Something has changed in the world economy

This week's issue of The Economist features three articles, here, here and here, concerning the economy and the cover displays an economy text-book that melts like ice cream.

It has been said for a while now that the world economy will never be the same again. Nicolas Sarkozy said this perhaps first and meant that the US would not be so dominant again. The three articles confirms this and the question is what conclusions a layman can draw from this.

Paul Krugman, Nobel Prize winner in economy 2008 and columnist at The New York Times, even claim that the last 30 years have been wasted in macro economy studies. When I hear something like that I wonder what it is that has been left out of the models. Have for example people's behavior changed during this time? It would be possible to believe that economists would have missed something like this but that have done their mathematics correctly.

Since it has been a financial crisis the model of the efficient market has been investigated but as they claim in the article why would they have been so naive as to not include data from psychology. To me it seems like it is just another deep crisis from which we will rise again and from which we have learned valuable things. The problem is the economists are not having a unified solution as to a cure so we have to wait for more information in the form of the correct answer as to the type of recovery that we will see. How about also praying that Obama's solution is a good one?

At least if you root for America. Continental Europe did not agree and hope that their response would fit their market better. That will hopefully work out as well.

The Chinese response was apparently a stimulus package and the initiation of dislocating themselves from the dollar. It is perhaps not the economy that has changed so much as peoples around the world's perception of it. The accumulating budget deficit of the US as well as the fact that the West is stuck in AfPak does not make this perception better. As a believer that the Bush administration's intervention in Iraq was better than not acting I however also would say that this notion is probably not appreciated by most people and that, the Iraq war also is a strong negative factor.

Leaving Iraq and AfPak might actually lower the risk of having a nuclear bomb detonate in an American city and the positive effect this might have on the economy might be worth a lot as well. Relations with Europe would also improve.