Most Americans think the world would be pretty similar if Al Gore had become president:

I find that a lot of progressives, in some kind of denial about how terrible the outcome of the 2000 election was, tend to think that 9/11 would have been a political fiasco for the Gore administration. I’m pretty sure this is dead wrong. The first few months of the Gore administration would have been dominated by everyone remarking on how stupid it was of Vice President Lieberman to have insisted on staying on the ballot in the Connecticut Senate race, thus meaning that would could easily have been a 50-50 Democratic Senate was instead a 51-49 Republican Senate. Various efforts to entice Jim Jeffords into switching parties would fail and you’d have largely seen gridlock until 9/11 produced a massive rally ’round the flag effect. Lots of voices would argue in favor of invading Iraq, but other voices would urge against it. Ultimately, the path of least resistance would prove to be putting a ton of boots on the ground in Afghanistan (hawkish) in a way that made an invasion of Iraq logistically infeasible (dovish) thus sort of splitting the baby. November 2002 would have been a debacle for Republicans who’d have been badly divided between a Gore-hating base and Gore-loving swing voters.

Post-election, you’d have finally had some legislative dealmaking and gotten something resembling No Child Left Behind and some kind of prescription drug benefit for Medicare recipients. Also probably some incremental stuff on health insurance — a patients’ bill of rights, a big SCHIP expansion, etc. By 2004, low interest rates and the housing boom are good enough to let Gore get re-elected over John McCain. In his second term, he appoints a staggering four Supreme Court justice to replace Sandra Day O’Connor, William Rehnquist, John Paul Stevens, and David Souter, securing what proves to be his most important legacy. But by late 2007, the economy is sliding into recession and Republicans hungry for victory nominate moderate Massachusetts Gov. Mitt Romney (after a timely conversion to the anti-abortion cause). When the recession turns into a full-blown financial panic in the fall of 2008, Romney trounces Vice President Lieberman and shows that moderation is the GOP path to victory. The huge “lockbox” surpluses are expended in a massive counter-cyclical payroll tax cut such that unemployment peaks at 8.5 percent and starts slowly falling. Meanwhile, President Romney spends most of 2009 wrangling with congressional leaders, eventually agreeing to a major universal health care initiative modeled on the CommonWealth Care plan. Nevertheless, New York Attorney General Andrew Cuomo (the Gore administration never launches the investigation of Gov. Spitzer that led to his downfall) plans to sue, arguing that an “individual mandate” to purchase health insurance is unconstitutional given the non-availability of a public option.

Before you read Michael Pettis’ pessimistic take on the 7-8 year outlook for the world economy, I’d suggest you skip ahead to the end where he writes that the world’s deficit countries (like the USA) “have all the best cards” because we “control demand, which is the world’s scarcest and most valuable commodity.”

Ponder that for a bit. Take a deep breath. Ponder it again. Try to understand it, and you’ll understand that any pessimistic assessment of the medium-term outlook that ends in that conclusion is perforce a prediction that world leaders will screw up monumentally. I’m not saying it’s an erroneous prediction. I just want everyone to understand the difference between a forecast that we’re due for an objectively bad situation (a series of harsh winters that undermine the productivity of our farms) and a forecast that we’re likely to blunder (unemployed people starve while fertile land goes untilled) for no good reason. A world in which demand is the world’s scarcest and most valuable commodity is a world of blunderers. The world has not, after all, eliminated the problem of scarcity. The tragedy of scarcity is that we can only make so much stuff, so many people have to be poor. The good news is that there’s much less scarcity in 2011 than there was in 2006 or 1996 or 1976 or 1936. We are, as a world, much richer than we used to be. But we’ve hardly eliminated poverty or deprivation. So why should we live in a world where demand is the world’s scarcest and most valuable economy? The answer is we shouldn’t live in one.

The idea that you could have an over-capacity of production and thus a “general glut” of too many goods and services seems so bizarre that at first economists denied that it was even possible for such a thing to happen. Alternatively, Karl Marx took the view that such a glut was inevitable and revealed fundamental flaws in the idea of a market economy. But traditionally policymakers have not wanted to get strung up from lampposts, so they’ve used policy tools to prevent a glut from emerging.