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14
EMERGING ISSUES IN THE WORLD ECONOMY
Franco Modigliani
The topic is emerging trends, emerging features of the world economy, and I will
relate the past to the future and indicate how we have moved to this point and
what we can expect to follow.
We are now experiencing a period, unfortunately, of worldwide economic problems.
The most serious of these affects the developed countries, in particular the
OECD countries that have experienced low growth in recent years. You will find
that within this period the U.S., Japan, and Germany each has reported a quarter
or two in which output has actually declined in fairly unusual circumstances. One
may ask whether this means we are approaching an era of no growth or even negative
growth.
To answer this you will notice one feature that is unique to the situation. It has
occurred many times in the past that the U.S., Germany, Japan, France, and many
other countries have experienced simultaneous contractions, a condition which
can be attributed to a spreading of infection. That is, if one country gets sick, this
tends to spread to others, essentially through international trade. When one
country has problems, a shock that pushes down income, that country will then
import less; they get into trouble, into a contraction, and essentially the other
world economies then follow.
What is special about the current situation is that world economies are
all moving out together but for completely different reasons. There is absolutely
no evidence that the contagion is of any consequence. Each country has
developed its own peculiar reason. Take the case of NSTs. The reason for their
decline is perhaps not entirely clear, but seems to be a factor of consumers not
spending; they suddenly decide to go into retrenchment particularly for durable
goods. They simply cut down, and this trend seems to be the expectation for the
future.
Reprinted from the LKY Distinguished Visitor Public Lecture Series, Lectures by Professor Franco
Modigliani, Lecture 2. Given at the National University of Singapore July 12–18, 1992.