by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In 2015, the human race will create about $75 trillion in economic output, well more than half of which will be the product of the three largest economies: those of the United States ($18 trillion), the European Union ($16 trillion), and China ($11 trillion).
Two of those economies are in the midst of serious economic and political crises. The other is in the grip of something much more difficult to overcome: complacency.
Europe is being convulsed by a debt crisis in which Greece is, for the moment, the lead player, but which very well may grow much more intense if lingering weakness in Spanish, Portuguese, and Irish public finances should open up new fiscal craters in the eurozone. For the moment, the International Monetary Fund and the European Central Bank are engaged in a tussle over the terms of a Greek bailout, with the IMF arguing for a more liberal approach to debt forgiveness and the ECB inclined to screw-tightening. On both sides, negotiators are aware that they are not only setting policy for the Greek crisis that is currently on their plates, but also setting precedents for future European bailouts, should it come to that.
In China, the dual nature of the Chinese economy — one half industrial powerhouse, one half house of cards — has been dramatically revealed. …
… All of this inevitably provides a subsidy to the United States. There is a whole lot of restless investment capital in the world, and it is always looking, if not for a home, then at least for a place to alight, profitably, for a period. This helps Washington put off doing difficult things by making the stock markets a little more bullish than they probably would be otherwise, the dollar a little stronger, investor appetite for U.S. government bonds a little keener. …
… [T]here is nonetheless opportunity in the crisis, if we had the wit to avail ourselves of it. Washington, instead, gives every indication of staying on its usual course of action: Do nothing until there is no other choice.