Reality asserts itself (Teil 3)
Im dritten Teil der Gesprächsreihe mit Paul Jay (The Real News Network) geht es um die aktuelle Entwicklung in der Weltwirtschaft:
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Baltimore.
If you read the financial press and the business sections of major newspapers, there’s a lot of speculation these days about whether we are poised for another global recession.
Now joining us to talk about just how dangerous a moment are we in is once again Heiner Flassbeck, who joins us from France. Heiner served as the director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, known as UNCTAD. He was once a vice minister at the Federal Ministry of Finance in Germany. And he’s now a professor of economics at Hamburg University.
Thanks for joining us again, Heiner.
HEINER FLASSBECK, PROF. ECONOMICS, HAMBURG UNIVERSITY: Hello.
JAY: So I guess the question’s just that simple. How dangerous a moment is this?
FLASSBECK: Well, the moment is very dangerous because we’re still in a very fragile situation all over the world. Japan is struggling to get out of the deflation. Europe is getting into deflation. That’s a new development of the last month, and it’s getting quickly into deflation.
The U.S. and the U.K. look a bit better. They seem to be in a recovery. But the recovery also is very fragile. Look at the United States. It’s mostly, so to say, the consumption revival is mostly driven by a reduction in the savings ratio. That is not really a solid and stable development.
JAY: Let me just jump in and make sure we’re all getting this. In previous times, the economy to a large extent was driven by credit card debt. And now you’re saying what recovery there is is people dipping into their savings.
FLASSBECK: Yeah. Well, for many it’s the credit cards. Sure, the savings rate is only the average for the whole economy, so it’s going down in the United States again, which is, in my view, very problematic, because for many people it means again to be on the credit line and to go to a situation of overindebtedness. So it’s never–it’s nowhere–nowhere in the whole world it’s a very stable recovery.
And the emerging markets–if the emerging markets now get into trouble (and that seems to be the case; some very important emerging markets are getting into trouble), then for the world a triple dip, so to say, is absolutely possible or [incompr.] fall into recession or stagnation. And we all know how long it took the Federal Reserve to get at least some bubbles inflated, so that the people feel a bit more secure that they reduced their saving. If we have a new fall back, then it will be much more grave and it will be very, very difficult to get it out with economic policy measures.
JAY: How significant is the slowing down of manufacturing in China?
FLASSBECK: Well, I think it’s a signal. As such, well, if China decelerates from 9.5 to 7.5, as such it’s not such a big thing, but it may be a signal that we have a slowdown all over the world, because China is, so to say, the production hub for the whole world, and if they are slowing down, then something must happen in the rest of the world also.
And as I said, Europe, the big Europe, with 450 million people, is not yet out of recession. Some countries are still shrinking, and the big countries–Germany is stagnating and France is still in recession.
So it’s a very, very dangerous situation. And, as I said, no policy instruments available anymore.
JAY: Well, the Fed has been able to use quantitative easing, you know, buying Treasury bills, throwing liquidity into the big banks in the United States and in Europe, and is credited by a lot of economists for stopping the recession from being a deep recession instead of a great recession I think is some of the terms people use. I mean, what is the effectiveness of that as a mechanism to prevent this global recession?
FLASSBECK: Well, it was not very effective, because most of the money went into the financial markets and inflated new bubbles. It was, well, this is clearly what the Fed intended to do, to create what they call a wealth effect or a worth effect that is positive, so that people think they can spend more money. But this only is true for a very small part of the whole population, for the richer part of the population. For the average people, nothing happened.
And as we have discussed many times, we still have the fact that all over the place, the high unemployment that we have is putting pressure on wages so that we have never–in no country, we have not seen a normalization of wage expectations, of income expectations of the average people. And as long as we do not have that, as long as we rely on a cut in savings ratio or new credit or new credit card bubbles, then the whole thing is extremely dangerous, too.
JAY: So if we might be or if it’s only a question of when we head back into this kind of global recession, what public policy should people be demanding of their government, say in the United States or Canada or Europe, to start with?
FLASSBECK: There’s only one tool available then, and that would be fiscal policy, that would be deficit spending, no doubt about it, despite all the ideological barriers we have in many countries to use that instrument. There is nothing else available. What can you do? Will you fiddle around with structural measures, so-called structural measures or reforms or labor market flexibility or all this nonsense? That will not work anymore. You need then a very strong instrument. And the only instrument that is available is–call it New Deal or deficit spending–is spending money by the government.
And there are many needs all over the place–ecological needs, infrastructure needs, education needs. So we have to stop at a certain point this phobia on debt. We have to understand that we are in a situation. We have too few debtors all around the world. That is why interest rates are zero. Interest rates are zero not by–driven to zero by the foolishness of central banks. No. It’s the reaction to the fact that we have too few debtors in this world and we have too many savers. We have a situation in most of the big countries where the company sector as a whole is a net saver. This is exactly the opposite of what you expect from a market economy. You expect the company sector to be the active part of the population to be a debtor and to be an investor. This is no longer true. And that is why we’re reaching a certain limit with this kind of market economy if we do not understand that as long as people are saving money, you have someone to take a loan from the bank and invest it in real capital, in fixed capital, and not into a paper that is flooded on the financial markets.
JAY: Yeah. It wasn’t long ago the–I think it was the governor of the Bank of Canada was complaining how Canadian corporations–and it’s true in the United States–are just sitting on mountains of cash and won’t do anything with it. But one of the reasons they don’t want to do anything with it is nobody trusts the real economy, because there’s not enough real demand, because wages are so low or so stagnant.
FLASSBECK: Exactly. Yeah.
JAY: So in terms of public policy, doesn’t there also have to be serious public policy for higher wages? It seems to me this minimum wage that President Obama’s talking about, to go to $10.10, I mean, doesn’t even make a dent in the problem, I mean, if there has to be at least a living wage around $15. And doesn’t there has to be something to do with promoting unionization? There’s, I mean, various policies that would raise wages.
FLASSBECK: Absolutely. You’re absolutely right. You need an intervention into the system. The labor market is not functioning at all. We have–as I said, we have high pressure on wages that are low. Formerly, you had a situation where you had high pressure on wages that were high. And now, 30 years after the neoliberal counterrevolution, it is the other way around, that this is destabilizing the whole economy, that that is why you need intervention. You need re-unionization. You need more power on the labor side. Or you need direct intervention of the government. And what President Obama said was a positive signal, but it was really not a step forward to change the situation.
JAY: And for the financial and political elite–we’ve talked about this before, but it seems to me their psychology more or less is, you know, après moi la deluge, you know, we’re making money today, to hell with tomorrow.
FLASSBECK: Exactly. That is, unfortunately, the case. But, well, we still have to trust into our democratic institutions that at least some politicians wake up early enough and save this system and save the democracy. In Europe and many countries, we’re already very close to a point where people are so frustrated with their democratic institutions that radical shifts outside of democracy or inside the democracy (that’s an open question) are possible.
And people are moving to the right-wing parties. That’s very clear, because if globalization fails, if Europe fails, what are you going to go for? You go for, apparently, apparently, new solutions at the national level. Well, these are also not solutions, but it looks like as if they were solutions.
JAY: Yeah. I mean, there’s nothing new about it. We saw it in Germany and Italy, and it was called fascism.
FLASSBECK: Yeah. Exactly.
JAY: Alright. Thanks very much for joining us, Heiner.
JAY: Thanks for joining us on The Real News Network.