World Economy in Crisis

From the financial commentary in the establishment press, you’d swear that the world economy was set to start booming at any moment. Maybe all we need is a little investor or consumer confidence; a cut to the corporate tax rate here, a boost to the minimum wage there—small stuff. They point to the decline in the unemployment rate and apparent improvement in the U.S. housing industry, the emergence of economic basket cases like Greece and Spain from recession, and the hints from America’s central bankers that the policy of handing money to the banks via easy money policies might be coming to an end—at some point. But even an amateur like me can see that the system is seriously ill, I would argue terminally. Here are the facts—tell me where the grounds for optimism are.

The financial markets, specifically asset values, have become almost totally unhinged from the real economy, that is, the production, distribution, and consumption of actual goods and services. In its natural form it means the meeting of human needs through economic activity. To take an important instance, it was certainly a Merry Christmas for Wall Street as the Dow hit a new record high of 18,000,[1] but the outlook continues to be a bleak one for workers as wages have stagnated and fallen, and poverty has seen a disturbing increase, particularly among children.[2] The improved unemployment rate turns out to be illusory as well: most of the jobs “created” during the “recovery” have been low-wage and part-time, carrying no job security and few if any benefits. Even the housing “recovery” is largely smoke and mirrors; a significant chunk of the residential real estate market has been snapped up by institutional investors—landlords absentee in the extreme—to be converted into rental properties, and this on a massive scale.[3] Ordinary people cannot compete with the ability of hedge funds and big banks to pay cash for “underwater” properties, so they are squeezed out the market and forced to rent from those very same financial entities (of the same class that, of course, caused the crisis in the first place). As one observer of this phenomenon noted, “It’s weird that we have this housing recovery with no homeowners involved.”[4] But what matters to the financial industry, to the politicians who serve it, and the mainstream media is that housing prices are rising—that the housing market is failing to meet people’s need for housing is unimportant.

Seven years into the financial crisis and Europe’s economic output still hasn’t returned to 2007 levels.[5] Its economies remain stagnant or in recession. In the face of the continued crisis, the French and German governments jointly issued their “road map” to economic reform which essentially translates into an attack on workers’ wages and working conditions for the sake of corporate profitability.[6] Greece, whose president had been recently trumpeting a “return to growth,” has just seen its government collapse[7] even as the real financial crisis facing ordinary citizens continues unabated, with a 30 percent decline in wages, 25 percent loss in economic activity, serious increases in disease, homelessness, and on and on—all the while following to the letter the program of the “troika” of the EU, IMF, and the ECB.

The governments of Japan and China have followed policies nearly identical to the US and Europe, with the same results: cheap cash propping up the financial markets, resulting in gigantically inflated asset values for the richest layer of the population even as the population suffers from mass unemployment, falling wages, declining labor protections, cuts to social services and the rest. The worry now is that once the flow of easy money is shut off, the entire pyramid could come crashing down in spectacular fashion. Hugely inflated asset values supported by an anemic real economy, backed by central banks which have taken on stupendous levels of toxic assets (about four times as much as before the crisis) all the while national governments have mired themselves in unsustainable debt and are mounting assaults on the social gains of the working class to deal with it.  

Why on earth do we tolerate such a system? It has been strongly criticized by both Pope Benedict XVI and Pope Francis, and flies in the face not only of perennial Catholic ethical teaching but also of all the world’s great wisdom traditions. No true morality could tolerate a system in which whether or not a family has a livelihood, a roof over their heads, or enough to eat depends upon “investor confidence.” This is no basis for a moral economy, and we are seeing the fruits of the divorce between modern economic practice and the natural law.  


Doran Hunter

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[1] “Global Headwinds No Match for Dow at 18,000 Milestone,” Bloomberg, Dec. 23rd, 2014, http://www.bloomberg.com/news/2014-12-23/2014-headwinds-no-match-for-blue-chips-as-dow-tops-18-000.html
[3] David Dayen, “Your New Landlord Works on Wall Street,” New Republic, February 12th, 2013, http://www.newrepublic.com/article/112395/wall-street-hedge-funds-buy-rental-properties
[4] Ibid.
[5] Gavin Hewitt, “Europe in 2015: A Year of Insecurity,” BBC News Europe, Dec. 29th, 2014, http://www.bbc.com/news/world-europe-30620812
[6] “France, German to Present Joint Economic Reform Plan,” Business Insider, Nov. 23rd, 2015, http://www.businessinsider.com/afp-france-germany-to-present-joint-economic-reform-plan-2014-11
[7] Griff Witt, “Greek Impasse Forces Early Elections and Fears of a Return to the Euro Crisis,” The Washington Post, Dec. 29th, 2014, http://www.washingtonpost.com/world/europe/greek-impasse-forces-early-elections-and-fears-of-euro-crisis-return/2014/12/29/3be75924-8f4e-11e4-ba53-a477d66580ed_story.html.