Dr Doom is back. And he’s not happy.
I made the case last week for a strong 2023, but it’s always good to test your thinking against someone who doesn’t agree with you.
Enter Doctor Doom.
Ah Doctor Doom my old nemesis. We meet again.
Dr Doom is the nickname the media gave to Nouriel Roubini. He’s the professor emeritus at the Stern School of Business, and he correctly predicted the Global Financial Crisis.
He’s predicted another seven since then, but none of them paned out.
Anyway, he’s just written a book: Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them.
(Catchy title.)
And he gives us a veritable crisis list of disasters just waiting off the coast:
Let me lay them out for you:
1. The stubbornly low inflation of the pre-pandemic period has given way to today’s excessively high inflation.
Yes. True enough. But it’s not clear to me that it’s entrenched yet. When we’ve been stuck with it for another 18 months, then I might start to worry.
2. 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.
Yeah. Not really. Inflation was caused by supply bottle necks, which by definition are temporary. We still haven’t seen any real evidence that it’s become self-perpetuating. There’s still no real wages pressure to speak of.
3. Where once interest rates were too low – or even negative – they have now been rising fast, driving up borrowing costs and creating the risk of cascading debt crises.
This has the potential to go rouge, if interest rates keep heading up, and more people and companies get into trouble.
But this is the point. Higher interest rates are designed to get people into a bit of trouble, so they stop spending, and the economy cools.
Central banks aren’t going to keep raising rates and more and more companies go belly up. They’ll ease up at some point. They’re not that stupid.
(Or are they?)
4. The age of hyper-globalisation, free trade, offshoring, and just-in-time supply chains has yielded to a new era of deglobalisation, protectionism, reshoring (or “friend-shoring”), secure trade and “just-in-case” supply-chain redundancies.
This I can get on board with, and I have written about this before. As supply chains re-orientate themselves, that will be an expensive process, and it will create inflation.
But it will be a one-off type thing. Once supply chains find their groove, the inflationary impulse will disappear.
5. Moreover, new geopolitical threats are increasing the risk of cold and hot wars and further Balkanising the global economy.
True, but more of the world is at peace than at any time in history. And if its one thing the world can unite on its making money.
6. The effects of climate change are becoming more severe, and at a much faster pace than many had anticipated.
Yep. Though to be fair, most people had anticipated it, apart from some people who just refused to believe it was true. But it is a fair point. As the floods in NZ show us, extreme weather feels like its quickly becoming the norm. This is a wild card.
7. Pandemics, too, are likely to become more frequent, virulent, and costly.
Are they? I’ve read mixed reports on this. And I can guarantee you the next pandemic will be far less disruptive. We have a play book now.
8. Advances in artificial intelligence, machine learning, robotics, and automation are threatening to produce more inequality, permanent technological unemployment, and deadlier weapons with which to prosecute unconventional wars.
Yep. As I wrote about last week, AI is the one big trend to watch this decade. It has the potential to be massive. It could be massively good, or massively bad. Or massively good and bad. But I doubt it will be all bad news.
9. 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.
Yeah, that’s kinda true. But it’s also true that authoritarian strong men are on the nose right now. Trump faces a much more challenging road to Presidency now, because people seem to be getting a big sick of billionaire playboys playing by their own rules – take Sam Bankman-Fried’s downfall, or the crowd’s boo’ing Elon Musk.
Democracy is fractured and faces big challenges. But I just don’t think “I’m a rich man with a big army and I know what to do” sells like it used to.
So look, I get it. There are risks. But there always are.
And sure, some of them could materialise.
But they generally don’t.
Humanity has a way of muddling through.
And that’s what I’ll be betting on.
JG.
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