What's Next?

What's Next?: Unconventional Wisdom on the Future of the World Economy

David Hale
Lyric Hughes Hale
Copyright Date: 2011
Published by: Yale University Press
Pages: 320
https://www.jstor.org/stable/j.ctt1np73b
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  • Book Info
    What's Next?
    Book Description:

    The world spins in economic turmoil, and who can tell what will happen next? Cold numbers and simple statistical projections don't take into account social, financial, or political factors that can dramatically alter the economic course of a nation or a region. In this unique book, more than twenty leading economists and experts render thorough, rigorously researched prognoses for the world's major economies over the next five years. Factoring in such varied issues as the price of oil, the strength of the U.S. dollar, geopolitics, tax policies, and new developments in investment decision making, the contributors ground their predictions in the realities of current events, political conditions, and the health of financial institutions in each national economy.

    The most comprehensive volume on the global economy available today, this book presents up-to-date research on Russia, Australia, Europe, sub-Saharan and South Africa, the major Asian economies, North America, and the largest economies of Latin America. With unsurpassed expertise, the authors explain what's going on in individual countries, how important current global issues will impact them, and what economic scenarios they most likely will face in upcoming years.

    eISBN: 978-0-300-17508-0
    Subjects: Economics, Business

Table of Contents

  1. Front Matter
    (pp. I-VI)
  2. Table of Contents
    (pp. VII-X)
  3. PREFACE
    (pp. XI-XIV)
    Lyric Hughes Hale
  4. INTRODUCTION
    (pp. XV-XXX)
    David Hale

    After more than two years of turmoil in the financial markets and a severe recession during the early months of 2009, there are clear signs that the world economy is poised for a sustained recovery. China’s highly stimulative monetary and fiscal policies helped to sustain the economy while exports recovered. The US consumer has begun to spend again. German manufacturing orders have bottomed, and exports benefitted from the Greek crisis in the monetary union. British house prices are increasing. And rising commodity prices are buoying confidence in Latin America and Africa.

    This book will examine the outlook for 2011 and...

  5. I. WESTERN HEMISPHERE ECONOMIES
    • 1 THE US RECOVERY
      (pp. 3-11)
      David Hale

      The Business Cycle Dating Committee of the National Bureau of Economic Research has said that the great recession of 2008–2009 ended in July 2009. The US economy had a growth rate of 1.6 percent during the third quarter of 2009 followed by 5.0 percent during the fourth quarter and 3.7 percent during the first quarter of 2010. Growth then slowed to 1.7 percent during the second quarter of 2010 and 2.0 percent during the third quarter. The recovery has taken many by surprise because of the severity of the crisis in the financial markets in late 2008. The stock...

    • 2 THE CANADIAN ECONOMY: PROSPECTS AND CHALLENGES
      (pp. 12-28)
      Joshua Mendelsohn

      Spurred by massive government stimulus measures and unprecedented monetary easing, the global economy is recovering. Most countries are showing positive growth again, with the strongest performance in the emerging Asian economies, notably China. However, the recovery process will be uneven and there is the risk of reversal in some regions. In particular, the pace of recovery in the United States and Europe is likely to be sluggish and fitful. Apart from the obvious need to repair the financial system and recover from the damage caused by the combination of the financial crisis and the housing market collapse, efforts by governments...

    • 3 MEXICO’S INTERMINABLE TRANSITION—2011 AND BEYOND
      (pp. 29-47)
      Timothy Heyman

      For Mexico, 2010 was a year of recovery from theannus horribilisof 2009. The fall in 2009 GDP of 6.5 percent had been the worst among OECD and major emerging countries except Russia (Table 3.1), and Mexico’s worst since 1932. (See Figure 3.1.)

      This dismal 2009 performance had been caused not only by Mexico’s dependence on the United States but also by internal factors. A hitherto unknown strain of flu (A/H1N1) was discovered in Mexico in April and paralyzed the country for a week, with measurable direct economic effects and incalculable indirect effects on morale and image. Oil production...

    • 4 IS LATIN AMERICA CHANGING?
      (pp. 48-54)
      Pedro Pablo Kuczynski

      Latin American countries arguably did better than most in facing the 2008–2009 world crisis. This positive outcome was a welcome change from the past, when high public debt ratios, fiscal deficits, and dependency on foreign credit gave pneumonia to most Latin American countries when the world sneezed.

      Is Latin America a Single Entity?

      The first issue in discussing “Latin America” is whether it exists as some kind of a single unit. There is huge diversity in the region, as there is in Europe and Asia. Demographically, there is a big difference between the more mature and aging populations of...

  6. II. EUROPE
    • 5 THE WORLD BETS ON EUROPE, BUT THE UNITED STATES WILL PROBABLY WIN
      (pp. 57-74)
      Anatole Kaletsky

      The near-death experience of the euro in 2010 transformed the prospects for the European economy and the European Union’s political structure. The turning point was the summit of May 7–9, when European leaders agreed to the bailout of the Greek government, followed by the weekend of November 27–28, 2010, when the temporary mechanism created in May was abruptly converted into the permanent European Stability Mechanism (ESM) in order to stop a run on Irish banking system. Faced with the threat of a meltdown of the European financial markets, and acting under intense pressure from the US government to...

  7. III. ASIA
    • 6 ASIA’S PARADIGM SHIFT
      (pp. 77-91)
      Louis-Vincent Gave

      From 2000 to 2010, having an overweight exposure to Asian equities in a global equity portfolio was, by and large, the easiest “major trade,” if only because Asia was both a “return to the mean” trade (with very undervalued stocks in the wake of the Asian crisis and TMT bust) and a “momentum” trade (with faster growth). In 2000, having stock-picking skills did not matter much in Asia. What counted was having the courage, foresight, and cash to pick up dominant blue chips like Samsung Electronics or DBS Bank at attractive valuations.

      Fast-forward to 2010 and things have undeniably changed....

    • 7 JAPAN: RETURN TO NORMAL
      (pp. 92-101)
      Robert Madsen

      The surge in GDP growth that Japan experienced from 2002 to 2007 suggested that the country had at last escaped the trammels of deflation and embarked on a period of economic expansion and perhaps even fiscal reconstruction. But then came the 2008–2009 global financial crisis, which eviscerated international trade and industrial output, lowering Japan’s rate of economic growth dramatically and pushing it back into its old deflationary mire. Consequently, 2009 was the country’s worst year in decades; and while 2010 brought a big improvement, the problems that manifested during the worldwide disaster will continue to overshadow Japan for years...

    • 8 JAPAN: THE INTERREGNUM GOES ON
      (pp. 102-114)
      Richard B. Katz

      The long political interregnum that began in 1989—with the peak of the 1980s financial bubble and the fall of the Berlin Wall—seems destined to continue for at least several more years. In 2009, hopes were raised that the smashing victory of the Democratic Party of Japan (DPJ) in the Lower House elections would usher in at least a few years of political stability and some substantial progress on economic reform. Not only did the DPJ throw out the Liberal Democratic Party (LDP), which had ruled virtually uninterrupted for nearly six decades (making the 2009 election the first time...

  8. IV. SOUTHERN HEMISPHERE ECONOMIES
    • 9 PROSPECTS FOR SUB-SAHARAN AFRICA IN 2010–2011
      (pp. 117-127)
      Keith Jefferis

      The global economic and financial developments that unfolded from mid-2008 to 2009 had a dramatic impact on Sub-Saharan Africa (SSA). The continent escaped the direct impact of the global financial crisis—outside of Nigeria there have been no serious banking crises—but has felt the indirect impact of global recession and, in particular, the dramatic slowdown in world trade. Many SSA economies are highly export dependent, and they have been affected by weak demand in key industrial country markets and lower prices for many exports, especially commodities. This has been compounded by a drop-off in tourist arrivals, reduced remittance inflows...

    • 10 SOUTH AFRICA AFTER 2010
      (pp. 128-138)
      Iraj Abedian

      South Africa’s political economy took a remarkable turn in 2008. On one hand, the country’s nascent democracy was subjected to a momentous shift of political forces within the ruling African National Congress (ANC) Alliance, culminating in the recall of Thabo Mbeki from the office of the presidency. He was replaced by President Kgalema Motlanthe as a caretaker president until the national elections in April 2009. In May 2009, President Jacob Zuma took office after a conclusive victory in a highly contested, widely supported, and peacefully conducted election. On the other hand, the economy was battered by the prevailing global “great...

    • 11 IT DIDN’T HAVE TO BE THAT BAD—THE COUNTEREXAMPLE OF AUSTRALIA
      (pp. 139-150)
      Saul Eslake

      The series of financial shocks that has come to be widely known as the “global financial crisis” is, in truth, better understood as a “North Atlantic financial crisis,” albeit one with much larger global ramifications than those of earlier crises afflicting Mexico, Asia, Russia, and Argentina during the 1990s and early 2000s.

      Over and above the waves of euphoria and panic (or greed and fear) that are common to all speculative bubbles and busts, the financial crisis of 2007–2009 was largely the result of failings in the management and supervision of American and British financial intermediaries, flaws in the...

  9. V. RESERVE CURRENCIES
    • 12 THE FUTURE OF THE US DOLLAR AS A RESERVE CURRENCY
      (pp. 153-165)
      John Greenwood

      Two topics that are widely discussed in the media and among investors are the possible displacement, or even demise, of the US dollar as an international reserve currency within a few years, as well as what currency might replace it. However, in order to comment sensibly on the prospects for the international reserve role of US currency, and to answer the question about what might replace it, we first need to set out the essential characteristics of an international reserve currency. This chapter will first review the historical process by which the US dollar emerged as the preeminent international reserve...

    • 13 WILL THE GOLD RALLY CONTINUE?
      (pp. 166-176)
      David Hale

      The price of gold recently reached new highs against all the world’s leading currencies. The enthusiasm for gold has been buoyed by the creation of new investment vehicles such as exchange-traded funds (ETFs) and investor apprehension about the global economy. The majority of G-7 countries are running unprecedented fiscal deficits. Central banks have slashed interest rates to record lows while engaging in quantitative easing to provide more liquidity for the financial markets. Many investors fear that the combination of large fiscal deficits and central banks accommodation will ultimately set the stage for higher inflation. A few also fear that the...

  10. VI. THE GEOPOLITICS OF ENERGY
    • 14 IN THE SHADOW OF PEAK OIL, PEAK CARBON, IRAQI NATIONALISM, AND PAPER BARRELS: THE OIL MARKETS OF THE 2010s
      (pp. 179-202)
      Albert Bressand

      So many factors combine to influence oil markets—from international tensions to environmental regulations, and from hundred-billion-dollar investments in the Arctic to flavor-of-the-week trading bets—that oil prices sometimes appear to defy common wisdom. In the year 2010, three paradoxes illustrated the gap between the “flat earth” view of a perfectly arbitraged, globalized economy and the realities of oil markets.

      Most obvious was the disconnect between oil prices in the $70–$90 per barrel range—high numbers compared to those of the 1980s and 1990s—and the recession of 2008–2009 that has been widely heralded as the fiercest economic...

    • 15 IN THE AFTERMATH OF IRAN’S LATEST REVOLUTION
      (pp. 203-218)
      Narimon Safavi

      For nearly every year since 1977, Iran has been featured in a significant percentage of global newspaper headlines. Upon closer inspection, even many of the global news items that on the surface are not Iran centered contain an important Iranian component. The years 2009 and 2010 were no exception. The 2009 Iranian election and its aftermath aside, the story of Dubai’s default on its debt obligation has a huge Iranian undercurrent. Iran is also important because America’s involvement in the wars in Afghanistan and Pakistan, as well as Iraq, will likely require Iranian involvement in their solutions.

      The Persian Gulf...

    • 16 CLIMATE CHANGE: FEASIBLE POLICY AND FUTURE CARBON MARKETS
      (pp. 219-230)
      Brian Fisher and Anna Matysek

      Global greenhouse gas emissions and the world’s reliance on fossil fuels are expected to grow significantly over the coming decades, particularly in developing countries. As scientific understanding of the climate change problem has improved, it has become increasingly clear that substantial emissions reductions will be required to avoid significant increases in global average temperature.

      The following is a review of climate change policy rather than of the science of climate change. Although there is much uncertainty about the nature of climate change, we have taken the broad scientific consensus as presented by the Intergovernmental Panel on Climate Change (IPCC) as...

  11. VII. CRISIS AND REFORM
    • 17 WERE BANKS BUST IN 2009? AND DID THEY REALLY NEED MUCH MORE CAPITAL?
      (pp. 233-249)
      Tim Congdon

      As they returned to their desks early in the New Year of 2010, bankers were asking, “When will our institutions again be regarded as well capitalized by central banks and regulators?” On December 17, 2009, the Basle Committee on Banking Supervision had announced consultative proposals on the promotion of “a more resilient banking sector,”¹ which were already becoming known as Basle III. The proposals didnotcontain precise numbers for a new regulatory minimum level of capital, but the aim is clearly for more consistency between countries in accounting standards and the regulatory calibration of risk assets. The move toward...

    • 18 THE TOBIN TAX: CREATING A GLOBAL FISCAL SYSTEM TO FUND GLOBAL PUBLIC GOODS
      (pp. 250-255)
      Andrew Sheng

      In the early 1970s, when the US dollar abandoned convertibility against gold and ushered in the era of flexible exchange rates, Yale economist and later Nobel Laureate James Tobin suggested a tax on currency trading to “put sand in the wheels of currency speculation.” As he put it, “The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied—let’s say 0.1 percent of the volume of the transaction. This dissuades speculators as many investors invest their money in...

    • 19 FISCAL IMBALANCES, ECONOMIC GROWTH, AND TAX POLICY: PLUCKING MORE FEATHERS FROM THE GOLDEN GOOSE
      (pp. 256-263)
      Jack Mintz

      Burgeoning public deficits and debt will require significant fiscal correction in many countries in the coming years. Although some argue that higher rates of inflation will be tolerated to monetize debt burdens, this scenario would require a reversal of monetary policy that has successfully targeted inflation since the 1990s. A more likely course is fiscal discipline either in the form of expenditure cuts or tax increases. For some countries—especially Japan and the United States—with relatively low tax burdens and large unfunded liabilities, tax increases will be the more likely course of action.

      These scenarios will be laid out...

    • 20 DODD-FRANK FINANCIAL REFORMS HAVE A BROAD SCOPE, AND WILL LIKELY HAVE A MODEST IMPACT
      (pp. 264-270)
      Michael T. Lewis

      In 2010 the 111th Congress passed, and President Obama signed, two historic pieces of legislation. One, of course, was health care reform. The other, which is the focus of this chapter, was financial regulatory reform. Known as the Dodd-Frank Act after its principal authors, Senator Christopher Dodd (D-CT) and Representative Barney Frank (D-MA), the law will affect most financial entities and weigh on transactions ranging from complicated derivative schemes to the purchase of a gift card at the mall. Clocking in at over 2,300 pages—ten times the length of the earlier Glass-Steagall Act—Dodd-Frank granted new or expanded powers...

    • 21 THE FUTURE OF CORPORATE COMPLIANCE
      (pp. 271-282)
      Carole Basri

      The future of compliance lies in the shadow of the global financial crisis of 2008. Predictably, demands for greater regulation immediately followed the crisis. However, we do not need more regulations that will create more administration and more extensive compliance programs. We need better targeted regulations that are consistently enforced, that foster corporate integrity, and that streamline the compliance process. Reductions in the number of compliance officers or the funding of compliance programs will be counterproductive, yet this is precisely what is happening today.

      What we need now is a compliance cocktail that combines the requirements of Sarbanes-Oxley (SOX) reporting,...

  12. VIII. NEUROECONOMICS
    • 22 THE HUMAN SIDE OF INVESTMENT DECISION-MAKING
      (pp. 285-291)
      Thierry Malleret

      On four occasions while I was working at the World Economic Forum in 2006, I gathered a group of economists, prominent investment bankers, and insurers to brainstorm about the impending risks that could derail the “Goldilocks scenario” that then prevailed. The disconnect between the concerns and warnings of the economists—among them Roubini Global Economics’ Nouriel Roubini and David Rosenberg, then with Merrill Lynch—and the indestructible optimism of the investment bankers and insurers was startling. This series of meetings subsequently led to a session at Davos in January 2007 aptly titled “Housing Deflation: What’s the Hissing Sound?” Among other...

    • 23 THE DIMINISHING RETURNS OF THE INFORMATION AGE
      (pp. 292-302)
      Mark Roeder

      At the dawn of the Internet age in the mid-1990s, many pundits predicted that the Internet would empower billions of people to become smarter, or at least better informed, simply by making so much information easily accessible. But information is not knowledge. People do not automatically become smarter by being immersed in a sea of data any more than security guards in an art gallery become art experts through a process of osmosis. Information must be chewed on, tested, and digested before it can become knowledge. Indeed, too much information can be a bad thing. This is because the only...

  13. GLOSSARY
    (pp. 303-312)
  14. CONTRIBUTORS
    (pp. 313-322)
  15. INDEX
    (pp. 323-332)