Welcome to the Hunger Games, Brought to You by Mainstream Economics

By Lynn Parrramore, Senior Editor at INET. Originally published at INET

As a virulent strain of austerity capitalism takes over Europe, leaving shattered lives in its shadow, researchers Servaas Storm and C.W.M. Naastepad, Senior Lecturers in Economics at Delft University of Technology in The Netherlands, consider how things got so bad, what role economists and misguided policy-makers have played, and which models and ideas are needed to change course. In the following interview, they discuss how most are getting the story about Europe wrong. They explain how their research shows that when countries try to compete with each other by lowering wages and slashing the social safety net, the costs are high both economically and socially, and why co-operative and regulated capitalism is a far better path. (For more, see “Europe’s Hunger Games: Income Distribution, Cost Competitiveness and Crisis,” published in the Cambridge Journal of Economics, and “Crisis and Recovery in the German Economy: The Real Lessons,” part of the Institute for New Economic Thinking’s project on the “Political Economy of Distribution”). 

Lynn Parramore: What do we need to know about economists and their relationship to power?

Servaas Storm: In a brief moment after financial crisis, mainstream economists did some soul-searching and rethinking. But once the economy stabilized (somewhat) thanks to large-scale government support, most went back to “normal,” rebuilding their professional status as neutral technocratic advisors and portraying macroeconomists as mere engineers solving practical problems. This is a chutzpah. Macroeconomics starts off from vision, moral values, perspectives and ideology, which color any analysis and need to be disclosed and debated. This was clear in the old days to economists as diverse as Joseph Schumpeter and Gunnar Myrdal, but not now anymore.

One example of “vision” is the unshaken belief of mainstream economics in the self-regulating and self-stabilizing powers of (financial) markets, which even Alan Greenspan admitted to be flawed.

It is exactly this “vision,” or ideology as Greenspan called it, which allowed the financial system to derail and blow-up our economies. But most economists refuse to debate their vision. They want to look scientific and neutral. Their refusal may also be directly linked to the fact that quite a few have undisclosed ties with financial-sector firms. But there is a far bigger reason, as explained by John Kenneth Galbraith long ago. By claiming that their economics has no content of power and politics but is neutral, mainstream economists have become “useful” as the influential and invaluable allies of the powers that be, who help to convince the public that the status quo, in Panglossian fashion, is the best of all possible worlds.  They help de-democratize economic policy, which is quintessentially political and should be the subject of intense and informed democratic debate.

LP: This de-democratizing of economic policy has been playing out in the European economy, which you’ve compared to The Hunger Games. You note that we’re watching capitalism turn into something where a parasitic few prosper at the expense of the rest, who must increasingly fight to get their most basic needs met. How did things get this bad?

SS: Crisis-struck Eurozone countries are told that they got into trouble because of wastefulness and a lack of price or cost competitiveness. The powers that be preach austerity: Cut your  government expenditures (however essential these are). Deregulate — especially the labor markets in order to reduce wages and labor costs. Go sell more exports to recover, since your debt-strapped citizens at home don’t have enough money to spend to keep the economy going. Do all this even if it means that wages (and living standards) get slashed by around 25-30 percent or more.

As a result of this “one-size-fits-all” policy prescription, all Eurozone member states (especially in Southern Europe) have been busy cutting down government spending, reducing wages, and breaking down social security and labor protection provisions. The predictable, dramatic, outcome has been that the crisis deepened to a near-collapse.

This frenzied race to see who can reduce labor costs the most looks like the contest forced upon twelve young people in The Hunger Games, a dystopian novel (and a movie) about how a fictional dictatorship is using “Bread and Circuses” to distract and appease its oppressed and disenfranchised population. The analogy between Europe’s crisis and The Hunger Games is that it’s competitive in the extreme. The contestants are the Eurozone members—each one trying to bootstrap its economy out of the throes of the most severe crisis in living memory. The audience judging each country’s performance is not made up of reality TV watchers but of financial (bond) markets and credit rating agencies, whose supposedly rational views can make or break any economy.

The name of the game is boosting cost-competitiveness and exports—and its rules are carved into stone in March 2011 in a ‘Euro Plus Competitiveness Pact,’ a plan imposed by Germany and the ECB  that forced the other countries to play.

LP: In your view, just about everybody is getting this story wrong. How so?

SS: Drastically cutting wages, which, mind you, shifts the huge losses of the banking-sector crisis to workers, follows naturally from mainstream economic theory. Wages, in this view, are just a cost item, and lowering them will lower prices and/or raise profit margins, and raise employment as well as net exports. Painful, say the advocates, but it will work. Plus, there is no alternative. That’s why the International Monetary Fund (IMF) and the European Central Bank (ECB) urge Eurozone crisis countries to go for cutting labor costs — what economists call “internal devaluation.”

Remarkably, many non-mainstream economists share this idea and blame the current troubles in Southern Europe on Germany’s strategy of gaining cost competitiveness within the Eurozone by successfully squeezing its workers harder than everybody else. Germany’s super-competitiveness is, in this view, just the flip side of Southern Europe’s lack of competitiveness. Based on this diagnosis, the Left wants Germany to raise wages (relative to the rest) to resolve Eurozone imbalances.

It will not work. Why? A country is not competitive because its workers are paid less than those in other countries. It’s the country’s high-tech or lower-tech production and what kinds of exports it specializes in that drive economic success. The imbalances between countries in the Eurozone were actually driven by capital flows from Europe’s core (Germany and France) to the periphery (Greece, Portugal, etc), which increased by a lot following the creation of the euro. Most of it was bank debt (not equity) and it was happily lent (directly or indirectly) to project developers and construction firms in Spain, fueling Spain’s property bubble, and to Greece’s already indebted government (which was considered almost as creditworthy as the German one just until the crisis broke).

So imbalances, in our explanation, were driven by the inflow of cheap foreign credit. These foreign loans were used to finance extra spending, a major part of which was on imports —basically machines and luxury cars manufactured in Germany. The surge in imports created deficits on the trade balances of the Southern European economies, but these imbalances had nothing to with rising relative unit labor costs or “excessive” wage growth in the periphery. By blaming the European crisis on wages and the cost of labor and ignoring the role of credit flows within the monetary union, economists are letting Big Banks off the hook – absolving them from any responsibility, leave alone blame – and unjustifiably so. 

LP: You note a “Social Darwinist” view of how Germany came out of the financial crisis as the economic powerhouse of Europe by squeezing workers and so on. How does your view differ from this dominant narrative?

Germany was once called “the sick man of Europe” because its economy was stagnant and lots of people were unemployed. The dominant narrative holds that the so-called Hartz Reforms of 2003-2005 turned things around when they deregulated labor markets, formalized “mini-jobs” (with lower than normal-tax and-social-security contributions), and made receiving benefits conditional upon the willingness of a person out of work to accept any job offered to her. Many people claim that these reforms gave Germany a competitive edge to expand export market shares and grow. Mainstream commentators praise Germany as the only European Monetary Union (EMU) country that got it all right and they set it up as the example to be followed. This view has become codified in policy in the Euro Plus Pact (adopted by the European Council in March 2011).

This story is wrong on two accounts. First, Germany’s superior export performance has nothing to do with labor cost competitiveness. Demand for Germany’s exports has not been sensitive to changes in the cost of labor, as we show and as other studies (including ones by IMF, World Bank and ECB economists) confirm. German firms do not compete on “costs” but on factors other than price: things like product design, quality, high-tech content, and reliability.

They also compete because they cater to the fastest growing export markets like China and Russia, so German firms could benefit from the fiscal stimulus happening in those countries and hook into feebly recovering global demand.

Also, the German welfare state had things in place, like unemployment benefits, which steady the economy during rough patches, plus two stimulus and bailout programs. This robust stimulus restored basic confidence and protected jobs in export-oriented manufacturing, Germany’s core-sector. The government enhanced the effects of these stabilizers by helping firms bridge the slump by funding part-time support for core-sector workers and avoiding layoffs until the recession is over. As a result, employers could adjust by changing the hours worked per employee, rather than layoffs. These co-ordinated and partly publicly funded short-time provisions helped stabilize German consumer spending, since short-time workers have more disposable and safer income than the unemployed. Germany recovered from the crisis despite – and not thanks to – the Hartz Reforms.

LP: Many argue that the old German economic model of “cooperative capitalism” has been happily replaced by something more like the American model, where companies focus on short-term profits, workers are restrained, and benefits like unemployment insurance are reduced. You call that an economic myth. Why?

SS: It’s a myth because it did not happen. At least it did not happen in Germany’s core sector – export-oriented manufacturing – which is responsible for the country’s export growth. Germany did not shift towards the American model, but in contrast continued to encourage long-term thinking in manufacturing activities and doing things to make products attractive through design and quality and so on rather than price. This long-termism was based on a system of cooperative capitalism, with “checks and balances” on the behavior of firms, banks, and unions. This system creates commitment, both of employees (who think as they work) and of long-term bank finance, which is fundamental to innovation, technical change and continuous improvement. The German government protects core-sector jobs by supporting firms’ research and development efforts, technological learning, and workforce training, and also by providing long-term committed finance through its national investment bank KfW (Kreditanstalt für Wiederaufbau) and Germany’s public banks (Deutsche Sparkassen). 

Wages in Germany’s core sectors have actually increased relative to Eurozone wages, while employment protection and social protection for core-sector jobs have remained intact. The problem is that the core is not creating but shedding jobs, contributing to high unemployment. The aim of the Hartz Reforms was to bring down unemployment by protecting those core jobs while abolishing cooperative capitalism in services sectors like the restaurant industry or cleaning. Those industries had to absorb “excess” manufacturing workers, who got very low pay and at very flexible working conditions (“mini-jobs”).

Now Germany has a two-tiered labor market. You’ve got high-paid productive workers in the protected and regulated core versus low-paid, flexible, and unprotected workers in McDonaldized services.

LP: You observe that this two-tiered labor market is an “inconvenient truth” about Germany’s economy. What do you see happening if this trend continues in both Germany and elsewhere?

Given that the future will bring even more robotization and automation, the labor-shedding by the productive core-sector will only accelerate. Because of this, you will see more conflicts over inequality, for starters. The fights will be over how to share (productive) employment and incomes but also over social protection (who gets what and who has to pay and how much). It will be harder for the core-sector to grow if most of the population has no money to spend on goods and services. Leaving it up to the market to fix this will just lead to still more inequality — Piketty on steroids, as it were. I think we can do better. But for that we need to fundamentally rethink the maxims of free-market economics. I guess that is the major aim of INET’s Political Economy of Distribution Working Group.

LP: The real game in Europe, you suggest, is a battle of ideas. What ideas would you like to see prevail?

SS: We need to understand the benefits of economic co-ordination that doesn’t  rely solely on the market. As Germany’s successful response to crisis shows, a co-ordinated (“co-operative”) fiscal stimulus by Eurozone member countries would have stopped the economic downfall sooner and generated far superior outcomes than the current “Hunger Games” response in which each member country is forced to fend for itself, basically by unilaterally cutting its wages and thereby hoping to gain export market share at the expense of the others.

This strategy has had, and is still having, huge and avoidable social costs. (Yes, this is a damning indictment of the way European policymakers handled the crisis.) The same holds true for the monetary policy response of the ECB which is still based on conditionality: to get help from Frankfurt, governments have to impose structural reforms, a euphemism for labor market deregulation and breaking down social protection.  To illustrate, the ECB sent a letter to the Spanish government in August 2011 asking for wage cuts and the creation of “mini-jobs” to address the issue of youth unemployment in exchange for buying Spanish government bonds in the secondary market. These “mini-jobs” would pay salaries below the Spanish minimum wage. How to square this with the aim to turn Spain into a more competitive economy? I don’t know, unless one wants Spain to directly compete with China.

The Eurozone crisis is a banking-sector crisis – and not a sovereign-debt crisis or a crisis of labor cost-competitiveness. Banks, especially the big ones, were all too eager to lend to firms, households and governments in the Eurozone periphery, in their euphoria creating a “credit glut” which they knew they could get away with if things went wrong. European integration has been primarily a process of financial integration – with credit flows between countries growing much faster than anything else. Eurozone banks are even bigger than U.S. banks. They got rescued, and still get pampered, while the population got stuck for the damage of their miscalculations (or misbehavior).

We should debate the role played by banks and financial markets and how we can make them pay for the crisis. We need ask questions about how socially efficient the deregulated financial sector actually is, if it can be improved, and whether or not we really need Big Banks.

It’s time to get rid of the myth that market competition is the overwhelming source of innovation (and competitive advantage). The truth is that the government plays a huge role as the ultimate risk-taker and financier and through social co-ordination (between firms and workers, firms and banks, and firms and the state). The strength of Germany’s core sector is testimony of the enduring power of co-operative and regulated capitalism.

Europe needs a hand-on industrial policy with government investment in innovations like renewable energy systems, public transport and education and health. Countries like Greece in the periphery need help in the task of industrial restructuring and upgrading. Resources should be going from countries like Germany to them instead of the other way around.

If the Eurozone continues the path of market mythology, imbalances and inequality will get worse. And if that happens, well, Yeats said it best: “Things fall apart; the centre cannot hold / Mere anarchy is loosed upon the world.”

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  1. steviefinn

    Very good – it brings all the pieces of the jigsaw together, except maybe the fact that certain people in high place such as George Osborne are quite happy with the results of the current class warfare. I am certainly no economist but I perhaps erroneously believed that this psuedo science was based on supply & demand & the fact that a race to the bottom is in nobodies interests except perhaps rentiers & those who live by speculation, but surely even this – I imagine in the long term, needs to be based on a sustainable sturdy foundation.
    There was plenty of talk during the early part of the crisis of the amount of mercedes benz in Greece, which along with other quality products must have benefitted the German economy, but in this beggar thy neighbour brave new world – what is the point of producing quality products to export, if there is no-one out there who can afford to pay for them ?
    At the end of the day it all just seems to me that a privileged group cannot keep their snouts out of the trough & basically they gladly only listen to advisers who benefit very well, from telling them that it is OK to continue with the feast, while the rest of us are only deserving of, & will do just fine with the crumbs that fall from the high table.

  2. MartyH

    Thanks for picking this up, Yves. It is clear enough. Hopefully people will read it.

    The “Western” Economics technocracy is big on “Do as I say!” and ignoring what it’s winners are really doing. Germany’s “core” (as discussed above) is not so different than that in the US (the Google’s, Apples, and friends). The U.S. Banks ARE the same (or closely cartelized with the) Euro-banks referred to.

    And the use of Co-operative Capitalism!? That’s daring ;-)

  3. Jim Haygood

    ‘Europe needs a hand-on industrial policy with government investment in innovations like renewable energy systems, public transport and education and health.’

    Don’t we miss those ‘wine lakes’ and ‘butter mountains’ of the old, unrestructured Europe! And that wonderful Dutch program which filled whole warehouses with subsidized, unsalable ‘art.’

    Forward into the past, comrades. Statism surely will work this time, if we just fund it adequately.

    1. skippy

      Whats the rub Jim Haygood[?]… Ontological Statism – is – the precursor… crappy math and physics is just the Bernays brand artificial coloring and flavored cortex enhancers.

      Skippy… Reverse Dialectical materialism…. comrade???? or just for fun was Marx the second coming??? Snorty!!!

  4. James Levy

    It’s not a battle of “ideas”, it’s a battle of interests!!!

    The interests of the ownership class are in making the debtors pay and keeping their assets valuable and inviolable. No other interests can be allowed to get in the way of these demands. The middle class, the working class, and the impoverished are confused, divided, and have little influence over events. The problem is owners everywhere have an interest in the perks of property (be that bonds or real estate or corporate stocks). Italian clerical workers, German machinists, and Greek fishermen have much more murky relationships to each other and a less clear set of mutual interests. German bankers can appeal to Greek and Italian owners in a convincing way. German workers and Greek workers find themselves in a much more complex and contradictory relationship that makes collective action very difficult. It would be nice if the Workers of the World united, but around what, and how it will benefit them all equally, is another matter (other than expropriation, and workers almost nowhere are ready to contemplate that).

    1. Left in Wisconsin

      This is well said. And the post makes many excellent points.

      But, how long is it going to take for the working classes of the various Euro countries to get their sh*t together? The lack of unity/joint messaging/coordinated political activity in opposition to neoliberalism is awful. I was in Germany 20 years ago at the start of the EU internationalization project and it was obvious then that the German unionists had little respect for their brothers and sisters from the other EU countries, and that they understood (correctly it turns out) their fate to be aligned much more closely with the fate of the German exporters than with their lower wage comrades/competition from around Europe. (As an American who had always held the German unions to a higher standard than our crass business unions, I was heartbroken.) Twenty years on, it isn’t obvious that anything has changed, except things have gotten twenty years worse, or what it will take to motivate a unified response to Euro-neoliberalism. The unified response is only the first step in what I imagine to be quite a long process of reclaiming Europe for ordinary people. But isn’t it about time?

  5. diptherio

    Wages, in this view, are just a cost item, and lowering them will lower prices and/or raise profit margins, and raise employment as well as net exports.

    This lies at the heart of a lot of what is wrong with Macro. Wages are, of course, not just a cost item for business–they also create the pool of income out of which new spending must take place. By cutting wages (“good for business”), you also undermine demand (bad for business). The idgits in the mainstream say, “No problem, just make up for lower domestic demand by selling more exports.” But while it is literally impossible for every country to become a net-exporter, I’ve yet to see the IMF or anybody else suggest that a country become a net-importer, which someone is going to have to do if everyone else is looking to increase their exports. Astounding that anyone takes them seriously anymore.

      1. diptherio

        It was these kind of “true by (our) definition” statements that drove me crazy while I was doing my undergrad. “Supply and demand equilibria means that everyone who wants a job can have a job,” but if you’re holding out for a livable wage, that means by definition that you don’t want a job. See also: Pareto Efficiency Criteria for this kind of asinine reasoning.

    1. Left in Wisconsin

      It’s that and so much more. Maybe the biggest thing is that people don’t willingly submit to wage cuts. So the way most people experience wage reductions is that they get laid off from a higher paying job and have to take a lower paying one. (Accepting that many now experience wage cuts on the job via increased health insurance cost sharing). So it is the combination of the job loss/instability and the wage cut that throws people’s lives upside-down, and for many things are never the same.

      And, as the post confirms, quality businesses offering quality products are never undermined by high labor costs. Whereas efforts to “internally devalue” by dis-employing higher wage workers is unbelievably disruptive and never yields the expected benefits. That’s the great thing about currency devaluation – you can lower costs without having to dismantle your industrial structure.

  6. TheraP

    I have several thoughts here and I’ll try to be brief.

    1. Why are economists wedded to mainstream theories that aren’t working? Well, it reminds me of systems theory related to families: The person who sees clearly what is wrong is labeled as “sick” – and the source of family problems. The powerful insist that the sick “person” must change.

    2. How? First, Blame the victim: it’s their own fault and they must atone.

    3. Don’t fix the real problems. Instead, look back in “history” (as defined by the powerful) for how the victim’s behavior (solely) led to the current problems and make the victim responsible for fixing them.

    4. Here’s an example. If a person comes to the emergency room with multiple fractures, yes, they will be asked what happened. But then there will be X-rays, maybe surgery, maybe hospitalization, and casts and crutches and rehab. There will not be a search for guilt or a lecture about a rickety ladder or misusing the hedge clippers or poor choice of family or friends, or better financial planning, etc.

    5. As we know the problem of the EU is that they are in an economic union but not a political one. When times were good everybody got along pretty well. But in the bad times, it’s now the survival of the fittest, everyone accountable only for themselves, victim blaming, the sick left to tend their own wounds, and anyone who points out the truth will be blamed and ostracized for straying from the approved myths and legends.

    I’m sorry I have no solution. Because it’s a crazy world we live in. At my age, I’ve passed the baton, and I just hope and pray sanity sets in before we destroy the planet.

    1. calabi

      I have faith in the machines. They will help. There’s no stopping them now, we have them just in time, those whom stand in the way or deny their truth’s will fall to the wayside. If there is a collapse they will help us rebuild.

    2. fresno dan

      To me, modern economics is most akin to the medieval church.
      A self selected elite with “knowledge” (and I regard the church teachings as less ridiculous than economics teachings, and I’m agnostic) in which only believers, who of course are believers to begin with, i.e., skeptics and heretics are not allowed, are allowed to make official (i.e., canonical) pronouncements upon
      It has reached its pinnacle of power, not on the basis of merit or any objective utility, but merely due to the wiring of the human brain and its need for a narrative, a story to explain the world. It is added by the trait of most humans to try and be cooperative, and succumb to the “party line”
      And, like a lot of human institutions, there is a lot of inertia (tradition holds sway) in human beliefs.
      Finally, modern human societies form hierarchies, and those at the top always construct a mythology of why God, history, or good morals demand that they run the show and get more stuff….

    3. hunkerdown

      Competition is merely the eagerness to submit to poor outcomes based on irrelevancies, isn’t it?

      Competition: There’s the meme that has to be stopped. Viagra-popping Old Bucks need taken behind the woodshed to have all that “me” beaten out of them quite thoroughly. One way to do this is to show them in no uncertain terms your disgust at their atavist chimp-fetishism and remind them that society will be better off with them out of it.

      Transpersonal exclusion: as shown by the KonspirakiiTheory terminology, it works.

  7. TG

    “The early 21st century was a dark time, when Neoliberal Economists walked the earth, leaving chaos and austerity in their wake.” I’m thinking this might be a good opening line for the next “Mad Max” film.

    1. fresno dan

      That’s pretty good, but I would suggest this:
      In a world of dire and increasing poverty, where the evil flourish, the wicked prosper, the greedy are lauded, the stupid are lionized, sniveling sycophants (it is a law that “sniveling” must always precede “sycophant”) are promoted, and all these evil…are reviled as as*holes, BUT in the book describing the seventh circle of hell, where they are the handmaidens of Satan, and serve as his demons, they are called ….. Economists ….


  8. Doug Terpstra

    Reading this brought the same nagging questions triggered by The Hunger Games: “Why do the victims play their overlords’ cruel games, killing eachother? Why don’t they turn on the sadistic masters? And why do the colliseum crowds relish the desperation and violence?” I didn’t much care for the movie, and am appalled to see life imitating such deplorable fiction. The empire, with its hideous bread-and-circus violence can’t collapse soon enough for me.

    1. sd

      Greed and lust for power are strong drugs that blind everyone who come in contact which is probably why the worlds major religions warn against money and power.

      Anyone read John Twelve Hawks? He describes a great scene where the traveller arrives in a large city as it decays. The citizens are killing each other off as they each slash their way to the “top” only to be removed by the person in line behind them. The world resets back to a beautiful day once only one person is left standing. And then the process begins anew.

      It’s a stark example of just how much we need socially cooperative communities to survive.

      1. Ulysses

        John Twelve Hawks is fantastic! Thanks for bringing The Traveler trilogy up here at NC. Anyone concerned with the expansion of the surveillance state needs to read all three books ASAP!!

      1. Left in Wisconsin

        Growth papers over a lot of issues, and lends a false sense of shared community. When everyone is scrambling to hold onto theirs, solidarity is hard to generate. Which is why we need to make a much more conscious effort to generate it, and to oppose those who seek to prevent it from coming to pass.

  9. Jef

    As has been documented elsewhere Germany benefited most from the creation of the EU for a host of reasons some of which is mentioned in this interview but this all happened during the exponential rise of Global Growth. As natural limits were reached and growth slowed/ended Germany was in the best position to take advantage of sections of the Global economy that were still coasting along on momentum or were artificially respirated.

    Servaas Storm is still, like the economist he derides, claiming that the road to recovery is through ramping up growth in production only spread out over the Globe more equally. Hunger Games Lite.

    This is impossible as as we have reached the limits of natural resources and the biospheres ability to handle the waste-stream of human civilization proves. Again he dismisses the reason for global financial collapse and acts as if all we need to do is get back to doing all the things that created collapse only do them greener and more equitably.

    What is it about economist that they find it unfathomable to reconcile what the FINITE planet has to offer with what humanity requires to thrive. Its as if the Hunger Games is boiled down to some irrefutable equation that must be inserted into all analysis.

  10. Paul P

    Capitalism is like a shark. The shark must keep moving forward or die. Capitalism must keep growing or fall into depression. There seems to be no way to discuss the Great Recession or stagnation, except to think in terms of growth, whether from the left or the right. So, on Naked Capitalism we read about Hunger Games on one post and climate change on another. The disconnect is accepted as normal. Not even a few sentences about how, if the writer’s recommendations were followed and growth restored, we would actually be destroying our future with a disastrous short term solution. The question of climate change must be asked of every writer. Or, perhaps not. It may be too late to avoid our bleak fate.

    1. fresno dan

      I agree.
      And the fact of the matter is that we have had growth, for years now since the recession. When the 0.01% get 99.9% of the benefit, there will never be enough growth.
      And even in the world of economic speak that says the bottom 99% got 0.1%, the use of aggregates obscures (purposefully?) the percentages that are treading water, and those that have sunk beneath the waves…

    2. hunkerdown

      Not even a few sentences about how, if the writer’s recommendations were followed and growth restored, we would actually be destroying our future with a disastrous short term solution

      Not necessarily. I think there is a way to thread the needle: by creating less resource-intensive products out of one of the few feedstocks that hasn’t been debased or ruined — human rights and relationships. Comparatively little energy is required to manufacture consent.

      I hasten to add, not that I am at all on board with such a result.

    3. Yves Smith Post author

      I disagree completely. A Marshall plan to deal with climate change and re-engineer our economics to use less in the way of resources would be a huge growth engine. Corporate and general public conventional wisdom that this is a zero sum game is wrong.

      Investments in conservation are also hugely profitable. BP (yes, that BP) in IIRC the early 2000s decided to bring its carbon footprint back to its 1990s level. They thought it would take ten years and cost money. They did it in three, with an investment of $30 million, and it saved them $650 million.

      You have similar examples elsewhere, like McDonalds in the UK being forced after a lengthy and costly court battle to give up styrofoam clamshells to keep food hot for environmental reasons. Then McDonalds when forced to comply finds out that biodegradable pulp-based containers were not only as good at keeping food hot but were also cheaper. Management had just reflexively gone into “Don’t tell ME what to do” mode.

      We do need to get much more to discourage population growth and to get people to eat lower down on the food chain.

      I think we need a lot less McDonalds in our lives, but you get the general picture.

  11. Pelham

    Good read. And speaking of the big banks and the near certainty of another catastrophic global meltdown, shouldn’t be launch a broad discussion right now about what the response should be?

    Should we let the banks go under? Should we nationalize them? If so, temporarily or permanently? Or should we just bail them out again? Should we introduce, also once again, completely ineffectual regulations or, alternatively, semi-effective regulations that the banks will eventually sweep aside when no one’s looking?

    And what about regulators? Should they continue to be drawn from the financial industry or should we tap some other fount of wisdom — just for a change?

    More broadly, should we continue with a central bank that’s owned and controlled by private banks, whose interests and motivations diverge sharply from those of the American people and the country?

  12. ccz1

    Even if wages in Southern Europe had a freeze during the first decade of XXI century, the result would be more or less the same. Interesting that there are no words about the impact of China on the competitiveness of Southern Europe transactional sectors.

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