Happy New Year....Really!

Well, it’s the start of a New Year and traditionally there should be a sense of optimism to a fresh start. Indeed, at least one forecasting company feels that the global outlook for 2017 is at least stable despite the challenges of 2016 and indeed is expecting an uptick in commodity prices. However, given the course of world events over the last twelve months, one might think that there is little to be optimistic amount. On the one hand, the events of 2016 to me seem to mark the end of what can be termed the second great globalization (more detail here on that). It was a period that saw per capita GDP globally grow as a result of technological change, integrated markets and trade much like the first great globalization from 1870 to 1913.

Based on the Angus Maddison Project GDP numbers, world real per capita GDP (1990 international Geary-Kamis dollars) in 1820 was $712 and grew to $884 dollars by 1870 – an increase of 24 percent. The period from 1870 to 1913 saw world per capita GDP grow to $1,532 – an increase of 75 percent. With the trauma of two world wars and the Great Depression, the years from 1913 to 1950 saw real per capita GDP nevertheless grow by 36 percent to reach $2,204.

The post war economic boom from 1950 to 1973 sees world real per capita GDP grow from $2,104 to $4,081 – an increase of 94 percent. The era of the Second Great Globalization sees real per capita GDP continue to grow from $4,081 to $7,814 in 2010 – an increase of 91 percent in world GDP. While real per capita GDP is an imperfect measure of economic welfare and says nothing about distribution, it remains that the world has seen substantial economic growth since 1973 nearly on par with the post war boom era.

The first great globalization of 1870 to 1913 ended badly and much of twentieth century history was a recovery from the break-up of a world trading system rooted in a financial and trading system based on Britain and the pound. The global institutions put in place by the United States after World War II with the American dollar as the global currency helped restore a process of growth and increased trade.

Beginning in the 1970s, the oil price shock, slowing growth and the breakdown of the post-war Keynesian economic consensus ushered in the second globalization marked by deregulation, more trade liberalization and rapid technological change particularly in information and communication systems.

Brexit and Trump seem to mark the start of a new era and a hiatus from globalization given the growing possibility of restrictions on trade and mobility. A dominant feature of the period from 1914 to 1945 was a series of major international economic and political shocks and subsequent reaction and adjustment. If we are embarking on a similar period it will hopefully be minus the specter of global armed conflict.

Yet, I think we will eventually get through this. Economics may be viewed as the dismal science but it really is a very optimistic one. A retreat into populism and trade barriers will eventually reveal itself for what it really is – the road to slower growth, poverty and even greater inequality – and we will see a third age of global integration and growth. Perhaps I am naive and overly optimistic given the challenges the world faces but then I have always felt that economists are the boy scouts of academe.

Comments

[Patrick]

I understand the impulse to avoid hyperbole, but characterizing 1914 to 1945 as "a series of major economic and political shocks" is a 'uge understatement.

[Jacques René Giguère]

"A retreat into populism and trade barriers will eventually reveal itself for what it really is – the road to slower growth, poverty and even greater inequality –"
So did bolchevism. It took 70 years to find out. And the result was Putinism.
OTOH, it was not bad that economics is the dismal science, given the way Carlysle thought...

[Tim]

I would argue the French elections in April are the next important global economic event. And no I do not think Marine Le Pen is somehow certain to win. In fact those outside of France who seem to automatically assume her victory remind me of those in English Canada who before every election in Quebec always assume the PQ will win.

[Tim]

In this new year I want to take issue with this article written in Policy Options magazine by a young Canadian Government Economist praising the "Bretton Woods" currency and capital control system despite the fact that Canada broke away from fixed exchange rates and capital controls before even the ink was dry on Bretton Woods something the Bank of Canada can describe in great detail but yet this economist seems to forget to mention. Perhaps some of the WCI authors can straighten him out.

http://policyoptions.irpp.org/magazines/janvier-2017/trumpism-and-the-economic-failure-of-neoliberalism/