Can Globalization Survive?

Can Globalization Survive?

Since its collapse in the autumn of 2008, the world economy has gone through three phases: a year or more of rapid decline; a bounce back in 2009-2010, which nevertheless did not amount to a full recovery; and a second, though so far much shallower, downturn in the developed world over the last year.

 

The resulting damage over the past four years has been huge. The world economy contracted by 6% between 2007 and 2009, and recovered by 4%. It is 10% poorer than it would have been, had growth continued at the rate of 2007, and the pain is not yet over. Today, we are in the first stages of a second banking crisis.

 

Economics is in a mess. With the shattering of the dominant Chicago School paradigm, whose rational expectations hypothesis ruled out, by assumption, the kind of collapse we have just experienced, two old masters, Friedrich von Hayek and John Maynard Keynes, have risen from the dead to renew the battles of the 1930s, equipped this time with explanations for what has gone wrong.

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