Marinko Škare: Around 2034, we are expecting economic Armageddon

Marinko Škare is among the few Croatian macroeconomists who speaks his mind candidly. He has been publishing his views intermittently for years as a opinion maker for Lider. This economics professor has been the rector of Juraj Dobrila University in Pula for a year and a half. Unfortunately, we did not have time to discuss that because the current economic situation was in the foreground, which he claims has been schizophrenic for about thirty years. Although our interlocutor is not a fisherman, we started with a fishing question.

When you catch a golden fish, what would your three economic wishes be?

– Ha-ha! First, I would wish for a correct interpretation of Adam Smith, the second wish would be a reset of the entire economic science, and the third would be the mandatory introduction or monitoring of financial cycle terms in economic science.

And if we were to narrow those three wishes down to Croatia?

– For Croatia, I would have only one wish: to start modeling. As the famous Alban Phillips said, if you know the movement of the three most important forces – employment, inflation, and output – you can design economic policy. If you do not know those relationships, everything you do will cause schizophrenic behavior in the market and society. In other words, Croatia needs to start engaging in modeling, tracking those movements, and making economic decisions based on that instead of playing trial and error as it has for the last thirty years.

In one year, EU countries have injected 660 billion euros in various energy supports and subsidies, of which 300 billion went to industry. Has the European economy transitioned from a liberal economy to state dependency?

– These interventions have a basis and arguments for preserving stability. However, they have the same effect on the market as any crisis. The market suddenly collapses from normal functioning according to supply and demand because you have intervention in the economy. After that, the consequences of that intervention are felt, and they last quite a long time, and during that time, the market constantly tries to return to its initial position, but it does not return to it, but to some new one. That is the problem, and that process takes a long time. These are market obstructions, from which it never recovers. These measures are socially justified, but the market consequences are extremely negative.

So how do we get out of this market dependency on the state?

– This is a problem that has recently surfaced with the collapse of some banks in Switzerland and the US, and it is about the attempt to resolve the situation by printing money. Unfortunately, in 2008 we entered this money printing system from which we have never exited. All countries, especially the US, when interest rates tighten and the economy slows down, start printing again. I do not know how we will get out of this. But these are the modern monetary theories according to which it does not matter how much money you print if that money is invested and circulates in the economy and that you can regulate it with fiscal policy. However, it is not that simple. That is, it would be simple if you knew Phillips’s parameters at every moment.

What will happen when that financing for companies and people with ‘special needs’ dries up?

– As I said, all prices will return to the initial position plus ‘something’. How much that ‘something’ amounts to is difficult to predict at this moment, but that plus ‘something’ will remain forever, there is no going back. That is the problem with these measures. It does not work like this: now we intervene and later we will return to normal. No, we are returning to a new normal and we will remain in it. And that is always more.

And immediately with the announcement of the package of 1.7 billion, unions jump up and demand wage increases.

– Yes, such packages have negative repercussions on productivity and all other movements. Due to interventionism since the 2008 crisis and due to financial cycles, the markets are simply no longer strong and stable enough to resolve economic crises as they once did. Now the solution has been found in printing money, but that is not a solution, it is just postponement. And again, the purchasing power of citizens needs to be preserved somehow.

Although it is questionable what would be a different solution for surviving the corona crisis, broken supply chains, the consequences of the war in Ukraine, and especially the energy crisis.

– Probably at this moment there is no different solution because that regulatory market mechanism has not been finely tuned in the last fifty years and the markets have become increasingly unstable. Large amounts of money have been pumped in, and the market may have absorbed that as stability, confidence, security; but only because of the amount of money. But when all that is released – and if we believe in financial cycles, which are somewhat longer than business cycles, between 24 and 30 years – the Great Depression of 1929 will look like a children’s story in comparison. It will be Armageddon, and the world is not preparing for such a thing at all. The solution is a new economic system in the long term.

And how much time do we have?

– By the end of this year, a mini Armageddon could happen, which will be resolved thanks to those incentives and the amount of money. The markets are not yet so disrupted that the situation can still be saved by printing money. But around 2034, we will be in a scenario ten times worse than that of 1929. And the same thing happened then: when the loans in the US dried up, the crisis began and swept the world. And it also started from the US.

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