economic crisis in the world essay

The Global Economic Crisis Essay

I could never have thought that the world’s economy could be brought down on its knees in such a short while if you would have asked me before the economic crisis hit. Yet again, it’s not like there was a war looming in the air to contribute to this or anything. My view is that the great depression of the 1930s could be excused because the globe was just coming to form the repercussions of the First World War, and again the Second World War was just lingering in the air.

Many parties are to blame for the global economic crisis. These range from the economists with their low forecasts to central banks with poor policies through regulatory institutions that could not develop proper frameworks to govern the innovations in the financial markets. Financial institutions are also to blame for entering into hapless deals that almost brought the global economy tumbling in doom.

Blame time is over, and the blame game is not equally going to take the global economy to higher heights. Lessons and a myriad of them, for that matter, have been drawn to our attention as individuals, governments, institutions, and businesses. However, these lessons can only be beneficial when a proper review of the leading causes, effects, and effectiveness of the remedies is evaluated. My honest opinion would then be that teams of professionals be set up to look at all these items and then come up with policies that will be able to maneuver around such challenges in the future.

I have personally been able to make several inferences from the causes of the effects and the strategies that governments tried to apply to alleviate the situation. My approach to personal finances, business approach, and home establishments has been renewed. For example, at my privately owned equity firm where I work, I realized that the types of assets held by an organization are fundamental. I would not have made this statement this authoritatively had the financial crisis not occurred. Financial institutions lost a great deal as relates to toxic assets and bad loans. In as much as a business and as an individual, I do have assets; I believe the levels of asset volatility need to be weighed first. In as much as toxic assets need to form the asset structure, they should be held in moderation.

Being in a buy out firm in France, I noted with keen interest that speculators were venturing into buyouts at this particular time. This was the case because some investors could not foresee that this crunch was going to last long. This speculation made persons buy firms at an overvalued price only to realize that the crisis was ongoing and were making losses. From this, I believed that during such swings in the economic cycle, getting into buy out was tantamount to gambling. Further, organizations venturing into the buyout would end up in worse situations since they would have to offset the debt they had incurred before launching the buyout. Secondly, they would have to bear the losses that the firms that they were acquiring were making.

This also applies to real-life scenarios in my life. As a person, I have come to realize that I should not make snap decisions, especially when conditions are so volatile. There are moments when I am faced with challenges, and I have to come up with solutions. Say when I have argued with a close friend and I need to decide on the direction of our friendship, I have learned that emotions or short term excitements are not meant to inform the kind of decisions that I am to take in life. Integrity, to me, is core. I hold on to it so dearly. However, the global economic crisis occurrences just worked to open my eyes to how much our society currently lacks integrity. Talk of the banks that would offer loans at adjustable interest rates, which is not brought to the full attention of the customers who ended up suffering in the long run. This has worked to change my perception of banks and other financial institutions. My dealings with them are now with much more caution.

Another aspect of my perception that has been influenced is that investments that people make in the company stocks are beneficial but face much more vulnerabilities than when persons invest in government bonds and bills. This thought has been influenced because the wealth levels of individuals met a nose dive as the S&P 500 was down by 45% in early November of 2008 from the high experienced in 2007. I there tend to be more risk-averse in my dealings and trades more than a risk-taker. In a nutshell, my risk attitudes have since changed. As I trade currencies, for example, I would love to use small margins and small lot sizes so that if I was to incur a loss, then it is totally minimized. This means that the profits that I take in these trades are also little. However, this does not mean that as a person, I am not rational so as to prefer small to more. On the contrary, I am very reasonable, but I would love to consider caution in my rationality.

Basing on the movement of savings and investments droning the onset of the economic crisis, I have determined that persons need to indulge in proper budgetary allocations. This will involve persons setting aside funds for investments, savings, and consumption. This setting aside of funds, as I later came to realize, should be well determined by taking into account the inflationary tendencies and price level changes. This is because savings and investments were also falling drastically at the onset of the credit crunch. The fed reserve has experienced a shift in role from the lender of last resort to be the lender of only resort. The downfall of the S&P 500 influenced my perception of equity sources of finance. To some point, I have come to believe that debt capital should be considered just as equally as equity is.

The way warning signs should be treated in organizations, for me, was much influenced by the happenings of the global economic crisis. I have come to form the opinion that however baseless allegations in an institution seem to be, consideration for them should be given. This is because effects at first were sidelined with governments and ministers of finance while political leaders were working to alleviate fears of the magnitude of the ramifications to be expected. In as much as some sideshows in an organization may serve to waste organization time, I am now of the opinion that firms need to set up ad hoc committees that will spare some time to handle any issues coming up in the organization; however small they may appear. With the effects of this economic crisis, other countries could not get an opportunity to sell their consumer products. The previous perception I had was that the trickle-down result of a financial mishap could not affect other countries as gravely as it did affect countries like Cambodia. This has made me view partners and other stakeholders carefully in terms of what happens in their realm and the possible ramifications in the whole industry that as a business I operate in.

The unemployment that followed the global economic crisis kept me thinking of ways that firms may engage in so as to limit the cases of unemployment. I was an ardent supporter of job specialization and the benefits thereof. I have to mention now that I consider that to be a cause of unemployment at times. My view is that once one joins a firm, there needs to be continuous training and job rotation so that in cases when some units or departments have to be closed, still the employees will have something to do other than remaining redundant. Further, I have come to realize that sustainable employment is essential in an organization. My thinking has been changed from job specialization to job diversification. As an organization, we should be in a position to employ multi-skilled workers and reduce job losses that are created by economic downturns.

The world was caught off guard by the global economic crisis. Leaders and policymakers had to keep shoving in the dark, trying to find solutions; some of them ended up deepening the already gross state of the economies. This got me thinking; what if, as a business, we did simulate possible grave positions and the solutions that would relate to them? Won’t that make it much more straightforward when faced with such challenges? For me, the answers to the two questions were yes and yes. The government of the US came in to bail out the central banks. As a business, my thought was if there was going to be another institution that would bail us out if we went crumbling. This placed an idea of having to diversify investments in various places and industries so that one sector would help should the other in times of financial crises.

My perception of government participation in business operations has changed at the onset of the bailout and the support that the firms got from the Obama administration. Previously my thoughts were that businesses should be allowed the autonomy to operate with minimum interference from the government. Considering what the US government did to salvage the awkward position that the central banks on Wall Street were in, the justification for government involvement in private business tends to make more sense for me as an individual. Another corrective strategy involved the use of regulatory responses for the financial institutions. I am now of the opinion that a business needs to come up with a dynamic yet consistently updated code of ethics to improve its performance.

I have come to the realization that as an organization, challenges are bound to face us, but the approach that we need to give it should be procedural. The global economic crisis was a challenge that posed great a question as to how issues need to be solved. As persons and as organizations, we do not try to give haphazard solutions or tries that are not well thought of. My perception now is that quick fixes are not the best solution to problems. Instead, the root cause of the problem needs to first be identified and then a procedural methodology given to the challenges that we are exposed to. The approach that the global economic crisis was given was, to some extent, a trial and error approach. Governments and institutions would come up with suggestions and possibilities without a clear understanding of what magnitude those solutions would work to solve the problems that had cropped up.

One of the possible solutions to the global economic crisis that has long affected my view of issues is that of the stimulus package that the governments, and especially the US government, did give. In a way, the stimulus package was being contributed towards by the taxpayers’ money.

In as much as the ramifications were not to be felt in the short run, the long-run effects were going to be gross on the citizens. I now look at business solutions differently. As an organization, I would like to determine how much we are going to suffer in the long run as a business. On the other optimistic side, I would first love to pick how much I am to gain by choosing a specific remedial action.

The last lesson that is worth mentioning is that: trouble does not last forever. With the current improvements that are noticeable and the optimism in the air, it only serves to teach me that I should never give up in life. However, challenging circumstances may appear; there always lays a solution for them. Now than ever before, hope is my friend but hope with effort, resilience, and perseverance. I recognize that nothing comes easy and that I need to be diligent and focused on my action. Along the way, sometimes I may face distracters, but while holding on steadfastly to my dreams, I am bound to soar high with wings like eagles.

The global economic crisis has informed my opinion in several ways about how to source funds, where to invest, and government participation in businesses. Stakeholder effects have since gained much more importance from my perspective. It is unfortunate that such world-shaking occurrences are the ones to inform our thinking but still, the lessons learned are to be appreciated. As an individual, I now know that investment should not be haplessly made based on the profitability of the firm but that there are other canons to be considered. As a government, I realize we need teams in place to not only set up policies but also carry out continuous monitoring of the same. I pray that every other stakeholder has learned something from the effects of the global economic crisis.

• My Renewed Thinking After the Global Economic Crisis
• Economics: "Not What They Had in Mind" by A. Kling
• Commercial Banks and the Northern Rock Crisis Bank Roles
• Keynesian Explanation of Recession
• The Global Financial Crisis of 2008-2009
• Social Problems and Its Impact on the Economy
• "The Economic Benefits of Paid Parental Leave" by C. Miller
• What Really Caused the Eurozone Crisis?
• Malaria Disease and Drugs in Developing Economies
• Euro Crisis of 1930 and 2008 and Its Resolution
• Chicago (A-D)
• Chicago (N-B)

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Chapter 1. The economic impacts of the COVID-19 crisis

The COVID-19 pandemic sent shock waves through the world economy and triggered the largest global economic crisis in more than a century. The crisis led to a dramatic increase in inequality within and across countries. Preliminary evidence suggests that the recovery from the crisis will be as uneven as its initial economic impacts, with emerging economies and economically disadvantaged groups needing much more time to recover pandemic-induced losses of income and livelihoods . 1

In contrast to many earlier crises, the onset of the pandemic was met with a large, decisive economic policy response that was generally successful in mitigating its worst human costs in the short run. However, the emergency response also created new risks—such as dramatically increased levels of private and public debt in the world economy—that may threaten an equitable recovery from the crisis if they are not addressed decisively.

Worsening inequality within and across countries

The economic impacts of the pandemic were especially severe in emerging economies where income losses caused by the pandemic revealed and worsened some preexisting economic fragilities. As the pandemic unfolded in 2020, it became clear that many households and firms were ill-prepared to withstand an income shock of that scale and duration. Studies based on precrisis data suggest, for example, that more than 50 percent of households in emerging and advanced economies were not able to sustain basic consumption for more than three months in the event of income losses . 2 Similarly, the average business could cover fewer than 55 days of expenses with cash reserves . 3  Many households and firms in emerging economies were already burdened with unsustainable debt levels prior to the crisis and struggled to service this debt once the pandemic and associated public health measures led to a sharp decline in income and business revenue.

The crisis had a dramatic impact on global poverty and inequality. Global poverty increased for the first time in a generation, and disproportionate income losses among disadvantaged populations led to a dramatic rise in inequality within and across countries. According to survey data, in 2020 temporary unemployment was higher in 70 percent of all countries for workers who had completed only a primary education. 4   Income losses were also larger among youth, women, the self-employed, and casual workers with lower levels of formal education . 5   Women, in particular, were affected by income and employment losses because they were likelier to be employed in sectors more affected by lockdown and social distancing measures . 6

Similar patterns emerge among businesses. Smaller firms, informal businesses, and enterprises with limited access to formal credit were hit more severely by income losses stemming from the pandemic. Larger firms entered the crisis with the ability to cover expenses for up to 65 days, compared with 59 days for medium-size firms and 53 and 50 days for small and microenterprises, respectively. Moreover, micro-, small, and medium enterprises are overrepresented in the sectors most severely affected by the crisis, such as accommodation and food services, retail, and personal services.

The short-term government responses to the crisis

The short-term government responses to the pandemic were extraordinarily swift and encompassing. Governments embraced many policy tools that were either entirely unprecedented or had never been used on this scale in emerging economies. Examples are large direct income support measures, debt moratoria, and asset purchase programs by central banks. These programs varied widely in size and scope (figure 1.1), in part because many low-income countries were struggling to mobilize resources given limited access to credit markets and high precrisis levels of government debt. As a result, the size of the fiscal response to the crisis as a share of the gross domestic product (GDP) was almost uniformly large in high-income countries and uniformly small or nonexistent in low-income countries. In middle-income countries, the fiscal response varied substantially, reflecting marked differences in the ability and willingness of governments to spend on support programs.

Figure 1.1 Fiscal response to the COVID-19 crisis, selected countries, by income group

Similarly, the combination of policies chosen to confront the short-term impacts differed significantly across countries, depending on the availability of resources and the specific nature of risks the countries faced (figure 1.2). In addition to direct income support programs, governments and central banks made unprecedented use of policies intended to provide temporary debt relief, including debt moratoria for households and businesses. Although these programs mitigated the short-term liquidity problems faced by households and businesses, they also had the unintended consequence of obscuring the true financial condition of borrowers, thereby creating a new problem: lack of transparency about the true extent of credit risk in the economy.

Figure 1.2 Fiscal, monetary, and financial sector policy responses to the COVID-19 crisis, by country income group 

The large crisis response, while necessary and effective in mitigating the worst impacts of the crisis, led to a global increase in government debt that gave rise to renewed concerns about debt sustainability and added to the widening disparity between emerging and advanced economies. In 2020, 51 countries—including 44 emerging economies—experienced a downgrade in their government debt risk rating (that is, the assessment of a country’s creditworthiness) . 7

Emerging threats to an equitable recovery

Although households and businesses have been most directly affected by income losses stemming from the pandemic, the resulting financial risks have repercussions for the wider economy through mutually reinforcing channels that connect the financial health of households, firms, financial institutions, and governments (figure 1.3). Because of this interconnection, elevated financial risk in one sector can spill over and destabilize the economy as a whole. For example, if households and firms are under financial stress, the financial sector faces a higher risk of loan defaults and is less able to provide credit. Similarly, if the financial position of the public sector deteriorates (for example, as a result of higher government debt and lower tax revenue), the ability of the public sector to support the rest of the economy is weakened.

Figure 1.3 Conceptual framework: Interconnected balance sheet risks

This relationship is, however, not predetermined. Well-designed fiscal, monetary, and financial sector policies can counteract and reduce these intertwined risks and can help transform the links between sectors of the economy from a vicious doom loop into a virtuous cycle.

One example of policies that can make a critical difference are those targeting the links between the financial health of households, businesses, and the financial sector. In response to the first lockdowns and mobility restrictions, for example, many governments supported households and businesses using cash transfers and financial policy tools such as debt moratoria. These programs provided much-needed support to households and small businesses and helped avert a wave of insolvencies that could have threatened the stability of the financial sector.

Similarly, governments, central banks, and regulators used various policy tools to assist financial institutions and prevent risks from spilling over from the financial sector to other parts of the economy. Central banks lowered interest rates and eased liquidity conditions, making it easier for commercial banks and nonbank financial institutions such as microfinance lenders to refinance themselves, thereby allowing them to continue to supply credit to households and businesses.

The crisis response will also need to include policies that address the risks arising from high levels of government debt to ensure that governments preserve their ability to effectively support the recovery.   This is an important policy priority because high levels of government debt reduce the government’s ability to invest in social safety nets that can counteract the impact of the crisis on poverty and inequality and provide support to households and firms in the event of setbacks during the recovery. 

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5 of the World’s Most Devastating Financial Crises

Many of us still remember the collapse of the U.S. housing market in 2006 and the ensuing financial crisis that wreaked havoc on the U.S. and around the world. Financial crises are, unfortunately, quite common in history and often cause economic tsunamis in affected economies. Below you will find a brief description of five of the most-devastating financial crises of modern times.

The Credit Crisis of 1772

This crisis originated in London and quickly spread to the rest of Europe . In the mid-1760s the British Empire had accumulated an enormous amount of wealth through its colonial possessions and trade. This created an aura of overoptimism and a period of rapid credit expansion by many British banks. The hype came to an abrupt end on June 8, 1772, when Alexander Fordyce—one of the partners of the British banking house Neal, James, Fordyce, and Down—fled to France to escape his debt repayments. The news quickly spread and triggered a banking panic in England, as creditors began to form long lines in front of British banks to demand instant cash withdrawals. The ensuing crisis rapidly spread to Scotland, the Netherlands, other parts of Europe, and the British American colonies . Historians have claimed that the economic repercussions of this crisis were one of the major contributing factors to the Boston Tea Party protests and the American Revolution .

The Great Depression of 1929–39

This was the worst financial and economic disaster of the 20th century. Many believe that the Great Depression was triggered by the Wall Street crash of 1929 and later exacerbated by the poor policy decisions of the U.S. government. The Depression lasted almost 10 years and resulted in massive loss of income, record unemployment rates, and output loss, especially in industrialized nations. In the United States the unemployment rate hit almost 25 percent at the peak of the crisis in 1933.

The OPEC Oil Price Shock of 1973

This crisis began when OPEC (Organization of the Petroleum Exporting Countries) member countries—primarily consisting of Arab nations—decided to retaliate against the United States in response to its sending arms supplies to Israel during the Fourth Arab–Israeli War . OPEC countries declared an oil embargo, abruptly halting oil exports to the United States and its allies. This caused major oil shortages and a severe spike in oil prices and led to an economic crisis in the U.S. and many other developed countries. What was unique about the ensuing crisis was the simultaneous occurrence of very high inflation (triggered by the spike in energy prices) and economic stagnation (due to the economic crisis). As a result, economists named the era a period of “stagflation” (stagnation plus inflation), and it took several years for output to recover and inflation to fall to its precrisis levels.

The Asian Crisis of 1997

This crisis originated in Thailand in 1997 and quickly spread to the rest of East Asia and its trading partners. Speculative capital flows from developed countries to the East Asian economies of Thailand, Indonesia , Malaysia , Singapore , Hong Kong , and South Korea (known then as the “Asian tigers”) had triggered an era of optimism that resulted in an overextension of credit and too much debt accumulation in those economies. In July 1997 the Thai government had to abandon its fixed exchange rate against the U.S. dollar that it had maintained for so long, citing a lack of foreign currency resources. That started a wave of panic across Asian financial markets and quickly led to the widespread reversal of billions of dollars of foreign investment. As the panic unfurled in the markets and investors grew wary of possible bankruptcies of East Asian governments, fears of a worldwide financial meltdown began to spread. It took years for things to return to normal. The International Monetary Fund had to step in to create bailout packages for the most-affected economies to help those countries avoid default.

The Financial Crisis of 2007–08

This sparked the Great Recession , the most-severe financial crisis since the Great Depression , and it wreaked havoc in financial markets around the world. Triggered by the collapse of the housing bubble in the U.S., the crisis resulted in the collapse of Lehman Brothers (one of the biggest investment banks in the world), brought many key financial institutions and businesses to the brink of collapse, and required government bailouts of unprecedented proportions. It took almost a decade for things to return to normal, wiping away millions of jobs and billions of dollars of income along the way.

Reimagining the global economy: Building back better in a post-COVID-19 world

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November 17, 2020

The COVID-19 global pandemic has produced a human and economic crisis unlike any in recent memory. The global economy is experiencing its deepest recession since World War II, disrupting economic activity, travel, supply chains, and more. Governments have responded with lockdown measures and stimulus plans, but the extent of these actions has been unequal across countries. Within countries, the most vulnerable populations have been disproportionately affected, both in regard to job loss and the spread of the virus.

The implications of the crisis going forward are vast. Notwithstanding the recent announcement of vaccines, much is unknown about how the pandemic will spread in the short term and beyond, as well as what will be its lasting effects. What is clear, however, is that the time is ripe for change and policy reform. The hope is that decisionmakers can rise to the challenge in the medium term to tackle the COVID-19 virus and related challenges that the pandemic has exacerbated—be it the climate crisis, rising inequality, job insecurity, or international cooperation.

In this collection of 12 essays, leading scholars affiliated with the Global Economy and Development program at Brookings present new ideas that are forward-looking, policy-focused, and that will guide policies and shape debates in a post-COVID-19 world.

Sustainable Development Goals

Authors: Homi Kharas , John W. McArthur

Some have questioned whether the pandemic has put attaining the already ambitious 17 Sustainable Development Goals (SDGs) out of reach, and whether they should be scaled back and deprioritized. In this essay, Homi Kharas and John McArthur argue that the SDGs remain as relevant as ever and that the goals can in fact provide a handrail for recovery policy.

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Leadership at the local level

Authors: Anthony F. Pipa , Max Bouchet

The pandemic has revealed the importance of good leadership at the local level. In this essay, Anthony F. Pipa and Max Bouchet explore the role that global cities can have in driving a sustainable recovery.

Multilateralism

Authors: Kemal Derviş

Given the global nature of the pandemic,  there have been  calls for greater international cooperation. In this essay, Kemal Derviş examines the state of  multilateralism  and presents lessons of caution as its future is reimagined.

Rebooting the climate agenda

Authors: Amar Bhattacharya

Shared recognition of the   climate agenda is central to global cooperation.  In this essay, Amar Bhattacharya explores  how   international action   can  pursue  a   recovery  that produces sustainable, inclusive, and resilient growth.  

The international monetary and financial system

Authors: Brahima Sangafowa Coulibaly , Eswar Prasad

The pandemic has exposed the weaknesses in the international financial system and the need to improve the financial safety net for emerging and developing countries. In this essay, Brahima Coulibaly and Eswar Prasad make the case for an international monetary and financial system that is fit for purpose to help countries better withstand shocks like a global pandemic.

The future of global supply chains

Authors: David Dollar

International trade has slowed, and existing trade challenges, including automation, new data flows, and the rise of protectionism, could accelerate post-COVID. In this essay, David Dollar discusses these challenges, the future of global supply chains, and the implications for international trade.

The global productivity slump

Authors: Alistair Dieppe , M. Ayhan Kose

COVID-19 could further accelerate the fall in global productivity, which has been slowing since the global financial crisis. Evidence from other recent pandemics such as SARS and Ebola show their negative impact on investment growth and productivity. In this essay, Alistair Dieppe and Ayhan Kose argue that policy approaches to boost productivity must be country-specific and well-targeted.

Dislocation of labor markets

Authors: Marcela Escobari , Eduardo Levy Yeyati

Throughout the world, the health and economic costs of the pandemic have been felt harder by less well-off populations. On the jobs front, the pandemic is affecting labor markets differently across and within advanced and developing countries as low-wage, high-contact jobs are disproportionally affected. In this essay, Marcela Escobari and Eduardo Levy Yeyati explore the future of work and policies for formalizing and broadening labor protections to bolster resiliency.

Tackling the inequality pandemic

Authors: Zia Qureshi

Technology, globalization, and weakening redistribution policies are leading to rising inequality in many countries. To tackle inequality, Zia Qureshi discusses policies to better harness technology for fostering inclusive economic growth.

The human costs of the pandemic

Authors: Carol Graham

Evidence suggests that the poor have been suffering higher emotional costs during the pandemic. In this essay, Carol Graham offers a look into well-being measurement and strategies to combat the effects of the lockdowns.

The complexity of managing COVID-19

Authors: Alaka M. Basu , Kaushik Basu , Jose Maria U. Tapia

From strict lockdowns to ensuring sufficient supplies of personal protective equipment to sending students home from school, governments around the world have enacted varying measures to respond to the virus. In this essay, Alaka M. Basu, Kaushik Basu, and Jose Maria U. Tapia examine how governments in emerging markets have managed the crisis so far, as they design governance strategies that both reduce the spread of infection and avoid prohibiting economic activity.

Global education

Authors: Emiliana Vegas , Rebecca Winthrop

COVID-19 disrupted education systems everywhere and has accelerated education inequality as seen through what service governments could provide: At one point during the pandemic, 1 in 4 low-income countries was able to provide remote education, while 9 in 10 high-income countries were able to. In this essay, Emiliana Vegas and Rebecca Winthrop present an aspirational vision for transforming education systems to better serve all children.

Global Trade Sustainable Development Goals

Global Economy and Development

Francis Mangeni, Andrew Mold, Landry Signé

October 2, 2024

The Brookings Institution, Washington DC

2:30 pm - 4:15 pm EDT

Robin Brooks

September 26, 2024

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Imagine an alien observer, sent undercover to Earth every half-century, to account for the status of human life on the planet. What would she convey to her extraterrestrial colleagues about 2024?

Before taking her trip, she would peruse her previous reports, noting a few things. In 1974, the world’s leading democratic power, the United States, was in geopolitical retreat and domestic disarray, while the authoritarian Soviet Union appeared increasingly powerful. The most populated state in the world, a Mao Zedong-led China, possessed an economy barely above subsistence level, while the second most populous nation, India, was scarcely better. The global economy suffered from both inflation and slow growth, marked by a chaotic international monetary and financial system. Wars or the threat of wars, both civil and interstate, were ever present in every part of the globe. Nuclear Armageddon hung like a sword of Damocles over the planet.

This article is adapted from The Taming of Scarcity and the Problems of Plenty: Rethinking International Relations and American Grand Strategy in a New Era , Francis J. Gavin, Routledge, 106 pp., $16.95, March 2024.

1974’s report, however, was absolutely Pollyannaish compared to 1924’s. One horrific world war had concluded while laying the seeds for another even more murderous. Imperialism shaped the international order, as a significant percentage of the world’s population was ruled or exploited by European capitals thousands of miles away. A steep economic depression had just ended but was only a precursor to a far deeper, more devastating financial collapse a few years later. Racism, misogyny, and intolerance were the norm. This, however, was paradise compared to the previous chronicle. 1874’s report pointed out that global life expectancy was only 30 and that few living people had not, at some point in their life, been visited by personal and communal violence, deadly disease, misrule and misgovernance, and the threat of famine and disaster. Each preceding half-century report was, in fact, more dire than the last.

The soup line in New York City, circa 1929. Bettman Archives/via Getty Images

Seen from this historical perspective, the alien could send a positively glowing report back home. In 2024, famine and illiteracy have been dramatically reduced, and life expectancy has more than doubled over the past century. Unimaginable volumes of wealth are generated; staggering amounts of information are available to ordinary people, instantaneously; and transformative new labor and lifesaving technologies are created every day. Genocide is rare; tolerance, not prejudice, is increasingly a shared norm; formal colonialism has been thrown on the dustbin of history; and economic recessions are unlikely to turn into crippling depressions.

Most importantly, the incentives for states to fully mobilize their societies to pursue total wars of conquest—perhaps the most pervasive and frightening aspect of world politics in her past chronicles—have all but disappeared. Indeed, states are now expected to protect and provide benefits to their citizens, instead of simply using them as military fodder to vanquish foes and seize land. Ideas and innovation, not territory, are the sources of power in this new world.

In short, the world has made unimaginable progress in taming the steep challenges of scarcity that had plagued humanity for millennia and had been one of the core drivers of total wars for plunder, empire, and conquest. But the success in creating a more prosperous, informed, and secure world for humanity has, unexpectedly, generated a whole new set of planetary challenges that, if not resolved, threatens disaster, if not human extinction.

The remarkable progress in generating unimaginable levels of wealth, information, and security has created the new, more vexing, and arguably more dangerous problems of plenty—unexpected and potentially catastrophic challenges that were created, ironically, by humanity’s impressive efforts to tame scarcity.

Drone to Yacht, an exclusive delivery service, drops a bag of food to boats near Ibiza on Aug. 24, 2021. Jaime Reina/AFP via Getty Images

Five revolutionary shifts were key in creating our present era of plenty. First, an unexpected and voluntary demographic compression unfolded in the developed world, with birth rates falling precipitously while life expectancy markedly expanded; as median ages increased and population growth slowed, the need to conquer additional territory abated. Second, an economic-technological revolution emerged that massively improved agricultural yields and the availability of food, dramatically boosted industrial productivity, and transformed finance capitalism, while improving transportation, housing, and health, and making accessible, affordable fuel bountiful. Third, an information revolution took place, whereby increased literacy and technological change significantly expanded the amount of access to knowledge about the world. Fourth, leaders of the developed world created domestic and international governing institutions and practices, which, among other benefits, generated far greater domestic stability and socio-economic well-being, eliminated great depressions, and provided increased personal as well as collective security, creating a political order that prized order, sovereignty, and, in time, human rights. Finally, ground-breaking new military capabilities, especially thermonuclear weapons, prohibitively increased the costs and risks of great-power wars of conquest.

These revolutions combined to reduce the shadow of famine, disease, and misery that had long fallen upon the human experience, massively increasing total wealth and information while weakening core drivers of territorial expansion, immeasurably improving the quality of life in the developed world. Populations stabilized and aged; food, resources, and markets became more abundant; and disintermediated flows of information exploded.

So what exactly are the problems of plenty? The current world order produces great material output, generated by increasing global exchange, but distributing it fairly among and between populations is contentious. This enormous prosperity generated by the burgeoning trade and industrial prowess has spawned grave risks of climate, ecological, migratory, and public-health catastrophes. The emergence of new technologies, developed largely in the private sector, has solved innumerable problems, while also creating frightening new ones. Surprisingly, an unlimited amount of data and information, no longer intermediated by legacy institutions, generates different though equally fraught dangers as scarce information controlled by religious institutions or the state.

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As Jonathan S. Blake and Nils Gilman point out in their forthcoming book, Children of a Modest Star , the list of threats to human welfare, life, and the planet itself generated by plenty is daunting: “climate change, pandemic diseases, stratospheric ozone depletion, atmospheric aerosol loading, space junk, growing antibiotic resistance, biodiversity loss, anthropogenic genetic disruptions, declining soil health, upended nitrogen and phosphorus cycles, freshwater depletion, ocean acidification, oceanic plastics—and maybe even emerging technologies with terraforming potential, like bioengineering and artificial intelligence.”

A key feature of the age of plenty is the extraordinary ability to move massive quantities of ideas, money, goods, and especially people around the world quickly, irrespective of borders and territory. But this revolution in transmission does not simply enable good citizens and products to move around the world: unwanted agents—from pathogens to terrorists to bad ideas—can also move far more quickly and effortlessly, often with devastating consequences. Expectations have also been dramatically raised while left unmet. While the age of abundance has promoted tolerance and radical individuality, it has also undermined social cohesion and weakened the sense of common purpose needed to confront these challenges. Governing norms and institutions developed to successfully tame scarcity have been exposed as ill-suited to confront contemporary challenges, generating a crisis of political legitimacy and stoking polarization.

Families arrive to board a train at Kramatorsk central station as they flee Kramatorsk, in the Donbas region of Ukraine on April 4, 2022. Fadel Senna/AFP via Getty Images

In an era of plenty where empire, plunder, and conquest make little sense, how should we understand the current turmoil in world politics, marked by atrocities in the Middle East, Russia’s brutal invasion of Ukraine, and the deepening tensions between the world’s two most powerful states, China and the United States? Why are the leading powers seemingly focused on issues that resonated in the world of scarcity, particularly great-power rivalry and war, while offering inadequate responses to the pressing issues generated by a world of plenty? There are many reasons, but three stand out.

First, Russia’s 2022 invasion of Ukraine is the exception that proves the rule, revealing the dangers of strategic decisions based on outdated assumptions about conquest. From a narrow national-interest perspective, a desire to control the Donbas made some sense in 1900, when its abundant coal, wheat, defense in depth, and pliant population added to Russia’s power in a world shaped by scarcity and where empire and conquest were the norm. Today, in an age when food and fuel are historically cheap and abundant, land less valuable, conquered territories much more difficult to subdue, alternative grand strategies far more promising, and the world both aghast by and willing to punish Russia for its violations of the norms of sovereignty and human rights, even a successful conquest of Ukraine was unlikely to make Russia much more powerful in the long run. There are many important differences between America’s disastrous post-9/11 wars in the greater Middle East and Russia’s invasion of Ukraine. Both, however, reflect poor grand-strategic decisions based on profound misreadings of the nature of power and the incentives of the contemporary international system, misunderstanding the increased difficulty and decreased payoff for using force to conquer territories or subdue uncooperative populations in the age of plenty.

Second, it is important to recognize that there are many causes of war and conflict beyond plunder and imperial conquest. In particular, we must distinguish between the imperial conquest of the past—or an expansive, often unlimited impulse to add territory and colonies—and irredentism, or the finite desire of a state to reclaim territory it believes it has unfairly lost. The most dangerous places in the world—Kashmir, the Korean Peninsula, the Middle East, and the Taiwan Strait—are often where states are willing to fight, at great cost, to regain territory they believe is naturally and historically their own. While they may seem similar, imperial conquest and irredentism are driven by significantly different factors and forces, are shaped by different cost-benefit calculations, and demand different grand-strategic responses.

Whether China’s ambitions to take Taiwan is an example of irredentism or the desire for global domination is a critical question. Regardless of China’s ultimate goal, however, the changing circumstances wrought by the age of plenty make the return of an imperial, ever-expanding Eurasian empire similar to Napoleonic France, Nazi Germany, imperial Japan, or Stalin’s Soviet Union very unlikely. Unlike states and empires during the age of scarcity, China has no reason to fear being conquered, nor, even if it wanted to, could it easily invade, occupy, and take over neighbors like India, Japan, and Southeast Asian states, especially if a future successful takeover of Taiwan generated widespread military balancing and nuclear proliferation in the region. In the age of plenty, China might soon discover that the cost-benefit ratio of conquest has been completely inverted over the past century. Even if Beijing wished to pursue imperial conquest, it is hard to imagine how it could succeed, and, if it tried, it would risk its own defeat and collapse.

Finally, it often takes some time—sometimes decades—for people, institutions, and states to understand when their environment and circumstances have changed and to update their assumptions, conceptual lenses, and policy practices accordingly. Millenia of conquest, empire, and violent revolutions—and governing institutions built to deal with those crises—have left deep scars and unchallenged assumptions, and states, leaders, and populations have been slow to recognize the profound changes in demographics, technology, economics, and socio-cultural realities that have done much to tame scarcity while abetting the problems of plenty.

This myopia can come at a steep cost. Today’s leaders may share the characteristics of their tragic predecessors on the eve of World War I. Faced with a rapidly changing world and global phenomena they do not understand, they fall back on their long-held, unspoken, and often unexamined beliefs about how the world should work, as opposed to trying to better understand how the world does work. As terrifying as the problems of scarcity and the geopolitical behaviors they unleash can be, at least they are familiar. Leading powers and their leaders and institutions understand how to play the great-power political game that dominated the past. The problems of plenty, and the solutions required, are unfamiliar, disorienting, and vexing. Yet a melting planet, mass migrations, another even more lethal pandemic, destabilizing new technologies, and the cancers of inequality, deep polarization, and sociocultural fragmentation and alienation threaten the United States and the planet far more than the kind of expanding industrial, mobilized Eurasian hegemon that plagued the first half of the 20th century.

An IBM computer center that processes agricultural data to produce projected figures for farming, in Milwaukee, Wisconsin, circa 1973. Alan Band/ Getty Images Archive

How would our alien friend end her report? She would point out that the institutions, practices, theories, and policies that successfully tamed scarcity—and that dominated current debates—were woefully ill-suited to meet the problems of plenty. The costs of failing to update core, often unspoken assumptions about how the world works and what matters would be highlighted, and that by preparing for the last war, Earth might tragically and unnecessarily get it. Her report would chide the thinkers and statesmen of 2024 for obsessing over the return of great-power competition and regurgitating the works of geopolitical thinkers like Mahan and Mackinder in order to control oceans and land that, if the problems of plenty are not confronted, may be dying and uninhabitable before long.

Visiting the planet every half-century has made her, unlike her Earth friends, an optimist. Humankind never goes the easy way around, and given the stakes, they could easily mess up—by starting World War III or being unprepared for a more lethal pandemic than COVID-19, unrestrained artificial intelligence, or the deadly consequences of the climate crisis. She reminds herself, and wishes the citizens of the planet could remember, that few living in 1974, 1924, or 1874 could have imagined the extraordinary progress earthlings have made since. Which, perhaps against her better judgment, gives her hope that she will get to visit in 2074 and be impressed once again.

Francis J. Gavin is the Giovanni Agnelli distinguished professor and the director of the Henry A. Kissinger Center for Global Affairs at SAIS-Johns Hopkins University. This essay is adapted from his most recent book, The Taming of Scarcity and the Problems of Plenty: Rethinking International Relations and American Grand Strategy in a New Era .

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