Growth, jobs and more

Optimism Gap in the EU too

On his blog, Daniel Pink is writing about the CNN poll that is finding, that people have a much more positive view on their personal situation than on the state of economy in general. And concludes:

If enough people think everyone else is doomed, eventually they’ll doom themselves.

How true. A Eurobarometer study reports the same story as the CNN survey. Note the huge discrepancy between the perceived financial situation of a household (64% at least rather good) and that of the economic situation in the World (only 20%), the EU (33%) and the home country (29% very good or rather good).

This crisis is a result of many different factors and it will not be resolved by a single silver bullet. Many things will have to be addressed, in a coordinated way. The general fear and pessimism is one of them.

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  1. An overview of the crisis:
    1. While it is difficult to predict events with any certainty, there is no reason to expect that the current crisis will pass quickly, and there is no quick way out of this crisis. It is difficult to predict the true extent of economic decline. We are at the beginning phase of the crisis, indeed as crisis progressed through its phases, the situation automatically gets worse. The most severe consequences of the crisis are still ahead of us.
    2. The historic meltdown of the global capital markets, and sharp economic downturn, is systemic in nature, and is conditioned by the contradictions, and vulnerabilities, of the current level of economic organisation, with the world economy unable to develop further in the old manner.
    3. The global systemic crisis, which itself has built up over decades, will not be overcome until the vulnerabilities/ and contradictions that caused it are resolved effectively.
    4. While the crisis is being felt more acutely in some regions, it is a global systemic crisis. The initial epicenter of the crisis was in the United States, but the crisis is a world crisis which will be affecting the whole world system and will be increasingly disrupting the production process. The crisis is felt much stronger in the USA, and also in countries which are heavily integrated within the US economic and strategic sphere. The crisis is global in nature, and will affect all countries that are part of the world economy, but not necessarily at the same time and to the same extent. How and when it will affect each country may vary. The specific impact of the crisis for each country – collapse of several large international banks, corporate collapses and industrial shutdowns – will occur unevenly and at different times in various countries.
    5. The crisis will produce a handful of winners and help to reinforce global powerful monopolies or oligopolies controlling nearly all production, commerce and finance in the world economy. The importance of medium and small-size business will decline still further. The world economy will become increasingly monopolised, and there will be numerous corporate takeovers. Most small-size enterprises will be unable to survive.
    6. As a result of the deepening of the global economic crisis, social inequality will increase, but inequality of incomes between workers in the developed economies and the emerging economies will lessen.
    7. After contracting during the crisis, energy consumption will resume its growth. The global revival will need cheap energy, produced in greater quantities than before. The reliance on hydrocarbons, however, will probably decline markedly, simply because the amount of remaining oil resources will not be sufficient. Therefore, it is logical to expect that under the impact of the crisis there may be greater emphasis on development of alternative fuels and to promote investment in efficiency and clean energy, and eventually some major breakthroughs in this area.
    8. There are already indications that the crisis will possibly encourage rising global protectionism, more internally centered economic growth in the emerging economies, and a backlash against globalization. The crisis will also cause a reordering of the economic pecking order in the emerging markets. Those countries without a large domestic savings base, or with substantial balance-of-payments deficits, or with low foreign exchange reserves, are likely to suffer, while countries with huge savings and foreign exchange reserves (in particular China, Russia and Brazil) will increase their influence in the global economy substantially.
    9. Through the current crisis we will witness the rebalancing of world economic growth further away from the USA (and UK) towards the emerging economies of Asia and elsewhere, especially China. The depth and severity of the current crisis are likely to signal major global political economy changes that will result in such a major geopolitical shift. It seems quite likely that the crisis will spark some unforeseen geopolitical readjustments.
    10. A likely outcome of the crisis, particularly of the breakdown of the global monetary system, will be a severely declining role of the US dollar (as global reserve currency) in the global financial and trade system, which will be replaced by a basket of world’s main currencies.
    11. As a result of the serious collapse in global markets, and also because of the relative strength of their banking sector, it is quite possible that the emerging economies will increasingly shape the future of global finance just as they are already shaping the direction of global trade.
    12. How Deep and for How Long? The likely time frame for the development of the crisis is as follows: the economic decline (stagflation) is likely to be most severe (severe decline) during the period 2009 and 2010, depression and restructuring from 2010 to 2013. From 2011, the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and perhaps the Eurozone, as well as in countries producing energy, mineral and food commodities.
    13. The crisis is destined to bring about fundamental changes in the world economic system. The world will be different when the carnage stops. The global systemic crisis will bring global geopolitical dislocation. In order to develop further, the world economy needs qualitative changes, which is a process of radical reconstruction. There are limits to serious reform in the current global economic system, but at no other time in the last half-century have those limits seemed more flexible.

  2. As a response to Bulent Gokay, I quote an article in the IHT:

    A banker in China recently forwarded this quotation to me: “Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism. (Das Kapital, 1867)”

    “How prescient Karl Marx was,” my friend marveled.

    The problem is, Marx never said it – it’s a bogus quote that has made its way to Beijing from Wall Street. But the fact that people would look to the father of Communism at this time of financial upheaval offers an interesting insight on the state of minds today…

    Your i-blogger

  3. Your comment is very interesting, and the questions like ‘what this crisis means for the global economic system? Or is this the end of capitalism?’ have naturally been asked. A downturn, or a crisis, does not mean that the current system comes to a halt. There is nothing to suggest that the present crisis, even though it is very serious, is paving the way for the collapse of the capitalist system. It signifies the opening of a new epoch in history, in which some of the old structures give way and new forms may develop to radically affect the global structures of power and hegemony. However, if the current pattern of global imbalances and vulnerabilities persists, so will recurrent financial and economic crises of the kind we have seen recently. It is important, however, to identify the real origin(s) of the crisis accurately. There are lots of proximate causes presented in the media– the US housing bubble and the huge size of the American economy, persistent unresolved global imbalances, a lack of government regulation of the financial sector, lax regulation and insufficient regulation that lead to widespread underestimation of risk. But all these are still symptoms. The current financial crisis (and economic downturn) has not come out of blue. It is the outcome of deep-seated contradictions within the structure of global economic system. It is not a ‘failure’ of the system, but it is central to the mode of functioning of the system itself. It is not the result of some ‘mistakes’ or ‘deviations’, but rather it is inherent to the logic of the system. When I speak of crisis I am not pointing to a single event, but rather a historical process. To use an analogy to the complex motions of large plates of the Earth’s outer shell, lithosphere, this is a discussion of shifting tectonic plates in the world economy, longer term slow movements together with some fast tectonic up and down movements and more sudden and unexpected eruptions. At this moment of acute systemic crisis, great shifts are taking place in the balance of economic strength among the global powers. New faultlines can be discerned in the global system. Just like the movements of the tectonic plates being originated in Earth’s radioactive, solid iron inner core, the vast shifts in the structures of global system are the outcome of changes that have been taking place beneath the surface of economic life over years, if not decades.

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