Daniel W. Drezner

It’s the End of the World Economy and I Feel Fine

As John Boehner continued to dig in his heels over the weekend, it seems more and more likely that the current government shutdown/impending debt ceiling deadlock  will not be resolved until the very last minute — if that.  With the exception of Ted Yoho, there appears to be a general consensus that the global economic effects of ...

As John Boehner continued to dig in his heels over the weekend, it seems more and more likely that the current government shutdown/impending debt ceiling deadlock  will not be resolved until the very last minute — if that. 

With the exception of Ted Yoho, there appears to be a general consensus that the global economic effects of defaulting on the debt would be Very, Very Extra-Special Bad.  Given the fragilities of the global economy over the past five years, this seems particularly troublesome. 

Except the interesting thing is that the global economy isn’t as fragile as one would expect: 

Surging business confidence in rich countries has put the global economy “back on track” to resume a steady recovery, according to the latest Brookings Institution-Financial Timestracking index.

The improvement in outlook has come as a surprise over the summer, but the relatively upbeat message from economic data over the past few months is vulnerable to many threats on the horizon which could again kill the emerging confidence….

Tiger(Tracking Indexes for the Global Economic Recovery) shows the global economy “being borne along by surging business and consumer confidence in advanced economies, and stabilisation in the growth of emerging markets”, said Prof Prasad.

Having lagged behind emerging economies since the financial crisis, advanced economies now score higher in the financial and confidence components of the index.

The Tiger index combines measures of real economic activity, financial variables and indicators of confidence, according to the degree to which they are all moving up or down at the same time. Using sophisticated statistical methods it can capture similar movements of data which are measured on a very different basis and across many countries.

The overall levels of the index, which still languish well below the initial recovery period in late 2009 and early 2010, have nevertheless improved from their recent lows in mid-2012. A reduction in fear of an imminent eurozone collapse, alongside gradually improving data, is the most important factor in the upswing

A standard lament about the 2008 financial crisis is that it happened because of "market fundamentalism."  There’s at least a small grain of truth in the accusation that market failures triggered the greatest downturn since the Great Depression.  But between the Eurozone crisis and U.S. policy deadlocks, it’s striking how much the gyrations of the past few years are because of governance failures.  And it’s depressing to consider how much better the global economy would be doing if politicians in the advanced industrialized economies were a bit better at their jobs. 

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