The CFG Perspective Applied to Today:
Professor Martin Feldstein of Harvard is one of the most influential economists in the world and was Reagan's Council of Economic Advisors chief in the early 1980's. As head of the NBER (National Bureau of Economic Research, Cambridge Massachusetts), he was instrumental in placing top-level Presidential advisors such as Lawrence Lindsey in 2001 and Gregory Mankiw, who left recently.
When the 1997/8 Asian baht crisis hit, followed by the Russian "GKO" crisis in August '98, Feldstein was asked by a TV reporter to explain what was happening and he blanched and said, "I don't really know." "I have no idea."
The CFG explanation of why Feldstein could not have known is the following:
Economists like Feldstein use data sets derived from the following sorts of sources:
The Philadelphia Fed's Greenbook data set:
This data set contains Greenbook projections of real output growth and inflation from the Greenbook closest to the middle of each quarter.
The data set includes the projections from November 1965 to November 1999.
This data set will be updated annually, usually in January.
PDF data set from the Board of Governors:
This data set contains Greenbook projections of all variables for all Greenbooks from July 1966 to December 1999.
For some variables, the projections are for levels; for other variables, the projections are for growth rates.
This data set will be updated annually, usually in January.
ASCII data set from the Board of Governors:
The PDF files above have been converted into ASCII files from January 1978 to June 1998.
Updating these files is under consideration.
For more recent forecasts, please see the "PDF data set from the Board of Governors."
While a Feldstein is pondering such data, the political response to the crisis is to buy time and see if it goes away or if technological miracles allow a "bypass." The political response involves: While you buy time, watch the cost-benefit (or cost-benefit-risk) equation evolve and only move when the political benefit "stays home" while the economic costs are "offloaded." (the weak pay)
The Reagan Republicans were elected to "get rid" of all this "global stuff" And the Bush Republicans, their successors, are terrified by any discussion of who gets what/who pays what on a world scale.
One of the reasons that Zionomics became so prominent in recent decades is that it seemed to offer a "magical means" to avoid Third World development issues by a combination of techno-miracles (such as desktop fusion in 1989) and military bellicosity. (invasions of Iraq, Lebanon, Grenada, etc)
The reader can follow the Reagan-ite (and hence Bush) reactions to the need for Third World development in a book by that name, from 1985, one of the key documents of our time:
Third World Development 3 Volumes - Carim, Enver, editor
London: Grosvenor Press International 1985 676 pp., 217 pp., 248 pp.
3 Volumes: Industrial Development and Agriculture, Health and Education, High Technology and Communications.
Proponents of free trade outline its benefits. Articles by authorities in developing countries and in the West. With illustrations and numerous ads.
See CFG: http://www.cambridgeforecast.org/Reports.htm
This 1985 book Third World Development, a three-volume encyclopedia of commercially oriented articles on Third World development, published by Grosvenor Press, featured articles by Ronald Reagan, George Schultz and Caspar Weinberger.
These articles stressed free trade, privatization, free market liberalization, and carefully controlled social and agrarian reform, which "avoided chaos and disorder."
The literature put out by the International Center for Economic Growth, started by Casper Weinberger after he left the administration, gives a good idea of the kind of thinking about Third World development questions that was taking place in the Reagan White House in the mid-80's.
In fact, we found some (lower level) Reagan appointees to the Agency for International Development and the Department of Commerce quite enthusiastic about promotion of Third World development and the benefits it would have for the U.S. economy.
The Reagan-Bush Republicans are committed to a non-discussion of these topics in terms of public discourse because they are "ideologically frightened" by Third World development and globalization.
The changing relationship between the West and the Third World, which is at the core of the structural system-crisis from 1973-2008, frightens Reagan-Bush Republicans profoundly and the Reagan-Bush "move" is to avoid these topics at all costs . In the meanwhile, conventional Feldstein-type forecasts and econometrics break down since the new system dynamics run faster than the analytics.
They are basically trying to "fudge past" these issues and this led to the adoption of what we call Zionomics: try subjugation as a way of "cutting the Gordian knot."    See:   http://www.cambridgeforecast.org/aboutcfg2
About The Present:
As of September 2005, one worries about the oil price spike and the potential for a collapsing dollar which would bring us back full circle to the late 1970's. During the first oil shock, from May 1973 to January 1974, the price of crude rose 325%. During the second, from September 1978 to November 1979, it jumped 213%. During the latest episode, from September 2001 to today (early September, 2005), it has increased by 292%.
The London "Financial Times" of Saturday, September 3, page 6, notes:
Yet the world economy grew at a record pace last year.
One balancing factor was the wealth effect from asset prices. Since January 2003, property prices in the UK and the US have soared, with the US housing market up 26 per cent and still rising. Shares have also powered up …the Federal Reserve and the Bank of England in particular have been able to offset the loss of spending power by setting interest rates lower than they would have been otherwise.
But the biggest victims are likely to be the emerging markets and other developing countries that import oil. They no longer benefit from a compensating rise in other commodity prices. Expect jitters in emerging market debt and possible balance of payments crises…in the months ahead."
As we have explained in our books and newsletters going back to 1979, the problem is one of a "traffic jam" involving the West, OPEC, and non-oil Third World. A growth alliance would lead to the new engine of global growth as explained in http://www.cambridgeforecast/aboutcfg2
At the very heart of the impasse is the political blockage caused by the Palestine problem, with Sharon's "apartheid wall" a global symbol of separation and chaos as opposed to economic integration. Hence the Middle East problem and the neo-con "hold" on Washington is a key factor in maintaining the impasse at the world economy level, with its "traffic jam" pattern. Depicting the world as a "see-saw" - them against us - is the essence of what we call "Zionomics."
This means that the world as theatre ("all the world's a stage") is impeding world policy.
At the deepest level, this is how one must analyze the world of "now," using September 2005 as a benchmark: a historical traffic jam and not a see-saw.
Finally, one immediately sees from this CFG discussion that the standard American political directions -back to FDR and the New Deal for Democrats or back to Herbert Hoover and pre-New Deal for Republicans - are not "aerodynamic" at all when the world just described is thought of as a global "wind tunnel."
Two Novel Aspects of the World Seen as a "Global Wind Tunnel"
"Global Finance" magazine, September 2005, reports:
"Islamic banking is now twenty years old it is difficult to gauge the exact size of the Islamic banking market, current estimates suggest it is between $270 billion and $500 billion and growing at rates of 15% to 20% a year."
("Global Finance" magazine, Trends column, Islamic Finance article, September 2005, page 19)
The classic paper in this area of economics is of course by the Nobel Prize winner, Prof. Robert Lucas of the University of Chicago, "Why Doesnt Capital Flow from Rich To Poor Countries?" American Economic Review 80 (May): 92-96
Globalization here means economic globalization as seen in the data:
Globalization here does not mean the rise of world religions like Christianity or Islam, the original peopling of the world out of Africa, the voyages of Columbus or Magellan or Da Gama, the spread of plants and animals around the world, the rise of Telstar-type satellite-based phone calls in 1962, English becoming a global lingua franca, or the rise of global styles, fashions, and fads in dress, movies, food, hit tunes, or bestseller books like the Harry Potter series.
It also does not mean the pre-1820's type emergence of the world as a marketplace where one can buy anything, for money, such as described by the Venetian Geminiano Montanari, in the 1680's:
In other words, CFG focuses on the two modern economic globalization centuries, broadly speaking, from 1820-2020.
The 1820s represent the "big bang" of modern economic globalization through "CPC," commodity price convergence in grain markets.
Economic globalization as a process begins as market integration, defined as follow:
In this schema from 1820-2020, the period 1914-1945 represents catastrophic collapse into de-globalization.
For a similar view:
"Despite occasional manifestations of disappointment and distrust, the globalization of economic life is now almost taken for granted. Nowhere has this trend been more pervasive than in global financial markets in the past few decades. Capital flows have surged in volume, in both the developed and the developing world, creating new opportunities for economic benefit and difficult challenges for policymakers. The dust has by no means settled.
It may surprise some readers to learn that the paragraph above describes not only 2004 but also 1904 during the era of globalization that spanned the years 1870 to 1914.
The striking parallels between that era and the current era of globalization have been described in many recent studies. These parallels raise a number of questions about the evolution of the global economy in the 19th century, its collapse in 1914, and the rebirth of globalization at the end of the 20th century."
("Global Finance:Past and Present," Finance & Development Quarterly, IMF, Professor Alan M. Taylor, March 2004, page 28.)
In our 1979 English-language newsletter, "Cambridge Forecast Report", we predicted that the longterm future of the world economy would center around the industrial development of the Less Developed Countries, the LDCs.
(You may see the exact wording by going to: http://www.geocities.com/cambridgeforecastgroup Click on Globalization on the left. Read the first essay, "CFG English-language newsletter, 1979")
We also predicted at that time that the export of developmental services would ultimately be Americas main export.
Conventional forecasting of the Martin Feldstein/NBER-type has broken down since the world is in uncharted waters and therefore the "charts" and extrapolations based on those charts, representing conventional forecasting, no matter how econometrically intricate and ingenious, could not possibly work. The English economist Pigou once called this problem, the "defective telescopic faculty" problem, a kind of myopia.
As we said in http://www.cambridgeforecast.org/aboutcfg2, the world economy has been in a structural system-crisis since the oil shocks of the seventies. These oil shocks are not the cause of the crisis but a consequence of it.
Globalization "wants" a Third World development engine and all attempts to bypass this need, or attempts to go back to FDR (Democrats) or go back to Herbert Hoover (Republicans) represent misunderstandings of the nature of the historical crossroads. Technical change is not going to "blast" the West away from Third World development but into it.
Thus the key is a relinking between and among:
In the realm of ecology, say, this trilateral relinking would give policy-makers a growth-oriented basis for dealing with the leading carbon dioxide/climate change forecasts now in hand, such as those created by Prof. Daniel Schrag of Harvard:
"Scientists have seen the levels of carbon dioxide in the Earth’s atmosphere rise over the past few decades, from a level of about 315 parts per million in 1955 to about 390 ppm today.
Projections show a "best-case" scenario of carbon dioxide levels topping out at about 500 ppm…by 2100.
The worst-case scenario couples today’s energy use patterns with rapid economic growth in large developing nations like India and China and would result in carbon dioxide levels as high as 1,000 ppm.
China is set to surpass the United States as the world’s largest carbon dioxide emitter in the near future…"
("Climate Choices: Grim and Grimmer," Harvard News Office, "Harvard University Gazette," October 6, 2005, page 9. See http://www.geocities.com/cambridgeforecastgroup Click on Middle East on the left. Read essay 86. CLIMATE CHANGE CARBON PPM: DANIEL SCHRAG, "HU GAZETTE")
Such trilateral relinking allows not only the resolution of world economy/world finance "traffic jams" but other sticking points in world politics as well, such as climate change.
The American fusion of the "neoliberal" (ie Reagan-Thatcher) brand of globalization (anti-social versions of "government is the problem") with "Zionomics" (subjugate the Third World by neocon-inspired hyperviolence, starting with Iraq) has of course provoked many kinds of de-globalization tendencies. This is pictured below:
To analyze globalization, the Middle East & the world-system.
The CFG approach to forecasting is explained in more detail at the main website:
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