The unemployment rate has finally dropped below 6 percent for the first time since July, 2008. The underemployment rate has also dropped below 12 percent for the first time in six years.
It is still three to four percentage points higher than where it should be, but it is a lot better than the 17 percent it was in 2010. Perhaps now we can focus less on how to survive economically and more on how to avoid the next global recession.
Fortunately, we understand much more about the economy than we did in the 1930s. Then, they experimented, and sometimes bungled, their way through the first global Great Depression. Economists had become so confident with our economic understanding since the development of macroeconomics that many thought a depression, or perhaps even our severe recession, just could not happen again.
What confounded economists is the same phenomenon that is contributing to the Ebola contagion and global warming. We forget that borders are merely lines on a map these days.
But, while our understanding of global problems and our knowledge on how to deal effectively with them have improved, our institutions have not. Politics, and political decision-making, remains almost as provincial now as it was a century ago.
Consider, for instance, the plight of Europe. For six years, Germany, the powerhouse of the European economic union, has prevented the adoption of a coherent fiscal policy EU-wide. While some countries, like Greece, Italy, Spain, and Portugal, were suffering debilitating unemployment and deep recessions, Germany was growing.
Germans feared that any economic stimulus in Europe would overheat the economy in Germany. They permitted a small dose of quantitative easing of the money supply to encourage banks in suffering countries to lend. However, they must realize there, as we do here, that monetary policy can do little to reverse the damage of a deep recession. All it can really do is keep the recession from worsening significantly.
Now, the Germans find themselves with a quarter of declining output and will likely see that quarter followed by a second quarter of even worse data. Two quarters of decline defines a recession. The chicken has come home to roost and contagion has spread across their border. Economic conditions trump lines on a map.
Ebola has also spread across the Atlantic. Do we believe that some desperate Liberian parents will reveal their child’s symptoms to a TSA worker in the United States? Even though America is batting only about .750 for our cure rate, ours is twice the survival rate for those who suffer in West Africa. From a parent’s perspective, the human condition trumps lines on a map.
We can legitimately debate whether humankind is contributing to the carbon-dioxide buildup in the atmosphere, although most scientists are united in the belief that it is. Even less controversial is the conclusion that carbon dioxide buildup in the atmosphere is contributing to global warming.
We know that to curb human emissions of greenhouse gases will be costly. Stabilizing global warming will be most painful for those nations that have weak economies, low income and dirtier industries and automobiles. These nations will not shift to more costly technologies quickly enough to start filling the hole that we have dug for ourselves.
Any delay means we will be filling in a hole that is growing deeper each year. Emissions do not respect lines on maps.
Yet, we lack leadership across borders. Instead, we point fingers across borders.
The key to our success in stemming global warming, in preventing international plagues or in ameliorating global economic depressions is to acknowledge our interdependencies. The Internet, inexpensive and accessible airline travel, global trade and even the jet stream and the mixing of air all around us makes for a much smaller world. None of these factors respects national boundaries.
Until our leaders understand the degree to which we are all connected, for better or worse and like it or not, we will be engaged in a noncooperative game with perverse consequences. Economists call this a “prisoner’s dilemma.” Only through acknowledgement of our interdependencies will we find a way out of a worsening global environment. We must balance sovereignty with pragmatism if we are to thrive.
Colin Read chairs the finance and economics faculty at SUNY Plattsburgh and has published a dozen books on local and global finance and economics. He can be reached at READCL@GMAIL.COM.