The Chinese crisis is only the latest consequence of the financialization of the global economy. Expansive monetary policies have so far managed to soothe the pain caused by imbalances between systems, but the effects are increasingly limited. A paradigm shift is urgently needed both in national and international policies with the aim of a new Bretton Woods which, alas, does not figure on the agenda of the institutions. Mario Noera, professor of economics and financial market law at Bocconi, thus interprets the situation on the eve of an autumn that promises to be hot: the Chinese stock market and currency crisis, uncertainty about the evolution of US interest rates, the Greek crisis buffered but by no means overcome. And, in the background, the curse of a world that is slowing down.
In this context, however, the criticism of those who, like Lawrence Summers, call for a change of course in economic policy, which is not limited to liquidity injections or other monetary policy manoeuvres, is strengthened.
"I agree with Summers, Krugmann or the others who have spoken in recent months. The problem is that, since 2008, we have been living under the threat of latent deflation which has so far been contained only thanks to total dependence on monetary expansion. Recourse was not made, as is desirable, to a mix of monetary and fiscal policy, but recourse was made solely to the monetary weapon. In this way the floor was shored up, avoiding a collapse, but the intention was to ignore the fact that monetary policy alone is not propulsive, therefore it cannot by itself restart growth. It is a drug that has also been used in massive doses in China, where we are now faced with a largely financialized system.
All that remains is to accelerate on the front of structural reforms as Mario Draghi preaches.
“I don't think that's enough. I think it is necessary, if anything, to initiate Keynesian-style policies capable of creating demand. In other words, it would be necessary to resort to expansionary fiscal policies financed by deficits. The solution consists in transforming the excess savings of some countries, I am thinking of Germany or China, into consumption. We need to rethink the distribution paradigm. It is necessary to recreate a balance between countries that have the ability to save and destabilize the economy with their surpluses, as we have seen on several occasions in recent years”.
Germany won't be there for sure.
“I consider the Greek crisis a missed opportunity to think about the necessary remedies in time. I am convinced that, at this rate, traumatic outcomes of the crisis towards a collapse that has only been postponed are increasingly probable”.
And China?
“For them, it is necessary to speed up domestic consumption. In recent years they have not done so, preferring to take the path of progressive financialisation of an economic apparatus devoted to exports. With an aggravating circumstance: they have focused on investment, especially in infrastructure, to the detriment of consumption. To the benefit of corporate profits. The first recipe, in China as elsewhere, is to revive consumption, the anti-deflation weapon par excellence. But to do this, an adequate policy based on the use of fiscal leverage is needed: quantitative easing alone cabalises the earnings towards the rent, not the middle class”.
Meanwhile, things are going differently. Don't you think there is a common thread that connects the crises of recent years, from Athens to Shanghai?
"I think so. And I think the margins are getting thinner. In recent years, China has played a valuable role in anti-deflation, also in terms of driving towards Emerging Countries. Today more than yesterday it would therefore be important to implement measures that a student learns in the first course of macroeconomics: a fiscal policy based on demand. As for the times, I fear that the crisis will force us to change pace sooner or later. And it won't be, I'm afraid, a walk in the park. Today's world has many similarities to that of a hundred years ago. Back then, the transition of leadership from the UK to the new American order was marked by two world wars. Let's hope that the process of maturation of the new Chinese leadership will be much less traumatic".
