Unemployment and debt levels are too high and economic growth is too low. The outlook is worrisome.
Conditions in Europe have reached recessionary levels, the U.S. is struggling, and Japan remains stalled. For that matter, Britain, China, India and other nations have their own very real economic problems, too.
Sovereign debt levels and annual operating deficits are clearly unsustainable. As a result, the world's financial markets are quite fragile.
The way out of this mess is through the resumption of solid economic growth worldwide. Unfortunately, that will take lots of time in Europe, the U.S. and Japan, even if policy makers make good decisions. And as we know by painful experience, that's not a given.
A projected period of slow growth and high unemployment is attributable to the ongoing and much needed process of worldwide deleveraging. Currently many countries and individual households are so far in debt that solid economic growth will be difficult to achieve at least until operating deficits, if not debt levels, begin to decline. To repeat, this will take years.
For example, in the U.S. a greater than 3% level of sustainable real growth will be required to reduce jobless levels meaningfully. Such a growth level won't happen anytime soon.
All this is reason to reflect on just what this subpar growth and high unemployment means to citizens everywhere.
For one thing, our individual freedoms may be impacted negatively by the actions of governments, even if well intentioned. Economic order, growth and stability, protectionism, joblessness and the size and role of governments will all be factors that we'll need to watch closely.
Stated another way, how our new era of globalization unfolds in the next few years will directly affect the freedoms and prosperity that we'll experience.
In theory international economics shouldn't be any different than economics within countries. National borders are political demarcations, not economic ones. Regarding globalization, economics and the freedom of others, economic activities simply don't respect political boundaries--at least not naturally.
Interference with free markets and private sector competition frequently results from a government's policies. Along with the domestic taxing authority, such items as tariffs, quotas and other governmental imposed protectionist measures all reduce economic growth and add to the prices that consumers are forced to pay. Currency manipulations are often largely politically motivated as well.
Substantially impacting a society's standard of living is the relative productivity of its citizens in relation to those citizens of other countries. The size of a nation's government as a percentage of the entire economy impacts prosperity as well.
In other words, the effects of global trade on free markets and individual freedoms are substantial and often unintentional, both positive and negative, and sometimes are heavily influenced by political decisions.
Let's consider the basic worldwide economic environment that lies ahead by briefly reviewing what the Organization for Economic Co-operation and Development (OECD) has to say. Its latest forecast of global economic growth, along with the many downside risks associated therewith, provides helpful background information about expected world economic conditions.
OECD Growth Outlook, Country by Country presents a quite subdued picture of the future with risks clearly pointing to the downside, especially in Europe, Japan and the U.S.
Here's what the summary says in part:
"In its twice-yearly report on the global economic outlook, the OECD lowered its growth forecasts for the world’s largest economies, and said the euro zone has fallen into recession. It also warned that the bloc’s debt crisis, now affecting countries previously seen as safe havens, could “massively escalate economic disruption if not addressed.” Here are some country-by-country highlights:
U.S. 2012 growth forecast 2.0% vs 1.7% in 2011. Economic recovery lost significant momentum. Equity market losses and house-price falls weighed on households. Demand to be restrained for some time. Gradual improvements seen after mid-2012. Full U.S. article
Euro Area 2012 growth forecast 0.2% vs 1.6%. Recovery stalled amid escalating sovereign debt crisis. -Swift mobilization of financial resources needed. Risks from slow growth, sovereign debt, weakness in bank system, lack of policy cohesion.
Germany 2012 growth forecast 0.6% vs 3.0%. Faces period of weakness amid lower global exports, investment. Economic activity to recover during 2012. Fiscal situation improved rapidly. Unemployment likely to remain near historic lows.
U.K. 2012 growth forecast 0.5% vs 0.9%. Weak international demand, consumer belt-tightening halted recovery. Further quantitative measures warranted. Fiscal consolidation has bolstered credibility. Growth to pick up during 2012 as exports and consumption recover. Full U.K. article
France 2012 growth forecast 0.3% vs 1.6%. May have entered short, shallow recession. Job creation prospects deteriorated. Unemployment rate to increase to 10.4% at end-2012.
Italy 2012 economy forecast to contract 0.5% from 0.7% growth in 2011. Recovery has lost momentum. Output to decline well into 2012. New government needs to fully implement emergency program. Fiscal tightening needed to ensure sustainability."
At a later time we'll try to better assess the impact of all this on America's economic future prospects. For now suffice it to say that it will take years for the U.S. and the rest of the developed world to escape the straitjacket of high debt, joblessness and slow growth.
So stay tuned and keep your fingers crossed. Let's all practice hoping for the best while planning for the worst.