America owes its better economic productivity, and higher employment rate compared to Europe, to its remarkable openness and flexibility originating from its very culture – says professor Jared Bernstein, who was the senior economic advisor of vice-president Joe Biden for many years. However, he warns that compared to Europe, numerous severe social/political inequalities have developed in the United States in the recent years.
The economic policy think tank led by Bernstein (Center for Budget and Policy Priorities) adjusts the expected economic growth rate of both America and Western Europe downwards, and predicts a fallback in every other field as well. For this reason – according to Jared Bernstein – the American Central Bank will not initiate an interest rate rise cycle this fall; only later and slower than expected.
Péter Zentai: Am I right if I say that the western capitalism as a system is in a crisis? For example: since the existence of this model, there has never been such a big difference between incomes. Western Europe is simultaneously hit by the uncertain future of the euro, and its rapid ageing. At the same time, both America and Europe is flooded by millions of people from entirely different cultures who are not familiar with these economic and political systems. The political capital, and the money for the upkeep of welfare institutions of the West is decreasing, while the mainstream politics are becoming radical…
Jared Bernstein: I do acknowledge these facts; however, I do not believe that the system would be in a crisis. Or more accurately, it is not in a crisis bigger than the usual – in other words, these are manageable problems. Bearing that in mind, however, I do admit that the number of challenges has been increasing – in the last decades, there were far less such issues that Western capitalist countries had to face. But I do not think we would be going down at an alarming rate.
With America leading, the developed world will overcome these big obstacles. Of course, there will be new challenges, but together we can face them.
There is always a fundamental optimistic undertone among American intellects, saying ‘problems are there to be solved’. I think this is the reason why the issue of inequality has become a more common topic in politics in America than in Europe. Do you agree with this, or do you think that there are indeed bigger social inequalities originating from distributive injustices in America?
The difference between the European and American attitude begins at the dissimilarity of the two capitalist models. The American society and economy – in a good or bad way – is more liberated, more flexible. Technological developments from scientific and other innovative think tanks quickly spread into the real-economy, and their effect can be seen in the everyday life.
In this respect, Europe has always been more static, more closed if you will. However, due to this closure, it has sheltered its citizens better from any radical – be it good, or bad – impact.
Nowadays, distributive injustices are more severe in America, than in Europe. What is mainly responsible for this – as people tend to forget – is that the ability of disadvantaged groups and minorities to assert their interests has dropped substantially. In the United States, labour unions are practically non-existent, and capable defender groups are scarce as well. It may seem absurd, but the warning comes from above, from the richest and most powerful Americans: people like Bill Gates, Warren Buffett, George Soros, and even from the president, Barack Obama. These influential people found their privileges outrageous and unfair, a source of social tension to be decreased. They initiate debates concerning this matter, and support politicians who promote tightening these gaps for a fairer distribution of income. The reason why it develops in such a paradoxical way is because the initiative has disappeared from below; people there are not in such a positions which allow them to negotiate about matters concerning social or wage related questions.
So is this why wages are not increasing in America?
Yes, this is the reason – which is also absurd. In the last six years, the economic power of the Unites States has been doubled, and productivity has grown substantially. Before, wages followed the movements of economic performance; they increased on par with the level of productivity. However, the two now has become absolutely asynchronous.
In the recent years, the increasing productivity, and the better American performance are connected to the unbound technological revolutions – to developers and innovators… They and those got extremely wealthy who were not afraid to put all their eggs in one basket. These people took chances bigger than the usual, when they invested in unknown technological companies, without any actual profit perspectives. High risk, high profit…
However, could it be that the price for the good American performance – which is better than the European – is that social injustices are bigger in the United States than in Europe?
I do not think so. Historically, America has always been more liberal and flexible, but it never led to such significant social differences in capital, and other income distributions.
Anyway, productivity starts do decline – and it indeed makes the situation extremely dangerous in the Western world -, in the last one and a half years, economic expansion has been slowing down. Labour market is not growing in America anymore, and in Europe, everything stagnates.
Both the American and European growth prospects have to be adjusted negatively for the next couple of years.
Does the Fed’s upcoming interest-rate increase add to the prospects becoming negative?
I think, Fed ‘commences’ later than what market players expected. Not in September, but – according to our opinion – only in December. We think, Fed realizes that the American economy performs worse than expected, and markets too will have to face it soon. So, we believe that Fed will make a move later and slower, when exchange rates start to go down in capital markets too.
Please explain the Donald Trump mystery to me! It seems like Donald Trump (real estate mogul and television celebrity) – someone who speaks viciously, and supports brutal programmes, with a campaign which questions the American democracy and political decency – could even win…
My answer is – no matter how profane it sounds – is this: America ‘dates and sleeps with’ Donald Trump, but ‘marries’ Hillary Clinton in the end. Believe me; this is supported by historical, social, and other scientific observations that help clarifying other issues we touched in our discussion. This is a substantial difference compared to Europe. The old continent – even though its inhabitants seem to be more sophisticated and high-standard – demonstrates again and again that it ‘dates and sleeps with Berlusconis, and marries them too’.
Original date of Hungarian publication: 10 August, 2015
Source of the featured image: www.theguardian.com