[Via SocProf] Remember how all economic ills could be cured by cutting wages and trashing labour protections? How the US economy was a shining beacon of low unemployment and enterprise? The whole Washington Consensus package… Writing in Social Europe Journal, Andrew Watt takes a look at how this rhetoric stands up against the realities of the Global Financial Crisis:
Experts, soothsayers and pundits have been falling over themselves to list the factors that combined to produce the worst economic downturn since the Great Depression. (My ha’penny’s worth is here). A partial consensus has emerged on some issues (excessive deregulation of the financial sector, current account imbalances) while debate continues to rage on others (such as the role played by central banks, China, and growing inequality).
But it’s instructive to think for a moment about the factors that are generally, albeit implicitly, agreed not to have caused the crisis. Of course at one level, this might seem a trivial exercise: there is an infinite number. But consider the following selective list of non-culprits: rigid labour markets, out-of-control budget deficits, over-generous welfare states, powerful trade unions, too rapid growth of wages and excessive equality.
Sound familiar? Right, these are the things that, for about a quarter century now, a seemingly invincible phalanx of international institutions, national governments of the right and increasingly also centre-left, media pundits – oh, and I almost forgot, investment-bank chief economists – has assured us are the causes of high unemployment and slow growth. They are the usual suspects.
European economies have now suffered an unprecedented contraction of output. While forecasts are getting more optimistic a sluggish recovery is almost certainly the best that can be hoped for. Unemployment will in any case return to double-digits – way beyond the level when the Lisbon process was inaugurated in 2000 – and on past experience will be slow to fall. And the five sets of key explanatory factors, drummed into policymakers for years, the intellectual underpinning of one reform program after another, explain… nothing. The usual suspects are innocent.