This is the voice that resonates and breaks with the false pardigmas the right in the world. Joseph Stiglitz, Noble Prize in economics in 2001 opens the eyes on the future of the global economy and disenchanted with their proverbial lucidity, fans of the policies undertaken by Alan Garcia as the new gospel, especially the FTA with U.S. THE ADVENT
of stagflation
Joseph Stiglitz
New York-The world economy has had several good years. Global growth has been strong and the division between the developing and the developed world has narrowed, India and China leading the way, with a GDP growth of 11.1% and 9.7% in 2006 and 11.5% and 8.9% in 2007, respectively. Even Africa has been doing well, with growth of over 5% in 2006 and 2007.
However, the good times may be coming to an end. For years there was concern about global imbalances caused by the huge U.S. foreign debt. United States, in turn, said the world should be thankful: by living beyond their means, it helped keep up the global economy, especially given high savings rates in Asia, which accumulated hundreds of thousands of million dollars in reserves. But it was always recognized that the U.S. growth United under the administration of President George W. Bush was not sustainable. Now the day of reckoning looms.
The ill-conceived war in Iraq helped fuel a quadrupling of oil prices since 2003. In the 1970's, oil shocks led to inflation in some countries, and to recession elsewhere, as governments raised interest rates to combat rising prices. And some economies faced the worst of both worlds: stagflation.
So far, three critical factors helped the world weather soaring oil prices. First, China, with its enormous productivity increases-based high levels of investment, including investments in education and technology-exported its deflation. Second, the U.S. took advantage of this by lowering interest rates to unprecedented levels, creating a housing bubble, with mortgages available to anyone without a support system. Finally, workers all over the world on the chin, accepting lower real wages and a smaller share of GDP.
That game is up. China is now facing inflationary pressures. Moreover, if the U.S. convinces China to let its currency appreciate, the cost of living in the U.S. and elsewhere will rise. And with the rise of biofuels, the food and energy markets have become integrated. Combined with increasing demand from those with higher incomes and lower supplies due to problems associated with climate change, this means high food prices, a lethal threat to developing countries.
The prospects for the orgy of consumption in the United States are also continuing weak. Even if the U.S. Federal Reserve continues to reduce interest rates, lenders will not rush to make more bad mortgages. With prices declining, fewer Americans will be willing and able to continue their profligacy.
Bush Administration expected, somehow, to forestall a wave of foreclosures, thereby passing the economy's problems the next president, in the same way that you are doing with the Iraq quagmire. Your chances of success are slim. For America today, the real question is whether there will be a short, sharp depression or a more prolonged slowdown, but shallower.
Moreover, the U.S. has been exporting its problems abroad, not just by selling toxic mortgages and bad financial practices, but through the increasingly weak U.S. dollar, partly the result of macro-and micro wrong. In Europe, for example, will find it increasingly difficult to export. And in a world economy that was based on the foundations of a "strong dollar," the consequent financial market instability will be costly for everyone.
At the same time there has been a massive global redistribution of income from oil importers to oil exporters-a disproportionate number of whom are anti-democratic States, and workers everywhere to the very rich. It is unclear whether workers will continue to accept declines in living standards in the name of an unbalanced globalization whose promises seem ever more elusive. The United States can feel the backlash mounting.
For those who think that a well-managed globalization can potentially benefit both developed and developing countries, and who believe in global social justice and the importance of democracy (and the vibrant middle class that supports it), these are all bad news. Economic adjustments of this magnitude are always painful, but the economic pain is greater today because the winners are less prone to spend.
In fact, the flip side of "a world awash with liquidity" is a world facing depressed aggregate demand. In the past seven years, America's unbridled spending filled the gap. Today the cost of both household and government in the United States likely to be curbed, as both parties' presidential candidates promise a return to fiscal responsibility. After seven years in which America has seen its national debt rise from 5.6 billion to $ 9 trillion, this would be good news, but the timing could not be worse.
There is one positive in this dismal picture: the sources of global growth today are more diverse than a decade ago. The real engines of global growth in recent years have been developing countries.
However, slower growth, or possibly a recession in the world's largest economy inevitably has global consequences. There will be a global slowdown. If monetary authorities respond appropriately to growing inflationary pressure, recognizing that much of it is imported, and not the result of excess domestic demand, "perhaps we may way through it. But if they raise interest rates relentlessly to meet inflation targets, we should prepare for the worst: another episode of stagflation.
If central banks go down this path, no doubt eventually succeed in wringing inflation out of the system. But the cost in lost jobs, lost wages and household- will be enormous. (Joseph Stiglitz) ------------*
Joseph Stiglitz is a Nobel laureate in economics. His latest book is Making Globalization Work. Copyright: Project Syndicate, 2008. www.project-syndicate.org -syndicate.org.
However, the good times may be coming to an end. For years there was concern about global imbalances caused by the huge U.S. foreign debt. United States, in turn, said the world should be thankful: by living beyond their means, it helped keep up the global economy, especially given high savings rates in Asia, which accumulated hundreds of thousands of million dollars in reserves. But it was always recognized that the U.S. growth United under the administration of President George W. Bush was not sustainable. Now the day of reckoning looms.
The ill-conceived war in Iraq helped fuel a quadrupling of oil prices since 2003. In the 1970's, oil shocks led to inflation in some countries, and to recession elsewhere, as governments raised interest rates to combat rising prices. And some economies faced the worst of both worlds: stagflation.
So far, three critical factors helped the world weather soaring oil prices. First, China, with its enormous productivity increases-based high levels of investment, including investments in education and technology-exported its deflation. Second, the U.S. took advantage of this by lowering interest rates to unprecedented levels, creating a housing bubble, with mortgages available to anyone without a support system. Finally, workers all over the world on the chin, accepting lower real wages and a smaller share of GDP.
That game is up. China is now facing inflationary pressures. Moreover, if the U.S. convinces China to let its currency appreciate, the cost of living in the U.S. and elsewhere will rise. And with the rise of biofuels, the food and energy markets have become integrated. Combined with increasing demand from those with higher incomes and lower supplies due to problems associated with climate change, this means high food prices, a lethal threat to developing countries.
The prospects for the orgy of consumption in the United States are also continuing weak. Even if the U.S. Federal Reserve continues to reduce interest rates, lenders will not rush to make more bad mortgages. With prices declining, fewer Americans will be willing and able to continue their profligacy.
Bush Administration expected, somehow, to forestall a wave of foreclosures, thereby passing the economy's problems the next president, in the same way that you are doing with the Iraq quagmire. Your chances of success are slim. For America today, the real question is whether there will be a short, sharp depression or a more prolonged slowdown, but shallower.
Moreover, the U.S. has been exporting its problems abroad, not just by selling toxic mortgages and bad financial practices, but through the increasingly weak U.S. dollar, partly the result of macro-and micro wrong. In Europe, for example, will find it increasingly difficult to export. And in a world economy that was based on the foundations of a "strong dollar," the consequent financial market instability will be costly for everyone.
At the same time there has been a massive global redistribution of income from oil importers to oil exporters-a disproportionate number of whom are anti-democratic States, and workers everywhere to the very rich. It is unclear whether workers will continue to accept declines in living standards in the name of an unbalanced globalization whose promises seem ever more elusive. The United States can feel the backlash mounting.
For those who think that a well-managed globalization can potentially benefit both developed and developing countries, and who believe in global social justice and the importance of democracy (and the vibrant middle class that supports it), these are all bad news. Economic adjustments of this magnitude are always painful, but the economic pain is greater today because the winners are less prone to spend.
In fact, the flip side of "a world awash with liquidity" is a world facing depressed aggregate demand. In the past seven years, America's unbridled spending filled the gap. Today the cost of both household and government in the United States likely to be curbed, as both parties' presidential candidates promise a return to fiscal responsibility. After seven years in which America has seen its national debt rise from 5.6 billion to $ 9 trillion, this would be good news, but the timing could not be worse.
There is one positive in this dismal picture: the sources of global growth today are more diverse than a decade ago. The real engines of global growth in recent years have been developing countries.
However, slower growth, or possibly a recession in the world's largest economy inevitably has global consequences. There will be a global slowdown. If monetary authorities respond appropriately to growing inflationary pressure, recognizing that much of it is imported, and not the result of excess domestic demand, "perhaps we may way through it. But if they raise interest rates relentlessly to meet inflation targets, we should prepare for the worst: another episode of stagflation.
If central banks go down this path, no doubt eventually succeed in wringing inflation out of the system. But the cost in lost jobs, lost wages and household- will be enormous. (Joseph Stiglitz) ------------*
Joseph Stiglitz is a Nobel laureate in economics. His latest book is Making Globalization Work. Copyright: Project Syndicate, 2008. www.project-syndicate.org -syndicate.org.
0 comments:
Post a Comment