George Magnus is a leading Economic Advisor at the UBS Investment Bank and has been a rebel around different systems in the world. George was employed in the UBS investment bank from 2004 till 2012. Along with being the senior economic advisor, he also played the highest level economist from 1997 till 2004. Prior to working for the UBS, he was working as a chief economist in SG Warburg from 1987 till 1995. Magnus is known for his work and cooperation with famous banks of both America and United Kingdom. The economist has authored many books and uploaded regular reviews which can be found at his website. George Magnus did his Masters in economics from the School of Oriental and African Studies from the University of London. He is also known for teaching the subject at the University of Illinois and University of Westminster.
The way he put out his thoughts and opinions challenged the already formed theories. A shocking result however was how his predictions regarding the financial crisis and the effect after it were quite close to reality. He was the man who had predicted the global crash that occurred in 2008. Magnus has a great significance for modern economies as he considers himself in a decent position to explain what is happening in the world. He tends to correlate the events of the economic world and the political world in one basket. Magnus thinks that up till the period of the 2008 economic crash, the ideals of a principal economy by John Maynard Keynes, Adam Smith and Karl Marx were ignored which thus led to doom in the end. (Magnus)
Magnus was the one who predicted that liquidity would not end of good. With assets such as cars, house and business linked to credit debt, the economic situation isn't one of stability. (Moulds) The economist also stated that the institutions for example banks that are so keen on lending out on loan could end up on a crisis itself. Despite Magnus being an advisor there, the UBS did not heed to the advice. One of the worst affects of the global crises was seen on the Swiss Bank. The bank gave out $42 billion worth of the assets, fired more than five thousand employees and also fired the chairman of the bank. (Moulds) Even though he had suggest that problems in the U.S. mortgage financing could go on to affect the entire world, he himself knew that no one would take it seriously. Just as the downfall accelerated, people became more and more aware of how right Magnus was.
The crisis that occurred in 2007-2008 was termed the worst since the Great Depression. It ended up in many people getting fired, foreclosures, evictions and the banks bailing out. The stock markets went in a down low and the big financial institutions were almost near collapse. Most of the economies of the world are interlinked with America. The growing trend of globalization and free trade led to economies all around the world being affected. Due to the crisis, the world economy was expected to be cut down by 0.5-1% in 2009. Even though the reduction isn't of such great proportion, this reduction in size was the first one to occur since 60 years. By the end of 2008, the economy of the United States contracted at a yearly rate of 6%. (Subrahmanyam)
The recession not only affected the economy at large, but also the average citizen. The unemployment rate reached a high of 6.5% in March 2009 only in America. The Japanese economy suffered to a great extent with the sharpest decline in economic production and unemployment worst since the Second World War. (Subrahmanyam) When discussing the global effects, trade was also affected to a great extent. Global trade declined to 9%. The reduction is trade is also evident by the number of new trade measures proposed ever since 2008. Out of the 78 changes suggested, 66 of them are suggestive of restrictions on World Trade. Out of those 66, 47 have already been implemented. (Subrahmanyam)
Seeing how the global crisis affected the economy so much, now the causes in context of Magnus's ideals should be reviewed. According to him, globalization isn't a key to great success of any economy. This can be explained in the fact that globalization hasn't developed in a steady manner. Thus the growth that has taken place due to globalization is steady and still not steady at times as well.
Adam Smith was one of the late economists to put forward the notion of globalization and free trade. Unfortunately, the idea of free trade that Smith put out isn't exactly what we think of globalization and free trade. A major basis for Smith proposing this form of trade was to increase friendship and sympathy among two nations. (Forsgren and Yamin) Even a middle school student would know that multinational companies and corporation's main objective isn't love or sympathy. Countries do trade with each other or multi-nationals have expanded their branches mainly to grow and increase profit. Subsequent to the global crisis, even Magnus criticized the idea of globalization and free trade. His article on crisis convergence talks about how the vulnerability of the United States economically paved way for many more crisis situations which will be discussed later.
Free Trade and Globalization leads to countries growing due to trade and taking advantage from division of labor. (Forsgren and Yamin) Where the idea of division of labor comes in, it should be noted that damage in one economy will not only affect labor in that country but also in the country it's trading with. This was evident from the fact that when American automobile industry declined so did Canada's. Where American employees were fired, Canadian citizens were faced with the problems of unemployment as well. Smith's idea of free trade included small entrepreneurs using the market to vend products. In this act, no one economy or trader would become the dominant one. Surely, now the scenario is much different. The invisible hand as mentioned by Smith is depictive of the political and government hold on market. The regulations and restrictions that come into play when trading occurs. These days, these restrictions are altered in trade by the dominant player leading to unfair results. With the rising inflation and currency losses, the damage to Western capitalist society also affected the east. Following the crisis, the export industries in China fell to a down low. Since China is a major exporter, with exports declining, the GDP was affected as well. The exports had been reduced to one third in the first quarter of 2009. (Magnus) This led to political disorder and protests and eventually inflation of food products as well.
The fact that Magnus had predicted the global crisis is that he initially was against the idea of falling interest. An article he published in 1998 went on to criticize how falling interest rates can have negative impacts as well. Magnus believes that the economy is not as stable that it would be able to hang on the thread of more and more debts. Even ten years after he had made these assertions, almost every big thing the average citizen would attain would be on debt. Cars, houses, business and even expensive technology can be bought on debt or credit. (Magnus 26)
He also went on stay that an unstable economy can never be caused by high interest rates. Magnus stated that low interest rates can be of use for a short-term use. There needs to be more awareness of the global economic conditions as well. In his article, Magnus stated that there could be a time when a full blown credit crunch this means that borrowers who are worthy of credit would be turned away from the banks and credit institutions. Magnus saw the idea of low rates would lead to a global crisis that has been discussed before. He was one of the few economists who differed in this way and saw the W. pattern of the economic performance.
A policy of free market ideology was placed in front which led to continuous growth. He believes that the idea of free market trade is one of the reasons why China can go on to rule the economic world today. He disagrees with the theories and structures set out by the previous economists. According to him, all their claims had made turned out hollow seeing how four decades of economic prosperity resulted in global inflation and weak globalization. In the years that America has progressed as an economic power, it has accumulated lots of debt. With the arguments between the bourgeois and the working class in the society, unrest and economic instability has further grown. (Magnus)
Magnus also stated that the in an economy, damage doesn't occur as fast as the credit losses or bankruptcies. (Mould) The way that banks and certain sectors of the economy collapsed is quite indicative of the aforementioned notion. .…
Sources Used in Document:
Bloomberg. "Give Karl Marx a Chance to Save the World Economy: George Magnus." N.p., 2012. Web. 27 Nov 2012. [http://www.bloomberg.com/news/2011-08-29/give-marx-a-chance-to-save-the-world-economy-commentary-by-george-magnus.html].
Johnson, L. E et al. "Keynes' Theory of Money and His Attack on the Classical Model." International Advances in Economic Research 7.4 (2001): 409-416. Print.
Johnson, L.E and Thomas Cate. "The Analytical Preconditions for Keynes' Theory of Money." International Advances in Economic Research 6.1 (2000): 84-94. Print.
Magnus, George. "Ageing in a Crisis." The World Today 2008: Print.