Fork in the Road

After the global economic turbulence of 2008, what does the future hold? This is unusually hard to call. Consider two scenarios. First let’s look at what could happen with a positive spirit. Think of this as the victory of ideas over interests and economic complexity—the true legacy of Keynes. 2008 experienced the most dramatic financial crisis since the Great Depression. Most of the industrialised world is in recession, and commodity and asset prices have collapsed. But it could have been a lot worse. The financial system was saved from implosion. It seemed interminable at the time, but there was, by historical standards, an impressive response from the US, Europe and many developing countries. This involved strikingly pragmatic government involvement in the financial system, unprecedented monetary easing, and a near-consensus on the desirability of contracyclical fiscal policy.