Wednesday, April 25, 2012

Austerity and recession, invariably linked

UK is back in recession, OECD says, Phillip Inman, The Guardian, March 29, 2012
"The UK is heading back into recession and will be among the slowest of the world's largest economies to recover in the first half of this year, according to a study by the Paris-based thinktank, the OECD.

Only Italy will struggle over a longer period to return to growth, highlighting the difficult situation confronting the British government as it battles to boost confidence and get the economy back on track..."
UK economy sinks back into recession, Norma Cohen, Economics Correspondent, Financial Times, April 25, 2012
"Britain’s economy slid back into technical recession in the first quarter of this year, with the contraction led by a decline in the construction sector, official data show.

"Britain’s economy contracted 0.2 per cent in the three months to the end of March on top of a 0.3 per cent decline in the last quarter of 2011, providing two successive quarters of a decline in output, which many economists would describe as a recession..."
The European, a German online magazine of opinion this week published an interview of economist Joseph Stiglitz, American economist and professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and is a former senior officer of the World Bank.

The following is excerpted from Austerity, and a new recession, April 23, 2012:
The European:
"Four years after the beginning of the financial crisis, are you encouraged by the ways in which economists have tried to make sense of it, and by the ways in which those insights have been taken up by policy makers?"
Stiglitz:
"Let me break this down in a slightly different way. Academic economists played a big role in causing the crisis. Their models were overly simplified, distorted, and left out the most important aspects. Those faulty models then encouraged policy-makers to believe that the markets would solve all the problems...

After the crisis, you would have hoped that the academic profession had changed and that policy-making had changed with it and would become more skeptical and cautious. You would have expected that after all the wrong predictions of the past, politics would have demanded from academics a rethinking of their theories. I am broadly disappointed on all accounts."
The European:
"So let’s take a longer view. Do you think that the crisis will have an effect on future generations of economists and policy-makers, for example by changing the way that economic basics are taught?"
Stiglitz:
"I think that change is really occurring with the young people. My young students overwhelmingly don’t understand how people could have believed in the old models. That is good. But on the other hand, many of them say that if you want to be an economist, you still have to deal with all the old guys who believe in their wrong theories, who teach those theories, and expect you to believe in them as well. So they choose not to go into those branches of economics..."
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