Globalization, it’s commonly thought, has made the economies of major countries more integrated. New research by economist Kamil Yilmaz uses a global “spillover index” to gauge how much the economic shocks in one country spillover to other countries, tracking this spillover or integration effect from 1960 to today (pointer via Mark Thoma).
Since September 2008, the index has jumped higher than ever, ashis chart (above) shows, leading Wilmaz to conclude:
The spillover plot as of December 2008 shows how current global recession starkly differs from past recessions. Since the collapse of Lehman Brothers, in a matter of four months all major industrialized economies of the world are pulling each other down, with the US playing a leading role. There is a desperate need for coordinated policy action to stop the free fall in industrial output around the world. G20 countries should agree to increase the size of fiscal stimulus packages and coordinate the way these policies are implemented. Obviously, these policies cannot be expected to have full impact unless the US government comes up with a feasible plan to clean up the balance sheets of its banks from toxic assets.
What are the odds of this actually happening? And what might be the mechanism for achieving such a coordinated global response?
April 1st, 2009 at 3:51 pm
The world is in economic free fall because the most educated people in the world spend most of their time checking email and commenting on blogs. 15 years ago they would have had no such recourse, and if there was a recession, they could have spent time fixing it, instead of indulging in hysteria and making it worse.
April 2nd, 2009 at 7:49 am
Pat T,
I assume we are to take your comment with a grain of salt; obviously there were no distractions prior to blogs and email.
April 2nd, 2009 at 11:30 am
Responding to emails and commenting on blogs reduces insularity and increases the communication of ideas, so solutions may be more readily found.
Howevcr, there is a more profound philosophical question that can be better hashed over if the recession lasts long enough for a new sobriety to emerge (the last economic bubble represents the drunken revelry). That is one that questions values related to the economy such as how much of what stuff we need, want and can afford in a broader global sense. Getting back to the good old days economically is not likely a good place to go. alex
April 4th, 2009 at 11:32 am
Well, globalization and the public policies that connect our economies are driven far too much by corporate special interests. To rebuild our global economy we have to make profound changes in how we support our citizen’s best interests… job security, unemployment, healthcare, retirement, and the leverage and use of their taxes for the creation of a sustainable and competitive business climate.
To fix the global economy we have to focus on rebuilding a smart infrastructure grid, providing tools and technologies for clean energy systems and transportation along with clean energy facility based solutions for energy and resource consumption. By focusing on the debts of our citizens and making them whole we would also fix those corporate interests that are reasonably capable of being fixed. Those that schemed the system and thus our citizens deserve death by the same sword they created… economic ponzi schemes.
April 7th, 2009 at 8:04 am
Cleaning up America’s balance sheets will be a positive step in preparing for any kind of global economic recovery. What is likely to come next though, during this slow recovery, is the return of high energy prices brought on by the peaking of world oil production. Preparing (or rather, adapting) cities for the coming oil crisis is one of the key’s to any sustainable recovery.