Slow Rates Sink States

The world economic outlook isn’t exactly appearing fantastic these days: According to the IMF, world growth this year is expected be the slowest since the 2008-9 financial crisis. Moreover, Citi has found that, in August, hedge funds had their worst month since, well, gulp, 2008. It’s not just that China is slowing down, either, or that the U.S. isn’t growing fast. Germany, too, has got problems. Reuters reports that industrial orders are down:

Contracts for German goods declined by 1.8 percent on the month, said the economyvministry. A Reuters poll had forecast a rise of 0.5 percent […]

German factories got 1.2 percent fewer bookings from abroad, driven by a 3.7 percent slide in demand from countries outside the euro zone.“The decline in orders from abroad paints a dim picture,” said Thomas Gitzel, an economist at VP Bank. But he added that he expected the Chinese economy to stabilise, which could feed through to German industry.He also said there was some comfort in a 2.5 percent rise in orders from euro zonecountries.The economy ministry said a 2.6 percent fall in domestic demand was due partly to holidays.

It’s hard to say what all of this means. Economic forecasting is always an uncertain business, and the weird economic reality we’ve inhabited since 2009 (near-zero interest rates, slow growth, low inflation, and asset bubbles) is something nobody really seems to understand.

But we do know that the economic slowdown is already affecting world politics, and the next question is whether the U.S. economy will slow further as American voters start to think more seriously about 2016. With voters already angry at the establishments in both parties, a recession or a spike in unemployment could raise the political temperature much higher. Establishment candidates are already carrying a lot of baggage in this election cycle; at this point, a recession would probably not help Democrats in general and might be especially difficult for a Biden candidacy.More fundamentally, this bad news reminds us just how important healthy economic growth is for the strength of democratic societies. The past eight years of anemic growth have been hard on the world’s social and political cohesion, and more bad times would put an even greater strain on organizations like the EU, not to mention on the political structures of emerging market countries like South Africa, Nigeria, Malaysia, Turkey, and Brazil. At a time of growing global disorder, more bad economic news is especially unwelcome.