2011 and Beyond: What lies Ahead for the Global Economy?

INET Advisors Help Answer

As we ease into the end of the year, many economists are looking to 2011 and beyond, as the world moves out of a financial crisis and into unknown territory. In a pair of publications recently posted at Project Syndicate, two INET advisors tell us that in 2011 and beyond, the world’s economic powers will continue to be plagued with a variety of problems, but these problems are solvable.

In the first piece, INET Advisory Board member Joe Stiglitz looks to the United States and Europe, and notes that the problem in these advanced economies “is not a jobless recovery, but an anemic recovery – or worse, the possibility of a double-dip recession.”

Stiglitz believes that this pending issue can be solved, and provides a quick outline of how this can be achieved in the US:

“With the US able to borrow at record-low interest rates, and with the promise of high returns on public investments after a decade of neglect, it is clear what it should do. A large-scale public-investment program would stimulate employment in the short term, and growth in the long term, leading in the end to a lower national debt. But financial markets demonstrated their shortsightedness in the years preceding the crisis, and are doing so once again, by applying pressure for spending cuts, even if that implies reducing badly needed public investments.”

Stiglitz continues, wondering if perhaps asking about next year is perhaps the wrong question:

“To me, attempting to discern the economic prospects for 2011 is not a particularly interesting question: the answer is bleak, with little upside potential and a lot of downside risk. More importantly, how long will it take Europe and America to recover, and can Asia’s seemingly export-dependent economies continue to grow if their historical markets languish?”

However, Asia’s “seemingly export-dependent economies” do face problems of their own. In another piece at Project Syndicate, INET Advisory Board member Yu Yongding says that China’s monumental growth can’t last forever:

“China’s progress over the past three decades is a successful variation on the East Asian growth model that stems from the initial conditions bequeathed by a planned socialist economy. That growth model has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustment, its economic-growth momentum can suddenly be lost.”

Yongding notes that a major issue tainting China’s growth is inequality, one of INET’s preoccupying themes:

“Indeed, while China’s living standards have risen dramatically over the past 30 years, the gap between rich and poor has widened sharply. Income distribution has skewed in favor of the rich for too long, and the government has failed to provide decent public goods. With the contrast between the opulent lifestyle of the rich and the slow improvement of living conditions for the poor fomenting social tension, a serious backlash is in the making.”
INET believes that new thinking is needed to meet these future global problems – that is, because of the failure of the old paradigm and contemporary issues such as inequality and climate change, economists need new ways of looking at and interpreting these complex issues.