Opinion: (Nouriel Roubini, Professor of Economics at New York University): “This year has witnessed a global wave of social and political turmoil and instability…
“While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalized world; resentment against corruption, including legalized forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.
“The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratize credit – via financial liberalization – thereby fueling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fueling public deficits and debt. In both cases, debt levels eventually became unsustainable.
“Firms in advanced economies are now cutting jobs, owing to inadequate final demand, which has led to excess capacity, and to uncertainty about future demand. But cutting jobs weakens final demand further, because it reduces labor income and increases inequality. Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.
“The result is that free markets don’t generate enough final demand. In the US, for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth – from labor to capital, from wages to profits, from poor to rich, and from households to corporate firms – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.
“The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.
“To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods.
“Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.”
My Comment: Like all economists, Roubini tries to save the economy, meaning the connections between different parts of society in their mutual exchange of valuables, without considering that the structure of society has changed, and from egoistic connections between everybody, there emerged new connections of complete mutual dependence between all countries, organizations, and people.
None of today’s economists is able to consider such mutual dependence because no one has this model of the world within himself. For this, a person has to be at the level of “love thy neighbor.” Only then, sensing this system within, he or she will be able to understand, simply and naturally, how to trade, communicate, connect, distribute, exchange goods, and so on, which is what the world economy has to describe.
Therefore, Marx warned that the transition to the new economy must go hand in hand with raising the moral level of people, who will be able to implement this. Baal HaSulam wrote that we should sit on a school bench and study. And only to the extent of our inner transformation, we will be able to understand the state we find ourselves in and see the degree of our interconnection. Then we will be able to act in concord with these natural relationships revealed between us.