It is quite interesting to highlight the limits of industrialisation in today’s economic environment and how this may hamper future growth prospects but more importantly I feel is to address the possible economic model which may form the foundation for the workings of the world’s economies. It is evident that the growth model which was based on the short sighted vision of maximisation of profits through the corporate identity as represented by its shareholders and its executive arm is no longer able to provide the basis for the creation of wealth in an equitable and collective way. It became progressively more reliant on the extension of the business cycle both through the furtherance of the globalisation process and increased merchanting of trade but equally through the enormous leveraging of corporates and households based on unfounded expectations of endless growth and fuelled of course by the ever decreasing long term and short term interest rates with the blessing of the ever supportive central banks. The resultant inevitable collapse of this house of cards left US households with negative equity and an inability to drive final demand, sovereigns constrained by fiscal overextension either in an attempt to keep their economies from falling over the cliff or because they have been undertaking fiscal austerity as a precondition for good housekeeping and created record wealth and income inequality the result of a miscued process of distribution amidst an unfavourable tax system. So what has been the catalyst for this current state of affairs and how could we put an end to this pessimism and the inability of both fiscal and monetary policy to affect current economic activity and ultimately growth and employment. Joe Stiglitz has been fervently pointing out how income & wealth inequality is exacerbating the situation and how an equitable redistribution process in some form or another can rescue the economy. I couldn’t agree more but I would suggest that the most efficient way to do this is to alter the corporate model. More on this on my blog www.rgdanon.blogspot.gr
1- Go through many years of austerity and or growth enhancing policies to reduce both deficits and debt to sustainable levels a very long process of perseverence.
2-Central banks abandon their narrow mindedness and allow inflationary EXPECTATIONS (it is this variable expectations, that is important to trigger demand side incentives)
3-Even more importantly design a process to redistribute wealth to households by increasing motgage debt forgiveness and thus wealth, allowing for increased final demand as net worth and prosperity values rise.
In summary, it is a function of transfering wealth from creditors to debtors. If this process is not accelerated then it will be imposed by market forces and or political and ultimately social repercussions. This effectively, is what is currently happening in Greece.
It goes without saying that a combination of all is also another desirable mix.