Draft: Not for quotation. Comments welcome.
Learning from the Global Economic Crisis
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1.0 IntroductionBy almost all accounts this is the worst financial crisis since the GreatDepression and it could end up being the worst economic crisis since thattime, too. As of February 2009, the United Kingdom, Japan, and theUnited States have suffered absolute declines of -0.50%, -11%, and -1.5%, respectively, in their gross domestic product. And China’s rapidgrowth rate will decelerate to 6.5% from a high of 11% at one tine. Othercountries have suffered similar if not worse fortunes. There are indicationsthat things will get worse before they get better. For a crisis of suchdepth, length and breadth we may have to go back to the 1930’s to look for close parallels.2.0 How it startedHow did it all start? Armed with almost perfect hindsight we attempt tounderstand the origins of the crisis, fully aware that very few people,including most of us in my profession, foresaw the consequences of thedevelopments we describe at the time these were happening. However, if we examine the causes, we may understand the steps to be taken to getout of it. Further, we may also learn how to avoid the major aspects of thecrisis in the future. Perhaps, there will another crisis as deep as this one,but at least not from the same causes. Better still, of course, if we learnhow to avoid it altogether.2.1 Roots of the crisis --- over consumption in developed countriesThe roots run deeper than may seem apparent at first. One of the sourcesmay have been the over-consumption of developed economies especiallythe United States confronted with the cost competitiveness of newlyemerging economies like China and India. This combination of matureeconomies and efficient production by new producers became apparentabout a quarter of a century ago. As a result there was tremendous
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By Cayetano Paderanga, Jr., Professor, University of the Philippines School of Economics and Chairman, Instituteof Development and Econometric Analysis. The author would like to thank comments given by panel reactors andthe audience during the Ayala Fund Lecture on April 15, 2009.
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