crisis of global economy and alternative economic strategies
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CRISIS OF GLOBAL ECONOMY CRISIS OF GLOBAL ECONOMY andand
ALTERNATIVE ECONOMIC ALTERNATIVE ECONOMIC STRATEGIESSTRATEGIES
Marco Valeri, Maria Lucia Faccio, Silvia De Silvestris
CRISIS OF GLOBAL ECONOMY
STEP 1: SUBPRIME MORTGAGE CRISIS
When?
• THE IMMEDIATE CAUSE OR TRIGGER OF THE CRISIS WAS THE BURSTING OF THE UNITED STATES HOUSING BUBBLE WHICH PEAKED IN 2005–2006.
• HIGH DEFAULT RATES, RELATED TO "SUBPRIME" AND ADJUSTABLE RATE MORTGAGES, BEGAN TO INCREASE QUICKLY THEREAFTER AND, EVENTUALLY, THE SUBPRIME CRISIS EXPLODED IN 2007, SPREADING WORLDWIDE.
Comparison: two models of mortgage lending
How it went wrong
Consequences
• Failure of many Banks and Financial Institutes
• Bear Sterns, Lehman Brothers and AIG (and many other Financial Institutes) saved by the Us Government
• Contagion to the rest of the world
Step 2:
Financial Contagion and Real Economy
1) Crisis of Banks and Financial Institutes in America and in Europe
2) Credit crunch
Consequences on Real Economy
Crisis of European Financial Institutes and Banks
Crisis of the Financial Markets
Increase of failure rate in business sector
Increase of unemployment and discharges
Reduction of private consumption
Reduction of private investments
Reduction of saving rate and increase of private debt
… and finally
Reduction of GDP growth rates all over the world
Step 3:
European Sovereign-Debt Crisis
FROM LATE 2009, FEARS OF AN EUROPEAN SOVEREIGN-DEBT CRISIS DEVELOPED AMONG THE INVESTORS
WHY?
• RISE OF PRIVATE AND GOVERNMENT DEBT LEVELS
• A WAVE OF DOWNGRADING OF GOVERNMENT DEBTS IN SOME EUROPEAN COUNTRIES
IRELAND
• THE IRISH SOVEREIGN DEBT CRISIS WAS BASED ON THE STATE GUARANTEEING THE SIX MAIN IRISH-BASED BANKS WHO HAD FINANCED A PROPERTY BUBBLE
• THE ECONOMY COLLAPSED DURING 2008 AND IRELAND WAS FORCE TO RECEIVE A LOAN FROM INTERNATIONAL MONETARY FUND (IMF) TO SAVE ITS BANK SYSTEM AND ITS ECONOMY.
PORTUGAL
IN THE FIRST HALF OF 2011, PORTUGAL REQUESTED A €78 BILLION IMF-EU BAILOUT PACKAGE IN A BID TO STABILIZE ITS PUBLIC
FINANCES
GREECE
UNSUSTAINABLE PUBLIC SPENDING, PUBLIC SECTOR WAGES AND PENSION COMMITMENTS DROVE THE DEBT INCREASE AND PUT GREECE INTO ONE OF ITS DEEPEST CRISIS EVER
GREECE RECEIVED A SIGNIFICANT LOAN TO SAVE ITSELF FROM DEFAULT.
ON THE OTHER SIDE, IT WAS FORCED BY IMF, EUROPEAN COMMISSION AND EUROPEAN CENTRAL BANK TO ADOPT A SEVERE AUSTERITY PROGRAM THAT HAS PUT GREECE INTO A DRAMATIC ECONOMIC AND SOCIAL SITUATION
SPAIN AND ITALY
SPECULATION HAS BEGUN TO ATTACK EVEN BIG ECONOMIES AS SPAIN AND ITALY
ITALY
SPREAD
CRISIS OF EURO SYSTEM
• THE STRUCTURE OF THE EUROZONE AS A MONETARY UNION WITHOUT FISCAL UNION CONTRIBUTED TO THE CRISIS.
• THE CRISIS IS MENACING EURO SYSTEM FROM ITS FOUNDATIONS
EU EMERGENCY MEASURES
1) EUROPEAN FINANCIAL STABILITY FACILITY
2) EUROPEAN FINANCIAL STABILIZATION MECHANISM
3) EUROPEAN CENTRAL BANK MEASURES
4) EUROPEAN STABILITY MECHANISM (ESM)
5) EUROPEAN FISCAL COMPACT
6) ANTI-SPREAD SCHIELD
PROPOSED LONG-TERM SOLUTION
EUROPEAN FISCAL UNION
EUROBONDS AND PROJECT BONDS
EUROPEAN MONETARY FUND
Crisis Let’s not pretend that things
will change if we keep doing the same things. A crisis can
be a real blessing to any person, to any nation. For all
crises bring progress. Creativity is born from anguish, just like the day is
born form the dark night. It’s in crisis that inventive is born, as well as discoveries, and big
strategies. Who overcomes crisis, overcomes himself,
without getting overcome.
(Albert Einstein)
De-growth
Decrescita (Italy)Decroissance (France)
Social movements
1st Conference on Economic Degrowth for Ecological Sustainability and Social
Equity, Paris April 2008
2° Conference on Economic Degrowth for Ecological
Sustainabiliy – Barcellona 2010
3° Conferenza Internazionale su Decrescita e Sostenibilità Ecologica ed Equità Sociale –
Venezia, Settembre 2012
Unsustainaible growth
Serge Latouche
Consumerism
Pollution
Consumption of natural resources
Growth for growth’s sake
• Theoretical approatch (Le pari de la décroissance, Paris 2006)• Political program(L'invention de l'économie, 2005)
The strategy of Latouche
“The virtuous circles of eight R’s”:
Abuse of resources
Inter-dependent principles
• Re-evaluate• Re-conceptualize• Re-structure• Re-localize • Re-distribute
Conflict for resources
Inequality, concentration of income
Political program:• Taxes on transport• Taxes on global financial transaction• support of peasant agricolture• reduction of working time with a redefinition of work that will make jobs available to all• investment on the production of relational goods• heavy penalties on spending for advertising
Sustainable technology
Sharing
The “concrete utopia” of degrowth
Time bank
Downshifting Swapping
Self-production
Slow movement
The Easterlin Paradox suggests that a society's economic development and its average level of happiness are not
linked. It affirms the absence of a significant relationship between the improvement in happiness and the
long term rate of growth of GDP per capita.
The Wellbeing & The Quality of life
A Comparison between 2 economic approaches
FULLFILL HUMAN NEEDS
GOODS
• Material and
immaterial means
COMMODITIES
• material means
Traditional Economic theory
• ECONOMIC SYSTEM & APPROACH TO POVERTY
1) Production People--Commodities
2) Consumption People-Commodities
Traditional theory
Gross Domestic Product = Commodity or Service * its Price
•WEALTHY = WELLBEING
(INCOME,GDP) = (STANDARD OF LIVING)
A question for you
• A teacher pay a housemaid for cleaning his house
This service enter into the count of the GDP
BUT
what happens in the economy if the teacher get marry with his housemaid and she continues to clean the house?
A service made for free (offered by the wife in the cleaning of the house ) is not taken into account in the count of GDP.
--- GDP decreases
It is equal to say
WELLBEING decreases!!!!!
New Economic Theories
CRITIC
Income or wealth is an inadequate proxy of the wellbeing
In the traditional count of the wellbeing of a Country we leave out everything that is not
reducible to commodity
• How these services should be valued?
social and affective relations
Cares for children by parents
Cares for elder people by relatives
There is NO PRICE for this fundamental services
Review the concept of well being
• Shift the attention on PEOPLE
• Focus the attention on the importance of the TYPE OF LIFE that people are able to lead.
Ex. 2 people
Having Same income
One is healthy, one is ill
Amartya Sen - Capability Approach
• WEALTHY ------------ WELLBEING
Multidimensional nature of the quality of life
Everyone has own characteristics
Amartya Sen - Capability approach
• “Beings and Doings” (Stati di Essere e di Fare)
Ex. of achievment
To be /Not to be well- fed
To be /Not to be learned
To be/ Not to be in good health
EXAMPLES
CNEL - ISTAT
• 12 wellbeing dimensions
• 134 statistical indicators
CITY OF BRISTOL
• Annual survey
• “Quality of life in your neighbourhood”
Faculty of Economics at Roma3
• Research Project “The wellbeing and the quality of life in the city halls of Rome”
• Multidimensional analysis
• Bottom up method : Focus group
Education & Culture
Environment & Health
Mobility & Safety
Political voice, social connections
Women condition
THANKSTHANKS FOR YOUR FOR YOUR ATTENTIONATTENTION
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