Martin Wolf's hand-wringing: 'The shadow of war darkens on the global economy' ...
Political Observer offers a 'selective reading'.
The first paragraphs of Mr. Wolf’s essay that presents the players in this Political Melodrama: Iran is guilty of ‘escalation’ and Benjamin Netanyahu is an embattled prime minister, no matter how crudely introduced, the protagonists sets the parameters of this essay:
The decision by Iran to escalate its conflict with Israel by launching a barrage of armed drones and missiles brings the risks of open war between the two countries, possibly involving the US, yet closer. It is no secret, after all, that Benjamin Netanyahu, Israel’s embattled prime minister, has long wished to destroy Iran’s nuclear programme. Some in the US feel similarly. Is this not the hawks’ chance?
In a column published in October 2023, I argued that such an escalation was the principal danger to the world economy posed by the murderous attack on Israel by Hamas. Even though the oil-intensity of the world economy has more than halved over the past 50 years, oil remains an essential source of energy. Severe disruption to supply would have large adverse economic effects.
The alarm is sounded : ‘the principal danger to the world economy’ is the central concern to Mr. Wolf. The commentary is held aloft via a collection of evocative full color Charts and Graphs:
Economic performance in 2022 and 2023 tended to be better than forecast in October 2022
Global energy prices have been substantially lower than forecast in October 2022
Shares of fixed-rate mortgages have reached high level in many countries
High-income economies are losing their post pandemic savings buffer
The growth of total factor productivity since the global financial crisis has fallen sharply across the world
The ratio of world trade to output has stabilized rather than fallen
For the confused Reader, let me offer these chapter from Deirdre N. McCloskey book ‘The Rhetoric Of Economics’:
The final paragraphs of Mr. Wolf’s essay: call it a parade of well worn cliches!
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On the upside, we might see a short-term surge in election-related fiscal loosening. Positive surprises, notably in labour supply, might further accelerate the decline in inflation. Artificial intelligence might deliver a positive surprise shock to the generally poor productivity growth. Successful reform might also accelerate the growth in potential output. Yet, on the downside, China’s growth might fall sharply. There are also all too evident risks to global financial, fiscal, political and geopolitical stability. World trade might be battered by protectionism. War between Israel, the US and Iran could blow up the Middle East, with huge consequences for energy and commodity prices. The biggest victims of such mayhem would, as usual, be the poorest.
We may have managed shocks better than expected. But we are walking on eggshells and must tread carefully.
Political Observer