The state of world economy Michael Roberts
The Great Recession The Great Recession of 2008-2009 really was great. It was the longest and deepest in its contraction of output that the global capitalist economy, as represented by the 30 advanced capitalist nations of the OECD, has experienced since the Great Depression of 1929-32. From the peak of the previous boom in real GDP growth from 2007 to the trough of the Great Recession in mid-2009, the OECD economies contracted by 6% points of GDP. At the trough of the Great Recession, the level of industrial production was 13% below its previous peak, while world trade fell 20% from its previous peak. World stock markets fell an average 50% from the peak in 2007
The Great Recession
Relative loss of national income
Official forecasts Before 2007, no official strategist of economic policy forecast any crisis. In October 2008, the great financial maestro Fed chair Alan Greenspan told the US Congress, “I am in a state of shocked disbelief.” and “the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well”.
Why did we not see it coming? “Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.” British Academy, “The Global Financial Crisis—Why Didn’t Anybody Notice”?,” British Academy Review (July 2009
Mainstream economics The doyen of the neoclassical school, Robert Lucas, confidently claimed back in 2003, that “the central problem of depression prevention has been solved”. And leading Keynesian, Oliver Blanchard, soon chief economist at the IMF, told us as late as in 2008 that “the state of macro is good”!
Nobel prize winners! Eugene Fama: “We don’t know what causes recessions. I’m not a macroeconomist so I don’t feel bad about that! We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity. If I could have predicted the crisis, I would have. I don’t see it. I’d love to know more what causes business cycles.”
Keynesian views Lack of effective demand Breakdown of ‘animal spirits’ Minsky: inherent financial instability Banking deregulation and reckless speculation “Financial weapons of mass destruction” – Warren Buffett
Marx’s law of profitability
A long depression
Recessions and depressions
Rising debt
Debt stock
EM burden ahead
Brazil: big public debt
Brazil’s burden
Corporate profits slow
Long Depression We are still in the Long Depression: Cyclical ST swings 2009-2011 (up); 2011-13 (down); 2013-15 (up); 2015-17 (down); 2017-19 (up); 2019-20 (down)?
The short-term cycle
Trump and trade wars
Threat to the US
One belt one road