Consumers worldwide are cutting their spending in response to declining wealth and fear of unemployment. Until households save enough to restore their wealth, there is a strong case for global cooperation to boost the world economy and meet future needs by investing in infrastructure, particularly transportation, sustainable energy, pollution control, and water and sanitation.

NEW YORK – The world has yet to achieve the macroeconomic policy coordination that will be needed to restore economic growth following the Great Crash of 2008. In much of the world, consumers are now cutting their spending in response to a fall in their wealth and a fear of unemployment. The overwhelming force behind the current collapse of jobs, output, and trade flows, is even more important than the financial panic that followed Lehman Brothers’ default in September 2008.

There is, of course, no return to the situation that preceded the Great Crash. The worldwide financial bubble cannot and should not be recreated. But if the world cooperates effectively, the decline in consumer demand can be offset by a valuable increase in investment spending to address the most critical needs on the planet: sustainable energy, safe water and sanitation, a reduction of pollution, improved public health, and increased food production for the poor.

The United States, Europe, and Asia have all experienced a collapse of wealth due to the fall of stock markets and housing prices. There is not yet an authoritative measurement of the wealth decline and of how it is distributed worldwide, but it is probably around $15 trillion lower than the peak in the US, and perhaps $10 trillion lower in both Europe and Asia. A combined wealth decline of around $25 trillion would be roughly 60% of one year’s global income. The decline in US wealth as a share of the US economy is even larger, around 100% of annual income, and perhaps 70% of annual income in Europe and Asia.

Read more