You’ve probably spent the past weeks sorting through the hourly fluctuations in share prices, checking out who’s in and who’s out at Merrill Lynch, Citigroup and other troubled banks and brokerages, and following the ups and downs (well, mostly downs) of the dollar. So just for a change, let’s look at the trends that will affect the world’s economies long after current problems are forgotten.
Perhaps most important is the shift of the world’s wealth to the developing economies of Asia and the Middle East. China and India have finally integrated their massive workforces into the globalized economy and have become export engines, while Russia and Middle Eastern nations that float on a sea of oil are parlaying $90 per barrel prices into massive accumulations of wealth.
These funds are under the control of government-created entities that will invest them in pursuit not only of profits, but influence. Which undermines the argument in favor of free trade — that it directs the international flow of capital to its most efficient uses.
We are not talking about a minor reallocation of the world’s wealth. The so-called sovereign wealth funds — the government investment vehicles — are expected to have $10 trillion in assets within a decade. At that size, “they are the global financial system,” says Ken Rogoff, former chief economist of the International Monetary Fund. That will be grist for the mill of protectionists, who are already flexing their muscles.
Another way in which the world of business is changing is the consequence of the current problems in the credit and mortgage markets. These consequences are up close and personal: Bank chief executive officers are getting fired, a lesson their successors are likely to remember for some time.
The result will be more expensive mortgages and a continued decline in homeownership. In 1994, about 64 percent of American families owned their own homes; that rose to 69 percent in 2004. But the homeownership rate has since declined to 68 percent and is headed down. After all, the exotic mortgages that fueled the rise in homeownership are in disrepute and unlikely to be resurrected.
So renting is likely to rise and homeownership to fall for a good long while. That means that many Americans will have to find a new vehicle to accumulate wealth. My guess is that the rate of saving from current income will begin to inch up, and that the political pressure to put the Social Security system on a sound basis will become irresistible.
Adding to that pressure will be the increase in longevity, inturn a result of a new emphasis on what is called “wellness.” The smoking and food police are extending their reach, a process that will accelerate when a Democrat-controlled White House and Congress — almost a certainty — make government an increasingly important player in health care markets.
When the cost of caring for diseases resulting from obesity is borne by taxpayers, which would be the case under most of the Democratic plans, society has a good case for developing programs that induce people to replace their burgers with salads. So look for a long-term trend toward less satisfying, healthier eating.
Then there is the green revolution, which has had little effect event though it’s been with us for some time. But now the nation’s politicians have decided that global warming is enough of a threat to warrant their attention, or at least capture the imagination of a sufficient number of voters. So, too, corporate chieftains who no longer see green only as in “greenback,” but as in greener operating policies demanded by customers, investors, the workforce and government regulators.
Which is both good and bad news. Good because the hunt for more efficient, cost-effective ways to use energy is accelerating; bad because hare-brained schemes such as ethanol-from-corn are leading to deforestation and higher food prices, with no appreciable net reduction of carbon emissions.
So we may be on the way to a world in which nondemocratic governments dominate capital markets, protectionism is on the rise, the dream of homeownership becomes more difficult to realize for the average American, bureaucrats decide what it is permissible to eat, and the greening of the world shoehorns us into smaller cars and dimly lit rooms.
Unless, of course, America decides to rely less on government intervention and more on economic growth to propel its living standard ever upward. We’ll know the answer when the next election rolls around.
Examiner columnist Irwin Stelzer is a senior fellow and director of The Hudson’s Institute’s Center for Economic Policy.
