A leading expert on economic development and poverty alleviation says the panic that followed the eruption of the financial crisis last year is probably over. But he warns global financial instability is likely to go on for years because nations have only come up with short-term remedies and have not addressed the structural changes needed to reform the economic system.
The director of the Earth Institute, Jeffrey Sachs, says the panic phase of the current crisis is probably over, as is the fear that the world economy could fall into a depression.
But while nations have managed to avoid the worst, he says the global economy remains on average very bad, with the poorest countries living on the edge of survival.
Sachs blames the financial crisis on a disastrously bad monetary policy and disastrously poor financial regulation.
"The crisis has its epicenter in Wall Street. If I had to point to one clear trigger of this crisis, it was the emergence of a ... completely failed and inappropriate credit default swap market, which went from zero to $62 trillion in seven years without a single regulator paying attention to it. And, that CDS market, the Credit Default Swap Market, was a kind of fairy dust that was sprinkled over the world financial system to make believe that toxic assets were safes," said Sachs.
He says it is unclear whether governments will get a properly regulated system that will be safer for everybody. He also expresses his disdain for the multimillion-dollar bonuses corporate executives receive and fears this practice will continue.
Sachs is a strong proponent of environmentally friendly technology. When the financial crisis hit last year, he says many people looked forward to a so-called green recovery.
He says they thought increased investment in new technology aimed at climate change mitigation and environmental conservation would salvage the global economy.
"This has not occurred. There has been no green recovery. There has been no significant investment in renewable energy sources. No major increase in sustainable infrastructure. What has happened is that the panic has been broken through very expansionary monetary and fiscal policies, but not through structural change," Sachs said.
He says governments have not come up with real structural change that can give a perspective over the course of years and decades.
He says there are no coherent policies linking the macroeconomics, the environmental concerns, and the development concerns. Therefore, he says the world economy remains highly unbalanced and highly fragile.