Grim outlook for global economy, unemployment

On Tuesday, the Organization for Economic Cooperation and Development (OECD) predicted that the global economy will shrink by 2.75 percent in 2009, but will begin to rebound in 2010 with a modest 1.2 percent increase in growth. This announcement was made in advance of the G-20 meeting, which will begin on Thursday. By comparison, the World Bank predicts a 1.7 percent shrinkage in the global economy.

The OECD is an international organization of thirty countries, most of which are developed, that are committed to representative democracy and a free-market economy. Formed in 1948 to help implement the Marshall Plan, the Organization provides an arena through which its members can coordinate social, political, and economic efforts.

In the current crisis, the OECD has predicted that the United States' economy will shrink by 4 percent in the next year, while Europe's will shrink by 4.1 percent and Japan's will recess by 6.6 percent. This, in turn, will lead to a massive increase in unemployment. In the United States, the Organization anticipates that the ranks of the jobless will grow to 9.1 percent by the end of 2009, topping out at 10.3 percent in 2010. By comparison, Europe will presumably reach 10.1 percent unemployment this year and 11.7 percent in 2010. These are the worst unemployment levels since the early 1990s, and represent twice the unemployment levels of 2007.

While the OECD has lauded US Treasury Secretary Tim Geithner's plan to buy up toxic debt, it predicts that the program only has a 50 percent chance of success. The Organization emphasizes that the key to minimizing the global recession lies in revitalizing the banking system and freeing up credit. It has called for banks to cut their interest rates to zero, and commit to keeping them there, in order to encourage credit.

In its statement, the Organization also touched upon the larger social impact of the recession, noting that the crisis will leave "deep scars" on the world's developed economies. The form these scars will take is becoming clear as American consumers increase their savings, decrease their consumption, and begin to adapt spending habits that should be familiar to anyone who knows a survivor of the Great Depression.

While individually healthy and responsible, these policies are collectively dangerous. As Japan's "Lost Decade" demonstrates, miserly tendencies, across a population, can depress recovery and make a short term recession into a long-term period of economic stagnation.
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