The State of the Global Economy

The slump that started in 2007 is now known as the Great Recession. Some people such as the Nobel Laureate and Princeton Economics Professor Paul Krugman call it a depression. Regardless of what you call it, it is clear to most that even after eight years of money printing and huge budget deficits, the global economy is still stagnating. According to the latest estimate from the government, US GDP growth was practically zero in the first quarter of this year.

Now one of America’s top economists, Professor Ravi Batra, explains why conventional economic approaches have been a dismal failure and why they would never restore world economies to their pre-2007 prosperity. In a new book, End Unemployment Now: How to Eliminate Joblessness, Debt and Poverty, Batra argues that until real wages catch up with workers’ productivity, neither long term unemployment nor poverty will vanish from the United States or other nations. The book has drawn unusual praise from the top reviewing magazines. Kirkus Reviews calls it “an innovative approach;” Publishers Weekly talks about the “wisdom of Batra’s ideas;” Booklist wants you to “call your Congress people,” about the author’s recommendations.

I had also referred to Batra’s economic analysis in my own recent book entitled “Mass Capitalism: A Blueprint for Economic Revival,” and discovered the rising gap between the real wage and labor productivity in US computer and electronic industries. The reason why this gap is all important for any economy is that rising productivity raises a nation’s production or supply, and if the real wage is stagnant, demand is also stagnant. With demand falling short of supply, there is overproduction, and hence, layoffs. So prosperity can return only if the real wage catches up with productivity, and this, Batra says, has not happened anywhere in the world. Therefore, the world is still facing problems.

Nations have raised budget deficits and cut interest rates to increase consumer borrowing, but these measures can never be enough, because the main source of demand are people’s incomes and wages and until they grow enough, all other measures are inadequate. This is why America’s poverty is now the worst in over fifty years.

According to the author, the main cause of the rising wage gap is monopoly capitalism in which many industries are dominated by giant firms that restrain competition. So the solution to poverty lies in creating competitive capitalism or free markets, which requires the break-up of giant firms into smaller units. However, politically this is impossible. So Batra offers many ways in which the President can use existing laws to create competition for the giant firms.

Through illustrative graphs and tables, Batra offers concrete evidence of the impact of wealth concentration on growing global poverty and also shows a way to reduce this by minimizing the gap between wages and productivity. The “Do-Nothing” politicians in today’s democracies make it impossible to bring about any meaningful reforms in theeconomy. The elected representatives cater to the interests of the elite and not those of the citizens who elect them into power. In such a system how can there be any possibility of a free market economy? So Batra offers ways in which existing laws can be used to generate competition for the giant firms. He offers a lot of ideas to generate competition. To me, the most interesting idea is that of creating an FDIC bank. According to a law passed in 1987, the FDIC can create a “bridge bank” from any bankrupt bank, and invest money in it to make it solvent. But instead of selling it to a giant bank, which has been the practice so far, the FDIC should appoint its own managers and give them the task of creating competition for the financial industry. This way, the interest rate on credit card balances can be brought down to just 5% compared to the current average of 15%.

It sounds too good to be true, but the law to create a bridge bank was passed in 1987, and it can be used to reduce much poverty in the country. If a poor person pays only 5% instead of the current 15 to 30 % on loan balances, poverty will fall immediately. Batra goes onto demonstrate that with the banks’ borrowing costs nearly zero at present, a 5% interest will still bring adequate profit to the bridge bank.

These types of ideas are why the reviewers have offered glowing praise to Batra’s latest book.