Eric Blair's forecast from the 1940's called for a 1984 international political economy with constant war between three global powers, designed to use up resources otherwise so abundant that the masses would be free to reflect on, and consequently depose, the bureaucratic elite (George Orwell, 1949). Orwell's forecast was wrong, although perhaps in part only because it was a self-negating prophecy: one that induces corrective measures. Undoubtedly the most successful long-term economic forecast was Joseph's prediction to the Pharaoh of the fourteen-year agrarian business cycle. Others with less privileged information have fared less well. A founder of our own profession, Malthus, erroneously predicted long-term stagnation at the subsistence level, because he underestimated technical change (although for Sub-Saharan Africa and parts of South Asia, the Malthusian projection appears closer to the mark). This essay reviews long-term forecasts from the last several decades in the area of international economics, to see whether patterns can be distinguished in their success or failure.

Now available directly from: IIE11 Dupont Circle, NWWashington, DC 20036Tel: (202) 328-9000This book traces the origins of international debt and recent trends that burden it, including the effect of oil price shocks, high interest rates, and world recession. It examines the extent of the financial system's vulnerability, and the adequacy of bank regulation and of central bank coverage for emergency lending to international banks.Recent international rescue measures mounted for the major developing countries are discussed, and the prospects for orderly servicing of the debt during the next three years are reviewed under alternative assumptions about world economic conditions to determine whether the problem is one of short-term illiquidity or longer-term insolvency. The book also notes the implications of reduced bank lending for growth in developing countries and, by induced effects on trade, in industrial countries. It considers mainstream policy measures, especially increasing the resources of the International Monetary Fund and World Bank, as well as more radical proposals, such as mandatory stretch-outs and write-downs of bank loans.

Increasing economic interdependence can perhaps best be defined as a growing impact of external events on national economies. One of its major implications for research is that all national economic models must be opened to encompass meaningfully the foreign sector. Economists in most countries have opened their models long ago, but most American economists have not. Yet the share of exports in the U.S. economy has doubled in the last fifteen years, and the share of imports has doubled in just seven years. These U.S. ratios (about 7 percent, and still rising rapidly) are now only slightly below the same ratios in Japan and the European Common Market as a group (about 9 percent, and fairly stable). In addition, about one-third of the profits of U.S. corporations now derive from overseas activities, primarily their foreign direct investments. If these profits are taken into account along with trade, the U.S. economy has probably become more open than Japan or Western Europe (as a unit) in quantitative terms. Even the absolute numbers are impressive: the U.S. trade balance, excluding the effects of the rise in oil prices, strengthened by at least $35 billion from 1972 through 1975-without which our gross national product would have been over two percentage points lower. This openness has become critically important for U.S. economic policy. The overvaluation of the dollar was adding almost one full percentage point to the U.S. unemployment rate in 1971. External factors accounted for one-quarter to onehalf of the rise in the rate of inflation from 1972 through 1974 (Richard Berner, Peter Clark, J. Enzler and Barbara Lowrey). The United States can no longer export its internal inflation through the operation of a dollar-based system of fixed exchange rates as it did to a significant degree in the late 1960's (Bergsten 1976). Oil and food are only the most obvious examples of external shocks to particular U.S. economic sectors. About 20 percent of U.S. industrial production and over one-third of U.S. farm output are exported. The United States already imports more than 50 percent of its needs of nine of the thirteen key industrial raw materials. Closed models can no longer accurately depict or forecast the U.S. economy at either the macroeconomic or sectoral levels-.