The world’s economy is in excellent shape, but its politics is disturbing. This contrast, discussed by Lawrence Summers in his column of December 26 2006, was also a focus of last week’s annual meeting of the World Economic Forum in Davos. The question is whether and how this divergence might end. The facts seem clear: the world economy is in a golden period of broadly shared growth, high profits, modest real and nominal interest rates and low prices for risk. It has, on its way, adjusted with some ease to a series of shocks: the stock market crash after 2000; the terrorist outrages of September 11 2001; wars in Afghanistan and Iraq; friction over US policies; a jump in real oil prices to levels not seen since the 1970s; the cessation of negotiations in the Doha round; and the confrontation over Iran’s nuclear ambitions. It has coped, as significantly, with China’s and India’s economic resurgence. This list of shocks is itself partly a consequence of the political pressures: protectionist sentiment, turmoil in much of the Islamic world and nuclear proliferation. To this should be added the damaged moral authority of the US and its failure hitherto in Iraq, the discredit into which many of the world’s leaders have fallen, Russia’s slide into plebiscitary dictatorship, the political stagnation of the European Union and the inability to create a global regime for dealing with climate change. The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free.
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