Some may view the US dollar’s appreciation as consistent with a longer-term rebalancing of the global economy. But, as Argentina’s recent request for IMF financing starkly demonstrates, a sharp and sudden dollar appreciation risks unbalancing things elsewhere.
History is less likely than game theory to provide useful insights into where the latest trade dispute between the US and China may be heading. The question, ultimately, is whether new tariffs will eventually lead to a more cooperative game, or to a competitive one in which everyone loses.
From the anchoring role in society of the middle class to the agility and resilience of mid-size firms, the middle has long been regarded as consistent with both individual and collective wellbeing. Yet, in recent years, the middle has become less stable, less predictable, and more elusive.
Building support for a new unifying economic paradigm to replace the discredited Washington Consensus will be an analytically challenging, politically demanding, and time-consuming process. In the meantime, both economists and policymakers must ensure that the existing paradigm doesn't cause more damage than it already has.
Given how well investors have been doing lately, many are probably hoping for more of the same in the coming year. But what they should really be wishing for is that economic and policy fundamentals improve to the point that they validate existing asset prices, while laying a foundation for greater gains.
In an ideal world, major tech companies would recognize and adjust to their growing systemic importance in step with external actors, including governments and consumers, thereby striking the right balance between innovation, consumer benefits and protection, and national security. But this is not an ideal world.
Institutions matter, especially in a period of economic, political, and social fluidity, when they shield countries from frequent volatility and reduce the risk of costly shocks. The longer it takes to restore confidence in them, the greater the impediments to our wellbeing and that of our children.
The upcoming IMF and World Bank annual meetings offer a critical opportunity to start a serious discussion on how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root.
When the global financial crisis began ten years ago this month, policymakers in advanced economies treated it as a cyclical shock rather than an epochal event. Because they misdiagnosed the sickness, they administered the wrong medicine, and advanced economies have struggled to achieve strong, inclusive growth ever since.
In recent weeks, policymakers on both sides of the Atlantic have affirmed the financial system’s soundness and stability. And yet, it would be premature to declare victory: while some financial risks have been eliminated, others have migrated into less regulated non-bank activities.