We are in a relatively unique period right now. For the first time in several years, we are seeing economic growth everywhere in the global economy. No one is talking about recession. It’s just the opposite; people are raising economic forecasts and worried about overheating. And wage growth seems to be headed in the right direction — the Walmart announcement last week representing a marker for optimism.

Yet, after the Great Financial Crisis, it almost seems too good to be true. There is a lot of lingering anxiety because of the depth of the last crisis. And I think there are good reasons to have these anxieties. So I want to put this upbeat economic period in context and talk about where I see the opportunities and where I see the threats for policy makers going forward. 

The Big Shift of Risks to Individuals

Let’s take out the wide lens here first. If I were forced to pick out one macro concept that is paramount in thinking about the last few decades, I would go with “Burden Shifting”. Over the last 40 years, workers in advanced economies have seen a tremendous amount of risk shifted onto them from employers and government. I’m talking about retirement savings, healthcare costs, education costs, you name it. And this has happened without a whole lot of education to help get people up to speed.  

A lot of this shift was initiated in reaction to the trauma of the 1970s, when the developed economies went through an economic crisis due to high levels of inflation. This big risk shift was seen as a necessary step to maintain economic and productivity growth in volatile and uncertain times. The thinking was that advanced economies were too cosseted by government control and centralization that it was stifling growth and leading to inflation. The solution was thought to be liberalization, privatization, globalization and deregulation anywhere it was possible. 

The UK and The US were the first to get religion on this in the late 1970s and early 1980s, with western Europe following behind to varying degrees. If we look at the European sovereign debt crisis through this lens, we can see a liberalizing Germany and like-minded countries like the Netherlands trying to force countries like Greece and Italy to move further in this direction in return for a deeper, closer relationship for all EU countries.