What’s Wrong with the Economy?
By “Awake!” correspondent in Canada
LIKE an automobile mired in the mud, the world economy is bogged down. There is even alarm that, like a stuck automobile with engine racing and wheels spinning, the economic system shows signs of breaking down under the strain. And we’re all feeling the effects. “We’ve got to get the economy moving!” is the cry now heard.
What’s wrong? How is the economy supposed to work?
“The economy” refers to a system of producing and distributing goods and services. Economics is basically a system of cooperative exchange. Money is used to compensate participants for their goods and services.
The more activity or trade in the system, the more the demand for productivity and the more opportunity for exchange of increased wealth. Nations become more prosperous and their subjects can look forward to a better standard of living.* An economy that is moving ahead or expanding is considered to be essential for world progress and security.
This was thought to be the general state of the world economy through the 1950’s and 1960’s. By the mid-1970’s, however, it was evident something was wrong. “Runaway inflation” was generating a vicious spiral of increasing prices. Production was falling behind demands, unemployment was growing and prices kept rising. Instead of an equitable exchange of wealth, the gap was widening between the rich nations and the poor ones.
Especially from 1973 onward, drastic oil price increases shocked the system. The energy-dependent economy of the Western industrialized world was sent reeling. Non-oil-producing developing countries sank hopelessly deeper into debt as they imported needed goods and energy at ever-increasing prices. Creating further havoc, the instrument of trade—money—was erratically jumping up and down in value, one nation’s currency relative to another’s. Clearly, the economy had run amok.
In November 1975 the leaders of some of the world’s strongest industrialized nations—France, the Federal Republic of Germany, Italy, Japan, Great Britain and the United States—met in Rambouillet, France, to talk about solving the world’s economic problems. After three days of talks, the leaders left their summit “confident that . . . recovery is under way.”
Since then, however, leaders of the same industrial nations, now joined by Canada, have felt the need to hold an Economic Summit every year. What happened to the hoped-for recovery?
Two days before the 1981 Economic Summit, held in July in Ottawa, Canada, the Toronto Star reported: “A major difference between Monday’s summit and the first one in Rambouillet, France, in 1975 is that today everyone is a little more cautious about the prospects for the future on things like economic recovery, increasing world trade, reducing inflation and boosting employment.”
In simple terms, the economy is still stuck. And no one is sure how to get it moving. Inflation stubbornly persists—in double-digit figures for all but two of the 1981 summit nations. Growth in the Gross National Product (total goods and services produced) for the industrial countries has been far from satisfactory.
In recent months a new complication has been added to the maze of problems bogging down the economy—record-high interest rates, especially in the U.S. As if by a rock thrown into a pond, the ripples have spread into the economy of all Western industrialized nations.
In the U.S. high interest rates tighten the money supply by discouraging would-be borrowers from putting into circulation more inflated money. But high interest rates also restrain the flow of money into business investments, badly needed to get the stagnant economy moving.
In other countries high U.S. interest rates appeal to investors who want to put their money into American dollars. The demand for dollars increases their value while driving down the relative value of other currencies. European currencies were driven down by about 20 percent in the first half of 1981, allegedly due to high U.S. interest rates. Investment flowed across the Atlantic, slowing European recovery and stimulating inflation.
When a currency is worth less, it takes more money to pay for imported goods. Inflation rises. To keep investment money at home, countries have raised their interest rates to compete with those in the U.S. Yet lower rates are needed to make it easier to borrow investment money to stimulate their economies.
At the Ottawa Summit U.S. President Ronald Reagan stood firm on the high-interest-rate posture in his country. The other leaders face the dilemma of what to do if the U.S. tight money policy does not help to control inflation and interest rates stay high.
Growing unemployment is another serious complication. The Organization for Economic Cooperation and Development projects that unemployment in its 24 member countries is expected to reach the highest level since the reconstruction period after World War II. At least one European leader claims that “unemployment is now a greater evil than inflation.”
The nations’ balance of payments is yet another factor muddying the economic waters. As a bloc, the European Economic Community registered a trade deficit of close to $10 billion with export-aggressive Japan during the first half of 1981. Industrial countries as a whole had a combined current account deficit of $70 billion in 1980, due in large part to higher prices for imported oil. Members of the Organization of Petroleum Exporting Countries, on the other hand, jumped in surplus from $3 billion in 1978 to $120 billion in 1980. For the non-oil-developing countries, however, a combined current account deficit of $79 billion in 1980 is sure to increase sharply in the early 1980’s, and there is no relief in sight.
Such staggering imbalance wildly tips the entire economy. Industrial nations are struggling to correct their own balance of payments while encouraging the oil-rich countries to get their surplus money back into circulation, especially through aid to debt-ridden less-developed countries.
‘A Pessimistic Declaration’
With these and many other complications pressing in from all directions, the 1981 Ottawa summiteers addressed “the need to revitalize the economies of the industrial democracies, to meet the needs of our own people and strengthen world prosperity.”
However, the Toronto Star called their final communiqué “a rather pessimistic declaration about the economic future of the free world.” The seven leaders agreed that the “fight to bring down inflation and reduce unemployment must be our highest priority.” But how?
A Toronto Globe and Mail editorial said: “No world-shaking decisions were made, no dramatic initiatives undertaken.” Instead of giving a “blueprint” for the Western economy, the “declaration from Ottawa is so rough a drawing that one can scarcely determine what the leaders want to build. . . . While there is a veneer of banality on most sets of political marching orders, one can usually look behind the veneer to find wood or steel . . . but sometimes one finds cardboard—in the case of Ottawa.” Have the leaders and their advisers run out of ideas?
Yet significant points are made in the Ottawa declaration. “We must involve our peoples in a greater appreciation of the need for change; change in expectations about growth and earnings, change in management and labour relations and practices, change in the pattern of industry, change in the direction and scale of investment, and change in energy use and supply,” say the leaders. Changes are called for in public borrowing, budget deficits, interest rates, volatility of interest rates and currency exchange rates, in accelerated food production and in matters of trade. Instead of just a push, the economy badly needs a complete rebuilding!
Economies have been in trouble before and recovered. Why can’t the present economy revive without going through drastic change?
A Major Difference
The world’s economic problems are not the same as those of a generation ago. A major difference is the interdependence of nations and their economies. Economic policy or action in one industrialized nation affects the others. Even the poorest of developing nations is interwoven in the global economy, affecting rich nations. Prosperity of the rich countries depends on the well-being of the poor countries, who not only sell vital raw materials to the rich but also import billions of dollars’ worth of goods, creating much-needed jobs in the industrialized nations.
Developing nations want a new international economic order that would give them a better share in the world economy. It is a call the rich nations cannot ignore. As Canadian Prime Minister Pierre Trudeau noted, it is “an element of global security.”
To what extent, if any, the economy will revive and nations will move toward negotiating a new economic order, time will tell. But there is convincing proof that what’s really wrong with the economy is beyond cure.
What’s Really Wrong?
A number of things are wrong. First, there is greed—who can control it? Regardless of actual need, people want more and more material things and a “better way of life,” even at the expense of others. Greed has fueled excessive expectations and demands for higher wages that are met by more increased prices. It leads to nations’ placing restrictive controls on the economy to protect their own wealth at the expense of others. Like a disease, greed infects the world economy with exploitation and manipulation.
Another driving force in the world economy is the threat of war. Nations want to strengthen their economies so they can afford armaments to assert or defend their sovereignties. In a massive arms race with the Soviet Union, the United States has introduced a five-year plan to raise its defense budget from $162 billion to $343 billion. Such spiraling costs of seeking military advantage could further cripple the economies of all major countries. Can one expect justice and equity from an economic system that, in two weeks, spends for military purposes amounts that it is said could provide drinking water and basic health care to all the world’s population?
The basic problem, however, is government. As the Ottawa Summit acknowledged, “economic issues reflect and affect the broader political purposes.” Japanese Prime Minister Suzuki came to the point when he said the challenge facing Western nations was to demonstrate that their economic and political institutions are superior to those of the East.
Leading up to the Ottawa Summit, conference chairman Prime Minister Trudeau told the Canadian House of Commons: “Eight hundred million people live on the margin of human existence. They live in overwhelming deprivation, with despair and in a state of perpetual crisis. The management of this crisis is a test both of the humanity and the credibility of governments.” (Italics added)
The fact is that 6,000 years have failed to produce a credible form of government from among mankind. Despite some gains, the crisis overall gets worse, not better. Is such a credible government possible, one that can remove the present inequitable economic order, driven by greed and its obsession for warfare?
Yes! The needed government is God’s heavenly kingdom. It will bring to this earth solutions far superior to anything dreamed of in economics textbooks and theories. That government’s principal textbook, the Holy Bible, long ago pinpointed the severe economic problems to be experienced in our day. (Rev. 6:6) But it goes beyond showing what’s wrong; it can lead you to experience the blessings of the only satisfying solution.
It will help you to appreciate why only God’s kingdom can guarantee full employment, no inflation, fair distribution of wealth and economic security. Even now it is changing personalities to eliminate greed and is turning productive efforts away from building armaments to peaceful pursuits and eventual economic security. (Mic. 4:1-4) Instead of simply creating a new economic order, soon it will remove the entire world system—including unjust economics—and replace it with a righteous new order. Only a superhuman government can accomplish such a superhuman feat!—Dan. 2:44.
Why not look into the Bible and find out for yourself what you need to do in order to benefit from that coming world change? Jehovah’s Witnesses stand ready to help you in your efforts to do so.
For a discussion on basic economics, see Awake!, January 22, 1975, pp. 16 to 20.
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