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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 1 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. Prof. Carles Manera 2 2 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % Global GPD Growth, 1970-2010 Global GDP Growth, 1970-2010 8 7 6 5 4 3 2 1 Prof. Carles Manera 3 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. Prof. Carles Manera 4 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. Prof. Carles Manera 5 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. Prof. Carles Manera 6 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. Prof. Carles Manera 7 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. Prof. Carles Manera 8 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. Prof. Carles Manera 9 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. Prof. Carles Manera 10 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. Prof. Carles Manera 11 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. Prof. Carles Manera 12 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. Prof. Carles Manera 13 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. Prof. Carles Manera 14 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. Prof. Carles Manera 15 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. Prof. Carles Manera 16 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. Prof. Carles Manera 17 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. Prof. Carles Manera 18 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 19