Three Global Scenarios: Take Your Pick, Share Your Wisdom

 Global Crisis Blog

Three Global Scenarios: Take Your Pick, Share Your Wisdom

By Shlomo Maital

Nov. 3/2009

      In The Economist’s Oct. 1 issue,  a special report on The World Economy has an excellent and insightful lead article.   The question addressed: 

     *** Will the world economy recoup its huge losses from the 2007-9 global crisis, catch up to the pre-crisis trajectory, and return to the original baseline growth (a large but one-time loss)?  This is Scenario 1. (See Chart).    (Prof. Milton Friedman believes this has been the case in every American recession, for instance).

     ***   Will the world incur a permanent loss in output, returning to the original global growth rate but NOT recouping fully the losses in wealth and output. This is Scenario 2.

    ***   Will the world incur a permanent and growing loss in output, with global output growth emerging SLOWER than pre-crisis and never regaining its original rate.  This is Scenario 3.

      It makes a huge difference for every single manager, business, family, government — everyone! — which of these scenarios will actually occur.  If forewarned is forearmed, we all need to be forewarned. But as usual, our economists disagree and are of little help.

   If you have insights into which of these scenarios you believe is most likely, and why, please share them with us and submit a comment.