Sunday, 9 December 2012


Can we expect great things in 2013 in the domain of economics? 

Certainly the troubled economic areas, all of Europe, UK included, with southern and most of Eastern Europe in very deep recession currently, will see their economies suffer even worse in 2013, thus dragging down the rest of the world. This is because the European Union accounts for $17.5 trillion (2011), which is a major trading partner for the US and the Asia/Oceania  regions whose GDP is just under that of the EU.

Not until autumn 2013 when Germany has its national election will there be any kind of bold moves on the part of the EU to address deep structural problems of uneven trade and development across the debt-ridden eurozone. In case Italy and/or Spain have some unexpected catastrophe in their economies, that would signal a disaster. Perhaps such a disaster could work in favor of the entire eurozone, as Germany would have to address the EU-wide monetary, fiscal and integration problems comprehensively before the election in September. Otherwise, we can expect piecemeal approach that will sink the entire EU and the world into a very bad recession with much higher unemployment in 2013.

For the US, 2013 could be a much better year than analysts expect, certainly by the second half of the year, assuming that the government does not adopt a tight monetary policy combined with a fiscal policy that places even greater burden on the middle class. Clearly, growth at around 5-6% will come from China, India, Brazil and Russia, as the IMF-World Bank and OECD are predicting, but it may not reach those levels if the US and EU suffer much worse contractions owing to tight monetary policy and a fiscal policy that puts downward pressure on salaries and wages.

To predict global economic contraction in 2013 is hardly a major prediction, considering that many analysts and agencies like the IMF-World Bank and OECD have stated as much. The more interesting question is how deep the recession will be and whether the estimates of major private and central banks as well as the OECD and IMF are on the low side - mind you, they have revised them downward already; in other words, the recession will be much deeper and impact even countries like Germany that have been enjoying fairly good growth rates and the lowest unemployment in the eurozone (just above 10% is the current average, with Greece leading at 26% and Germany at 6.5%).

Will global growth hover around 3.3% as the IMF-World Bank and OECD (at 3.4) have argued, most of it coming from China, India, Brazil and Russia; and would the volume of trade be at 3.2% in comparison with 12.6% in 2010?  I have not conducted econometric studies to dispute the 'downward revised' estimates of both OECD and IMF-World Bank. And it may be that we have a much better year than these predictions call for. Looking at monetary policy of the European Central Bank, however, the debt-ridden eurozone that is now having a huge impact on the core countries - France and Germany - and considering that the US would have to arrive at a 'fiscal cliff' compromise beween Democrats and Republicans, contraction in public spending is a certainty. Therefore, the recession in 2013 will be much worse than the IMF-World Bank and OECD have predicted, when combined with the structural problems of the EU and its refusal to address them comprehensively.

The International Labor Office forecast for world  unemployment in 2013 is at 202 million, or 5.1 million higher than in 2012, surpassing the record set in 2009 amid the great recession that started in 2008. Even worse, world unemployment is expected to reach 205 million in 2014, impacting mostly the Southern Hemisphere, developing and semi-developed nations -  Asia, Africa, Latin America and parts of southern and Eastern Europe. The EU recession is partly to blame for the continued rise in unemployment, resulting in massive transfer of capital from developing and semi-developed areas into the developed nations.

Contraction does not have to take place, if a liberal monetary policy is followed, combined with a substantial rise in the income taxes of the top 10% of income earners not just in the US, but across the world. At the same time, the tax loopholes, tax heavens, combined with massive fraud and corruption that we have seen in the financial sector must be contained, so capital can be diverted to productive enterprises, instead of hiding in offshore accounts and sunk into parasitic enterprises. How much money is in this category? No one knows, but the top US corporations alone have stashed away most of their money outside the US, demanding tax breaks to bring some of it back.

Having money outside of the nation where the corporate headquarters operates is not illegal, but there is a percentage of that money that is indeed illegally kept in overseas accounts. In the absence of cracking down on tax loopholes, tax evasion, and corruption, as well as highly taxing parasitic capitalist practices while rewarding productive investment, the recession currently plaguing the globe will be much worse in 2013.

Can we expect miracles in politics?

Political stability is not an issue for the US, China, India, Russia, and most of the G-20. It is however, an issue for some within the G-20, like Italy, and for all of them there may be a problem of social instability. It is entirely possible that social unrest will become much worse in 2013 than it was in 2012 across most of the world. This is because economic contractions that hit mostly the middle class and workers account for sociopolitical polarization and extreme reactions that include forms of protests and violence.

Grassroots protest movements are now part of the landscape across much of the world, from the US to Europe, from Latin America to the Middle East, from Russia to Japan. The biggest challenge for political elites, invariably backed by socioeconomic elites, is to engender conformity and contain social unrest. This cannot be done solely by propaganda through the mainstream media and by tougher laws and force against the people who are supposed to be the backbone of a democratic society. In the absence of political regimes altering their policies of catering so exclusively to the top ten percent of the richest in the population to the detriment of the rest, social unrest is inevitable in 2013. This does not mean mass uprising, but it does mean increased protest/demonstration activity by an ever larger segment of the population representing the middle class and workers who feel they have no stake in the institutional power structure.
I am assuming that there would be no major conflict in 2013, something that involves yet another US-led military operation, or US-backed one like hitting Iran or intervening in yet another Muslim country with the usual detrimental results for all concerned. If there is, as I am predicting there will be, a rise in social instability in most countries - from Kyrgyzstan to Pakistan, from street riots in Athens and Madrid, from student protests in London to Santiago de Chile, etc. - that translates into political instability and that means that investment can be held back from the most volatile areas. In short, there is an inexorable link between social peace, political stability and economic growth and development. The prescription to securing social peace is not to weaken the middle class and labor, but to strengthen it, give it the illusion at least that democracy works for them and not for a handful of rich people. Short of giving people hope, even the illusion of it, 2013 will be a year of not so great expectations for many countries around the world. 

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