What the world needs now …

The global growth outlook is glum, driven partly by the uncertainty surrounding the situation in Europe as well as the impending fiscal problems in the United States. It is hard not to get bogged down as Torrens often does in thinking about how much worse things can get. But today Torrens was wondering what, in the simplest of terms, does the global economy need to get it out the funk that it’s in.

In his humble opinion, what the world needs now is … investment, sweet investment (with a little bit of love thrown in, apologies to Dionne Warwick).

TH is not a history of economic thought guy, but it worries him that one of the key factors that helped to turn the global economy around after the Great Depression was world war. He has no data to support his claim, but he suspects that global conflict induced an investment boom in both physical capital, as nations sought to expand manufacturing capacity, and in R&D as they sought advance technology. The war led to expanded manufacturing capacity – especially in the US (probably not in Europe) and scientific advances that resulted in everything from better telecommunications, jet planes, and nuclear technologies to synthetic clothes, along with the productive capacity to make those things.

The trouble is that, at the moment, without going to war (perhaps triggered by a disagreement over a few small islands in the South China Sea or a desire to destroy Iran’s nuclear capacity) there seems no immediate impetus that will trigger large scale investment in capital or technology. Of course there is the lure of profits from inventing the next cure for cancer or a sleek, sexy mobile device, but there doesn’t seem to be anything out there capable of focusing the minds of governments and industrialists alike in the same way that the threat of destruction by some crazed nationalistic dictator does.

But war also incredibly destructive, as the World Wars proved, and should best be avoided. So what would or could create the impetus for a major surge in investment? Could it be building ports and power stations in emerging market economies, or a revamping of the Dwight D. Eisenhower National System of Interstate and Defense Highways in the US TH doesn’t know, and he is somewhat skeptical about building roads to nowhere or airports without planes, but there are great minds out there that might figure something out. Perhaps the threat of global warming? Whatever it is, now is the time.

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