The Crisis in Four Notes
The current crisis is one of the most profound in living memory, yet it can be explained by four simple factors.
This is a paper about the current crisis, but also previous and future ones. All crises present recurrent features: fundamental economic disequilibria, bad policy decisions, lack of controls, and also bad luck. At the same time, the severity of the crisis depends on how events interact and the momentum they generate. As critical and intense as it is, the current crisis can be explained by the interplay of four basic factors:
- We live in a global, complex and overly integrated world. In such a world there can be no full decoupling;
- Macroeconomic distortions are global in scale. They can be sustained for far longer periods, but eventually get corrected in painful ways;
- Prevention of distortions is hampered by a lack of global institutions and policies; coordination can be achieved only after crises wreak havoc;
- In an integrated world, human beings tend to behave similarly, irrespective of their cultural and religious belief; bubbles are global.