Economic Reform Now: A Global Manifesto to Rescue our Sinking Economies

188 Pages·2013·1.605 MB·English

by  Heiner Flassbeck, Paul Davidson, James K. Galbraith, Richard Koo, Jayati Ghosh (auth.)

Economic Reform Now
Economic Reform Now
A Global Manifesto to Rescue our
Sinking Economies
Heiner Flassbeck , Paul Davidson , James K. Galbraith ,
Richard Koo , and Jayati Ghosh
ECONOMIC REFORM NOW
Copyright © Westend Verlag GmbH, Frankfurt/Germany, 2013.
All rights reserved.
First published in 2013 by
PALGRAVE MACMILLAN®
in the United States— a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN 978-1-137-36165-3 ISBN 978-1-137-36407-4 (eBook)
DOI 10.1057/9781137364074
Library of Congress Cataloging-in-Publication Data
Flassbeck, Heiner.
Economic reform now : a global manifesto to rescue our sinking
economies / Heiner Flassbeck, Paul Davidson, James K. Galbraith,
Richard Koo, and Jayati Ghosh.
pages cm
Includes bibliographical references.
1. Economic policy. 2. Global Financial Crisis, 2008–2009.
3. International economic integration. I. Davidson, Paul, 1930–
II. Title.
HD87.F583 2013
330—dc23 2013019046
A catalogue record of the book is available from the British Library.
Design by Newgen Knowledge Works (P) Ltd., Chennai, India.
First edition: October 2013
10 9 8 7 6 5 4 3 2 1
Contents
List of Figures and Table vii
Preface ix
Chapter 1 Uncertainty and Austerity Policy 1
Paul Davidson
Chapter 2 New Thinking and a Strategic Policy
Agenda 23
James K. Galbraith
Chapter 3 Labor Markets and Economic Development 55
Heiner Flassbeck
Chapter 4 Balance Sheet Recessions and the Global
Economic Crisis 85
Richard Koo
Chapter 5 Economic Integration and Global Crises:
A Perspective from the Developing World 133
Jayati Ghosh
Chapter 6 Act Now! The Manifesto: A New Agenda
for Global Economic Policies 161
Jayati Ghosh
vi ● Contents
About the Authors 175
References 179
Figures and Table
Figures
3.1 Wage share and unemployment in the developed
economies 61
4.1 Western economies in balance sheet recessions 89
4.2 Balance sheet recession in Japan 90
4.3 Massive quantitative easing failed to increase
credit to private sector 92
4.4 Drastic liquidity injection failed to increase
Japan’s money supply 93
4.5 Except for three occasions, bankers were willing
to lend, but borrowers refused to borrow 95
4.6 Japan: GDP growth despite massive loss of wealth
and private-sector deleveraging 97
4.7 Monetary easing is not a substitute for fi scal
stimulus (I) 99
4.8 Monetary easing is not a substitute for fi scal
stimulus (II) 100
4.9 Japan: Premature Fiscal Reforms in 1997 and 2001 102
4.10 Micro and macro factors behind the
Greek-German competitiveness gap 112
viii ● Figures and Table
4.11 Germany: balance sheet recession after the
1999–2000 telecom bubble 114
4.12 German households stopped borrowing money
after IT bubble 114
4.13 Germany: post telecom-bubble recovery led by
exports to the Euro zone 117
4.14 Expected convergence of unit labor costs in the
Euro zone 119
4.15 Th e exit problem: the United States took 30 years
to normalize interest rates after 1929 because of
private-sector aversion to debt 125
5.1 Industrialized countries and emerging market
economies: quarterly GDP growth, 2007–2012 136
5.2 Industrialized countries and emerging market
economies: change in export volume of goods and
services, 2006–2012 137
Table
4.1 Industrialized countries and emerging market
economies: quarterly GDP growth, 2007-2012 130
Preface
T
his book takes up economic issues that concern a large
number of countries and are likely to affect all of us in
one way or another. It also shows ways that could lead
out of the current crisis. The alternative economic policies lined
out here are likely to be more effective than the measures taken
in the past few years, because they come from an understand-
ing of the underlying problems, which is not based on simplistic
theories but on recognition of how the complex economic system
functions in reality.
The incomes of a majority of the population have been stagnat-
ing, or even falling, in a large number of countries for several years
now. At the same time a few people have become outrageously
rich. In many countries, large sections of the population, and in
particular the youth, are threatened by joblessness. No doubt,
the shock of the big financial crisis caused many politicians and
decision-makers to have second thoughts about the functioning
of the financial system. But too many have returned too soon to
resume “business as usual.” Today, many defend the same errone-
ous doctrines that have led us into the crisis, and often they do
this even more vigorously than before.
The consequences of the crisis can be discussed by looking at
its impact on everyday life and on the actual living conditions
x ● Preface
of the ordinary people. One may also criticize policymakers and
lament about how little of what is possible is actually done by
those who have political power. This is not what is intended with
this book. Rather, the idea was to bring together economists with
different analytical approaches, and from different parts of world,
to discuss a few key issues: Why does the world economy time
and again undergo deep crises? Why is the financial system so
difficult to control? Why have we failed to defeat hunger, hard-
ship, and joblessness in this world of affluence?
It was clear from the outset that the task could not simply be
to denounce incapable politicians. A famous economist stated
decades ago that “practical men, who believe themselves to be
quite exempt from any intellectual influence, are usually the
slaves of some defunct economist” and that the difficulty lies not
so much in developing new ideas as in escaping from old ones.
Each of the five contributions to this volume offers a different
perspective on this problem.
Paul Davidson, one of today’s leading experts and proponents
of Keynesianism, takes up the key question of what we know
about the course of history. This question is essential because a
large part of the economic profession is operating with models
based on a deterministic worldview. This “mainstream” supposes
that the course of history cannot be altered and that the scope for
actively influencing macroeconomic outcomes is extremely lim-
ited. Against this, Davidson presents a more realistic worldview
in which there is considerable scope to shape the economic future.
If decision-makers are willing to learn from experience, they can
fundamentally modify people’s living conditions.
James K. Galbraith, one of the most prominent critics of US
and European mainstream economics, outlines the course of eco-
nomic thinking and its errors over the past 80 years. In particular,