Our World in 2018

OUR ECONOMIES
The Global Economy’s Risky Recovery
By Joseph E. Stiglitz
A
year ago, I predicted that the most
distinctive aspect of 2017 would be
uncertainty, fueled by, among other
things, Donald Trump’s election as president
in the United States and the United Kingdom’s
vote to leave the European Union. The only
certainty, it seemed, was uncertainty – and
that the future could become a very messy
place.
As it turned out, although 2017 was not a
particularly great year, it was far better than
many had feared. Trump proved every bit as
bombastic and erratic as expected. Anyone
who paid attention only to his incessant tweets
might think the US was teetering between a
trade war and a nuclear war. Trump would
insult Sweden one day, Australia the next, and
then the EU – and then support neo-Nazis at
home. And the members of his plutocratic
of interest, incompetence, and sheer nastiness.
There have been some worrisome
regulatory rollbacks, especially concerning
environmental protection, not to mention
the many hate-driven acts that Trump’s
bigotry may have encouraged. But, so far,
the combination of America’s institutions and
the Trump administration’s incompetence has
meant that there is (fortunately) a yawning
gap between the president’s ugly rhetoric and
what he has actually accomplished.
Most important for the global economy,
there has been no trade war. Using the
exchange rate between Mexico and the US as
a barometer, fears for the future of the North
American Free Trade Agreement have largely
subsided, even as trade negotiations have
stalled. Yet the Trump roller-coaster never
ends: 2018 may be the year that the hand
grenade Trump has thrown into the global
.
Some point to the US stock market’s
record highs as evidence of some Trumpian
economic miracle. I take it partly as evidence
that the decade-long recovery from the
Joseph E.
Stiglitz
Joseph E. Stiglitz,
a Nobel laureate
in economics, is
University Professor
at Columbia
University and Chief
Economist at the
Roosevelt Institute.
GR.E
downturn – even the deepest – eventually
comes to an end; and Trump was lucky to be
of his predecessor in setting the scene.
But I also take it as evidence of market
participants’ short-sightedness, owing to
their exuberance at potential tax cuts and
the money that might once again flow to
Wall Street, if only the world of 2007 could
be restored. They ignore what followed in
2008 – the worst downturn in three quarters
inequality that previous tax cuts for the super
rich have brought.
They give short shrift to the deglobalization
risks posed by Trump’s protectionism. And
T
tax cuts are enacted, the Fed will raise interest
.
In other words, the market is once again
showing its proclivity for short-term thinking
and pure greed. None of this bodes well for
America’s long-term economic performance;
and it suggests that while 2018 is likely to be
a better year than 2017, there are large risks
on the horizon.
It’s a similar picture in Europe. The UK’s
decision to leave the EU didn’t have the jolting
anticipated, largely because of the pound’s
depreciation. But it has become increasingly
clear that Prime Minister Theresa May’s
government has no clear view about how to
manage the UK’s withdrawal, or about the
country’s post-Brexit relationship with the EU.
There are two further potential hazards
for Europe. One risk is that heavily indebted
I
avoid crisis once interest rates return to more
normal levels, as they inevitably will. After
all, is it really possible for the eurozone to
maintain record-low rates for the foreseeable
future, even as US rates increase? Hungary
and Poland represent a more existential
50 2018 | OUR WORLD