But before we discuss solutions, let’s consider how we got into this mess.

The global financial crisis of 2008-9 had its roots in more than two decades of growing complacency in wealthy nations, a complacency whose main financial manifestation was ever-growing leverage. Bankers and households alike piled on levels of debt that would have been sustainable only if nothing ever went wrong. Inevitably, something did — and a result was to force much of the advanced world into a harsh process of deleveraging, of slashing spending to pay down debts.

When everyone is trying to pay down debt at the same time, you get a depressed economy — after all, my income comes from your spending and vice versa, so if we’re all trying to spend less, we all end up with less income. And investment opportunities dry up along with output and employment: why should businesses add capacity when they’re not using the factories and office buildings they already have?

But if that’s the story of our economic woes, what’s with the booms and inflation out there? Well, not everyone was caught up in the same cycle of complacency and comeuppance as we were. Emerging nations — and in particular, the BRICs (Brazil, Russia, India, China) — have followed a very different trajectory.

Emerging economies never had the luxury of complacency. The decades before the storm were a time of relative economic calm in America and Europe, but it was an era of repeated crises in the developing world: the Mexican crisis of 1994-95, the Asian crisis of 1997-98, the Argentine crisis of 2001-2 and more. And this history of crisis fed a mood of caution, both on the part of governments — which paid down their debts and accumulated huge reserves — and on the part of the private sector, where debt-equity ratios and other measures of financial fragility fell sharply from 1998 onward.

Image Credit... James Joyce

As a result, by the time the big crisis in wealthy nations struck, emerging economies were far less vulnerable to disruption than they were in the 1990s — and, as it turns out, far less vulnerable than many advanced economies. In the panicky months after the fall of Lehman, past prudence wasn’t enough to insulate countries from the global recession. But once the free fall ended, the emerging world staged a strong recovery, even as advanced economies struggled.