The global economy to 2015 and 2030
ABSTRACT: The western world economy is currently in an even more dangerous condition than in late 2008 after the Lehman collapse. Then policy makers were in a cognitive fog, but at least they stumbled on the right recipe: fiscal and monetary stimulus. Now policy makers are not in cognitive fog and confidently prescribe austerity or “fiscal consolidation” – when private demand is weak, economies are close to recession, and unemployment is historically high. (Perhaps the scariest words spoken so far are from the German finance minister: “”Austerity is the only cure for the eurozone” , 6 September 2011.) They base their confidence on pre-Keynesian economics and ignore ample empirical
evidence of the damaging effects of fiscal austerity when the growth rate is very low and unemployment very high.
The fiscal consolidation recipe is likely to keep many western economies close to recession for several more years. This paper outlines the reasons why the recipe is wrong and why policy makers have stuck with it. It then turns to the longer-term outlook, emphasising increasing resource shortage (signalled by the sharp commodity price rises since
2002) and the effects of income concentration at the top on the ability to manage tragedies of the commons.
Robert Wade is Professor of Political Economy at the London School of Economics. He won the Leontief Prize for Advancing the Frontiers of Economic Thought in 2008, and his book Governing the Market: Economic Theory and the Role of Government in East Asia’s Industrialization (1990, 2004) won the American Political Science Association’s Best Book in Political Economy award.
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