Thirty months ago the contours of the global economic crisis began to become apparent. Twenty-two months ago the developed capitalist countries came exceedingly close to a private sector financial collapse. The causes of the global economic crisis have been laid out, in full, in previous entries to this weblog. What is remarkable, however, is how little has been learnt by global economic policymakers.
Outside of the United States, where the fiscal stimulus designed to offset the worst possibilities of the crisis is gradually winding down but is nonetheless still having an impact, there has been a move to 'fiscal consolidation'. In Europe in particular--Germany, Britain under the Conservative-Liberal Democrat coalition, the Netherlands and elsewhere--economic policymakers seem to be blithely unaware of the grievous state of their economies. In an effort to cut government budgetary deficits sooner rather than later, European economies are slashing government spending and raising taxes as their attempt to steer their countries out of the crisis. I have seen economic incompetence amongst policymakers in the developed capitalist countries before: but never on this scale.
Consider: the current driver of global economic growth are the developing capitalist countries, and in particular China, India, Brazil. All of these countries have an economic model predicated upon producing goods and services for the developed capitalist countries that are comparatively cheap because of their lower unit labour costs. For these countries to continue to grow, and pull the world economy along with them, they need to be able to sell their products. Who are supposed to be buying these products? We are: the developed capitalist countries where we live.
However, the withdrawal of the fiscal stimulus and the shift to fiscal consolidation has to make one wonder how we are supposed to buy these products that the developing capitalist countries are supplying to us. As budget cuts hit Germany, Britain and elsewhere, this is a stark question. It is, however, most starkly posed by the most important developed capitalist country of all: the United States.
How are Americans going to buy the products of China, India and Brazil in the current economic climate? Consider these findings of a recent Pew survey on how the recession has affected Americans:
* more than 50% of all American workers have either experienced a period of unemployment, taken a cut in working hours or rates of pay, or have been forced to go part-time since the onset of the crisis
* an average unemployed worker in America has been out of work for almost 6 months
* collapsing share and household prices have destroyed 20% of the wealth of an average American household, making them effectively poorer than they were 35 years ago
* 60% of Americans have either cancelled their holidays or have cut back on their holidays, in a country with the shortest holidays in the developed capitalist countries
* 25% of those between 18 and 29 have had to move back in with their parents
* less than 50% of all American adults believe that their children will have a higher standard of living than theirs, and more than 25% believe that their children will have a lower standard of living
One does not have to be an unreconstructed Keynesian to see that the only way that this crisis will not be borne by those least capable of bearing the costs of the it is to maintain the purchasing power of households that have been hit hardest by the crisis. Chinese, Indian and Brazilian goods need people to buy them: but right now governments in the wealthiest parts of the world seem to be doing everything in their power to ensure that those that would most want to buy goods and services from the developing capitalist countries are not able to do so. Weak consumer demand for wage goods is no way to solve the crisis; it is a recipe for deepening the crisis.