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To most Americans, diseases with names like dengue fever, chikungunya, malaria, Chagas and leishmaniasis might sound like something out of a Victorian explorer’s tales of hacking through African jungles. Yet ongoing epidemics of these diseases are killing millions of people around the world. Now, disease experts are increasingly concerned these and other infections may become as familiar in the United States as West Nile or Lyme disease. Few believe Americans face a killer epidemic from tropical diseases. But scientists who specialize in emerging infectious diseases say such illnesses may become more common here as the economic downturn batters an already weakened public health system, creating environmental conditions conducive to infectious diseases spread by insects or other animals. At the same time, such vector-borne diseases are capable of spreading around the world much more rapidly due to massive south-to-north immigration, rapid transportation, and global trade.

2.3.2. Political impacts of armed conflict. Armed conflict is a manifestation of political failure. Among other things, severe violence impedes the state’s ability to maintain rule of law and collect and redistribute taxes and revenues. The longer-term institutional implications of armed conflict are less clear-cut. Oftentimes, ongoing armed conflict inspires more stringent central rule, epitomized by implementation of an indefinite state of emergency and restrictions on, e.g., media freedom and civil liberties, as well as more covert aspects of repression, discrimination, and exclusion (143–146). There is mixed evidence for civil conflict impacts on the stability and longevity of regimes, however. Empirical findings on the risk of military coups and state collapse following conflict diverge (147–149). At the same time, the effect of conflict on subsequent institutional and political reforms toward more democracy and liberalization is weak and seemingly quite shortlived (150–153). Overall, the inconsistent findings reflect the heterogeneous character of wars and the diverse contexts within which they are embedded.

But there’s another way of looking at growth that doesn’t depend on singing the virtues of its material outcomes. Economic growth doesn’t just make us better off, it also makes us, collectively, better people by making us more tolerant and accepting of diversity. It also enhances social mobility, gives us a greater sense of fairness and equality, and increases our commitment to democratic ideals and institutions.

The key point here is that it’s the growth itself that matters, not how it affects our absolute living standards. It’s the simple fact of economic expansion that inclines people towards feelings of openness and toleration and that inspires trust in our democratic institutions. Just as the knowledge the pie will keep getting bigger makes people more generous in the divvying up of that pie, the sense that we can expect things to get even better—no matter where we currently are on the development curve—acts as a sort of bellows of fellow-feeling, making people more hopeful for the future and more generous-minded. More than anything else, the mere fact of growth is a signal that the future will be better than the past.

At the heart of the presumed linkage between patriotism and support for leadership lies the identification of the flag with its current carrier and the belief that rallying around the former bestows public support upon the latter—as if by ousting the flag carrier, the flag will inevitably fall, and with it the nation as a whole. Note again, however, that what matters is not whether patriotism—even if engendered by nuclear diversion—would confer public support on the leadership; in fact, the linkage between the two is far from self-evident, as Churchill’s loss of the 1945 U.K. election half-anecdotally suggests. What matters is that this linkage is strongly believed (we are surprised by Churchill’s domestic defeat in the aftermath of defeating the Nazis) and that leaders might act upon this belief, even if it is largely wishful thinking.

Hypothesis 1 thus receives strong support via the unpopularity variable but only weak support via the economic growth variable. These results suggest that embattled leaders are much more likely to respond with territorial diversions to direct signs of their unpopularity (e.g., strikes, protests, riots) than to general background conditions such as economic malaise. Presumably, protesters can be distracted via territorial diversions while fixing the economy would take a more concerted and prolonged policy effort. Bad economic conditions seem to motivate only the most serious, fatal territorial confrontations. This implies that leaders may be reserving the most high-profile and risky diversions for the times when they are the most desperate, that is when their power is threatened both by signs of discontent with their rule and by more systemic problems plaguing the country (i.e., an underperforming economy).

Next, I conduct a series of follow-up tests suggested by an anonymous Reviewer; results based on the reanalysis of Model 1 are presented in the online appendix. Evaluating the implication that territorial diversions are indeed more likely to result from diversionary conditions than nonterritorial diversions, I set up a multinomial logit model that contrasts the initiation of territorial MIDs versus nonterritorial MIDs (base outcome). The results show a positive and statistically significant coefficient for the government unpopularity variable (first column of Table 3), meaning that higher levels of government unpopularity are more likely to produce territorial rather than nonterritorial MIDs. Further checks include performing rare events logit (King and Zeng 2001) and population-averaged logit analyses to verify whether the rare events nature of the dependent variable or cross-sectional characteristics of the data alter the findings, respectively. The findings for the two independent variables remain unchanged (see Table 3, columns two and three). Finally, protesting behavior in more populous countries could be considered more ‘‘normal’’ and less threatening to the government, potentially lowering the incentive to divert. Dividing the government unpopularity variable by the log of country’s population (from the Correlates of War National Capabilities data set, Singer 1987) reveals that the population size-standardized government unpopularity variable remains positive and significant; see Table 3, final column.

Prompted by a 2001 article by King and Zeng, many researchers worry about whether they can legitimately use conventional logistic regression for data in which events are rare. Although King and Zeng accurately described the problem and proposed an appropriate solution, there are still a lot of misconceptions about this issue.

The problem is not specifically the rarity of events, but rather the possibility of a small number of cases on the rarer of the two outcomes. If you have a sample size of 1000 but only 20 events, you have a problem. If you have a sample size of 10,000 with 200 events, you may be OK. If your sample has 100,000 cases with 2000 events, you’re golden.

This does not mean that global economic governance will continue to function effectively going forward. It is worth remembering that there were genuine efforts to provide global public goods in 1929 as well, but they eventually fizzled out. The failure of the major economies to assist Austria after the CreditAnstalt bank failed in 1931 led to a cascade of bank failures across Europe and the United States. The collapse of the 1933 London conference guaranteed an ongoing absence of policy coordination for the next several years.

The start of the Great Depression was bad. International policy coordination failures made it worse. Such a scenario could play out again. There is no shortage of latent or ongoing crises that could lead to a serious breakdown in global economic governance. The IMF’s reluctance to take more critical actions to address the eurozone crisis have already prompted one angry resignation letter from an IMF staffer. The summer 2012 drought in the midwestern United States could trigger another spike in food prices. The heated protectionist rhetoric of the 2012 presidential campaign in the United States, or the nationalist rhetoric accompanying China’s 2012 leadership transition, could spark a Sino-American trade war. If global economic growth continues to be mediocre, the surprising effectiveness of global economic governance could peter out. Incipient signs of backsliding in the WTO and G-20 might mushroom into a true “GZero” world.

The second question is handled similarly. Drezner acknowledges that the policies hastily enacted to combat the crisis were anything but optimal. By that measure, our governing institutions might be expected to deserve a failing grade. But that, he asserts, is an “absurd standard to apply. ... The question is not whether global governance has been flawless but whether it has been good enough” (p. 15). In effect, therefore, any minimal amount of achievement should be regarded a success. On this view, a grade of D is as good as an A. They all “work.”

In fact, a realistic grade would be closer to D than A. Yes, as Drezner demonstrates, powerful interests went to work to maintain the openness of the trading system. Yes, the United States turned out to have the power to exercise a degree of leadership. And yes, there was no serious challenge to prevailing neoliberal norms. But on balance, protectionist measures did proliferate, mainly in the form of “behind-the-border” nontariff barriers. Many governments, most notably the authorities in Berlin, stubbornly resisted American calls for greater stimulus. And some less market-friendly ideas did begin to gain legitimacy, such as a newfound respect for capital controls. If the system “worked,” it did so barely enough to pass. It seems almost unseemly to boast about what is at best a gentleman’s C.

More than two relatively uneventful decades later, the G-20 was born out of a series of destabilizing financial crises, including the 1994-1995 Mexican peso crisis, the 1997-1998 Asian financial crisis, and the 1998 Russian currency collapse. By that time, significant new economic powers had emerged, and the creation of the G-20 recognized that changing reality. The group includes China, India, Brazil, Russia, Mexico, and Indonesia, among others—broadening the rich nations’ club to one that was more representative of the 1990s economy. Like the G-7, the G-20 began as a regular meeting of finance ministers and was upgraded to an annual leaders’ summit during the 2008 global financial crisis. Amid the crisis and its aftermath, the G-20 became the focal point for global efforts to restore economic growth, helped jump-start the global economy through coordinated stimulus measures, worked to strengthen financial regulations, and expanded the lending capacity of the International Monetary Fund.

To be sure, such cooperative efforts have rarely been transformational. Both the G-7 and the G-20 lack decision-making authority, serving more as an effort to nudge countries to undertake mutually supportive policies. The purpose of such organizations is often less about developing grand schemes for recovery and more about keeping matters from getting worse. One of the key accomplishments of the G-20 during the global financial crisis was to get strong pledges from member states to avoid protectionist responses, which would have worsened the global slowdown—pledges that were mostly met. Even such modest accomplishments are vastly better than countries working at cross-purposes or actively undermining one another’s economic interests.

“The labor market is incredibly strong again,” Federal Reserve Chairman Jerome Powell in a speech Wednesday. “It’s too great, in a way, because it’s going to be adding to inflation.”

So what’s next?

Slowing growth makes it harder for leaders to keep the public happy. Economic underperformance weakens the country against its rivals. Fearing upheaval, leaders crack down on dissent. They maneuver desperately to keep geopolitical enemies at bay. Expansion seems like a solution—a way of grabbing economic resources and markets, making nationalism a crutch for a wounded regime, and beating back foreign threats.

Many countries have followed this path. When the United States’ long post-Civil War economic surge ended, Washington violently suppressed strikes and unrest at home, built a powerful blue-water Navy, and engaged in a fit of belligerence and imperial expansion during the 1890s. After a fast-rising imperial Russia fell into a deep slump at the turn of the 20th century, the tsarist government cracked down hard while also enlarging its military, seeking colonial gains in East Asia and sending around 170,000 soldiers to occupy Manchuria. These moves backfired spectacularly: They antagonized Japan, which beat Russia in the first great-power war of the 20th century.

The second scenario, called Mayhem and Chaos, is the opposite of the first scenario; everything that can go wrong does go wrong. The world economic situation weakens rather than strengthens, and India, China, and Japan suffer a major reduction in their growth rates, further weakening the global economy. As a result, energy demand falls and the price of fossil fuels plummets, leading to a financial crisis for the energy-producing states, which are forced to cut back dramatically on expansion programs and social welfare. That in turn leads to political unrest: and nurtures different radical groups, including, but not limited to, Islamic extremists. The internal stability of some countries is challenged, and there are more “failed states.” Most serious is the collapse of the democratic government in Pakistan and its takeover by Muslim extremists, who then take possession of a large number of nuclear weapons. The danger of war between India and Pakistan increases significantly. Iran, always worried about an extremist Pakistan, expands and weaponizes its nuclear program. That further enhances nuclear proliferation in the Middle East, with Saudi Arabia, Turkey, and Egypt joining Israel and Iran as nuclear states. Under these circumstances, the potential for nuclear terrorism increases, and the possibility of a nuclear terrorist attack in either the Western world or in the oil-producing states may lead to a further devastating collapse of the world economic market, with a tsunami-like impact on stability. In this scenario, major disruptions can be expected, with dire consequences for two-thirds of the planet’s population.

The next economic crisis is closer than you think. But what you should really worry about is what comes after: in the current social, political, and technological landscape, a prolonged economic crisis, combined with rising income inequality, could well escalate into a major global military conflict.

The 2008-09 global financial crisis almost bankrupted governments and caused systemic collapse. Policymakers managed to pull the global economy back from the brink, using massive monetary stimulus, including quantitative easing and near-zero (or even negative) interest rates.

This week, the Conference Board’s consumer confidence index was released. Unfortunately, the result was disappointing: it dropped from 131.3 in May to 121.5 for June. This decline brought the index to its lowest level since September 2017. But to understand why this drop really matters—for the market and the economy—we should start with consumer spending.

Willingness to spend

Economists solved the problem of measuring consumer confidence by developing what is now known as the Consumer Confidence Index (CCI). By questioning a statistically significant number of people residing within a given country using surveys, they aim to measure the degree of optimism that consumers feel about the overall state of a country's economy and their financial situation.2

When consumers are confident in their futures, they tend to spend money and drive economic growth higher. When consumers aren't confident, they tend to save rather than spend, which restricts economic growth. Therefore, international investors pay close attention to the information gathered in these surveys since it can serve as a great leading indicator for the overall economy.

Consumer confidence is the outlook that consumers have towards the economy and their own personal financial situation. This outlook can be optimistic (high consumer confidence) or pessimistic (low consumer confidence)

The level of consumer confidence will be an important factor that determines the willingness of consumers to spend, borrow and save. A high level of consumer confidence will encourage a higher marginal propensity to consume. A fall in levels of consumer confidence is often an indicator of an economic downturn.

According to an old Wall Street joke, the longest river in the emerging market countries is “De Nile.” However, looking at the United States economy today, especially after the September 2008 Lehman bankruptcy crisis and the November 2016 election of Donald Trump, one has to wonder whether it is perhaps not we in America who are in denial about the underlying state of our country’s economy. Might we now not be choosing to turn a blind eye to the fact that the U.S. is increasingly coming to resemble those major emerging market economies like Brazil, Russia, Turkey and Ukraine in terms of its poor economic governance, its dysfunctional politics and the general direction of its economic policies? During my many years of experience working at the International Monetary Fund on troubled emerging market economies in the 1980s and 1990s, I learned that at the heart of their repeated bouts of poor economic performance was their weak economic governance. All too often in these countries, a handful of powerful oligarchs managed to capture the reins of government while economic policy came to be made mainly in the interest of the favored few at the expense of the many. Looking now at President Trump’s cabinet of billionaires and at his predilection for promoting regressive policies in the areas of health care and tax reform, can we really say that we are qualitatively different from the Russias and the Ukraines of the world? Looking at Goldman Sachs’s seeming lock on the job of U.S. Treasury secretary over the past 20 years or at the repeated successes of the special interest groups in blocking legislative initiatives that a majority of the public might favor, can we really say that narrow corporate interests do not have excessive power in U.S. economic policy making? Another glaring weakness of the emerging market economies is their general lack of market competition and the domination of their economies by a handful of conglomerates. Here too it is difficult to say that the U.S. economy is not steadily drifting in that direction. Indeed, it is estimated that two-thirds of all U.S. economic sectors today are very much more concentrated than they were in the 1990s while U.S. corporations today are far more profitable than at any time since the 1920s. Meanwhile, the antitrust legislation that the U.S. might have on its books has for all intents and purposes become a dead letter of the law as the Amazons, Apples, Facebooks and Googles of the world go on unchecked buying sprees. Where is a trust-busting Teddy Roosevelt when we so sorely need him? If there is one common thing that characterizes the run-of-the-mill emerging market economy it is distrust of free trade and predilection of policymakers for high tariff walls that might benefit the favored few. With the U.S. now championing an “America first” strategy and with the Trump administration seemingly casting off the U.S. leadership role of the past seventy years for an open global economy, can we seriously say that the U.S. is qualitatively different from the emerging markets with respect to trade policy? Yet other characteristics of the emerging markets that all too often lead them down the road to economic and financial market ruin are their disdain for disciplined budget policies and their disregard for adequate financial market regulation. Should we therefore not be concerned that, at a time when the U.S. economy is close to full employment, the Trump administration is proposing unfunded tax cuts and increased infrastructure spending that would almost certainly increase the budget deficit and raise the public debt? Should we also not be concerned that at the very time when there already appears to be financial market excesses, the Trump administration keeps pushing for the rolling back of financial market regulation that would take us back to the pre-2008 crisis days of inadequate banking sector regulation? Despite the seeming growing similarities between the U.S. and the emerging market economies, the one thing that still distinguishes the U.S. economy from the emerging market economies is its very size. After all, the U.S. still remains the world’s largest economy. This means that what happens to the U.S. economy continues to be of far greater consequence for the global economy than what might be happening in the emerging market economies. For which reason, it is not only in the U.S. interest but also in that of the global economy as a whole that we must hope that the U.S. will soon start to arrest its seemingly inexorable drift to emerging market status.

A growth surge in the world’s largest economy could provide a significant boost to global activity. In contrast, uncertainty about the direction of US policies could have the opposite effect. This column investigates spillover channels linking the US and the global economy. An acceleration in US growth would have positive effects for the rest of the world if not counterbalanced by increased trade barriers. However, policy uncertainty could hamper global growth, and could have particularly bad effects on investment growth in emerging and developing economies.

Because of its size and interconnectedness, developments in the US economy are bound to have important effects around the world. The US has the world’s single largest economy, accounting for almost a quarter of global GDP (at market exchange rates), one-fifth of global FDI, and more than a third of stock market capitalisation. It is the most important export destination for one-fifth of countries around the world. The US dollar is the most widely used currency in global trade and financial transactions, and changes in US monetary policy and investor sentiment play a major role in driving global financing conditions (World Bank 2016).

America’s sheer size and the dominance of the US dollar as a reserve currency makes it a bellwether of the global economy, explains independent economist Dr Rebecca Harding

Ever since the 1929 Wall Street Crash, it has been common for economists to quip, “When America Sneezes, the rest of the world catches a cold.”1 The Chinese economy is apparently suffering from long Covid and despite the intention to release it from the grip of lockdown in the wake of protests,2 fears that China’s sluggish growth will impact the global economy’s performance in 2023 still prevail.3 Yet it is the Federal Reserve, and its view of the US economy that still has the major impact on global markets and the confidence of investors. So, does this mean that the mantra still holds?

The figure below combines Blanchflower and Bryson’s Chart 2 [of Sentiment Indices] (on top) with my plot (over the same sample period) of the 10yr-3mo term spread and spread adjusted by the NY Fed’s 10-year term premium (at bottom).

Figure 1: Top -Blanchflower and Bryson (2021) Chart 2, of Univ. of Mich. Expectations Index (red dashed line) and Conference Board Sentiment Index (green line); Bottom – 10yr-3mo US Treasury term spread, % (blue line), and term spread adjusted by estimated term premium (brown line); NBER defined recession dates shaded gray. Source: Blanchflower and Bryson (2021), and Federal Reserve Board, NBER, and author’s calculations.