Yes, as a political economist I tend to be more of a skeptic than my friends the economists. But I have no fundamental commitment to capitalism as an economic system. I see it as the primary barrier to the development of a democratic and more egalitarian society.
So given the state of the world, it is not surprising, to me, that my predictions for 2014 were more on the mark than those who used to share an academic department with me. And there is no reason to expect that there will be any significant change in 2015.
|Flood waters moving up towards our house.|
(1) The European Union remains in economic dire straits, and the governor of the European Central Bank is now about to desperately try to avoid a collapse into deflation. Everyone expects the ECB to begin quantitative easing, even though there does not appear to be any legal basis for doing so. Placing economic sanctions on Russia has only made things worse; a recession in Russia, which appears to be certain, will have a very negative impact on the EU.
(2) Japan still is fighting deflation. Nothing that the government has done has made any difference. One still has to ask, is this the future of mature capitalism?
(3) China. Last year the general concern was a slowdown in their economy and the large debt in the housing market. Those issues remain. What is new is the decision by the Chinese high command to shift the general direction of the economy away from the focus on providing cheap manufactured exports to serving the needs of the domestic market. China is also taking a strong lead in building a political-economic alliance with Russia. This includes developing a new currency exchange system to bypass the U.S. dollar.
(4) Commodity prices continue to be in decline. The major story for 2014 has been the collapse of the price of oil and gas. Analysis indicates that this is not due to a USA/Saudi conspiracy to stick it to Russia, but in general is due to the decline of consumption, the result of the general stagnation in the world economy.
The one good news story for 2014 was the economic recovery in the United States. So the $4.5 trillion of quantitative easing created by the Federal Reserve did have some impact other than just boosting the stock markets and lining the pockets of those who were already rich. The USA has the advantage of “Military Keynesianism,” as defined by Joan Robinson: massive government spending in a country which claims to be a “free market.”
The US economy has sagged in December, but overall economic growth will be close to 3% rather than the 2% that I suggested. Can the USA continue to grow with the world economy going in reverse? It should be noted that the recovery has not been great in the employment area, and wages and salaries of workers have not been rising anywhere near 3%. In the past, lower gasoline prices have not led to increased consumer spending. A significant correction in the stock markets, predicted by many business economists, would likely lead to a decision by Americans to pay down their debts and reduce spending.
Canada. And then there is Canada. Economic stagnation is the general trend. It is hoped by everyone that the recovery in the USA will have a positive benefit, given the fact that we are now even more dependent on exports to that market.
But there is the major collapse of the oil economy. And as many people know, over the past ten years the manufacturing industry in Canada has been in decline, while there has been a shift to depending on petroleum and other raw material exports. No one these days mentions the term Dutch Disease. It is hard to see how this development will be a positive benefit for the country as a whole. Alberta, Newfoundland and Saskatchewan will feel the hit. The experts believe that the low oil prices are to be around for a good while – at least a year.
As for me, the biggest concern is the flooding that is happening on the Canadian prairies. It has been a hard reality for the past three years. The last thing we want to see is a heavy snow fall this winter. Like yesterday.