The Global Economy in Turbulent Times

CHAPTER 10 TW3 2010: The World Trichotomized¹

I am often asked: What’s happening to the world? Indeed, the world seems so messed up we can’t take anything for granted. It does look like the world is not simply just dichotomized, anymore. We are used to talking of north versus south, haves versus have-nots, developed versus developing. All this has changed since Thomas Friedman’s (International New York Times) discourse that the world is flat; but Harvard’s Pankaj Ghemawat has since demonstrated that the world is not really flat.² What’s going on? But if this is true, why is there no convergence? What’s in store for the future? Before we begin the new year, I intend to devote my last essay for 2010 to throw some light on these important questions, and what we can look forward to in 2011.

State of the World Economy

As I see it, the situation in the United States blows hot and cold. By December 2010, the US economy reached a crossroad as a flurry of data showed consumption may be recovering fast enough to sustain growth in 2011, despite weaker investment, continuing high unemployment, and a gloomy housing outlook. What’s promising is inflation continues to fall (core personal consumption prices rose only 0.9 percent in October). This prompted former Fed Chairman Paul Volcker to conclude the economic outlook is for continuing but limited increases in economic activity for the next year or more. He added that inflation is not a problem next year. It won’t be a problem for several ...