The most talked-about global economic trend in recent years has been “the rise of the rest,” with Brazil, Russia, India, and China leading the charge. But international economic convergence is a myth. Few countries can sustain unusually fast growth for a decade, and even fewer, for more than that. Now that the boom years are over, the BRICs are crumbling; the international order will change less than expected.
Most experts think the global recession was caused by a collapse in demand -- and so, in good Keynesian fashion, they want governments to ramp up spending to compensate. But the West’s recent growth was dependent on borrowing. Going even further into debt now won’t help; instead, countries need to address the underlying flaws in their economies.
Raise the roof: a worker building a home in Joplin, Missouri, May 2012. (Eric Thayer / Courtesy Reuters)
The 2008 financial crisis and the Great Recession that followed have had devastating effects on the U.S. economy and millions of American lives. But the U.S. economy will emerge from its trauma stronger and widely restructured. Europe should eventually experience a similar strengthening, although its future is less certain and its recovery will take longer to develop. The United States is much further along because its financial crisis struck three years before Europe's, in 2008, causing headwinds that have pressured it ever since. It will take another two to three years for these to subside, but after that, U.S. economic growth should outperform expectations. In contrast, Europe is still in the midst of its financial crisis. If historical logic prevails there, it will take four to six years for strong European growth to materialize.
Such strengthening in both regions will occur for one major reason: the crisis years have triggered wide economic restructuring. Sweeping changes in government finances, banking systems, and manufacturing are under way, as are structural reforms in labor markets. All this is proving once again that global capital markets, the most powerful economic force on earth, can effect changes beyond the capacity of normal political processes. And in this case, they can refute all the forecasts of Western economic decline. Indeed, in the years ahead, the United States and Europe could once again become locomotives for global economic growth.
This is not to say that the crises were worth the pain; they most definitely were not. There is palpable suffering on both sides of the Atlantic due to unemployment and government austerity measures. It is tragic that so many people have lost their jobs and will never recover them. And it is socially corrosive that the crises have accentuated existing trends toward greater income inequality. But these events happened, and the subject being addressed here is their long-term impact...
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