Mismanaging a golden age; the global structural output gap; the long view (5)
I want to introduce a different use of the word output gap. (Its reappearance in the economic debate is a sign of a renaissance of keynesianism. I applaud that renaissance. I would however wish for a renaissance that is also a reworking. We need a neo-keynesian approach just as we needed a neo-classical one. And we need a general theory of economics that can put both in context.) I want to call it : the global structural output gap. What i am aiming for is a thought experiment. What would world GDP be if all societies would be using the best economic practices? And what is the real world GDP now? The difference between the two is the global structural output gap.
One of the way's to make clear what globalization of the individual pursuit of wealth is about is that it brings with it an acceleration in the shrinking of the GSOG.(grin)
Of course the fall of communism is the decisive event here. Not only because it made it possible for capitalism to enter the former communist countries. Almost as important is that it was a certain kind of proof that there is indeed no alternative to the capitalist route. The pursuit of wealth by free individuals showed itself in a direct competition to be not just a bit better -but to be the better economic system by a mile. That gave all emergent societies (not just the ex-communist) for the first time a very clear development path.
What does all this mean? It means that the productivity of the labour of lets say of 3 to 4 billion people will grow with leaps and bounds for the next century. It will do so simply by the implementation of the economic practices we are already familiar with. Nothing needs to be invented. That will mean that the unbelievable growthpath of the world economy of the last 100 years will be dwarfed by the growth of the next hundred years.
And that is no pie in the sky! it is already happening. Look at the enormous growth in the bric-economies in the last 10 years!
Now combine the following: The technological breakthroughs that have created a third economy: the information-economy. An economy that will over time be bigger then all of the industrial economy. And the breakthrough in the global political economy that for the first time has created a truly global capitalism. Together they make a true accelaration of global economic growth possible on a scale we have never encountered before.
We have created a global golden age .....
and immediately have mismanaged it to such an extent that there is a real prospect of a global depression!
What went wrong?