Nobel Laureate Joseph Stiglitz believes the recovery of the badly hit economies of the United States and Europe will stretch into the next decade.
Joseph Stiglitz
Mr Stiglitz said the recovery is being distorted by the vested interests of political and business groups and the notion that budget cuts were needed in the US and the eurozone.
He told an economic conference hosted by Dhurakij Pandit University yesterday that there were lessons for Asian economies from the two regions which could help them to avoid the same situation.
The fight between the Democrats and the Republicans in the US House of Representatives had led to deep budget cuts at a time when the US needed fiscal spending the most, and it would delay key structural improvements that the US and Europe needed to create a genuine recovery from the crisis and make their economies capable of expanding at a rate that creates jobs.
He named education, health care and technology as necessary structural repairs for the US that would move the economy closer to the service sector.
Spain and Italy have plunged into a deep economic recession, he said, which was being made worse by Germany's adherence to a request for a reduction in their budget deficits.
"There is a man-made disaster in the EU and the US, unlike the tsunami in Japan. The way political and economic decisions have been made over a number of years has led to this outcome," the former economic adviser to the Clinton White House administration said.
"They know what are the economic solutions, but the key question is the political structure that enables them."
The 2008 world economic crisis had proved yet again his studies and the prevalent beliefs during the past 30 years that markets had failed to work perfectly and fairly on their own, as is reflected by the bleak outlook for jobs.
American democracy was being threatened by the lobbying of corporations over economic policies and there was less interest for the people to participate in politics. One of the most recent scandals involved drug companies wielding influence in American economic law to maintain the high prices of drugs, he said.
Mr Stiglitz urged Thai civil society groups to protest if the government takes steps to join the US-sponsored Trans-Pacific Partnership accord because negotiations were taking place behind closed doors and corporate interests were at the table.
Mr Stiglitz said the US will grow 2% on average over the next few years, but the expansion would be too low to create enough jobs. Such a scenario for growth is optomistic considering the difficulty of US politicians to hammer out policies to increase fiscal spending and structural adjustment policies.
"If economic growth is under three or four percent you don't have new net job creation and the only way you can do it is to have low productivity growth, which isn't a good solution. So one sees growth over three per cent which will reduce joblessness significantly in the immediate future," he said.
Six out of 10 US citizens who want full-time jobs cannot get them. The US's nascent positive indicators such as the equities rally reflect a near-zero interest rate rather than genuine improvement in the economy.
Markets will still have confidence in holding dollar-denominated assets, even if the US administration creates more debt and increases borrowing to invest, he said.
"Thailand is not as bad as the US, but a large fraction of the population cannot get jobs or the jobs that they want," Mr Stiglitz said.
He said inequalities in America had grown over the past four decades as shown by stagnant middle class incomes even during the economic boom.
"The Obama administration does not directly spell out policies to reduce inequality, but it has a middle-class policy," he said.
"Before the 2008 crisis, US consumers spent 110 percent of their income. Now it has decreased to 80 percent, but it couldn't and shouldn't return to the same level. The gap is needed to be filled by fiscal spending."
Quantitative easing measures had not worked in stimulating the US economy, although they had prevented things from getting worse.
"That budget austerity is necessary and sufficient for economic success is a bad idea that has stayed around after it was experimented with, and failed, in East Asia and Argentina. But the European Commission, the European Central Bank and Germany haven't learnt the lesson."
Japan needed a similar kind of change to revive its economy. The monetary stimulus championed by Shinzo Abe's' administration was unlikely to achieve its target of bolstering growth, he said.
Mr Stiglitz also raised the irony of marked improvement in the productivity of the US farm sector which had failed to create an economic sucess platform and raise the standard of living.
"We are a victim of our own success. As a result of the increase in productivity over a long period of time, we need fewer people to produce food," he said.
The US has had an enormous productivity increase in its manufacturing sector and that was outpacing the increase in demand, causing a shortfall in jobs.
"Our global share of employment is going down due to changes in comparative advantages brought about by globalisation. So the EU and the EU need to restructure their labour mobility," he said.
Mr Stiglitz also criticised the reliance on innovations to increase productivity.
He said this had played a key role in the 2008 economic downturn.