The great malaise drags on

Ending low-interest-rates now would not be sensible, though QE has probably benefited the US economy only slightly, and may have raised risks abroad. The tremors in global financial markets set off by discussions earlier in 2013 of tapering QE highlighted the extent of interdependence in the global economy.

Just as QE's introduction fueled currency appreciation, announcing its eventual end triggered depreciation. The good news was that most major emerging countries had built up large foreign-exchange reserves and had sufficiently strong economies that they could withstand the shock.

Still, the growth slowdown in emerging economies was disappointing - all the more so because it is likely to continue through 2014. Each country produced its own story: India's downturn, for example, was attributed to political problems in New Delhi and a central bank worried about price stability (though there was little reason to believe that raising interest rates would do much about the price of onions and the other items underlying Indian inflation).

Social unrest in Brazil made it clear that, despite remarkable progress in reducing poverty and inequality over the past decade, the country still has much to do to achieve broadly shared prosperity. At the same time, the wave of protests showed the growing political clout of the country's expanding middle class.

China's decelerating growth had a significant impact on commodity prices, and thus on commodity exporters around the world. But China's slowdown needs to be put in perspective: even its lower growth rate is the envy of the rest of the world, and its move toward more sustainable growth, even if at a somewhat lower level, will serve it - and the rest of the world - well in the long run.

As in previous years, the fundamental problem haunting the global economy in 2013 remained a lack of global aggregate demand. This does not mean, of course, that there is an absence of real needs - for infrastructure, to take one example, or, more broadly, for retrofitting economies everywhere in response to the challenges of climate change. But the global private financial system seems incapable of recycling the world's surpluses to meet these needs. And prevailing ideology prevents us from thinking about alternative arrangements.

We have a global market economy that is not working. We have unmet needs and underutilized resources. The system is not delivering benefits for large segments of our societies. And the prospect of significant improvement in 2014 - or in the foreseeable future - seems unrealistic. At both the national and global levels, political systems seem incapable of introducing the reforms that might create prospects for a brighter future.

Maybe the global economy will perform a little better in 2014 than it did in 2013, or maybe not. Seen in the broader context of the continuing "great malaise", both years will come to be regarded as a time of wasted opportunities.

The author, a Nobel laureate in economics, is university professor at Columbia University, New York.

Project Syndicate.

(China Daily 12/30/2013 page9)