Russia, Western sanctions due to Russia’s invasion of Ukraine, will slow any growth they had anticipated, with adverse effects on an already weakened Europe.
For their own part, the U.S. has tried to rely upon monetary policy in the absence of any cogent thought by the conservatives in Congress.
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.
Which brings us back to U.S. and Eurozone politics and stupid policies. Demand is what the world needs most. The private sector – even with the support of monetary authorities – will not supply it. Only fiscal policy can. We have an abundance 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. The problem is our stupid Western politics and the replacement of a democracy with an oligarchy.
Harvey A. Gold