Economics Nobel Prize Winners Agree: U.S., Europe Sliding Into 'Lost Decade'

Seventeen winners of the Nobel Prize for economics are gathered this week on Lindau, an island in Germany’s Lake Constance. Die Welt asked the laureates for their take on the ongoing debt crisis and the splintering of the euro zone. The bad news is they a

An empty department store, once occupied by J. C. Penney, in the U.S. state of Nebraska
An empty department store, once occupied by J. C. Penney, in the U.S. state of Nebraska
D. Eckert, M. Greive and H. Zschäpitz

LINDAU -- If politicians don't get a handle on it soon, the debt crisis will be a game-changer for the whole Western system. The economies of the United States and Europe will face years of stagnation and decline with regard to emerging nations in Asia and Latin America. In fact, the Euro Zone might break apart.

These are some of the views received by Die Welt received in answer to questions it put to 17 winners of the Nobel Prize for economics who are gathered this week for the Nobel Laureate Meetings at Lindau, an island in Lake Constance.

These wisest of men, brought together to discuss pressing world problems, are calling on political leaders to show courage and leadership so they can win back credibility in the eyes of consumers, business leaders and financial markets. Only confidence in the stability of the system can prompt an urgently needed reboot. The core issue, according to the laureates, is nothing less than the continued dominance of Western ideals that have shaped the world order since the Industrial Revolution.

Edmund Phelps, a Colombia University professor who won the prize in 2006 for his theory on growth, says that during the past decades the West has lived above its means and in so doing has already consumed part of its future. That means that the United States, but also Europe now face a long period of stagnation.

Phelps says the West has to pay for the mistakes of the past, but if it can get back on track rapidly, recovery can start that much faster and the mistakes will take less of a toll. He considers the political system to be the greatest problem. In the United States, political parties are busy putting spokes in each others' wheels, while leaders in Europe have managed to create a system of perverted incentives with banks and insurers having to hold government bonds and governments exceeding agreed-on debt ceilings. Phelps says politicians need to show both more courage and a greater sense of responsibility, facing the fact that they are going to have to be the bearers of bad news -- such as tax hikes -- to their citizens.

Is stagnation here to stay?

Other laureates also see the debt crisis as responsible for the terrible state of the economy. To Eric Maskin, government debt addiction is ruining the Western system and if politicians don't wake up and act quickly economic turbulence can be expected to go on for years.

James Mirrlees, who won his Nobel Prize for political economics research, rates the chances that the Western world will be facing a long period of stagnation as "very high." Myron Scholes agrees, adding that both the United States and Europe are looking at a fate similar to Japan's lost decade if the present muddling continues.

Credibility and decisiveness are of the essence to solve the European debt crisis, and Germany's role is pivotal. Maskin says that the euro zone only stands a chance of long-term survival if a central fiscal system is introduced, while financial market expert Scholes is more optimistic about the zone's chances of holding together, though not in its present configuration. A currency union with a central bank and 17 independently acting finance ministers cannot survive, he argues. Taxation would need to be centralized, transfers made possible, and in the short term, the European Central Bank should lower bank rates and continue to buy government bonds.

Laureates Daniel McFadden and John Nash believe the future of the euro zone is mainly dependent on Germany, and that Germany should understand that such a zone is in its interests. Weaker members would need to be removed, and in the longer term, Europe will have to build up a stable fiscal system that makes effective control possible, McFadden says. Nash, known to many through the film "A Beautiful Mind," says: "Where there's a will, there's a way." The euro zone stands a chance, he says, if all club members work really hard to keep it together.

In one respect, the laureates feel that a decline of the West is already sealed: regardless of all and any political decisions that may be taken, the dominance of the dollar as the world's reserve currency will fade. Its leading role will decline progressively over the coming decades.

The economists see this as inevitable, like the devaluation of the British pound in the 20th century. They unanimously agree that the Chinese yuan will gain in stature. Unlike the others, game theorist Nash is also betting on a "super ruble," while Edward Prescott sees opportunities for gold.

To save the Western system and its values, the laureates suggest better coordination among governments. Stronger institutions are needed to achieve results. And McFadden says that the United Nations cannot fulfill the role -- in his view, it doesn't have the support, nor does it enjoy the respect or clout, to do so.

Read the original article in German

Photo - fPat

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Migrant Lives

The Other Scandal At The Poland-Belarus Border: Where's The UN?

The United Nations, UNICEF, Red Cross and other international humanitarian organizations seems to be trying to reach the Polish-Belarusian border, where Belarus leader Alexander Lukashenko is creating a refugee crisis on purpose.

Migrants in Michalowo, Belarus, next to the border with Poland.

Wojciech Czuchnowski

WARSAW — There is no doubt that the refugees crossing the Belarusian border with Poland — and by extension reaching the European Union — were shepherded through by the regime of Alexander Lukashenko. There is more than enough evidence that this is an organized action of the dictator using a network of intermediaries stretching from Africa and the Middle East. But that is not all.

The Belarusian regime has made no secret that its services are guiding refugees to the Polish border, literally pushing them onto (and often, through) the wires.

It can be seen in films made available to the media by... Belarusian border guards and Lukashenko's official information agencies.

Tactics of a strongman

Refugees are not led to the border by "pretend soldiers" in uniforms from a military collectibles store. These are regular formations commanded by state authorities. Their actions violate all rules of peaceful coexistence and humanitarianism to which Belarus has committed itself as a state.

Belarus is dismissed by the "rest of the world" as a hopeless case of a bizarre (although, in the last year, increasingly brutal) dictatorship. But it still formally belongs to a whole range of organizations whose principles it violates every day on the border with Poland.

Indeed, Belarus is a part of the United Nations (it is even listed as a founding state in its declaration), it belongs to the UNICEF, to the International Committee of the Red Cross, and even to the Organization for Security and Cooperation in Europe (OSCE).

Photo of Polish soldiers setting up a barbed wire fence in the Border Zone near Krynki, Belarus

Polish soldiers set up a barbed wire fence in the Border Zone near Krynki, Belarus

Maciej Luczniewski/ZUMA

Lukashenko would never challenge the Red Cross

Each of these entities has specialized bureaus whose task is to intervene wherever conventions and human rights are violated. Each of these organizations should have sent their observers and representatives to the conflict area long ago — and without asking Belarus for permission. They should be operating on both sides of the border, as their presence would certainly make it more difficult to break the law.

An incomprehensible absence

Neither the leader of Poland's ruling party Jaroslaw Kaczyński nor even Lukashenko would dare to keep the UN, UNICEF, OSCE or the Red Cross out of their countries.

In recent weeks, the services of one UN state (Belarus) have been regularly violating the border of another UN state (Poland). In the nearby forests, children are being pushed around and people are dying. Despite all of this, none of the international organizations seems to be trying to reach the border nor taking any kind of action required by their responsibilities.

Their absence in such a critical time and place is completely incomprehensible, and their lack of action raises questions about the use of international treaties and organizations created to protect them.

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