To most observers, it’s obvious that the world economy is in turmoil. No matter how much the pundits and headline-makers would like to spin “bad news is good news,” conditions seem to be worsening all the time.
The variety of different fronts from which the troubling signs are coming emphasizes the scope of the growing crisis. Far from being isolated to one industry or to one country, these fault lines touch every part of the world. To make matters worse, they seem to be spreading every day. To suggest that the very foundation of the global economic system is in peril stops short of hyperbole.
Here are some of the main issues facing the world economy that are driving us closer and closer toward crisis.
Hangover from the 2008 Financial Crisis
It’s still fresh in everyone’s memories how very close the financial system came to collapse about 8 years ago. While it took a series of extreme (and probably ill-conceived) measures to pull the system back from the brink, any return to stability unavoidably takes time to work itself out. Yet the powers-that-be would have us believe the recovery has somehow already taken place, with calls for society to accept the “new normal.”
Central Banks Losing Their Grip
Even before the onset of the financial crisis, central banks were veering toward policies that were more interventionist and less predictable. This has not portended a strong systemic structure in the intervening years. At this point, monetary policy around the world is in utter disarray. In short, central banks have let us down.
America’s Dominance Waning
The U.S. was the “last man standing” after the Second World War, leading global growth over the next half-century. This heavy lifting couldn’t simply go on forever. The problem now being faced is the void this is leaving: there’s nobody to take the United States’ place as the global leader. Even China, with its economic slowdown, has proven to be ill-suited to carry the mantle in the 21st century.
Deflation Replaces Inflation
Following a period of high inflation in the 1970s, the long-term cycle seems to have shifted to the opposite direction. Neither extreme inflation nor deflation are a favorable situation. Instead, a stable amount of inflation has always been the ideal. With deflationary pressures all around, global economic growth is actually stuck in regression.
Stagnation—Slowdown in Productivity
The era of constantly increasing efficiency seen from the Industrial Revolution onward seems to be over. Whether you’re looking at the United States, China, Japan, Europe, or emerging markets, productivity has been at a stand-still.
Painful Transition to New Technological Age
Related to the last point, breakthroughs in technology were supposed to be the key to boosting productivity. Although new tech has made life more convenient in the developed world, we are hardly seeing the utopia we’ve been promised. Unless unforeseen quantum leaps in our technological powers are right around the corner, we can’t count on machines and gadgets to rescue the world from economic stagnation.
Declining Population Growth in Advanced Economies
While there are some benefits to people having less babies on average, this demographic trend tends to dampens growth. In fact, our economic system was actually born during an era of rising population growth. This was augmented by the “Baby Boom” after WWII. However, fertility rates are unlikely to ever return to these levels, nor can the environment support a repeat of this surge. To survive, capitalism will have to adjust to the population plateau.
Peak Resource Use
Rising consumption of resources was part-and-parcel with the economic explosion around the middle of the last century. Between energy, wood, and land use, we’ve run out of room to grow in this regard. How the world makes up for the end to ever-growing profits from pumping oil and using natural resources remains a huge question mark.
Some experts are still holding out optimism that the problems mentioned above are the necessary growing pains before something better comes out on the other end—but how long can we trust that this is the case?