Capital markets. Let's start with the easiest one first. Needless to say, capital markets are, without a shadow of a doubt, deeply dysfunctional. Not only have they failed completely over the last decade to allocate resources to uses of enduring productivity, they're on life support to the tune of hundreds of billions in direct and indirect subsidies by central banks. Without that life support, the explicit argument is that the capital markets would stutter and fail.
That's the developed world. Now consider the rest of the world, for a moment. In the world's most signifiant emerging economy, China, the bulk of decisions about allocation and utilization aren't made by capital markets to begin with--they're made by technocrats, with a deep distrust of markets. To be precise, about 70% of investment in China is directed by the state. Grade? F.
Labour markets. In America, an unemployment crisis of historic proportions is tearing jaggedly through the economy. Not only is the unemployment rate at an alarming high--the labor market's failing almost completely, with people being unemployed for years on end, median unemployment duration spiking, the young being disproportionately unemployed, and those being unemployed longest in the least demand, because little training or support is available to them. Conversely, it's not just the quantity of jobs that's the problem--America's been facing a systemic underemployment crisis for at least a decade, because the labour market excels primarily at creating McJobs.
Obversely, in China, consider a very interesting article about the flipside of the coin: highly-educated grads facing massive underemployment--because, like America, China can't create enough high-quality jobs to employ people productively. Conclusion? Globally, labour markets are failing: given the current structure of the global economy, they've hit a wall (hence, underemployment). What they can't seem to do is to fully employ people, to induce them to work on stuff that makes the most of their capacities--let alone betters them. Grade? F.
Product and service markets. Product and service markets are an abstraction--in the real world, they're the aggregation of the interaction between consumers and producers. The simplest--and most simplistic--way to think about working product markets is in terms of sheer quantity. Here, certainly, the American consumer has benefited: hit the big-box store, and buy the mega-pack. But it's been at the cost of individual and collective investments, employment, trust, and competitiveness--not to mention what Gabaix and Laibson have termed "shrouded attributes" (think: the hidden costs you've come to know and really, really, dislike). In other words, I'd suggest that product markets are fuelling malinvestment--not enduring investment.
Here's a more nuanced way to think about working product markets. Are fundamentally novel products, the result of new industries, making it to market? That's a tougher, truer test of long-run productivity gains, product markets allocating resources well. Unfortunately, no. Over the last decade, most of the new industries with the most promise haven't delivered on it--from nanotech, to biotech, to search (which stopped, for example, at web search--but still hasn't slashed search costs in finance, healthcare, etc). Hence, emerging markets are "emerging" not by spearheading novel industries--but by replacing the global factory (or call-center) floor; and by climbing the same ladder of consumption developed countries did. That's fine--but it tells us that product markets are barely working, stuttering along at minimum productivity and efficiency. Grade? D.
Resource markets. Resource markets can be thought of as markets for inputs that producers use. Today, those markets have several major problems. First, in commodities markets, speculation is creating volatility that offsets the gains to hedging that are supposed to be the raison d'etre of said markets in the first place: market efficiency is, to say the least, questionable. Second, of course, is the externalities problem. Though your favorite TV pundit might try to argue otherwise, the economic point is inescapable: global factor markets cannot be said to working in any meaningful sense when trivially obvious negative externalities are systemically and institutionally ignored (carbon emissions, biodiversity loss, distrust, etc). Hence, they consistently misallocate resources, squandering them--witness the erosion of stocks in fisheries, forests, [insert natural capital here], or in trust itself. Put them together, and the result is that resource markets don't induce the globe's producers to invest in resources, to power future productivity--they merely induce massive misallocation and malinvestment, producer choices that overconsume and underinvest in resources to begin with. Grade? F.
Here's what I'd suggest. If you believe that we're in the final stages of a big, but ultimately humdrum financial crash, you'd probably give the economy about a C+--like a student who hasn't failed, but hasn't exactly succeeded, either.
But here's what the failing grades above suggest: just maybe, today's profound economic problems are the bitter, dark fruit of more deeply rooted, more broadly spread, and more tangled, tightly interconnected set of roots. That this great crisis isn't just a banking crisis, or a financial crisis, but an institutional crisis.
Here's what I'm beginning to suspect. The global economy's challenges are structural, hardwired, systemic--not transient, fleeting, and isolated. The disease in the DNA--not in the organs. This is no mere crisis--and the fact that it's still being thought of, and treated, as one? Well, that might just be half the problem.