Here's a scary thought: What if the economies of China and India -- the world's two major growth engines -- slowed suddenly and dramatically?
Is the world prepared for such an event? How far would the collateral damage extend? Perhaps most importantly, what are the chances of a crash in Asia?
According to Larry Summers and Lant Pritchett, these are questions that policymakers should be thinking about -- and the all-star economists have produced some new research that warns of danger ahead.
Their argument goes like this: China and India are in the midst of sustained periods of economic growth that are exceptional in both their pace and duration. At some point, this will end.
"India and even more so China are into essentially historically unprecedented episodes of growth. China's super-rapid growth has already lasted three times longer than a typical episode and is the longest ever. The ends of episodes tend to see full regression to the mean, abruptly," Summers and Pritchett write in a preliminary research draft.
In other words: China and India are overdue for a major slowdown. And when rapid growth ends, it tends to stall in a dramatic and immediate way.
Already, China has endured a mild pullback from double-digit growth levels, and is on track to post a gain just north of 7.5% this year. India too has slowed, with GDP forecast to hit around 5% in 2013.
Summers and Pritchett are careful to shy away from any predictions about when a major slowdown might begin. This is probably wise, as China and India have defied doomsday forecast after doomsday forecast in recent years. But the economists do have more to say about the potential global fallout from slower growth in Asia.
To quantify the impact, Summers and Pritchett examine potential global economic output over the next 20 years. In the first scenario, the economists project that India and China maintain their very high growth levels until 2033. In the second scenario, the two economies slow to the global GDP growth average. The difference? A whopping $42 trillion, or three times current U.S. output. Put another way, a severe slowdown in China and India would cut global GDP growth over the next 20 years by half.
This is a big deal, especially if other countries are unable to pick up the slack: "Hitching the cart of the future global economy to the horse of the Asian giants carries substantial risks," the economists write.
What can be done to mitigate the risk? The authors suggest that both China and India would be wise to improve their institutions, and work to equally apply the rule of law.
"It is impossible to argue that either China or India have the kinds of 'quality institutions' that have been associated with the steady dynamic of growth in the currently high productivity
countries," the paper states. "The risks of 'sudden stops' are much higher with weak institutions and organizations for policy implementation."
China may have taken some steps to improve the reliability of its governance just last week (after the paper's publication), pledging to allow market-based reforms and modify some of its divisive social policies. But over the long run, the proposed changes will only make a difference if Beijing follows through on the plan.
It happened to Hillary, and now it's happening to Janet. We're still not at the point where a woman can rise to the top of her profession without having her pantsuits critiqued as soon as she gets there.
Yesterday, two bloggers (Warren Rojas at Roll Call) and (Patrick Tutwiler at FishbowlDC), thought it was all in good fun to chide Janet Yellen, the nominee to serve as Federal Reserve Chair, for MOREAnnalyn Kurtz - Nov 15, 2013 12:51 PM ET
By Aaron Smith
The ultra-wealthy are paying mind-boggling prices for lots of bright, shiny objects this week, spending hundreds of millions of dollars on paintings, sculpture and jewelry in just the last few days.
The latest record-breaking purchase was the winning $105.4 million bid on Wednesday for "Silver Car Crash (Double Disaster)," a painting by Andy Warhol, sold at a Sotheby's auction.
"Silver Car Crash (Double Disaster)" by Andy Warhol: $105.4 million
Sotheby's said that MORENov 14, 2013 4:18 PM ET
Americans are much more likely to have trouble paying medical bills or getting a quick appointment with a doctor than their peers in 10 other high-income, industrialized countries, according to a new study.
Even Americans with insurance are more likely to forgo care because of high costs and to struggle to pay big bills, according to the survey, conducted by The Commonwealth Fund. And the United States spends far more on MORETami Luhby - Nov 14, 2013 5:00 AM ET
It's nice to think one can easily go from being dirt poor to filthy rich, but it doesn't usually work that way.
Of people born into lower income households, few will ever make it into the middle class, according to a recent study from Pew Charitable Trust. Only a tiny percentage rise into the highest income bracket.
Of those that did move into at least the middle class, they had these traits MORESteve Hargreaves - Nov 13, 2013 10:36 AM ET
Now that Twitter has gone public, the social media company could be poised for a hiring binge.
Twitter raised about $1.8 billion through its initial public offering Wednesday. As of Friday, Twitter had 249 jobs listed on its website, ranging from software engineers to customer service agents who speak Indonesian, Japanese, Korean and Russian.
If hiring by Facebook and LinkedIn are any indication, Twitter's job postings could double in the months ahead.
After MOREAnnalyn Kurtz - Nov 8, 2013 12:25 PM ET
It now seems very likely that China's economy will meet or exceed Beijing's 7.5% growth target for 2013. For President Xi Jinping, still in his first year of office, this is very good news.
At the same time, heading into a pivotal meeting of the Communist Party, the country's policy landscape is unusually unsettled. Clarity on three key items -- local debt, economic reform plans and the Shanghai Free Trade Zone -- would MORECharles Riley - Oct 29, 2013 10:48 PM ET
Federal jobs are at their lowest level level in 47 years... or 4 years. It depends on how you look at it.
About 2.7 million people worked for Uncle Sam in September, not including military. According to the Department of Labor, that's the lowest number since 1966! Could it be that the government workforce is at its smallest size since the Lyndon Johnson administration?
Digging deeper into MOREAnnalyn Kurtz - Oct 22, 2013 2:35 PM ET
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.52%||4.38%|
|15 yr fixed||3.54%||3.42%|
|30 yr refi||4.51%||4.37%|
|15 yr refi||3.53%||3.41%|
Today's featured rates:
|Latest Report||Next Update|
|Home prices||Aug 28|
|Consumer confidence||Aug 28|
|Manufacturing (ISM)||Sept 4|
|Inflation (CPI)||Sept 14|
|Retail sales||Sept 14|