[Marxism] Global economic contradictions
lnp3 at panix.com
Fri Jan 31 09:23:23 MST 2014
NY Times Op-Ed, Jan. 31 2014
Talking Troubled Turkey
by Paul Krugman
O.K., who ordered that? With everything else going on, the last thing we
needed was a new economic crisis in a country already racked by
political turmoil. True, the direct global spillovers from Turkey, with
its Los Angeles-sized economy, won’t be large. But we’re hearing that
dreaded word “contagion” — the kind of contagion that once caused a
crisis in Thailand to spread across Asia, more recently caused a crisis
in Greece to spread across Europe, and now, everyone worries, might
cause Turkey’s troubles to spread across the world’s emerging markets.
It is, in many ways, a familiar story. But that’s part of what makes it
so disturbing: Why do we keep having these crises? And here’s the thing:
The intervals between crises seem to be getting shorter, and the fallout
from each crisis seems to be worse than the last. What’s going on?
Before I get to Turkey, a brief history of global financial crises.
For a generation after World War II, the world financial system was, by
modern standards, remarkably crisis-free — probably because most
countries placed restrictions on cross-border capital flows, so that
international borrowing and lending were limited. In the late 1970s,
however, deregulation and rising banker aggressiveness led to a surge of
funds into Latin America, followed by what’s known in the trade as a
“sudden stop” in 1982 — and a crisis that led to a decade of economic
Latin America eventually returned to growth (although Mexico had a nasty
relapse in 1994), but, in the 1990s, a bigger version of the same story
unfolded in Asia: Huge money inflows followed by a sudden stop and
economic implosion. Some of the Asian economies bounced back quickly,
but investment never fully recovered, and neither did growth.
Most recently, yet another version of the story has played out within
Europe, with a rush of money into Greece, Spain and Portugal, followed
by a sudden stop and immense economic pain.
As I said, although the outline of the story remains the same, the
effects keep getting worse. Real output fell 4 percent during Mexico’s
crisis of 1981-83; it fell 14 percent in Indonesia from 1997 to 1998; it
has fallen more than 23 percent in Greece.
So is an even worse crisis brewing? The fundamentals are slightly
reassuring; Turkey, in particular, has low government debt, and while
businesses have borrowed a lot from abroad, the overall financial
situation doesn’t look that bad. But each previous crisis defied
sanguine expectations. And the same forces that sent money sloshing into
Turkey also make the world economy as a whole highly vulnerable.
You may or may not have heard that there’s a big debate among economists
about whether we face “secular stagnation.” What’s that? Well, one way
to describe it is as a situation in which the amount people want to save
exceeds the volume of investments worth making.
When that’s true, you have one of two outcomes. If investors are being
cautious and prudent, we are collectively, in effect, trying to spend
less than our income, and since my spending is your income and your
spending is my income, the result is a persistent slump.
Alternatively, flailing investors — frustrated by low returns and
desperate for yield — can delude themselves, pouring money into
ill-conceived projects, be they subprime lending or capital flows to
emerging markets. This can boost the economy for a while, but eventually
investors face reality, the money dries up and pain follows.
If this is a good description of our situation, and I believe it is, we
now have a world economy destined to seesaw between bubbles and
depression. And that’s not an encouraging thought as we watch what looks
like an emerging-markets bubble burst.
The larger point is that Turkey isn’t really the problem; neither are
South Africa, Russia, Hungary, India, and whoever else is getting hit
right now. The real problem is that the world’s wealthy economies — the
United States, the euro area, and smaller players, too — have failed to
deal with their own underlying weaknesses. Most obviously, faced with a
private sector that wants to save too much and invest too little, we
have pursued austerity policies that deepen the forces of depression.
Worse yet, all indications are that, by allowing unemployment to fester,
we’re depressing our long-run as well as short-run growth prospects,
which will depress private investment even more.
Oh, and much of Europe is already at risk of a Japanese-style
deflationary trap. An emerging-markets crisis could, all too plausibly,
turn that risk into reality.
So Turkey seems to be in serious trouble — and China, a vastly bigger
player, is looking a bit shaky, too. But what makes these troubles scary
is the underlying weakness of Western economies, a weakness made much
worse by really, really bad policies.
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