Fast growth, huge current account “imbalances”, low real interest rates and risk spreads, subdued inflation and easy access to finance characterise the world economy. Is this party about to end? Probably not. But to identify the risks we must first decide what drives the strange world economy we see around us.

The two interesting alternative explanations are the “savings glut” and the “money glut”. Both share common themes: globalisation; the revolution in finance; the rise of China; low inflation; and macroeconomic stability. Beyond this, however, they diverge. In particular, they reverse the role of victim and villain: in the savings-glut story, the thrifty are the villains and profligate the victims; in the money-glut story, it is the other way round. This is a contemporary version of the old Keynesian versus monetarist dispute.

The “savings glut” hypothesis is associated with Ben Bernanke, now chairman of the Federal Reserve. But the idea was floated earlier by others. Brian Reading, of Lombard Street Research, lays out the line of argument in a recent note*. A substantial excess of savings over investment has emerged, he says, predominantly in China and Japan and the oil exporters (see chart). This has led to low global real interest rates and huge capital flows towards the world’s most creditworthy and willing borrowers, above all, US households. The short-term effect is an appreciation of real exchange rates and soaring current account deficits in destination countries. To sustain output in line with potential, domestic demand in those countries must also be substantially higher than gross domestic product. A country must choose fiscal and monetary policies that bring this result about.

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What is going to happen to the world economy this year? The most important points on the short-term outlook were made by my colleague, Wolfgang Münchau, last week (“The good, the bad and the ugly scenarios for the year ahead”). Let us ask, instead, a bigger question: how strong and sustainable is the underlying dynamic of the world economy? As Lawrence Summers noted in his most recent column (“A lack of fear is cause for concern”, December 27), the world economy in aggregate grew more during the past five years than in any five-year period since the second world war. Growth is not merely strong. It is also widely shared. In 2006, according to the World Bank’s Global Economic Prospects, the economies of the high-income countries probably grew by 3.1 per cent, with the US achieving 3.2 per cent, Japan 2.9 per cent and even the sluggish eurozone 2.4 per cent. Meanwhile, the economies of the developing countries, led by the rising giants, China and India, expanded by 7.0 per cent, after 6.6 per cent in 2005 and 7.2 per cent in 2004. This performance has occurred in spite of significant economic and political shocks: the collapse of the stock market bubble in 2000, the terrorist attacks of September 11 2001, wars in Afghanistan and Iraq, the continued uncertainty about future large-scale terrorism, the jump in oil prices, protectionist rhetoric in a number of high-income economies and a breakdown in the Doha round of multilateral trade talks. The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free.

What might the world economy look like in 2030? Nobody knows. But we can consider where present trends are taking us. We can assess, too, some of the dangers and opportunities. That is what the World Bank’s latest Global Economic Prospects report does*. This report does more than help organise our thinking. It should also cheer us up and spur us to do better. The past quarter of a century has been a time of unprecedented integration of the world economy, as technology advanced and the socialist sandcastles crumbled under the tide of economic liberalisation. As the report also notes: “Global income has doubled since 1980, 450m have been lifted out of extreme poverty since 1990 and life expectancy in developing countries is now 65 on average.” Globalisation has also proceeded apace: between 1970 and 2004, exports as a proportion of world output doubled to more than 25 per cent; new technologies have diffused rapidly across the globe; and total private financing of developing countries reached nearly $1,000bn in 2004. The persistence of these trends is striking. Moreover, among the encouraging recent features is the acceleration in the growth of incomes per head in the developing world (see chart), as south Asian growth rates and east Asian weights in the total both rose. So what might the world look like in 2030? The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free – click ‘Comments’ below

By Lawrence Summers

Against all odds, we are living in a time of plenty. Neither the after-effects of September 11 2001 nor a tripling in oil prices has prevented the world’s economy from growing faster in the past five years than in any five-year period in recorded economic history.

Given this recent performance and the pricing-in by world markets of an optimistic outlook, one might have expected this to be a moment of particularly great enthusiasm for the market system and for global integration.

Yet in many corners of the globe there is growing disillusionment.

Globalisation remains the great economic story of our era. It is also the great political story. The big question remains how likely is a reversal of our era’s move towards a more integrated global economy. History suggests, alas, that the onward march towards integration is not inevitable: economics may propose, but politics dispose.

This was the issue raised by Ben Bernanke, chairman of the Federal Reserve, in his address to this year’s annual economic symposium organised by the Federal Reserve bank of Kansas City at Jackson Hole, Wyoming. At the end of a brief overview of the history of economic integration, Mr Bernanke argued that “the social and political opposition to openness can be strong. Although this opposition has many sources . . . much of it arises because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall”. The need, he suggests, is to ensure that the benefits of integration are sufficiently widely shared.

Mr Bernanke concentrates, implicitly, on the politics of the high-income countries; and, second, he devotes attention to trade in goods and services. He is right to do so. The US and Europe remain the core of the global economy. Equally, nothing is more politically sensitive than trade.

The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free – click ‘Comments’ below.