Longer-term Impact of the Economic Crisis on the Global Economy

Catching up on news can be time-consuming when one has been travelling a lot, but that's what I'm now doing. This article in Business Week caught my attention since it strives to do what I sometimes find myself doing in conversations with others, especially recently: try to explain, or at least describe, what the heck is going on with the markets and economy in this troubling time.

While I disagree with the author's premise that it isn't a crisis of confidence but rather consumer exhaustion, I do believe that both are symptoms of a more foundational matter. This fact is alluded to in the article though perhaps not addressed strongly enough. This is that global trade does not raise everyone's boat, but rather tends to smooth out disparities among trading entities. It is as true of inter-provincial trade within Canada as it is for trade between developed and developing countries. Wealth is moving, in peculiar and sometimes unpredictable ways, in a manner that over the long term is reducing the per-capita wealth ranges seen worldwide. It isn't happening smoothly and it isn't a painless or pleasant process. Nevertheless it is happening.

It has perhaps been less than obvious because the US is such a large economic power. Not just as a whole but also on a per-capita basis. It is a bit like filling many near-empty pails with water from one large reservoir. The reservoir isn't much affected for quite some time while the effect on the pails is immediate and obvious. As the pails fill this changes. Achieving similar percentage gains in the pails requires larger draws from the reservoir. In time the reservoir's capacity is overly stressed and you need a new source of water.

It is also true that unlike my pail analogy it also rains, and there are droughts, so that the amount of water is not static; this is not a zero-sum game, and neither is the global economy. Overall global productivity is rising.

So what happens as developing countries become developed? The US can no longer absorb all they have the capacity to produce, so the trade among themselves increases as you would expect. In time a crisis in the US, whether one of confidence or other cause, will have less global ramifications. Now is not yet that time.

My hope is that over the coming decades as disparaties among and within countries diminish, political and economic stresses will also diminish. Unfortunately this is at best a long-term trend as can be seen in the volatility in movement of goods, services and people, political and social upheaval, and conflict driven by economics, ethnicity and ideology. I am optimistic, which might seem odd when you look around at the world today. The current economic crisis is awful, painful and many people are hurting. Nevertheless it will pass, and even though there will be other crises, perhaps some far worse, there is ample scope for hope of a better future.