Transcript great recession: a grave crisis no different from

GREAT RECESSION: A GRAVE CRISIS
NO DIFFERENT FROM ANY OTHER.
12 simples ideas from an heterodox view
I INTERNATIONAL WEEK FACULTY OF ECONOMICS AND BUSINESS
(11-15 May, 2015)
Prof. Carles Manera
Prof. Carles Manera
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1. An strong crisis
• We are currently in the midst of an intense,
profound crisis. The next graph shows how
economic growth changed between 1970 and
2010. There is one key feature: although the
economy has expanded at times, there has
been an overall downward trend.
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Global GPD Growth, 1970-2010
Global GDP Growth, 1970-2010
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The change with the emerging
countries
• The aggregate global GDP data,
which were positive, only served to
hide disparate situations and the rise
of new powers: the emerging
countries, dominated by Asia.
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2. New challenges
• The crisis that began in 2007-08 has much in
common with previous eras, and therefore
some of its defining features were also
present in the crises of yesteryear.
• But it is also true that the size and depth of
the economic downturns along the developed
world pose new challenges to economics and
to cabinet members who design and
implement economic policies.
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3. New (?) vision
• American economic policy since the 1980s has
given rise to a new vision and approach that
have come from academia.
• The crux of his argument is simple and blunt.
He believes capital should be tax-free so it will
generate enough savings for private
investment to stimulate strong economic
growth and better productivity while
eliminating inflation. This school gives little
thought to work and, needless to say, workers.
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4. The end of the public sector
• Reducing the tax burden on investment
income and maintaining it on income
from work. They want a flat tax rate in
order to gradually abolish public-sector
involvement in social services, health and
education.
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5. The economics of hypocrisy
• They talk about “cutting back
the size of the state” as the
key to tackling the economic
problems of competitiveness
and productivity.
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6. Three lines of action…
Past experiences ought therefore to show us that three lines of action are
vital, given the instability in the crisis:
•The ECB should become stop speculative attacks against sovereign debt.
•Speculative capital flows should be recorded. Financial losses should not all
be lumbered onto the working and middle classes. We need quotas that
correctly establish the economic reality and the procedures undertaken by
leaders and speculators motivated only by a financial greed that is a far cry
from the realities of economics.
•We need an aggressive plan of public investment in Europe, a kind of new
New Deal, which will be decisive for the role of the European Investment
Bank. I think the Plan of Junkers is totally inadequate at this time.
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7. Bad jobs
• Overcoming the crisis will still leave us with
many unemployed people for whom it will be
difficult to find jobs.
• Nevertheless, the new opportunities will not
be able to find jobs for the many unskilled
unemployed people who used to work in
labour-intensive production processes – the
very people who are the direct, lethal
consequence of the Great Recession.
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8. We need the public sector…
• The market alone will not solve such a
deep, difficult problem. In the interest of
basic fairness, stimuli will be urgently
required to ensure society does not
become too unbalanced.
• Is considered another form of
investment, since it deals with
consolidating the welfare state.
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9. The Germany’s power
• Germany has been the country that has
benefitted most from monetary union, based
on official figures on changes in the balance of
payments and economic growth.
• It is therefore unacceptable to propagate this
virulently orthodox economic Lutheranism,
which always frowns suspiciously on the
south, repeating the dubious idea that the
south has lived beyond its means.
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10. Europe without leadership
• The determining factor in the multi-speed Europe is
the absence of a clear German leadership as the
driving force behind the European economy.
• Germany has acted too locally, too domestically, and
has failed to take the whole of the eurozone into
account in terms of stimulating growth and
regulating and balancing government finances.
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11. The demand’s problem
• I believe it is becoming increasingly clear,
based on macroeconomic variables for 200815, that this results in a drop in demand, and
even a big rise in bank liabilities.
• The drop in demand – a factor being ignored –
is because wage cuts reduce consumption, as
do increases in work production due to job
cuts.
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12. Simples ideas
• In this respect, current economic policies seek
to reduce the role of the state, assuming the
market works better.
• The simple, rigid ideas are based on a very
clear ideological line: that the markets seldom
fail, and it is the markets, through privatesector initiatives, that provide jobs.
• Government policies need only create the
necessary context for businesses to increase
profitability and thus provide enough jobs.
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Conclusion:
A real new vision
• We need clear, strong, solid leadership.
• Reorient economic action towards scenarios
that stimulate investment, dispel the myths
surrounding financial instruments and
indicators (deficit, debt) and are related to the
cycles in economic dynamics.
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Crises as an opportunity
• New agendas must also be taken aboard that are
tangibly concerned for senior citizens, children’s
living conditions and improving the role of women in
the labour and professional markets.
• We therefore need a reformed shared social welfare
supported by effective, efficient government bodies
and progressive fiscal policies.
• Crises are, after all, opportunities to redesign
routines and standards that are supposedly set in
stone, continuing with this disruptive idea of
transformation.
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Einstein’s words…
•All crises bring progress. It is in crisis that
inventiveness, discoveries and big strategies are born.
He who overcomes crisis, overcomes himself. The real
crisis is that of incompetence. Without crisis, there are
no challenges. You have to work hard to quash the only
crisis that is a threat: the tragedy of not wanting to
fight to overcome it.
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Thanks for your attention.
More information at my recently book: The Great Recession. A Subversive
View, Sussex-London School of Economics, London 2013
This book analyses the Great Recession: the major
economic crisis that began in 2007-08 and continues
today. The book argues that many factors caused the
crisis and stresses that it is not just a financial crisis, like
most writers claim. Instead, the author Carles Manera
says it is a systemic crisis that includes overproduction,
falls in business profits, environmental problems, and a
stubborn insistence on an economic policy driven by
austerity. The author defends the importance of
economic history, which provides economists and social
scientists with an essential reference for understanding
the recession. He also proposes solutions to end the
crisis, solutions that are completely different to those
proposed by major European governments, led by
Germany. Manera thus adopts what is a heterodox
approach in economics – a "subversive view", as the
subtitle puts it – making this book different to more the
more conventional academic literature on economics.
Prof. Carles Manera
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