Given their “irresponsible behavior” in the economic crisis, banks and other private financials institutions do not inspire trust in the role they still have in shaping the recovery. So says an intergovernmental agency, the UN Conference on Trade and Development (UNCTAD), in its report on “Post-Crisis Challenges in the World Economy,” released September 6.
“Little has been learned about placing too much confidence in the judgment of financial market participants, including rating agencies, concerning the macroeconomic situation and the appropriateness of macroeconomic policies,” the annual UNCTAD report states.
“In light of the irresponsible failure of many private market actors in the run-up to the crisis, and costly government intervention to prevent the collapse of the financial system, it is surprising that a large section of public opinion, and many policymakers, are once again putting their trust in those same institutions to judge what constitutes correct macroeconomic management and sound public finance.”
The report emphasizes the importance of wage growth to recovery, since wage income is the main driver of domestic demand in both developed and emergent market economies. “However, in most developed countries, the chances of wage growth…are slim.” Declining wages dampen the private spending needed for recovery.
The thrust of the report is that, in the current crisis, the focus on cutting budgets and debt is counterproductive.
A new Census Bureau report underlines the urgency of the situation. More Americans are now living in poverty than at any time since records began to be kept 50 years ago. As a Financial Times news story put it:
“The aftermath of the recession has been a ‘two-speed’ recovery for Americans, as the wealthiest maintain their spending habits and lifestyles while a record number of their fellow citizens are mired in poverty.”
The Director-General of the International Labour Organization, Mr. Juan Somavia, said the time has come to “place the real economy in the driver’s seat of the global economy, with a financial system at its service”.
“This means putting productive investment in the real economy at the heart of policymaking; an enabling environment for sustainable enterprises; and less availability of unproductive and risky financial products”, Mr. Somavia told members of the European Parliament during an address in Strasbourg.