Another Reason Not To Bet On A 2010 'Double Dip Recession'

Here another reason why it does not seem worthwhile to bet on a double dip recession.

This from the Wall Street Journal Blog, (bold highlights mine)

``This year is likely to be among the last in which developed economies account for the largest share of global economic output, according to a report published Wednesday by the Organization for Economic Cooperation and Development.

``The Paris-based think tank said that in 2010, its 31 developed-country members will account for 51% of world economic output. But with the rapid growth of China, India and other developing economies, that share has narrowed from 60% in 2000 and the OECD predicts it will shrink further to 43% by 2030.

“The world’s center of gravity has moved towards the east and south,” the OECD said. “This realignment of the world economy is not a transitory phenomenon, but represents a structural change of historical significance.”

The OECD said that as a result of the entry of China, India, the former Soviet Union and others into the global market economy from the early 1990s, the number of nations converging with the wealth levels of developed economies has risen to 65 from 12.

The OECD defines a converging economy as one in which growth in output per person is double that of developed economies.

Another consequence of the shift in global economic growth is the sharp fall in the number of countries defined as poor, to 25 from 55.

The OECD said that while the initial spur to growth in developing economies came from their move away from central planning and state ownership, two additional factors have contributed to the shift in economic power.

The rapid expansion of China, India and other large developing economies boosted demand for many commodities, to the benefit of producers in Africa, Latin America and the Middle East.

And many converging economies became net creditors rather than net debtors, keeping U.S. and global interest rates low.

Some comments

-Clearly the 'converging economy' dynamic is mainly a function of globalization. Voluntary exchange or free trade isn't a zero sum game as mistakenly thought by the mainstream. That because the benefits are broad based or dispersed.

To quote Murray N. Rothbard,

``The process of exchange enables man to ascend from primitive isolation to civilization: it enormously widens his opportunities and the market for his wares; it enables him to invest in machines and other “high-order capital goods”; it forms a pattern of exchanges—the free market—which enables him to calculate economically the benefits and the costs of highly complex methods and aggregates of production."

-second, the additional two factors mentioned, particularly the expanded use of commodities and a shift to net creditor status, are consequences of and not causal variables to the converging economies. As cited above, wider trade enables for added investments (higher commodity demand) and capital accumulation (net creditors).

-lastly, given the backdrop of increasing globalization, there are many additional variables that contribute to the complexity of markets and economies. Bottom line: the narrow focus on one or two issues may prove to be inadequate in making a cogent analysis.