Here’s to a bubbly future
Cantillon: A tidal wave of gloomy forecasts have been unleashed on us
Lawrence Summers, former US treasury secretary, gestures as he arrives to a panel discussion at the International Monetary Fund (IMF) in Washington, DC. Photograph: Andrew Harrer/Bloomberg
The view expressed by former US treasury secretary Larry Summers (right) that the West could be facing into an extended period of dismal growth levels appears to have unleashed something of a tidal wave of gloomy forecasts and ruminations among economic commentators and market observers.
A number of academics have for some time now been tinkering around with the same idea, with some even saying that growth since the late 1970s would have been anaemic had it not been for the rise of banking.
From this point of view, the sort of levels of investment needed to sustain what has constituted “normal” levels of economic growth have not been made for decades, with the rise of credit picking up the slack.
Most of us, if this view is correct, have spent our adult lives in a bubble economy.
The problem, apparently, is not that we don’t have enough money in the West, it is that we don’t have a way of investing it that will drive the sort of economic growth levels seen in the decades after the second World War.
Some (enlightened?) thinkers have queried this pessimism, suggesting that spurs to renewed economic growth could be provided by, say, massive investment in reducing carbon emissions, or huge investment programmes in developing economies funded by the savings of first-world economies.
An obvious difficulty with such suggestions is the way the slump in the West appears to be coupled with a dearth of daring political leadership.
Meanwhile our plan for dealing with our post-slump debt involves expected gross domestic product growth this year of 0.2 per cent being followed by a rise of 2 per cent in next year, 2.3 per cent in 2015, and 2.8 per cent in 2016.
As a small, open economy, we are particularly dependent on growth in the UK, continental Europe and the US.
So we better be hoping that Summers got it wrong – or that we get a few years of bubble and inflation to reduce the relative size of our debt before the slump begins to happen.