The Great Malaise Drags On
Joseph Stiglitz
There’s
something dismal about writing year-end roundups in the half-decade
since the eruption of the 2008 global financial crisis. Yes, we avoided a
Great Depression II, but only to emerge into a Great Malaise, with
barely increasing incomes for a large proportion of citizens in advanced
economies. We can expect more of the same in 2014.
In
the United States, median incomes have continued their seemingly
relentless decline; for male workers, income has fallen to levels below
those attained more than 40 years ago. Europe’s double-dip recession
ended in 2013, but no one can responsibly claim that recovery has
followed. More than 50% of young people in Spain and Greece remain
unemployed. According to the International Monetary Fund, Spain can expect unemployment to be above 25% for years to come.
The
real danger for Europe is that a sense of complacency may set in. As
the year passed, one could feel the pace of vital institutional reforms
in the eurozone slowing. For example, the monetary union needs a real
banking union – including not just common supervision, but also common
deposit insurance and a common resolution mechanism – and Eurobonds, or
some similar vehicle for mutualizing debt. The eurozone is not much
closer to implementing either measure than it was a year ago.
One
could also sense a renewed commitment to the austerity policies that
incited Europe’s double-dip recession. Europe’s continuing stagnation is
bad enough; but there is still a significant risk of another crisis in
yet another eurozone country, if not next year, in the not-too-distant
future.
Matters
are only slightly better in the US, where a growing economic divide –
with more inequality than in any other advanced country – has been
accompanied by severe political polarization. One can only hope that the
lunatics in the Republican Party who forced a government shutdown and
pushed the country to the brink of default will decide against a repeat
performance.
But
even if they do, the likely contraction from the next round of
austerity – which already cost 1-2 percentage points of GDP growth in
2013 – means that growth will remain anemic, barely strong enough to
generate jobs for new entrants into the labor force. A dynamic
tax-avoiding Silicon Valley and a thriving hydrocarbon sector are not
enough to offset austerity’s weight.
Thus,
while there may be some reduction of the Federal Reserve’s purchases of
long-term assets (so-called quantitative easing, or QE), a move away
from rock-bottom interest rates is not expected until 2015 at the
earliest.
Ending
low-interest-rates now would not be sensible, though QE has probably
benefited the US economy only slightly, and may have raised risks
abroad. The tremors in global financial markets set off by discussions
earlier in 2013 of tapering QE highlighted the extent of interdependence
in the global economy.
Just
as QE’s introduction fueled currency appreciation, announcing its
eventual end triggered depreciation. The good news was that most major
emerging countries had built up large foreign-exchange reserves and had
sufficiently strong economies that they could withstand the shock.
Still,
the growth slowdown in emerging economies was disappointing – all the
more so because it is likely to continue through 2014. Each country
produced its own story: India’s downturn, for example, was attributed to
political problems in New Delhi and a central bank worried about price
stability (though there was little reason to believe that raising
interest rates would do much about the price of onions and the other
items underlying Indian inflation).
Social
unrest in Brazil made it clear that, despite remarkable progress in
reducing poverty and inequality over the past decade, the country still
has much to do to achieve broadly shared prosperity. At the same time,
the wave of protest showed the growing political clout of the country’s
expanding middle class.
China’s
decelerating growth had a significant impact on commodity prices, and
thus on commodity exporters around the world. But China’s slowdown needs
to be put in perspective: even its lower growth rate is the envy of the
rest of the world, and its move toward more sustainable growth, even if
at a somewhat lower level, will serve it – and the world – well in the
long run.
As
in previous years, the fundamental problem haunting the global economy
in 2013 remained a lack of global aggregate demand. This does not mean,
of course, that there is an absence of real needs – for infrastructure,
to take one example, or, more broadly, for retrofitting economies
everywhere in response to the challenges of climate change. But the
global private financial system seems incapable of recycling
the world’s surpluses to meet these needs. And prevailing ideology
prevents us from thinking about alternative arrangements.
We
have a global market economy that is not working. We have unmet needs
and underutilized resources. The system is not delivering benefits for
large segments of our societies. And the prospect of significant
improvement in 2014 – or in the foreseeable future – seems unrealistic.
At both the national and global levels, political systems seem incapable
of introducing the reforms that might create prospects for a brighter
future.
Maybe
the global economy will perform a little better in 2014 than it did in
2013, or maybe not. Seen in the broader context of the continuing Great
Malaise, both years will come to be regarded as a time of wasted
opportunities.
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