Monday, February 25, 2013

The economic slump is a trade conflict disguised as a debt crisis

It's finally dawning on people that the root cause of the financial crisis and the slump that followed wasn't the bursting of the housing bubble. Nor was it reckless and criminal bank behavior.

The root cause of the crisis was job-killing trade deals -- aka globalization.. The housing bubble and bank misbehavior are only symptoms.

Ambrose Evans-Pritchard today acknowledged that globalization caused the crisis and the slump that followed in The Telegraph:
...the global trauma of the last five years is a trade conflict masquerading as a debt crisis.
That trauma takes the form of sequestration in the United States, as automatic budget cuts are scheduled for Friday. Bad enough will be flight delays, shuttered Social Security offices, uninspected meat and crowded classrooms. Worse will be the outcome of austerity: the slowdown in commercial activity, the rise in unemployment and the increase in poverty.

That's already happened in Europe, where government budget cuts have lowered the standard of living for working Europeans -- and Europeans who used to work. Spaniards are eating out of dumpsters, Greeks are waging general strikes and Portuguese are marching in the streets.

China is facing its own problems as manufacturing output is slowing while the real estate bubble appears to be bursting.

Writes Evans-Pritchard:
...few wish to face the awful truth that globalisation itself -- in its current deformed structure -- is the root cause of the whole disaster.
Working-class Americans understand they're the victims of globalization. They know they're working harder for less because factories moved overseas where labor is cheap. They understand that powerful global corporations don't pay their fair share of taxes to the government. They get that Asian factories are pumping out too much product that Americans can't afford because their wages are too low.

That government budget cuts will further lower America's standard of living is not well understood by political leaders, CEOs and the news media.

Dave Johnson at the Campaign for America's Future blog had fun at USA Today's expense:
The British government is in the midst of a program of spending cuts designed to reduce the nation’s hefty deficit, but the austerity program has failed to stimulate economic growth.
Writes Johnson:
“But” the austerity has failed to stimulate economic growth? “BUT?” Shouldn’t that read “OF COURSE?” 
Austerity is CONTRACTIONARY! ...  “Contractionary policy is contractionary.” That means that it cuts economic growth. Economics 101: austerity cuts economic growth! I mean, DUH! You cut back on the things that underpin an economy and the economy shrinks. 
Seriously, is there any example, ever, anywhere of austerity causing an economy to grow? (Hint: NO!)