This year's UNCTAD Trade and Development Report (TDR) challenges the knee-jerk austerity measures spreading around the world in an effort to cope with the chaos of the financial crisis.
“In the US, the neoclassical paradigm of flexible labour markets is hitting a wall,” says TDR lead author, Heiner Flassbeck, Director of the UNCTAD Globalization and Development Strategies (DGDS), referring to the "wageless recovery" -- growing unemployment and the lowest household income expectation in history.
"The situation in Europe is worse than in the US,” Flassbeck added “EU leaders have tried to save the euro, but did not come to the crucial questions. UNCTAD’s view is that the recommended fiscal tightening -- cutting public expenditure and wages and increasing taxes, such as in the case of Greece -- in a moment when economies are in depression will only deepen the depression and create more deficits."
"The research undertaken for this year's Trade and Development Report shows that it is still too soon to pull back stimulus packages," agreed Diana Barrowclough, also of DGDS. "In addition to the issue of premature timing, UNCTAD research shows that fiscal tightening does not address the underlying global imbalances and financial deregulation that were among the root causes of the crisis. The crisis was not caused by fiscal imbalances - these occurred as a consequence of the crisis, due to bailouts of failing banks and the stimulus packages."
“It (the TDR) is subtitled ‘Post-crisis economic policy challenges’, but it should read ‘Challenges after the beginning of the crisis’ -- because it has not ended,” adds DGDS' Alfredo Calcagno.
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