I also agree with free market policy. New world needs new thinking. Let's make the dream real. Once if men told to go to moon that was dream but now that's real like this we need to implement free market and more on one world currency in our mind. Hope help and innovative open minded wide thinking from everyone.

SEO Expert, SMS Gateway

Mr. Drezner,

I agree with much of the post. True, there is room for optimism, and that's mainly because of domestic support, multilateral institutional strength, democratic structures, and last but not least, Ben Bernanke.

But you fail to mention the main reason why we can sleep peacefully at night despite the fragile state of the global economy. And that's unipolarity, with the United States enjoying military and economic primacy since the end of the Cold War. As a realist would put it, "It's the structure, stupid!". The current structure of the international political system is unambiguously unipolar. Washington has no peer competitors. And that's why, from a security perspective, there is nothing especially worrisome about the current economic troubles. Both America and Europe were dealt an economic body blow during the last three years, but serious security repercussions in their relations with Russia and China are conspicuous by their absence.

The geopolitical landscape is probably the key to understanding why it's not 1931! The First World War had completed destroyed the European balance of power. It was the beginning of the end of the mighty British Empire. Former multinational empires - the Ottomans, the Romanovs and the Habsburgs - were swept away. New powers, mainly Japan and the United States, were not ready or willing to restore the prewar order. The Peace Conference in Versailles imposed punitive conditions on Germany, generating deep resentment among the whole population and sowing the seeds for the rise of the Nazis. France, deeply fearful of a German resurgence, was in no mood for generous gestures. The most powerful liberal democracies, Great Britain and France, continued to distrust each other, and this didn't help matters when facing the rise of communism and fascism. Last but not least, the depth of anti-Jewish sentiments played a critical role. It's not a coincidence that Credit Anstalt had been established by the Rothschilds. Another example is the beginning of the banking crisis in the United States in 1931, prompted by the failure of the Bank of United States, whose founder, Joseph Marcus, was a Jewish immigrant. (Btw, is it a mere coincidence that the current mess started because Lehman Brothers, founded by the Jewish family Lehman, wasn't bailed out?).

To put it mildy, the international political situation was not conducive for promoting economic cooperation. The Great War had disrupted the international financial and monetary system. The various waves of countries leaving the Gold Standard only exemplified the extent of the problems. Many countries, in particular France and the United States, kept violating "the rules of the game" in order to amass gold reserves. And the rush to keep gold and to make "beggar-thy-neighbour" policies is largely explained by geopolitical instability. Unfortunately, Great Britain was in no position to restore hegemonic stability. Pax Britannica was over.

Today, Pax Americana is far from over. No country has the wherewithal to threaten U.S. military and economic preeminence. In addition, the United States, despite being the epicentre of the current meltdown, helped containing the crisis in a way that Kindleberger would have been proud of.

If the current global economy is not in a dismal shape, that's because the United States, despite all its flaws and failures, keeps the system together.

I don't have the same confidence in central banks as you do (cf. the ECB's role in the last financial collapse), but I think we're not going to fall off a cliff because US companies are lean and mean now and sitting on piles of cash, due to the last recession, and are waiting for an excuse to put that cash to work. Maybe they have to wait until the next president, but eventually that money will get put to work.

Given both the media's and the markets' tendency to overcompensate, it's valuable to hear a recounting of the (real) reasons why a further collapse into deep depression, widespread social conflict, and global war is not that likely.

That said, I'm not as confident in central bankers as you are when you say "if the world plunges into a another severe downturn, it's not gonna be because central bank heads replay the same set of mistakes." Really? Is demanding sharp fiscal austerity across the European economies -- not only of the feckless Greeks, but of Spain with its quite modest debt-to-GDP ratio and Italy with its current fiscal surplus -- really evidence that the mistakes of 1931 and 1937 are not being repeated? I don't mean to dismiss the threat of excess debt, simply pointing out that piling on pro-cyclical deflationary fiscal measures during a deflationary and de-leveraging recession is exactly what exacerbated the popping of the 1929 bubble. Moreover, the large remaining overhang of overvalued assets on bank balance sheets in Europe (sovereign debt) and the United States (mortgage debt) is a threat that current central bankers are addressing by self-defeating policies: on the one hand, low interest rates (allowing wider lending-borrowing spreads and thus bank recapitalization, along with potential inflation to erode the debt overhang), on the other hand fiscal austerity (leading to economic downturn, making debt overhangs more threatening, and promoting deflation rather than inflation).

Aside from that, however, the fact that there is not a hint of major-power war on the horizon, despite intense international economic tensions and imbalances, is surely a major difference that sets 2011 apart from 1931 or, even more, 1937. Meanwhile, the fact that the United States continues to spend like a drunken sailor on defense -- indeed, spending as if we were in a major war -- has a stimulative effect not so different from rearmament and then war in the late 1930s, but without (so far, and let us pray going forward) the same destructive effects.

Um, why can't I comment on the reputation reading list status but can comment in this article?
T_T

Trying to frame issues in a historical context ignores the fact that a new version of an old problem is very possible. At this point, politics in the West is clearly in a sad state. Boneheadness permeates most political parties, and that means nothing of value will emerge. It can only get worse.

"The recent economic news might seem grim. Unless political institutions and public attitudes buckle, however, we're unlikely to repeat the mistakes of the 1930's. And, based on the data we've got, that's not going to happen". are you sure about this?
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Today, Pax Americana is far from over. No country has the wherewithal to threaten U.S. military and economic preeminence. In addition, homeprojects the United States, despite being the epicenter of the current meltdown, helped containing the crisis in a way that Kindleberger would have been proud of.