Jakarta explodes in unrest. Industrial and financial titans merge into global colossi. European countries surrender sovereign monetary control to a regional bank. And although US unemployment rests at a three-decade low, a frenzy of layoffs persists.
What in the world is going on?
The answer: globalization. Capital, commerce, high technology, and the free-market ethos have spread worldwide as never before.
Few analysts have traced the rise and complexity of globalization with the acuity of Daniel Yergin. His book "The Commanding Heights" describes the shifting balance this century between market forces and state economic control.
Recently the Monitor interviewed Mr. Yergin, chairman of Cambridge Energy Research Associates and author of the Pulitzer-Prize-winning book "The Prize: The Epic Quest for Oil, Money, and Power." Here are excerpts:
Is the world economy seeing a cyclical downturn intensified by financial market turmoil or is this a classic deflationary bust after years of loose credit?
Part of it is boom/bust because when you look at Asia you realize that both people there and in the rest of the world were mesmerized by the growth rates into not seeing the underlying weakness, particularly the buildup in short-term debt and this remarkable unfolding of contagion.
In Europe it is more like the old fashioned business cycle, combined with the rigidities of the European economy, which has prevented most countries from coming to grips with unemployment.
But if you look at Asia, Russia, Latin America, it is contagion, and in Japan they're still paying for the speculative excesses of the 1980s.
I think there are still things to be very worried about. Clearly to have the second-largest economy in the world in the condition it is in and a lack of Japanese recovery could have far-reaching impact.
Also, China is wrestling with very difficult economic problems.
Is the US market in equities a bubble ready to burst?
The dilemma for those who are concerned, who believe the market is overvalued, is the really difficult political problem of what to do with it.
We have in the book the famous quote that the job of central bankers is to remove the punch bowl before the party is over. Well, this is a punch bowl of huge dimensions.... So to manage that is not a science, it's an art.
In Japan and Europe, you hear about the US bubble economy, but people in this country don't feel it's a bubble economy.
But to those people like the Japanese who have lived through a bubble, it looks a lot more dangerous.
What can we expect from Japan? Is the economy turning around?
I got an e-mail from a vice minister from one of Japan's ministries and he said many Japanese have made the move from looking for equality of result to looking for equality of opportunity.
Even though the Japanese have had the slump, the country has a strong social safety net and a consensus behind it, and the Japanese are struggling with how to adjust it along with the role of government.... The Japanese have now made the calculated view that they need to get [foreign investors] to help jump start the economy.
Because they had extraordinary performance over four decades, their system worked brilliantly, but over an eight-year period you have seen an erosion of confidence.
I don't know whether Japan will be different in three years but if you get a shift in consensus, once they do that they will move and we see companies restructuring. I think it is there.
Will global financial turmoil prompt a repudiation of the laissez faire free-market system?
This is the fundamental question. It is not laissez faire, it is not like governments are disappearing.
Governments in industrial countries account for 30, 40, 50 percent of GDP, and you could make an argument we are more or less regulated even in this country.
There is less economic regulation and more of a conviction that competition rather than regulation is what you need in a fast-moving economy.... It is really the question of where the relative balance is, and the change is toward greater confidence in the ability of markets to work and deliver results as opposed to ... skepticism and suspicion of markets.
And that is the shift, and that is the difference between old Democrats and new Democrats, old labor and new labor.
But is there a repudiation? Yes and no. In Asia it is not a recession, it is a depression for millions and millions of people but they have come to the conclusion there's not really much of a back to go back to.
So if we don't see a rejection of the market, will there be gentler swings between socialism and laissez faire?
The swing of the pendulum, the arc, will be gentler.
A shifting back of the pendulum would not mean state ownership. The classic New Deal regulation in the US, that era seems to be coming to an end, whether you look at telephones, telecommunications, financial systems, electric power, natural gas, airlines.
We see an awful lot of countries are trying to figure out how to go from state ownership to markets and set up a regulatory structure.