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             UN Says Austerity Measures Will Not Fix World Economy

   by Lisa Schlein

   A new United Nations report warns fiscal austerity measures have not -
   and will not - lead to global economic growth.
   For Heiner Flassbeck, Director of UNCTAD's Division on Globalization
   and Development Strategies, the debate over austerity versus stimulus
   is over.
   "Stop austerity," he said.
   Flassbeck says austerity is clearly the wrong way to go.  He notes
   private companies in Europe, Japan and the United States are saving
   their money and not spending because they fear the future economic
   outlook will continue to be bad.
   "They have no expectation that their income will rise.  So, if
   everybody saves and the government says we are doing austerity so we
   are going to be savers also.  So, what is going to happen?  The result
   is very simple, the economy will collapse.  The only way out of the
   slump and to avoid a recession is more stimulus.  If we do not get
   incentives for investment, if we do not get stimulus for investment and
   if we do not get better conditions for consumption, and if governments
   are going on with austerity, the situation can only deteriorate,"
   Flassbeck said.
   An UNCTAD report warns growth is slowing in all regions of the world.
   Global growth fell from more than 4 percent in 2010 to 2.7 percent last
   year.  And UNCTAD expects a further decline to below 2.5 percent in
   2012.
   The report says economic expansion in developing and transition
   economies is expected to grow by 5 and 4 percent respectively in 2012.
   Although this is stronger than in the advanced economies, it notes
   those growth rates are also slower than previous years.
   UNCTAD economists explain developing countries are doing better because
   they are less dependent on the large economies than they used to be,
   and they have more resilient domestic demand.
   The report criticizes governments for following wage-compression
   policies.  Flassbeck says the data show lowering people's wages has
   done nothing to bring down the rates of unemployment.  He says
   governments must reverse these policies.
   "Only the government can overcome this situation where the market gives
   the wrong signal.  Markets give the wrong signal that wages should fall
   further.  But, if wages should fall further, you can be sure that
   consumption will be falling.  When consumption falls, investment falls
   and then growth falls," Flassbeck said.
   UNCTAD economists predict there will be no significant recovery from
   the recession until low-and middle-income groups earn enough money to
   spend on consumption.  They argue that reducing the widening gap in
   wealth and income is not only fair, it also has social benefits and
   will lead to higher economic growth.
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   [1]http://www.voanews.com/content/un-world-growth-austerity/1506692.htm
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References

   1. http://www.voanews.com/content/un-world-growth-austerity/1506692.html