The Great Malaise Continues

Optimists say that the global economy will perform better in 2016 than it did in 2015. That may turn out to be true, but only imperceptibly so, unless the problem of insufficient global aggregate demand is finally addressed.


NEW YORK – The year 2015 was a hard one all around. Brazil fell into recession. China’s economy experienced its first serious bumps after almost four decades of breakneck growth. The eurozone managed to avoid a meltdown over Greece, but its near-stagnation has continued, contributing to what surely will be viewed as a lost decade. For the United States, 2015 was supposed to be the year that finally closed the book on the Great Recession that began back in 2008; instead, the US recovery has been middling.

Indeed, Christine Lagarde, Managing Director of the International Monetary Fund, has declared the current state of the global economy the New Mediocre. Others, harking back to the profound pessimism after the end of World War II, fear that the global economy could slip into depression, or at least into prolonged stagnation.

In early 2010, I warned in my book Freefall, which describes the events leading up to the Great Recession, that without the appropriate responses, the world risked sliding into what I called a Great Malaise. Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would.

The economics of this inertia is easy to understand, and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand.