Public Forum

In a new research paper, economist Yilmaz Akyüz lays out his view on why the 2008 financial crisis is taking too long to resolve and how crisis management in the U.S. and Europe is creating more problems than it's solving. Yilmaz Akyüz is chief economist at the South Center and former director at UNCTAD in the Division of Globalization and Development.

Yilmaz Akyüz, thank you for joining us.

YILMAZ AKYÜZ, CHIEF ECONOMIST, SOUTH CENTER: Thank you for inviting me.

FRIES: In your paper, you write about a fundamental systemic problem, a deflationary gap in the world economy. You say it's due to underconsumption as a result of a low and declining share of wages in GDP in all the major advanced economies, including the U.S., Germany, Japan, and in China. Take us through your thoughts on that.

AKYÜZ: Well, the world economy is suffering from underconsumption, lack of effective demand, largely because the workers, the large majority of working population cannot really afford the goods and services they are producing. In fact, their purchasing power relative to what they've been producing has been falling, because the share of wages in GDP has been falling.

Despite that, before the crisis, we avoided deflationary problems and lack of effective demand because of debt-driven property and consumption bubbles in the United States, in Europe, United Kingdom, and the European periphery, which means that countries, economies do not pay wages. They are not willing to pay wages or raise wages along with productivity growth, but they preferred to lend the money, so that they were borrowing and spending. And as a result of that, we had relatively rapid growth. And this actually resulted, in the end, in growing trade imbalances, growing financial fragility, because most of these people didn't have the debt servicing capacity needed, and eventually you had the sub-prime bubble bursting in the United States and the bubble bursting in the U.K. and the European periphery.

Now, when crisis came, actually the policy response widened the gap by increasing inequality.

FRIES: Talk more about fiscal policy and post-crisis recovery in the U.S and Europe. Some economists argue that the top tax rate on the top 1 percent of income earners could be raised to over 80 percent without impairing growth. What's your take on that?

AKYÜZ: The top 1 percent actually got the entire increase in income in the United States since 2009. And, in fact, the share of the rest of the population has been falling. So inequality is increasing in Europe too because of the austerity policies. So we have actually [incompr.] a bigger deflationary gap, because the workers are unable to afford the goods and services they are producing.

Now, how are we going to grow again brings you to the fundamental problem. Are we going back to business as usual? That means we're going to have debt-driven bubbles in the United States or in Europe, or we're going to be stuck in a long stagnation

FRIES: And what other policy shortcomings do you see in the U.S. and Europe post-crisis?

AKYÜZ: Well, one problem I mentioned in the crisis intervention was fiscal austerity after the initial expansion. A second shock coming in the policy response was actually the inability, and, in fact, unwillingness, of the governments to remove debt overhang by timely, orderly, and comprehensive debt restructuring.

Effectively, in Europe we saw we had some debt relief of countries like Greece. But that was not enough, and Greece was clearly unable and still clearly--it's clear that Greece is unable to pay all this debt. And Germany and the European Union are insisting that debt should be fully paid.

In the United States, the main debt problem was, of course, among the mortgage holders. And the government has not really introduced any scheme that could succeed in decreasing the mortgages to the level of the ability of the mortgage holders to pay. And the financial intervention in the crisis effectively meant bailing out the United States banks rather than the debtors, in other words, bailing out credit system.

And the banks restored profits quick. They got back their pre-crisis profits in 2012, and in 2013 they reached a record level of profit. Now, we haven't restored unemployment, we haven't restored the incomes of the mortgage holder, we haven't actually sorted out the debt problem. So what you have is the US resolved the financial crisis for the creditors, but it did not solve the economic crisis for the workers and the large segment of the society.

FRIES: Update us on your views on the shortcomings of post-crisis monetary policy, most notably on the part of the U.S. Federal Reserve.

AKYÜZ: Well, these two major policy shortcomings, that is, fiscal austerity and a reluctance to remove debt overhang through proper restructuring, meant excessive reliance on monetary policy, that the central banks went into uncharted water, particularly in the United States, and buying large amounts of long-term bonds, both private and government, and cutting interest rates to very low levels historically.

Now, this policy has actually helped a bit in terms of lowering the long-term interest rate. There is evidence, and I'm not denying that evidence. But the problem is that it's not being very effective in stimulating spending, though the money pumped into the economy either ended up back in the central banks, in the Federal Reserve, as excess reserves of the banking system, or went into speculative activities, into stock market.

On top of it, it's created two problems, one for the United States. As I said, U.S. growth is fragile. Fed has not yet tightened policy. And I think Fed is quite unsure what will happen if they start unloading all these bonds that they're holding in their balance sheet.

And we don't know what an exit was going to do. And secondly, before the Fed has even started exiting, markets started pricing in the normalization of monetary policy. And this is why we have serious problems in the developing world, which have been receiving large amounts of liquidity, money, short-term money, borrowing heavily, particularly their private sector, in international markets from 2010 onwards.

And we had the first problem of the policy response coming out in the South. I think that the next problem is going to come out in the United States itself.

FRIES: We're going to continue this conversation. Please join us for part two of our discussion on the global economy with Yilmaz Akyüz.

Yilmaz Akyüz, thank you for joining us

AKYÜZ: Thank you

FRIES: And thank you for joining us on The Real News Network.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

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[-] 0 points by shoozTroll (17632) 10 years ago

Actually?

It's because our manufacturing base has been sold off, inbetween "recessions".

The factory jobs that paid well enough, are no longer part of the BIG picture. They've been replaced with minimum wage bullshit jobs.

It's got shit to do with the FED.

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[-] 5 points by gsw (3420) from Woodbridge Township, NJ 10 years ago

Yes and wages should be 20 an hour, if they had kept with inflation.,1 percenters liked getting our raises last 30 years, now The one percent say we would be the one percent if we were to live third world country, so that makes it ok.

http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

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[-] 0 points by shoozTroll (17632) 10 years ago

Yes and those 1%ers have paid an incredible amount to convince the middle class that unions are a bad thing.

You can see the result even here, among those who claim to be "occupiers".

Their vehement HATE of unions is a tell for how bought off even they are.

They often talk of co-option, yet it's they who are already co-opted by those they claim to be protesting.

They can't see the handwriting on the wall.

I wonder what Pete Seeger would have told them about their anti-union stance?

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[-] 2 points by gsw (3420) from Woodbridge Township, NJ 10 years ago

Yes it's a true conspiracy

http://mediamatters.org/blog/2014/02/12/tennessee-paper-pushes-koch-connected-anti-unio/198041

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[-] 5 points by gsw (3420) from Woodbridge Township, NJ 10 years ago

All roads lead to Rome, it goes back to here, the Powell Memo, told us the grand plan

http://reclaimdemocracy.org/powell_memo_lewis/

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[-] 1 points by shoozTroll (17632) 10 years ago

The kind of thing only an activist corporate lawyer could write.

A Nixon appointee. Not surprising at all.

It reads like an ALEC manifesto. A libe(R)tarian dream come true.

A harbinger of the corporate SCOTUS we have today.

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[-] 0 points by MattLHolck (16833) from San Diego, CA 10 years ago

The sources include, Communists, New Leftists and other who would

destroy the entire system,

both political and economic.

extremists numerous, better financed,

encouraged by society elements

ever before in our history.

But small minority,

not yet the principal cause for concern.

too abstract lost meaning

there's no reference to the system or what would change

from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians.

minorities

writing and speaking

nope system remains unidentified

media-unique publicity “attackers,” or television, shaping the thinking, attitudes and emotions of our people.

3rd paragraph hasn't defined the system

O bewildering paradoxes enterprise system tolerates own destruction.

the system is enterprise ?

business tax pay of government support

because government makes business possible ?

Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.

why media is opposition to business if business owns it ?

perception is not centralized

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[-] 0 points by shoozTroll (17632) 10 years ago

They have infested almost everything.

Note the libe(R)tarian "not anti-union" sloganeering.

http://inthesetimes.com/working/entry/16327/former_teamster_official_pushed_anti_uaw_message_on_social_media

They are insidious.

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[-] 1 points by DKAtoday (33802) from Coon Rapids, MN 10 years ago

And check this out: https://occupywallst.org/forum/ukraine-erupts-in-flames-as-protest-against-the-go/#comment-1024321

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[-] 1 points by MattLHolck (16833) from San Diego, CA 10 years ago

automation every increases efficiency but the owners of the capital keep the profit

so no one has a job

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[-] 1 points by shoozTroll (17632) 10 years ago

Not really.

They just use our OLD machinery in China.

There's just more people running them.

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[-] 1 points by DKAtoday (33802) from Coon Rapids, MN 10 years ago

In compliment

DKAtoday ‏@DKAtoday

@BarackObama -> BTW

Fraud is Fraud

Conspiracy is Conspiracy

Collusion is Collusion

Theft is Theft

Prosecute wallstreet!

As - T Law is t Law

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[-] 1 points by DKAtoday (33802) from Coon Rapids, MN 10 years ago

EXACTLY - I'm surprised the 1% hasn't run him through a woodchipper - to make their point more clear. Televised by Fux Spews.

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[-] 1 points by DKAtoday (33802) from Coon Rapids, MN 10 years ago

the question revolves around methods of application.

To "ALL" of the above ( criminals ) not just to those of the 1% who upset the 1% - to "ALL" of the 1% who prey upon the 99% as well.

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