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U.N. Body Warns of Risks of Global Austerity
By NEIL MacFARQUHAR
Published: September 6, 2011
UNITED NATIONS -- The global economy faces a decade-long stagnation because governments are pursuing deficit cuts and other austerity measures rather than providing the needed stimulus packages, said a United Nations economic report released Tuesday.
Instead of new regulation of the financial system to address the problems that helped bring on the recession in 2007-8, governments in the United States and Europe are trying to woo the very speculators who helped cause the problem, said the report by the Geneva-based United Nations Conference on Trade and Development, which is known by its acronym, Unctad.
"Those who support fiscal tightening argue that it is indispensable for restoring the confidence of financial markets, which is perceived as key to economic recovery," the report said.
"This is despite the almost universal recognition that the crisis was the result of financial market failure in the first place."
The report criticized the austerity measures as producing results exactly opposite their intended effect.
"Making balanced budgets or low public debt an end in itself," the report said, "can be detrimental to achieving other goals of economic policy, namely high employment and socially acceptable income distribution."
The report said Western governments should instead be more strictly regulating financial markets, promoting wage increases that will stimulate spending and returning to managed exchange rates and other measures that decrease speculation.
"Domestic consumption remains weak owing to persistently high unemployment and slow or stagnant wage growth," said the report.
The report said that the global economy was expected to grow by only 3.1 percent this year, compared with 3.9 percent in 2010, and that developing nations, particularly economically dynamic ones like Brazil, India, South Africa and Turkey, would grow at a far higher rate than the developed Western nations.
"Unemployment depends very much on demand," said Heiner Flassbeck, the lead author of the report and the chief of globalization and trade strategies for Unctad.
"If you have no demand, then you need government to step in with a huge program for stimulating the economy," Mr. Flassbeck, a former deputy finance minister in Germany, told reporters, according to Reuters.
"This was the U.S. scenario in the past," he said. "Now it's worse because wages are rising less than in the past, so you're going to need a bigger stimulus program."