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Commentary
No. 296, Jan. 1, 2011
"End
of the Recession? Who's Kidding Whom?"
The media are telling us that the economic
"crisis" is over, and that the world-economy is once more back to its
normal mode of growth and profit. On December 30, Le Monde summed up
this mood in one of its usual brilliant headlines: "The United States
wants to believe in an economic upturn." Exactly, they "want to
believe" it, and not only people in the United States. But is it so?
First of all, as I have been saying
repeatedly, we are not in a recession but in a depression. Most economists tend
to have formal definitions of these terms, based primarily on rising prices in
stock markets. They use these criteria to demonstrate growth and profit. And
politicians in power are happy to exploit this nonsense. But neither growth nor
profit is the appropriate measure.
There are always some people who are making
profit, even in the worst of times. The question is how many people, and which
people? In "good" times, most people are seeing an improvement in
their material situation, even if there are considerable differences between
those at the top and bottom of the economic ladder. A rising tide raises
all ships, as the saying goes, or at least most ships.
But when the world-economy becomes stagnant,
as the world-economy has been since the 1970s, several things happen. The
number of people who are not gainfully employed and therefore receiving an
income that is minimally adequate goes up considerably. And because this is so,
countries try to export unemployment to each other. In addition, politicians
tend to try to deprive the elderly retired persons and the young,
pre-working-age persons of income in order to appease their voters in the usual
working-age categories.
That is why, appraising the situation country
by country, there are always some in which the situation looks much better than
in most others. But which countries look better tends to shift with some
rapidity, as it has been doing for the last forty years.
Furthermore, as the stagnation continues, the
negative picture grows larger, which is when the media begin to talk of
"crisis" and politicians look for quick fixes. They call for
"austerity," which means cutting pensions and education and child
care even further. They deflate their currencies, if they can, in order that
they reduce momentarily their unemployment rates at the expense of some other
country's employment rates.
Take the problem of government pensions. A
small town in Alabama exhausted its pension fund in 2009. It declared
bankruptcy and ceased paying its pensions, thereby violating state law which
required it to do so. As the New York Times remarked, "It is not
just the pensioners who suffer when a pension fund runs dry. If a city tried to
follow the law and pay its pensioners with money from its annual operating
budget, it would probably have to adopt large tax increases, or make huge
service cuts, to come up with the money. Current city workers could find
themselves paying into a pension plan that will not be there for their own
retirements."
But this is the looming problem for every
state within the United States who, by law, must have balanced budgets, which
means they cannot resort to borrowing to meet current budgetary needs. And
there is a parallel problem for every nation within the euro zone who cannot
deflate their currencies in order to meet their budgetary needs, which has
meant that their ability to borrow leads to exorbitant unsustainable costs.
But what, you may ask, about those countries
where the economy is said to be "booming" such as Germany and most
particularly, within Germany, Bavaria - called by some "the planet of the
happy." Why then do Bavarians "feel a malaise" and seem
"subdued and uncertain about their economic health"? The New York
Times notes that "Germany's good fortune...is widely viewed (in
Bavaria) as having come at the expense of workers, who for the past decade have
sacrificed wages and benefits to make their employers more competitive....In
fact, part of the prosperity comes from people not getting the social security
they should have."
Well then, at least, there is the good
example of the "emerging economies" which have been showing sustained
growth during the last few years - especially the so-called BRIC countries.
Look again. The Chinese government is very concerned about the loose lending
practices of Chinese banks, which seem to be a bubble, and leading to the
threat of inflation. One result is the sharp increase in layoffs in a country
where the safety net for the unemployed seems to have disappeared. Meanwhile,
the new president of Brazil, Dilma Rousseff, is said to be disturbed by the
"overvalued" Brazilian currency amidst what she sees as the deflating
U.S. and Chinese currencies that, together, are threatening the ability of Brazilian
exports to be competitive. And the governments of Russia, India, and South
Africa, are all facing rumbling discontent from large parts of their
populations who seemed to have escaped the benefits of presumed economic
growth.
Finally, and not least, there are the sharp
rises in the prices of energy, food, and water. This is the result of a
combination of world population growth and increased percentages of people
demanding access. This portends a struggle for these basic goods, a struggle
that could turn deadly. There are two possible outcomes. One is that large
numbers of people will reduce the level of their demand - most unlikely. The
second is that the deadliness of the struggle results in a reduced world
population and thereby fewer shortages - a most unpleasant Malthusian solution.
As we enter this second decade of the
twenty-first century, it seems improbable that by 2020 we shall look back on
this decade as one in which the "crisis" was relegated to a
historical memory. It is not very helpful to "wish to believe" in a
prospect that seems remote. It does not help in trying to figure out what we
should do about it.
by Immanuel Wallerstein
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These commentaries, published twice monthly, are intended to be reflections on
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headlines but of the long term.]
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