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Even before the terrorist attacks of 11 September 2001 the United States' economy may technically have been in recession. Consumers were worried about the future. Their savings had reached a 70-year low. Businesses had stopped spending and investing, and unemployment was starting to rise. The value of stock portfolios had already dropped sharply, and the value of housing -- the nest egg that most American households depend on for their retirement savings -- was beginning to falter.
A similar slowdown was affecting the rest of the global economy as well. Even before 11 September 2001 Germany too was heading for recession, and dragging much of the rest of Europe with it. Japan, the world's second-largest economy, has been in recession for several years; more lately, it has faced the spectre of deflation -- falling prices, which further deter spending because consumers anticipate that prices will continue to fall and because their loans are more difficult to repay. East-Asian economies were hit hard by the bursting of the technology bubble; they had relied on exports of technological components to the United States. Argentina was already teetering on the edge of financial difficulty, and thus threatening much of the rest of South America.
Economics is not a physical science. It is not a natural science. It is a social science. It is intimately connected to the hopes and the fears of populations. It is more akin to social psychology than to any other discipline. As consumers in the United States became more fearful, that country's economy began to slow considerably. Even spendthrift Americans will save for a rainy day when they see a storm cloud on the horizon. And 11 September 2001 brought more than a storm cloud. Fear, moreover, is infectious: global information and communication technologies carry it to all corners of the world at the speed of electronic impulses. The combination of an already-slowing global economy with new fears of global terrorism have taken a severe toll.
Against this background, the challenge of decent work is both short term and long term. In the short term, we face rising unemployment because the global economy is heading toward recession.
The short term: Expansionary fiscal and monetary policies
There is no easy formula for restarting the global economy, but a first step must be expansionary fiscal and monetary policies. As Secretary of Labor of the United States, I never had an opportunity to talk publicly about fiscal and monetary policies. The assumption was that fiscal and monetary policies were none of the business of a labour secretary. But this assumption was wrong: fiscal and monetary policies are very much the business of people who are concerned about employment. Such policies should not be solely the responsibility of finance ministers and central bankers. Fiscal and monetary policies are among the most important levers of social policy in the advanced industrialized countries -- and they should be treated as such.
When national economies slow, and the global economy begins to contract, the people who are likely to be hurt most are those at the end of …