CRISIS OF GLOBAL ECONOMY CRISIS OF GLOBAL ECONOMY andand

ALTERNATIVE ECONOMIC ALTERNATIVE ECONOMIC STRATEGIESSTRATEGIES

Marco Valeri, Maria Lucia Faccio, Silvia De Silvestris

CRISIS OF GLOBAL ECONOMY

STEP 1: SUBPRIME MORTGAGE CRISIS

When?

• THE IMMEDIATE CAUSE OR TRIGGER OF THE CRISIS WAS THE BURSTING OF THE UNITED STATES HOUSING BUBBLE WHICH PEAKED IN 2005–2006.

• HIGH DEFAULT RATES, RELATED TO "SUBPRIME" AND ADJUSTABLE RATE MORTGAGES, BEGAN TO INCREASE QUICKLY THEREAFTER AND, EVENTUALLY, THE SUBPRIME CRISIS EXPLODED IN 2007, SPREADING WORLDWIDE.

Comparison: two models of mortgage lending

How it went wrong

Consequences

• Failure of many Banks and Financial Institutes

• Bear Sterns, Lehman Brothers and AIG (and many other Financial Institutes) saved by the Us Government

• Contagion to the rest of the world

Step 2:

Financial Contagion and Real Economy

1) Crisis of Banks and Financial Institutes in America and in Europe

2) Credit crunch

Consequences on Real Economy

Crisis of European Financial Institutes and Banks

Crisis of the Financial Markets

Increase of failure rate in business sector

Increase of unemployment and discharges

Reduction of private consumption

Reduction of private investments

Reduction of saving rate and increase of private debt

… and finally

Reduction of GDP growth rates all over the world

Step 3:

European Sovereign-Debt Crisis

FROM LATE 2009, FEARS OF AN EUROPEAN SOVEREIGN-DEBT CRISIS DEVELOPED AMONG THE INVESTORS

WHY?

• RISE OF PRIVATE AND GOVERNMENT DEBT LEVELS

• A WAVE OF DOWNGRADING OF GOVERNMENT DEBTS IN SOME EUROPEAN COUNTRIES

IRELAND

• THE IRISH SOVEREIGN DEBT CRISIS WAS BASED ON THE STATE GUARANTEEING THE SIX MAIN IRISH-BASED BANKS WHO HAD FINANCED A PROPERTY BUBBLE

• THE ECONOMY COLLAPSED DURING 2008 AND IRELAND WAS FORCE TO RECEIVE A LOAN FROM INTERNATIONAL MONETARY FUND (IMF) TO SAVE ITS BANK SYSTEM AND ITS ECONOMY.

PORTUGAL

IN THE FIRST HALF OF 2011, PORTUGAL REQUESTED A €78 BILLION IMF-EU BAILOUT PACKAGE IN A BID TO STABILIZE ITS PUBLIC

FINANCES

GREECE

UNSUSTAINABLE PUBLIC SPENDING, PUBLIC SECTOR WAGES AND PENSION COMMITMENTS DROVE THE DEBT INCREASE AND PUT GREECE INTO ONE OF ITS DEEPEST CRISIS EVER

GREECE RECEIVED A SIGNIFICANT LOAN TO SAVE ITSELF FROM DEFAULT.

ON THE OTHER SIDE, IT WAS FORCED BY IMF, EUROPEAN COMMISSION AND EUROPEAN CENTRAL BANK TO ADOPT A SEVERE AUSTERITY PROGRAM THAT HAS PUT GREECE INTO A DRAMATIC ECONOMIC AND SOCIAL SITUATION

SPAIN AND ITALY

SPECULATION HAS BEGUN TO ATTACK EVEN BIG ECONOMIES AS SPAIN AND ITALY

ITALY

SPREAD

CRISIS OF EURO SYSTEM

• THE STRUCTURE OF THE EUROZONE AS A MONETARY UNION WITHOUT FISCAL UNION CONTRIBUTED TO THE CRISIS.

• THE CRISIS IS MENACING EURO SYSTEM FROM ITS FOUNDATIONS

EU EMERGENCY MEASURES

1) EUROPEAN FINANCIAL STABILITY FACILITY

2) EUROPEAN FINANCIAL STABILIZATION MECHANISM

3) EUROPEAN CENTRAL BANK MEASURES

4) EUROPEAN STABILITY MECHANISM (ESM)

5) EUROPEAN FISCAL COMPACT

6) ANTI-SPREAD SCHIELD

PROPOSED LONG-TERM SOLUTION

EUROPEAN FISCAL UNION

EUROBONDS AND PROJECT BONDS

EUROPEAN MONETARY FUND

Crisis Let’s not pretend that things

will change if we keep doing the same things. A crisis can

be a real blessing to any person, to any nation. For all

crises bring progress. Creativity is born from anguish, just like the day is

born form the dark night. It’s in crisis that inventive is born, as well as discoveries, and big

strategies. Who overcomes crisis, overcomes himself,

without getting overcome.

(Albert Einstein)

De-growth

Decrescita (Italy)Decroissance (France)

Social movements

1st Conference on Economic Degrowth for Ecological Sustainability and Social

Equity, Paris April 2008

2° Conference on Economic Degrowth for Ecological

Sustainabiliy – Barcellona 2010

3° Conferenza Internazionale su Decrescita e Sostenibilità Ecologica ed Equità Sociale –

Venezia, Settembre 2012

Unsustainaible growth

Serge Latouche

Consumerism

Pollution

Consumption of natural resources

Growth for growth’s sake

• Theoretical approatch (Le pari de la décroissance, Paris 2006)• Political program(L'invention de l'économie, 2005)

The strategy of Latouche

“The virtuous circles of eight R’s”:

Abuse of resources

Inter-dependent principles

• Re-evaluate• Re-conceptualize• Re-structure• Re-localize • Re-distribute

Conflict for resources

Inequality, concentration of income

Political program:• Taxes on transport• Taxes on global financial transaction• support of peasant agricolture• reduction of working time with a redefinition of work that will make jobs available to all• investment on the production of relational goods• heavy penalties on spending for advertising

Sustainable technology

Sharing

The “concrete utopia” of degrowth

Time bank

Downshifting Swapping

Self-production

Slow movement

The Easterlin Paradox suggests that a society's economic development and its average level of happiness are not

linked. It affirms the absence of a significant relationship between the improvement in happiness and the

long term rate of growth of GDP per capita.

The Wellbeing & The Quality of life

A Comparison between 2 economic approaches

FULLFILL HUMAN NEEDS

GOODS

• Material and

immaterial means

COMMODITIES

• material means

Traditional Economic theory

• ECONOMIC SYSTEM & APPROACH TO POVERTY

1) Production People--Commodities

2) Consumption People-Commodities

Traditional theory

Gross Domestic Product = Commodity or Service * its Price

•WEALTHY = WELLBEING

(INCOME,GDP) = (STANDARD OF LIVING)

A question for you

• A teacher pay a housemaid for cleaning his house

This service enter into the count of the GDP

BUT

what happens in the economy if the teacher get marry with his housemaid and she continues to clean the house?

A service made for free (offered by the wife in the cleaning of the house ) is not taken into account in the count of GDP.

--- GDP decreases

It is equal to say

WELLBEING decreases!!!!!

New Economic Theories

CRITIC

Income or wealth is an inadequate proxy of the wellbeing

In the traditional count of the wellbeing of a Country we leave out everything that is not

reducible to commodity

• How these services should be valued?

social and affective relations

Cares for children by parents

Cares for elder people by relatives

There is NO PRICE for this fundamental services

Review the concept of well being

• Shift the attention on PEOPLE

• Focus the attention on the importance of the TYPE OF LIFE that people are able to lead.

Ex. 2 people

Having Same income

One is healthy, one is ill

Amartya Sen - Capability Approach

• WEALTHY ------------ WELLBEING

Multidimensional nature of the quality of life

Everyone has own characteristics

Amartya Sen - Capability approach

• “Beings and Doings” (Stati di Essere e di Fare)

Ex. of achievment

To be /Not to be well- fed

To be /Not to be learned

To be/ Not to be in good health

EXAMPLES

CNEL - ISTAT

• 12 wellbeing dimensions

• 134 statistical indicators

CITY OF BRISTOL

• Annual survey

• “Quality of life in your neighbourhood”

Faculty of Economics at Roma3

• Research Project “The wellbeing and the quality of life in the city halls of Rome”

• Multidimensional analysis

• Bottom up method : Focus group

Education & Culture

Environment & Health

Mobility & Safety

Political voice, social connections

Women condition

THANKSTHANKS FOR YOUR FOR YOUR ATTENTIONATTENTION