Low Wages And High Unemployment Are Paralyzing The Global Economy


The Real News Network has the video Low Wages And High Unemployment Are Paralyzing The Global Economy is the first part of a two part interview with Heiner Flassbeck Director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD). Part 2 is in my subsequent post The Labor Market Is Not Self-Regulating; Governments Must Support Worker’s Fight For Higher Wages.


Quoting from Flassabeck’s remarks:

Let me explain that briefly. Take the United States. In the United States, which has also very low—everybody talks about high degree of inequality in the United States. But at the same time, unemployment has jumped. But it has jumped not due to high wages before, but it has jumped due to the financial crisis. But now you have high unemployment that puts pressure on wages, because the power is in the market, in the labor market, such that wage earners have nothing to negotiate for, and so they put pressure on wages. If wages fall, incomes fall for the average American household, and if incomes fall, consumption will fall. If consumption falls, investment falls, and the economy will not get out of recovery but deeper into recession.

So this is obviously a big problem with the market economies, because every good economist would say, well, if you have unemployment, then there should be pressure on wages, but if wages have never risen before and there’s nevertheless unemployment, then you’re in trouble somehow. And that is why the president and others will have big, big difficulties to get out of the slump. And that is why monetary policy does so desperate things as they’re doing now.


This is all so logical and easy to understand, but it flies in the face of what people think they know about economics.

In my list of favorite quotes, I have the following:

Mark Twain
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

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