Over 2003-2007 the world economy enjoyed something of a mini golden age. Economic growth was high, macroeconomic volatility was low, financial markets were buoyant, and the apparent probability of crisis was low.
Since 2007, however, that mini golden age has been transformed into something that feels altogether more leaden: economic growth has slumped, macro volatility has soared, markets have turned manic depressive (with the emphasis frequently on the latter phrase) and the probability of crisis seems to be worryingly high. It's been a potent example of reverse alchemy – turning gold into lead.
Some of this was depressingly predictable: one lesson from past financial crises has been that the post-crisis period is typically one of sub-par economic performance. But there's little doubt that post-crisis economic malaise has been exacerbated by an extremely disappointing performance on the part of policymakers.
The consequence is that it's hard get too optimistic about a short-term economic outlook that is dominated by unfinished business from this year. On the other hand, the long-term outlook for the world economy continues to be shaped by the Great Convergence and remains very much the consensus view of the future.
Which raises an interesting question about the medium-term prospects for the world economy: just how are we going to transition from a gloomy short-term outlook to a much more optimistic long-term one? Well, as the old joke says, I wouldn't start from here...
