[Op-Ed] ‘New Normal’ of the Global Economy

A year ago today, Lehman Brothers filed for bankruptcy. The ensuing global economic crisis triggered by the bankruptcy of the U.S. investment bank hit the United States, Asia and Europe like a tidal wave. The global slowdown was called a “once in a century crisis” or “the worst since the Great Depression.” The world economic order fueled by speculation and greed and dubbed “casino capitalism” by British economist Susan Strange collapsed like a house built on sand. The crisis also significantly affected the change of political power in the United States and Japan.

Many risks remain but the global economy is bouncing back faster than expected, especially on the stock market. This was possible due to economic stimulus packages as countries cooperated to spend more from their budgets and lower interest rates. Just as the Sept. 11 terrorist attacks on the United States in 2001 changed the paradigm of international politics, Sept. 15, or the day Lehman fell last year, will bring a huge change in the global economic order. Some say the global economy has entered an era of “new normal.”

Skepticism over market economics has grown and the role of government has been highlighted. In the U.S., Washington with the White House gained a higher status than New York with Wall Street in economics. There is a clear trend toward valuing the virtue of saving rather than overspending and toward the manufacturing and domestic industries. The United States and the dollar fell in importance while emerging economies such as China, India and Brazil and the yuan and euro grew in stature. Some say the era of high growth and low unemployment is to be replaced by one with low growth and high unemployment.

Neo-liberalism, which had ruled the world since the 1980s, is fading away and old-fashioned Keynesianism has seen a revival. This is a reminder that there is no everlasting winner in the “market of thought” and that evaluation changes with time. The American standard had been dominant as the global standard but is now stigmatized as the culprit behind the crisis. The “new normal” of the global order could last for a while, but might cause other side effects such as the failure of government. Using human greed and desire as the driver of economic and social development while always warding off the consequences that greed brings seems to be the tried and true “standard.”

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)