On the way to my holiday in Italy this year, I had an epiphany about the state of the world economy. I stopped for lunch in the truly miraculous Piazza dei Miracoli in Pisa, where Galileo Galilei is said to have dropped cannon-balls from the Leaning Tower to test his theories of motion. A few years later, Galileo invented the telescope to amass the detailed astronomical observations that were needed to prove beyond reasonable doubt the heliocentric theory of the universe — the idea that the earth revolves around the sun and not the other way round, as the Bible implied. Galileo was famously tried by the Inquisition for this heresy and decided to recant, presumably inspired by what happened to his fellow-mathematician Giordano Bruno, who was burnt at the stake for similar ideas. But after mechanically recanting, Galileo muttered under his breath the rebellious phrase for which he is still renowned: eppur si muove — “and yet it moves.”
As I enjoyed my lunch in Pisa, Galileo’s defiantly optimistic words echoed through my mind. “And yet it moves” seemed perfectly to describe what I had felt about the world economy and financial markets since the crisis of 2008.
For the past five years, the media and financial markets have resounded with prophecies of doom. Economists have strained to prove why life would never be the same again; why bankruptcy was inevitable for great nations such as Italy, France, Britain and even the United States, Japan and China, and why the pre-crisis decades of prosperity would have to be followed by an era of repentance — or else a Biblical Day of Reckoning would be upon us.
Yet the world has continued to turn, even as the Last Trumpets were sounding. Since early 2009, economic conditions in most of the world have been steadily improving, employment has rebounded in the United States, Britain and Asia and recently even in parts of Europe. Corporate profits have been expanding everywhere and stock markets have risen almost without interruption.
The gap between dire predictions and reality is particularly striking today in southern Europe — especially in Italy. With unprecedented unemployment, governments falling like bowling pins and the euro project crumbling, for many pundits some kind of social collapse seemed inevitable. Yet there have been no revolutions, no breakdowns of democracy, no serious public revolts, even in countries such as Italy and Spain, with recent histories of terrible political violence. Part of the explanation lies in the big advances in genuine economic prosperity and welfare provision in the pre-crisis decades. As a result, the hardship today is nowhere near as bad as it was in the 1970s and 1980s, except perhaps in Greece. Another part of the answer is that time itself is a great healer and a crisis postponed, as the euro crisis has been, eventually becomes a crisis resolved.