If Britain votes to leave the EU, then all hopes of economic recovery could sink without traceby George Magnus / December 31, 2015 / Leave a comment
It’s that time of year when economic forecasters think people really want to know what they think about economic prospects for the coming year. Ever since the financial crisis of 2008, I have often wondered why. It brings to mind the words attributed variously to Mark Twain and Abraham Lincoln: that it’s better to be silent and be thought a fool than open your mouth and prove it. So with those words ringing loud—some scene-setting for 2016.
An important reason why economists seem to be floundering nowadays is because our “discipline” has become impregnated with unpredictable politics. ’Twas always thus, as any student of the history of economic thought can confirm. But in the 1980s and until the financial crisis, it became fashionable, even a badge of honour, to claim that what used to be called political economy was no more. Now it’s back with a vengeance.
Political fracturing is making economic analysis and prediction a hazardous occupation. This is occurring globally, and in individual countries to varying degrees. The new world order trumpeted at the G20 meeting in London in April 2008 should of course have been named “new world disorder”. The US is still the only country with the capacity to offer political leadership, but lacks the will and the ability to get others to rally around an agenda. China lacks both capacity and will. No one else is in a position to offer leadership, and without the latter, the global system’s flaws go unaddressed.
For various reasons, world trade has weakened beyond recognition, causing stress for emerging markets especially. Foreign direct investment and cross-border lending and borrowing have picked up a bit since 2008-09 but the levels remain relatively subdued. With globalisation stalled, if not in retreat, the external environment for many countries has become significantly weaker and is likely to remain so. This has contributed to a growth hiatus in emerging economies, and it is by no means certain when things will change for these nations once thought to be backstops to the global economy. If anything, the tilt in…