Prof. Drezner Explores "Five Known Unknowns about the Next Generation Global Political Economy"

The Brookings Institute

Published by The Brookings Institute

Rich and powerful actors believe that predicting the future will make them more rich and powerful. Great powers and international organizations have invested significant resources into crafting an accurate sketch of the next generation global economy, and within the private sector, multinational corporations and financial consultants have strong profit motives to do so as well. International financial institutions and budget planners in the developed world furiously debate demographic and economic trends to assess the future liabilities of governments. In theory, sovereign wealth funds are superior long-term investors because of their ability to ride out short-term reverses. In practice, these funds still need quality long-term projections to exploit that comparative advantage. Central bankers have a strong incentive to develop accurate forecasts about their country’s economic future. Rising powers must assess whether their strategic ambitions are worth the economic fallout of heightened tensions with neighbors and the developed world...

...This paper examines why the ability to forecast the next generation global economy is so difficult, and offers up a different lens to think about the global economy for 2036. Far-range economic forecasting suffers from multiple flaws: the cognitive tendency to extrapolate from recent trends, the incentive to exaggerate the accuracy of predictions, and the failure to consider the possibility of discontinuous shocks. The deeper problem, however, is that many of the key drivers of generational economic change have little to do with neoclassical economics. Long-range projections require some evaluation of non-economic factors. In thinking about what the global economy will look like a generation from now, we need to consider factors that economists take as “given”—such as the global distribution of power and ideas—as well as the interplay between economics and the grand strategy of great powers.

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