24.04.2013

Is the EU Sinking Into a Soft (But Long) Depression? Interactions Between Financial Wizardry, the Fiscal Pact, the (Planned) Pact for Competitiveness and the Roadmap of (Mainstream) Economists

Main event: Lectures "WIFO-Extern"
Persons: Stephan Schulmeister
Language: Englisch
Österreichisches Institut für Wirtschaftsforschung
The succession of bull and bear markets illustrates the dynamics of key asset prices (exchange rates, interest rates, commodity prices and share prices). The stronger the phenomenon of price runs and their progression into bull and bear markets, the greater will be the uncertainties of activities of the real economy as well as the opportunities for profits for financial wizards. Accordingly, the generation of real capital in businesses has declined relative to the (attempted) generation of financial capital since the early 1970s . Business no longer absorbs all of the household savings in the form of investment loans in order to convert them into real capital and jobs. Considering this situation, the state is bound to suffer a deficit unless it is able to shift it abroad by way of current account surpluses. At the same time the deficit of jobs is growing in the long term (in spite of a reduction in their number through precarious employment). The equilibrium economy fails to perceive the systemic nature of public debt and unemployment. The road map for politicians derived from its models is thus based on symptoms. The appearance of a problem indicates its key cause: public debt is the fault of the state ("the debt is the debtor's fault"), unemployment is the fault of the labour market (monopoly of the trade unions, workers' protection, level of actual wages and unemployment benefit). More than a generation of economists have been trained in this view, teaching, policy and media are ruled by the neoclassical theory. It is these ideas that underpin the EU's concept to fight public debt and unemployment. Their implementation will deepen the crisis.