World economy 2011

Hayek, Keynes and How to Prevent Economic Crises: final excerpt from Grand Pursuit: The Story of Economic Genius, by Sylvia Nasar
(Bloomberg) Unlike the movies, life rarely permits second takes. But the Second World War gave John Maynard Keynes, the patron saint of government activism, and Friedrich Hayek, the Cassandra who warned of the state’s destructive potential, just such opportunities.
Keynes and Hayek, the Great Debate (Part 1): Nicholas Wapshott – the first in a four-part series excerpted from his new book, “Keynes Hayek: The Clash That Defined Modern Economics,”

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Mark Steyn: Elisabeth’s Barrenness and Ours — Who celebrates a birth nowadays?
(The National Review) The problem with the advanced West is not that it’s broke but that it’s old and barren. Which explains why it’s broke. Take Greece, which has now become the most convenient shorthand for sovereign insolvency — “America’s heading for the same fate as Greece if we don’t change course,” etc. So Greece has a spending problem, a revenue problem, something along those lines, right? At a superficial level, yes. But the underlying issue is more primal: It has one of the lowest fertility rates on the planet.
10 November
Arab spring + European autumn = Mediterranean crisis
Almost all the countries round the Med are gripped by instability or uncertainty
(The Guardian) We talk about the world economic crisis, though Asians sometimes prefers to see it as a north Atlantic crisis and a few Brits as the eurozone crisis. It is all of those things, but seen through a less self-centred prism it is also a crisis of the Mediterranean, one of the oldest and most fruitful nurseries of human progress in history.
The Mediterranean crisis is not confined to Italy or Greece, tottering as both now are, threatening to inflict a fresh recession – or worse – on the wider EU.
Look at the bigger picture and every country around the Middle Sea – Rome’s “mare nostrum”, their version of the “English Channel” – and almost all are gripped by instability or uncertainty.
For the euro to survive, Italy must not fail. That will require leadership and courage
(The Economist) For the euro to survive, Italy must not fail. That will require leadership and courage
When the world’s third-largest bond market begins to buckle, catastrophe looms. At stake is not just the Italian economy but Spain, Portugal, Ireland, the euro, the European Union’s single market, the global banking system, the world economy, and pretty much anything else you can think of. Greece is important because it sets precedents for the euro—over such things as debt write-downs and rescues (see article). Italy matters much more because it is so vast.
It is clear now that Italy will be the crucible which tests the euro to destruction—or survival. Only a few weeks ago, that test still seemed avoidable. Now it is at hand. If the euro zone wants its currency to survive, it must stem the panic and make Italy’s vaudeville politics credible. Both acts are still within Europe’s compass. But with each lurch of the euro zone towards contagion, with each bungled change of government, and with each reluctant intervention in the financial markets, the task becomes harder and more costly. As the grim scene unfolds, you can almost feel the euro’s chances draining away.
9 November
Fears grow over global euro effect
FSB chairman’s concerns that European turbulence will hit emerging markets echoed by Brazilian finance minister Guido Mantega and HSBC’s Stuart Gulliver
5 November
New global bank sheriff Mark Carney gets more firepower
The Bank of Canada Governor is expected to be tough in his role as chairman of the Financial Stability Board, the Switzerland-based body that brings together central bankers and regulators from more than 20 of the world’s leading economies.
4 November
Developing countries downplay G20 legitimacy concerns
(Emerging Markets) Leading developing country officials have defended the G20 against criticism that it lacks legitimacy, as experts warned the group’s limited representation would undermine its effectiveness on issues beyond immediate crisis resolution.
African Development Bank president Donald Kaberuka told Emerging Markets in an interview “Clearly we cannot have everybody around the table, but the G20 has opened up to other countries. The African Union is here … It is important to figure out how the low-income countries have their voice at the table as well.”
30 October
Global recovery pact is vital to avoid a disastrous 2012
(The Guardian) The reality facing the G20 as it meets in Cannes on 3 November is that austerity plus muddling through has been a disaster
26 October
‘It’s Politics, Stupid!’ — Don’t Just Bash the Bankers
(Spiegel) For all of our knee-jerk sympathy for the protesters that have recently been gathering on Wall Street as well as in cities like Frankfurt and Barcelona, it would be interesting to know whether they’re actually in favor of rescuing Greece or of booting it out of the euro zone. Likewise, are they fighting speculation and the power of the markets — or simply capitalism as such?
So far, the signals have been ambivalent. The cluelessness of the elites has become the cluelessness of the street, and now average people are creating what might be called their own befuddlement. Given this situation, congratulations are in order for our completely overwhelmed politicians, who have managed to divert attention away from their own impotence by joining forces with the protesters against the easiest common enemy to target: the evil bankers!
23 October
Mark Carney on a mission: First Canada, now the world
As his reputation has grown, so has his influence, far beyond that of a typical Canadian central banker. Within weeks, Mr. Carney is expected to be tapped to lead the Financial Stability Board, an international committee of policy heavyweights that aims to prevent the sort of reckless lending that brought the world’s largest financial institutions to their knees in 2008 and almost caused another depression.
For the man who helped steer Canada through the recession, the next mission is to try to save the world’s banks – from themselves.
No Canadian has ever held the top job at an institution with such global reach. The FSB, which been asked by the Group of 20 nations to rewrite the rules of international finance, has the potential to grow into something on par with the other pillars of post-Second World War finance – the International Monetary Fund, the World Bank and the WTO.
15 October
Across the world, the indignant rise up against corporate greed and cuts
Violence mars Rome protest, but in scores more cities tens of thousands take peacefully to the streets
(The Independent) Protests against corporate greed, executive excess and public austerity began to gel into the beginnings of a worldwide movement yesterday as tens of thousands marched in scores of cities. The “Occupy Wall Street” protest, which started in Canada [a bit of an error here!] and spread to the US, and the long-running Spanish “Indignant” and Greek anti-cuts demonstrations coalesced on a day that saw marches or occupations in 82 countries.
Rallies Across the Globe Protest Economic Policies
(NYT) In dozens of cities around the world on Saturday, people took to the streets, clutching placards and chanting slogans as part of a planned day of protests against the financial system.
… just as the rallies in New York have represented a variety of messages — signs have been held in opposition to President Obama yards away from signs in support of him — so Saturday’s protests contained a grab bag of messages, opposing nuclear power, political corruption and the privatization of water.
Despite the difference in language, landscape and scale, the protests were united in frustration with the widening gap between the rich and the poor.
Saturday’s protests sprang not only from Occupy Wall Street movement that began last month in New York, but also from demonstrations in Spain in May. This weekend, the global protest effort came as finance ministers and central bankers from the Group of 20 industrialized nations meet in Paris to discuss economic issues, including ways to tackle Europe’s sovereign debt crisis
10 October
NYU’s Sargent, Princeton’s Sims Win Nobel Prize in Economics
(Bloomberg) — New York University’s Thomas J. Sargent and Princeton University’s Christopher A. Sims shared the 2011 Nobel Prize in Economic Sciences for their work in sorting out cause from effect in the economy and policy. Paul Krugman writes on the meaning of the prize: the Sims/Sargent prize isn’t a vindication of anyone or any particular point of view; it’s basically a signal saying, hey, if you haven’t been aware of this important line of work, now is a good time to read up on it.
1 October
Thick as BRICS
Jorge G. Castañeda, former Foreign Minister of Mexico (2000-2003), Global Distinguished Professor of Politics and Latin American Studies at New York University.
(Al Jazeera) Several emerging economies are pursuing the wrong path to greater international influence.
as was the case more than a half-century ago, most Latin American countries have not taken a principled stand – either for or against Israel, or for or against the Palestinians. Latin Americans’ lack of conviction on such grave matters has marginalised the region on other important international issues, such as the recent crisis in Libya, and the ongoing one in Syria.
Given their growing role in the global economy, it is understandable that larger Latin American countries, along with the other BRICS, are seeking a more influential world role. This is not the way to achieve it.
The Shape of the Global Economy Will Fundamentally Change
It’s not a crash, it’s the new normal.
BY MOHAMED EL-ERIAN
(FP Magazine|September/October) There are, of course, several bespoke reasons for these developments. But together, they speak to major realignments that are fundamentally changing the character of the global economy and how it functions. Three things in particular have had a significant influence, and they will continue to shape the world we live in for years to come. First, too many advanced economies face problems rooted far below the surface, in their balance sheets and in the structure of their economies. Second, rather than deal with these structural problems, policymakers have preferred to kick the can down the road. Third, several emerging economies have hit their developmental breakout phase, largely undeterred until now by the misfortunes of the developed world.
30 September
Jeffrey Sachs: Globalization’s Government
(Project Syndicate) Economic globalization has, of course, produced some large benefits for the world, including the rapid spread of advanced technologies such as the Internet and mobile telephony. It has also reduced poverty sharply in many emerging economies – indeed, for this reason alone, the world economy needs to remain open and interconnected.
Yet globalization has also created major problems that need to be addressed. First, it has increased the scope for tax evasion, owing to a rapid proliferation of tax havens around the world. Multinational companies have many more opportunities than before to dodge their fair and efficient share of taxation.
The world’s most successful economies today are in Scandinavia. By using high taxes to finance a high level of government services, these countries have balanced high prosperity with social justice and environmental sustainability. This is the key to well-being in today’s globalized economy. Perhaps more parts of the world – and especially the world’s young people – are beginning to recognize this new reality.
27 September
Willliam Pesek: China as J.P. Morgan Might Have to Save World
(Bloomberg) China and the U.S. finally found something to agree on: Europe is doomed and might take the world’s two biggest economies down with it.
Neither officials in Beijing nor Washington are actually using the “D word.” They don’t need to, not with Zhou Xiaochuan, China’s central bank governor, talking matter-of- factly about emerging nations bailing out the euro region and U.S. Treasury Secretary Timothy Geithner warning of “cascading default, bank runs and catastrophic risk” there.
The price tag for keeping the Greek-led turmoil from killing the euro is rising fast. Asians are so anxious about it that they’re querying Americans — like me. In my travels around the region this month, I’ve faced a harrowing question: Would U.S. President Barack Obama chip in for a giant European bailout?
IMF head says G7 must be bold in fixing global economy
Policymakers among the Group of Seven richest countries should be nimble in their coordinated efforts to undertake “bold action” to right the global economy, said Christine Lagarde, head of the International Monetary Fund. The G7 is meeting in France, amid warnings by the Organization for Economic Cooperation and Development of an even deeper world economic slowdown. BBC (9/9)
UN: Austerity plans imperil economic growth
A report from the United Nations Conference on Trade and Development criticized governments that were pursuing fiscal austerity programs in order to lower public debts and calm fluttering financial markets. The Unctad report said, “Making balanced budgets or low public debt an end in itself can be detrimental to achieving other goals of economic policy, namely high employment and socially acceptable income distribution.” The New York Times (tiered subscription model) (9/6), The Guardian (London) (9/6)
4 September
‘There Has Been a Clear Crisis of Confidence’
In a SPIEGEL interview, Christine Lagarde, the new managing director of the International Monetary Fund, discusses her fears of a new global recession and calls on industrialized nations to work together to combat the threat of a downturn.
31 August
George Magnus*: Crisis Convergence
Why the global economic crash, the rise of the Tea Party, the Arab Spring, and China’s coming fall are all connected.
* George Magnus is senior economic advisor at UBS Investment Bank and author of Uprising: Will Emerging Markets Shape or Shake the World Economy? and The Age of Aging: How Demographics are Changing the Global Economy and Our World
29 August
The world economy: A call to arms
(The Economist) … at the outset of her speech she apologised for not being one. Yet by far the most hard-hitting words at this year’s Jackson Hole symposium came from Christine Lagarde, the former French finance minister and new managing director of the IMF.
The world economy, she said, was entering a “dangerous new phase” driven by a sense that “policymakers do not have the conviction” to take decisions that are needed. That must change, and now. Ms Lagarde laid out a bold to-do list to support growth, including a forced capital injection into Europe’s banks, aggressive new action to deal with America’s foreclosure crisis, and a broad rebalancing of fiscal priorities.
22 August
George Monbiot: Out of the Ashes
Now is the time to start planning for a new economy, not dependent on growth.
How much of this is real? How much of the economic growth of the past 60 years? Of the wealth and comfort, the salaries and pensions which older people accept as normal, even necessary? How much of it is an illusion, created by levels of borrowing – financial and ecological – which cannot be sustained?
Once our needs had been met, continued economic growth did most people few favours. During the second half of the growth frenzy, unemployment rose, inequality rose, social mobility declined, the poor lost amenities (such as housing) while the rich enhanced theirs. In 2004, at the height of the longest boom the United Kingdom has ever experienced, the Nuffield Foundation published this extraordinary finding: “Rises in mental health problems seem to be associated with improvements in economic conditions.”
20 August
What’s Schadenfreude in Chinese?
Disarray in the West generates mixed reactions in Asia
(The Economist|Banyan) For those living in emerging Asia, the memory of the devastating regional financial meltdown of 1997-98 is still fresh, and now they see smug Europeans struck down by their own debt crisis. And although many countries in Asia suffer political instability, none has been reduced in recent months to the sort of anarchy that for a few nights this month afflicted staid old Britain. … The official news agency, Xinhua, told America to cure its “addiction to debt”. It also fretted that America’s irresponsibility would undermine “the spluttering world economic recovery” and that “financial turmoil could come back to haunt us all.” … The West’s economic woes are also Asia’s. Even if renewed global financial upheaval is averted, slow growth in America, Europe and Japan will dent economic prospects across the region. Asia, too, is addicted to American debt, in so far as this finances imports from Asia, which then invests some of the proceeds back in America.
9 August
Global Economic Downturn: A Crisis of Political Economy
(Stratfor) The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy. Let’s consider how it evolved.
5 August
Just How Bad Is Bad?
Nouriel Roubini and Ian Bremmer debate the double-dip recession and whether China could end up like Europe’s PIIGS.
With global markets in a tailspin and the Dow Jones industrial average down more than 9 percent in the past month, jittery investors are wondering whether this is a second coming of the Great Recession and whether an increasingly insolvent United States and Europe’s weak periphery will be able to weather the storm. Are we seeing the first slide into a double-dip recession? Is the euro doomed? And can China stay above the fray? Foreign Policy asked two of the world’s most prescient market watchers, Nouriel Roubini and Ian Bremmer, for their views about what they see in the months and years ahead.
Joseph E. Stiglitz: A Contagion of Bad Ideas
(Project Syndicate) The Great Recession of 2008 has morphed into the North Atlantic Recession: it is mainly Europe and the United States, not the major emerging markets, that have become mired in slow growth and high unemployment. And it is Europe and America that are marching, alone and together, to the denouement of a grand debacle. A busted bubble led to a massive Keynesian stimulus that averted a much deeper recession, but that also fueled substantial budget deficits. The response – massive spending cuts – ensures that unacceptably high levels of unemployment (a vast waste of resources and an oversupply of suffering) will continue, possibly for years.

30 April
Jeffrey Sachs: The Global Economy’s Corporate Crime Wave
(Project Syndicate) The world is drowning in corporate fraud, and the problems are probably greatest in rich countries – those with supposedly “good governance.” Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. Money talks, and it is corrupting politics and markets all over the world.
31 March
Jeffrey D. Sachs: The Arab Young and Restless
The countries of North Africa and the Middle East should learn from East Asia and Northern Europe, and take pains to avoid the failures of the US. If democracy is to take hold and flourish in Egypt, Tunisia, and elsewhere in the Arab world, the new reform-minded governments must make the youth unemployment crisis their highest priority.
(Project Syndicate) … creating decent jobs at decent wages is at the heart of being internationally competitive. That requires equipping workers with a good education, strong on-the-job training, and supportive infrastructure. While the private sector must create most of the jobs, the public sector must create the underlying conditions for high productivity. That is a tall order.
Only one high-income region has done a reasonably good job of preparing its youth, and its overall economy, for tough global competition: Northern Europe, including Germany and Scandinavia (Denmark, Finland, Norway, and Sweden). In these countries, public education is excellent, and the transition from school to work often involves programs like the apprenticeships for which Germany is especially famous.