Crisis of global economy and alternative economic strategies

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  • 1. CRISIS OF GLOBAL ECONOMYand ALTERNATIVE ECONOMICSTRATEGIES Marco Valeri, Maria Lucia Faccio, SilviaDe Silvestris

2. CRISIS OF GLOBAL ECONOMY 3. STEP 1:SUBPRIME MORTGAGE CRISIS 4. When? THE IMMEDIATE CAUSE OR TRIGGER OF THE CRISISWAS THE BURSTING OF THE UNITED STATESHOUSING BUBBLE WHICH PEAKED IN 20052006. HIGH DEFAULT RATES, RELATED TO "SUBPRIME"AND ADJUSTABLE RATE MORTGAGES, BEGAN TOINCREASE QUICKLY THEREAFTER AND,EVENTUALLY, THE SUBPRIME CRISIS EXPLODED IN2007, SPREADING WORLDWIDE. 5. Comparison: two models of mortgage lending 6. How it went wrong 7. Consequences Failure of many Banks and Financial Institutes Bear Sterns, Lehman Brothers and AIG (and many otherFinancial Institutes) saved by the Us Government Contagion to the rest of the world 8. Step 2: Financial Contagion and Real Economy1) Crisis of Banks and Financial Institutes in America and in Europe 9. 2) Credit crunch 10. 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 11. and finallyReduction of GDP growth rates all over the world 12. Step 3:European Sovereign-Debt CrisisFROM 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 EUROPEANCOUNTRIES 13. IRELAND THE IRISH SOVEREIGN DEBT CRISIS WAS BASED ON THE STATEGUARANTEEING THE SIX MAIN IRISH-BASED BANKS WHO HAD FINANCEDA PROPERTY BUBBLE THE ECONOMY COLLAPSED DURING 2008 AND IRELAND WAS FORCE TORECEIVE A LOAN FROM INTERNATIONAL MONETARY FUND (IMF) TO SAVE ITSBANK SYSTEM AND ITS ECONOMY. 14. PORTUGAL IN THE FIRST HALF OF 2011, PORTUGAL REQUESTED A 78 BILLION IMF-EU BAILOUT PACKAGE IN A BID TO STABILIZE ITS PUBLIC FINANCES 15. GREECEUNSUSTAINABLE PUBLIC SPENDING, PUBLIC SECTOR WAGES AND PENSIONCOMMITMENTS DROVE THE DEBT INCREASE AND PUT GREECE INTO ONE OF ITSDEEPEST CRISIS EVER 16. GREECE RECEIVED A SIGNIFICANT LOAN TO SAVE ITSELF FROM DEFAULT. ON THE OTHER SIDE, IT WAS FORCED BY IMF, EUROPEAN COMMISSIONAND EUROPEAN CENTRAL BANK TO ADOPT A SEVERE AUSTERITYPROGRAM THAT HAS PUT GREECE INTO A DRAMATIC ECONOMIC ANDSOCIAL SITUATION 17. SPAIN AND ITALYSPECULATION HAS BEGUN TO ATTACK EVEN BIG ECONOMIES AS SPAIN ANDITALY 18. ITALY 19. SPREAD 20. CRISIS OF EURO SYSTEM THE STRUCTURE OF THE EUROZONE AS A MONETARY UNION WITHOUT FISCALUNION CONTRIBUTED TO THE CRISIS. THE CRISIS IS MENACING EURO SYSTEM FROM ITS FOUNDATIONS 21. EU EMERGENCY MEASURES1) EUROPEAN FINANCIAL STABILITY FACILITY3) EUROPEAN FINANCIAL STABILIZATION MECHANISM5) EUROPEAN CENTRAL BANK MEASURES7) EUROPEAN STABILITY MECHANISM (ESM)9) EUROPEAN FISCAL COMPACT11) ANTI-SPREAD SCHIELD 22. PROPOSED LONG-TERM SOLUTION EUROPEAN FISCAL UNION EUROBONDS AND PROJECT BONDS EUROPEAN MONETARY FUND 23. Crisis Lets not pretend that things will change if we keep doing the same things. A crisis canbe a real blessing to any person, to any nation. For all crises bring progress.Creativity is born fromanguish, just like the day is born form the dark night. Itsin crisis that inventive is born,as well as discoveries, and bigstrategies. Who overcomes crisis, overcomes himself,without getting overcome. (Albert Einstein) 24. De-growthSocial movements Decroissance (France)Decrescita (Italy) 25. 1st Conference on Economic Degrowthfor Ecological Sustainability and SocialEquity, Paris April 2008 26. 2 Conference on Economic Degrowth for EcologicalSustainabiliy Barcellona 20103 Conferenza Internazionalesu Decrescita e SostenibilitEcologica ed Equit Sociale Venezia, Settembre 2012 27. Unsustainaible growth 28. Serge Latouche 29. Growth for growths sakeConsumption of natural resources Consumerism Pollution 30. The strategy of Latouche Theoretical approatch(Le pari de la dcroissance, Paris 2006) Political program(Linvention de lconomie, 2005) 31. The virtuous circles of eight Rs: 32. Abuse of resources 33. Inter-dependent principles Re-evaluate Re-conceptualize Re-structure Re-localize Re-distribute 34. Inequality, concentration of incomeConflict for resources 35. Political program: Taxes on transport Taxes on global financial transaction support of peasant agricolture reduction of working time with a redefinitionof work that will make jobs available to all investment on the production of relationalgoods heavy penalties on spending for advertising 36. Sustainable technology 37. Sharing 38. The concrete utopia of degrowth 39. Slow movementDownshifting Swapping Self-productionTime bank 40. The Easterlin Paradox suggests that asocietys economic development andits average level of happiness are not linked. It affirms the absence of a significant relationship between theimprovement in happiness and the long term rate of growth of GDP per capita. 41. The Wellbeing & The Quality of lifeA Comparison between 2 economicapproaches 42. FULLFILL HUMAN NEEDSGOODS COMMODITIES Material and material meansimmaterial means 43. Traditional Economic theory ECONOMIC SYSTEM & APPROACH TOPOVERTY1) ProductionPeople--Commodities2) Consumption People-Commodities 44. Traditional theoryGross Domestic Product = Commodity or Service * itsPrice WEALTHY = WELLBEING(INCOME,GDP) = (STANDARD OF LIVING) 45. A question for you A teacher pay a housemaid for cleaning hishouseThis service enter into the count of the GDP BUTwhat happens in the economy if the teacherget marry with his housemaid and shecontinues to clean the house? 46. A service made for free (offered by the wife in thecleaning of the house ) is not taken into account inthe count of GDP.--- GDP decreasesIt is equal to sayWELLBEING decreases!!!!! 47. New Economic TheoriesCRITICIncome or wealth is an inadequate proxy of the wellbeingIn the traditional count of the wellbeing of a Country we leave out everything that is notreducible to commodity 48. How these services should be valued?social and affective relationsCares for children by parentsCares for elder people by relativesThere is NO PRICE for this fundamental services 49. 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 incomeOne is healthy, one is ill 50. Amartya Sen - Capability Approach WEALTHY ------------ WELLBEINGMultidimensional nature of the quality of life Everyone has own characteristics 51. Amartya Sen - Capability approach Beings and Doings (Stati di Essere e diFare)Ex. of achievmentTo be /Not to be well- fed To be /Not to be learnedTo be/ Not to be in good health 52. EXAMPLES CNEL - ISTAT CITY OF BRISTOL 12 wellbeing dimensions Annual survey 134 statistical indicators Quality of life in your neighbourhood 53. Faculty of Economics at Roma3 Research Project The wellbeing and thequality of life in the city halls of Rome Multidimensional analysis Bottom up method : Focus group 54. Education & Culture 55. Environment & Health 56. Mobility & Safety 57. Political voice, social connections 58. Women condition 59. THANKS FOR YOUR ATTENTION