Children in the UK have a nursery song called 'The wheels on the bus ...', which go 'round and round ..' In many ways, I have always seen the economy as working in this way. Your expenditure is my income, my expenditure is your income, and so the cycle goes round and round. The Keynesians have a phrase for this - the 'Circular Flow Of Income'.
At times of recession, income continues to flow, there is just less of it to flow. In a recent post on The Icarus Effect (see post) we speculated whether the BRIC economies, who have risen faster than most on the way up, would be due for a disproportionately large fall on the way down. A piece of evidence has come our way to give us a clue.
According to The Economist, both China and India are looking distinctly weak at present (see article). The articles talk of both of these "two big beasts" as having a bleak future. Of the two, India may be the more resiliant owing to its commitment to democratic institutions. The Chinese government needs a sustained period of rising prosperity in order to maintain its legitimacy. In many ways, the wheels on the bus seem to be falling off.
The important point here is that we now have a model by which we can appraise events as they develop in the coming months. Is the model correct? It's too early to say, but we are now moving to an empirical phase, which itself is reassuring.
© The European Futures Observatory 2008
We are organising a roundtable meeting in March 2009 to examine how ‘The New Normal’ might be structured in the years to come. The meeting will be in London and aims to develop and publish ‘A manifesto for the G20’ ahead of the meeting of the G20 in London in April 2009 in an attempt to introduce some futures thinking to the policy debate. If you would like to be involved in the roundtable, or if you would like to be informed of developments, please let me know and I will keep you in touch.