The Great Malaise drags on


State of the World in story banner


State of the World in story bannerAs we move into 2014, Joseph E. Stiglitz feels 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.


NEW YORK – 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.

European Union FlagsThe 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 one to two percentage points of GDP growth in 2013 – means that growth will remain anaemic, barely strong enough to generate jobs for new entrants into the labour 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 fuelled 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.

Federal Reserve BuildingWe 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.


Joseph-E.-StiglitzJoseph-E.-StiglitzGREENSPAN MESSJoseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University.


3 thoughts on “The Great Malaise drags on

  1. How many of the over 3 million members of Umno are paying their income tax I wonder ?
    Or better still when Umno claims that over 60% of the Malaysia’s population of 26 millions are Malays therefore it is sound to assume only a very small percentage of Malays especially the Umno’s Malays are paying their taxes ? How small can it be when the total number of tax payers in Malaysia is about over 1 million according to the tax department ?
    In the circumstances how can Malaysia avoid going the same way that some of these western countries are going ? Shut downs, bail outs and bankruptcies and who will be the first to feel the effects of these calamities that they create ?
    Yet these very same people are asking to be given more tongkats and wheelchairs every time when Umno meets and very soon these same people will be asking to be given blank cheques.
    Najib must know how precarious the country’s financial situation is and as a consequent he is now cutting down the subsidizes and implementing new taxes. It is just like shutting the gates after the cows had bolted, especially the milk cows ? Why is Najib not implementing policies that would impede the Umno warlords from enriching themselves ? Which is one, if not the only reason, of what he is doing presently or is it because he needs their support to remain as president of Umno thus as PM of Malaysia ? Also Najib just cannot change Rosmah’s and his lifestyle from also jetting around the world at the expense of the country ? Most of all all the Umno’s warlords may appear to be getting very small pay but when you include the entertaining allowances that they are getting, which is almost 100% of their pays. Are they indeed being paid with the amounts they are getting ?
    Finally what will happen when the black gold has run out ? And when that happens Malaysia will surely become like their cousin Indonesia or Bangladesh ?

  2. Interesting interview….


    Dec 24th: discussion of numerous key topics related to major Paradigm Shift events, like the fade of Saudis (Petro-Dollar) with rise of Iran

    (new Petro-Yuan), like the Global Currency Reset with description of dilemma, like the 1000 (one thousand) tons of London gold shipped

    to China each month, and much more

  3. I think all these problems related to undervalued currencies. Thus items are now expensive due to this. However, if you look at countries that used currencies to control inflation, such as Singapore and the UK, their spending power outside of the property related activities can be considered good.
    If Singapore gomen had control the spiraling prices of HDB flats, they could have better spending power. Unfortunately they did not do this and allowed Permanent residence to buy these flats and the result is inflation in the gomen housing sector.

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