U.N. Body Warns of Risks of Global Austerity

By NEIL MacFARQUHAR
Published: September 6, 2011
http://www.nytimes.com/2011/09/07/world/europe/07nations.html?_r=1&ref=todayspaper
 
UNITED NATIONS -- The global economy faces a decade-long
stagnation because governments are pursuing deficit cuts
and other austerity measures rather than providing the
needed stimulus packages, said a United Nations economic
report released Tuesday.

Instead of new regulation of the financial system to
address the problems that helped bring on the recession in
2007-8, governments in the United States and Europe are
trying to woo the very speculators who helped cause the
problem, said the report by the Geneva-based United
Nations Conference on Trade and Development, which is
known by its acronym, Unctad.

"Those who support fiscal tightening argue that it is
indispensable for restoring the confidence of financial
markets, which is perceived as key to economic recovery,"
the report said.

"This is despite the almost universal recognition that the
crisis was the result of financial market failure in the
first place."

The report criticized the austerity measures as producing
results exactly opposite their intended effect.

"Making balanced budgets or low public debt an end in
itself," the report said, "can be detrimental to achieving
other goals of economic policy, namely high employment and
socially acceptable income distribution."

The report said Western governments should instead be more
strictly regulating financial markets, promoting wage
increases that will stimulate spending and returning to
managed exchange rates and other measures that decrease
speculation.

"Domestic consumption remains weak owing to persistently
high unemployment and slow or stagnant wage growth," said
the report.

The report said that the global economy was expected to
grow by only 3.1 percent this year, compared with 3.9
percent in 2010, and that developing nations, particularly
economically dynamic ones like Brazil, India, South Africa
and Turkey, would grow at a far higher rate than the
developed Western nations.

"Unemployment depends very much on demand," said Heiner
Flassbeck, the lead author of the report and the chief of
globalization and trade strategies for Unctad.

"If you have no demand, then you need government to step
in with a huge program for stimulating the economy," Mr.
Flassbeck, a former deputy finance minister in Germany,
told reporters, according to Reuters.

"This was the U.S. scenario in the past," he said. "Now
it's worse because wages are rising less than in the past,
so you're going to need a bigger stimulus program."

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