International Monetary Fund Managing Director Kristalina Georgieva attends a session at the World Economic Forum annual meeting in Davos on January 17, 2023. The world economy, she warned last year, is facing “perhaps its biggest test since the Second World War.” PHOTO | FABRICE COFFRINI | AFP
A host of interconnected “megathreats” is imperilling our future. While some of these have been long in the making, others are new. The stubbornly low inflation of the pre-pandemic period has given way to today’s excessively high inflation.
Secular stagnation – perpetually low growth owing to weak aggregate demand – has evolved into stagflation, as negative aggregate supply shocks have combined with the effects of loose monetary and fiscal policies.
Where once interest rates were low – or even negative – they have now been rising fast, driving up borrowing costs and creating the risk of cascading debt crises. The age of hyper-globalisation, free trade, offshoring, and just-in-time supply chains has yielded to a new era of globalisation, protectionism, reshoring (or “friend-shoring”), secure trade, and “just-in-case” supply-chain redundancies.
Moreover, new geopolitical threats are increasing the risk of both cold and hot wars and further balkanising the global economy. The effects of climate change are becoming more severe, and much faster than anticipated. Pandemics, too, are likely to become more frequent, virulent, and costly.
More inequality
Advances in AI, machine learning, robotics, and automation threaten to produce more inequality, permanent technological unemployment, and deadlier weapons for unconventional wars.
All of these problems are fuelling a backlash against democratic capitalism, and empowering populist, authoritarian, and militaristic extremists from both the right and the left.
What I term megathreats others have called a “polycrisis” – which the Financial Times recently named its buzzword of the year. For her part, Kristalina Georgieva, managing director of the IMF speaks of a “confluence of calamities.” The world economy, she warned last year, is facing “perhaps its biggest test since the Second World War.” Similarly, former US Secretary of the Treasury Lawrence H. Summers argues that we face the most acute economic and financial challenges since the 2008 financial crisis.
And in its latest Global Risks Report – released just before elites gathered in Davos to discuss “cooperation in a fragmented world” – the World Economic Forum warns of “a unique, uncertain and turbulent decade to come.”
Confluence of calamities
There is agreement that we face unprecedented, unusual, and unexpected levels of uncertainty. In the near term, we can expect more instability, higher risks, more intense conflict, and more frequent environmental disasters.
In his great interwar novel, The Magic Mountain, Thomas Mann portrays the intellectual and cultural climate – and the madness – that led to World War I. Mann started his manuscript before the war, but didn’t finish it until 1924.
His story unfolds in a sanatorium inspired by one he had visited in Davos, the same mountaintop site (Schatzalp Hotel) WEF-related galas are now held.
This historical connection is all too fitting. Our current age of megathreats resembles the tragic 30-year period between 1914 and 1945 far more closely than it does the 75 years of relative peace, progress, and prosperity following World War II.
First era of globalisation
Remember: the first era of globalisation was not sufficient to prevent the descent into world war in 1914. That tragedy was followed by a pandemic (of Spanish flu); the 1929 stock market crash; the Great Depression; trade and currency wars; inflation, hyperinflation, and deflation; financial crises and massive defaults; and unemployment rates above 20 percent.
These underpinned the rise of Fascism in Italy, Nazism in Germany, and militarism in Spain and Japan – culminating in WWII and the Holocaust.
But as dreadful as those 30 years were, today’s megathreats are even more ominous. After all, the interwar generation did not have to deal with climate change, AI threats to employment, or 0 liabilities associated with societal aging. This is a different age altogether.
Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business,Co-Founder of TheBoomBust.com, and author.
