The Unpredictable World Economy

By Rolando José Olivo

The world economy, which entered in a stage of accelerated growth since the Industrial Revolution, is really unpredictable. This publication deals mainly with the topic of economic growth from different perspectives (The Economic Growth, The Economic Dilemmas, The Great Structural Failure of Capitalism and The Unpredictable World Economy), considering that in this postmodern contemporary era there is an immense uncertainty about the development of the economy, because the ghosts of recessions predominate and it is not known how far the impressive technological advance can go. Obviously, the global economy isn ́t predictable nor reliable.

• Language: English
• Publisher: Rolando José Olivo
• Release date: Nov 12, 2019
• ISBN: 9780463069936

Rolando José Olivo

[e-mail] Instagram: @rolandojolivo Systems Engineer with 3 postgraduate degrees: Master's Degree in Applied Economics, Diploma in General Management and Specialization in Management of Social Programs (Summa Cum Laude). Work experience in companies in the oil sector, occupying these positions: Planning and Logistics Manager, Project Coordinator, Financial Advisor and Consultant. Consultant in the economic and financial area. Writer of books on economics, management, self-help, novels and Christianity, among others.

Book preview

I. INTRODUCTION

The world economy, which entered in a stage of accelerated growth since the Industrial Revolution, is really unpredictable. We do not know exactly how far this rate of expansion can go, which has recently been affected by two major financial crisis: a) the US subprime mortgage (2007-2008), and b) that of the Eurozone (2010-2014).

In this literary work, there are guidelines for glimpsing the unpredictable world economy, mainly addressing the issue of economic growth, from different perspectives.

In that sense, the Chapter II. The Economic Growth is divided into these sections: a) II.1 Economic Growth vs. Economic Development (What is economic growth and economic development?), b) II.2 The Theories of Economic Growth (What are they?), c) II.3 The Monetarist Approach (How has it influenced over successful economies?), d) II.4 The World Bank’s Economic Growth Research (What are their results?), e) II.5 The Mystery of Economic Growth (Why is this process difficult to explain and is also mysterious?).

While the Chapter III. The Economic Dilemmas includes these sections: a) III.1 The Stabilization of the Economy (How can the economy be stabilized?), b) III.2 The Reduction of the Public Deficit (When must the public deficit be reduced?), c) III.3 Consumption vs. Saving (Should the economic growth strategy be based on consumption or saving?), d) III.4 Inflation vs. Unemployment (Should higher inflation or higher unemployment be generated?), e) III.5 Monetary vs. Fiscal Policies (Should priority be given to monetary or fiscal policies?), f) III.6 The Neutrality of Money (Is it necessary to consider the impact of money?), and g) III.7 The Effect of Expectations (How to determine or modify the expectations of society?).

Likewise, the Chapter IV. The Great Structural Failure of Capitalism has these sections: a) IV.1 The Kuznets Curve (How does it reflect inequities?), b) IV.2 The Gini Coefficient (How does this indicator measure inequalities, even in the countries), c) IV.3 The Studies of Inequities (What are their results?), and d) IV.4 The Contributions of Thomas Piketty (How have his discoveries warned about the serious problem of inequities?).

And the Chapter V. The Unpredictable World Economy is structured in this way: a) V.1 The Impacts of the Latest Financial Crisis (What are these effects?), b) V.2 A Recurrent History of Financial Crisis (Why have so many financial crisis occurred?), c) V.3 The Influence of Technology in the Modern Era (How has the technological factor, in the Industrial and Information Age, changed history?), and d) V.4 The Continuation of an Age of Uncertainty (At what historical moment are we?).

Finally, in these times there is an immense uncertainty about the development of the economy. On the one hand, the ghosts of recessions predominate, and on the other hand, it is not known how far the impressive technological advance can go. However it is certain that the world economy, dependent on many unstable factors, is not predictable nor reliable.

II. THE ECONOMIC GROWTH

Since the beginning of the Classical economic school, the economic growth has been a theme of study. It is a complex issue that involves the notions of economic growth and economic development.

It is relatively easy to define what economic growth is. However, the same doesn´t happen with economic development (which includes the previous concept and also is its main consequence). So much so that there is no consensus about the definition of economic development.

Additionally, in the mid-twentieth century, the Theory of Exogenous Economic Growth emerged, and by the 1980s, the Theory of Endogenous Economic Growth appeared. Both macroeconomic conceptions try to reveal the main causes of the economic boom and justify the differences in incomes between countries, in the short and long-term.

In addition to this, the World Bank has lead three relevant investigations to decipher the mystery of economic growth (1993, 2005 and 2008), being its approach different from that of the International Monetary Fund, which is committed to a macroeconomic stabilization, from a Monetarist perspective.

When analyzing the theories of economic growth, the Monetarist and the results of the aforementioned studies, it is confirmed that the economic growth is a complex and mysterious issue, which continues in discussion.

These ideas are exposed in the following sections of this chapter:

1. Economic growth vs. Economic development.

2. The theories of economic growth.

3. The Monetarist approach.

4. The World Bank’s economic growth research.

5. The mystery of economic growth.

II.1 ECONOMIC GROWTH VS. ECONOMIC

DEVELOPMENT

The increase in production, in a region, country, state, city, municipality or locality, during a given period, which reflects variations in the quantity, value and quality of goods and services, measured through the Gross Domestic Product (GDP) and GDP per capita, is known as economic growth.

This process also represents the increase of productive potential or the possibilities of reaching or maintaining an optimal economic situation, linked to an efficient use of production factors (capital, labor, technology, land and natural resources).

On the one hand, the economic growth is extremely beneficial for society, since it contributes to improve the life quality of citizens.

The great differences between countries, in terms of wealth, well-being and living standard, are mainly explained by