The World Economy is Slowly Rebounding by David Ignatius

Political Crossfire The World Economy is Slowly Rebounding

By David Ignatius

Watching the flights shuttle through this international transfer point, you can see how quickly the nodes of money and power are reconnecting after the pandemic – even as the burdens of disease and poverty grow heavier in the “flyover” nations beneath the wings of the jet planes.

The resumption of bustling travel and commercial activity in the United States and abroad is part of this summer’s rebound. The fabric of the global economy was badly stretched by the pandemic, but the connective threads never ripped apart. Yet despite this laudable resilience, the inequalities embedded in the globalized economy have worsened – in the United States and also in Europe, Latin America, Asia, Africa and the Middle East.

For the have-nots, the global economy is running in reverse. Unlike the Great Recession of 2008-2009 when the emerging nations at the periphery continued to expand despite the traumas that rocked the center, this time the United States, China and a handful of other nations are on a post-pandemic rocket of growth while many others are stuck at the launching pad, struggling with low vaccination rates, worsening governance, and growing debt.

Kristalina Georgieva, managing director of the International Monetary Fund, spoke this month about a “two-track recovery,” with “accelerating” growth in the United States and a few other major economies, but “suppressed” growth in much of the rest of the world.

The U.S. rebound has been astonishing, with the IMF currently estimating 2021 growth at 7%, the fastest rate in more than 25 years. The U.S. economy is roaring so fast – with enormous pent-up demand

for a limited supply of goods and services – that some sustained inflation seems almost inevitable. Yet interest rates remain astonishingly low. The yield on 10-year Treasury bills is under 1.4%, signaling that bond traders evidently aren’t panicked yet by the inflationary danger.

The financial markets seem to be betting on a durable U.S. expansion. This year’s explosive U.S. growth is fueled by wildly stimulative fiscal and monetary policy, but also by growing private-sector investment. Wall Street may be ignoring the financial laws of gravity once again, as it has so often in the past several decades. But many smart investors are betting on a long U.S. boom.

Warren Buffett, the dean of American investors, doubled down on his trademark optimism about the American economy this year in his annual letter to Berkshire Hathaway shareholders, declaring in February: “Our unwavering conclusion: Never bet against America.”

If the United States’ outlook seems brighter than one would have expected a year ago, China’s seems a little dimmer. President Xi Jinping continues to fuse authoritarian political rule with strong economic performance. But some investors are beginning to

question whether this combination can last.

As China’s hottest tech companies have expanded, they’ve recently hit what appears to be a political red line. Alibaba’s chief executive Jack Ma was rebuffed after he dared to criticize Chinese economic policy. His highflying Internet commerce company has since lost a third of its value. Didi, a ride-sharing company, is under investigation by China’s Cyberspace Administration, which has demanded that it remove 25 of its apps. The company’s stock has fallen sharply.

China seems to tout these free-market success stories until they get too big and independent, when the state subtly reasserts control. This political tax on business success is dangerous, as Russia has discovered. The Russian economy is still suffering from the aftereffects of President Vladimir Putin’s move in the early 2000s to bring the country’s new entrepreneurs under the control of a corrupt state.

Global politics are even more uncertain these days than economics. The United States is surging forward financially but hobbled politically. Europe is losing its leader in German Chancellor Angela Merkel, without a clear successor. In a Middle East turnabout, Saudi Arabia is warming with Iran and feuding with the United Arab Emirates. In Latin America, the populist government in Mexico is struggling, but so is the left-wing regime in Cuba, which is seeing its biggest protest demonstrations in decades.

As the world re-connects, four trends seem inescapable facts of life: Technology continues to accelerate. But at the same time, inequality increases, global warming intensifies and governance erodes.

Optimists may hope that the first trend – the dizzying rush of technology – will help alleviate the other three. Unfortunately, the tech wizards haven’t yet invented a machine that can erase financial greed, environmental recklessness, or political stupidity.

The financial markets seem to be betting on a durable U.S. expansion.