Inside the global economy

n publishing a “practical guide” to the global economy, American economic researcher Andrew Vonnegut provides a toolset for better understanding the ways in which it is prone to be influenced by “big shifts.”

According to Vonnegut, such shifts can be demographic or ecological, but can also involve issues related to inequality, information technology, and emerging markets. Viewing some or all of these shifts through a unified global economy lens can beneficial in analyzing the present geo-economy or preparing for future movements in it.

The book would be  of interest to readers in countries that cannot shape the world to satisfy their particular  national economic interests—a reality faced by most, if not all. Other approaches often use individual (national) economies as their starting point and then model the global system as interactions among them. Vonnegut considers the global economy as a whole, not simply a sum of national parts, providing a framework that is not extrapolated from national perspectives of international economics.

Vonnegut’s writing drew on his academic expertise teaching a course on  global economics at the University of California Santa Barbara (UCSB), and his practical experience as a consultant working in emerging markets finance and policy (with a stint in the Middle East, where this author met him).

Contemporary economic phenomena in my view can be explained using Vonnegut’s approach. An example of this is the global impact of the United States tax reform that was adopted by the  Congress at the end of last year.

According to a report released in February by UNCTAD (the United Nations Conference on Trade and Development), US corporations may bring in up to $2 trillion under the new tax regime by repatriating cash from foreign affiliates. As analysts describe it, the reform ends a system whereby companies defer tax on foreign earnings until the repatriation of funds. Instead, the new measure treats those earnings as if they were being repatriated, with an 8 percent tax on non-cash assets and a 15.5 percent tax on cash.

UNCTAD noted that the last similar US tax move—the 2005 Homeland Investment Act—resulted in the repatriation of $300 billion from abroad, and that funds available for repatriation in 2018 are seven times larger than in 2005. With $3.2 trillion in US overseas retained earnings, including about $2 trillion held in cash, this amount is today equal to half of US-owned foreign direct investment. Consequently, the UN body said, “repatriations could cause a large drop in the outward FDI stock position of the United States.”

Such a shift in FDI stock is expected to have significant effects on global investment patterns. The implications for developing economies are not wholly clear as they comprise a wide range and also depend in part on the reactions of other countries. Using the tools provided by Vonnegut would be of value in assessing these inter-relations and the ramifications of US and others’ policies beyond their borders.

However, Vonnegut’s analysis of the global economy as more than a grouping of domestic economies could fruitfully be taken even further by adding a geopolitical framework. Andrew Vonnegut’s famous cousin, the novelist Kurt Vonnegut, once wrote that US President George W. Bush had “gathered around him upper-crust C-students who know no history or geography.” Inside the Global Economy, as it stands today, could do with a geopolitical component and would benefit from being beefed up with perspectives on history and geography. Regardless, the world is changing so fast that a second edition of this book should not be far off. I give the current global system another decade before a very different world starts to replace it.

Also, it has to be mentioned that Inside the Global Economy pays little attention to Arab countries. This is deplorable because this otherwise fine book could have much to say in clarifying the context of regional turmoil in this part of the world. Introducing, for example, the case of Qatar’s dispute with Saudi Arabia, within the context of the Iran-US clash, would provide a more shrewd analysis of energy markets. If the geopolitical element is woven into Vonnegut’s analysis, this comprehensive book will be of even greater value to readers seeking to understand the global economy, from the Arab world and beyond.