The new head of the International Monetary Fund, Christine Lagarde, recently pointed out that the global economy faces the risk of a lost decade. But she did not mention who would suffer; rich or poor people? Naturally privileged part of societies in every western country will lose some of their wealth. However, they will never be unemployed and penniless. On the other hand, if Ms. Lagarde’s ill-omened prediction is realized, the majority of the people in every country will become poorer.
She said during her first visit to Beijing, a coordinated action is necessary to prevent further worsening of financial instability and possible collapse of total demand. She also added that some Asian economies, which had comparatively better conditions than western rivals, should be on guard to deal with those problems. Unfortunately, those words are neither encouraging nor realistic. Ms Lagarde openly revealed that for the sake of halting any weakness in total demand, Asian countries must somewhat relax tight monetary policy for a time.Although she insisted that Asian economies are not immune in case of a worldwide recession, it is not realistic again to assume that those countries will give up their fight against newly creeping inflation, for the sake of helping troubled western countries. The reason is obvious: although the IMF trimmed its forecast for Asia’s growth this year from 7 percent to 6.3 percent. This figure is still quite satisfactory especially compared with the average growth rate in the western hemisphere. It means most probably that they see inflation not recession as a potential danger to their economies. Recently announced data eased concerns about inflation both in the U.S. and in the eurozone; however, this not the case in Asia.
In short if the recession continues for one decade, as the head of the IMF predicted, even in rich countries where income distribution has already deteriorated, the poverty problem will become more serious. Not only the number of unemployed, but also homeless and underprivileged people increased during recent years. This is the main reason why people revolt in almost every western country.
The politicians when struggling to solve debt and deficit problems must be aware of the negative social and political implications of poverty. However, the problem is the difficulties of dealing with this problem, before reaching reasonable debt and deficit figures. Obviously, the situation will become much graver in most of the developing countries, even some of them have record growth rate figures, but at the same time have unbelievably unjust income distribution.
It is believed that governments, especially in western countries, are seeking some ways to solve the poverty problem. Unfortunately, the recent crises and added problems in those countries might delay the continuation of these efforts. But it must be understood that if the mass poverty cannot be eliminated in a reasonably short time it will not be possible to establish worldwide social peace.
And if the world economy enters a recessionary period which might really continue for a decade, it is frightening to remember the years between World War I and II when simple people faced the 1929 recession after galloping inflation. And it is also frightening to remember even in Europe how these people sacrifice their freedom and human rights for the sake of survival.