The past two years prompted quite a bit of soul-searching for humanity, and particularly for citizens fortunate enough to reside in advanced economies, which we tend to associate with stable democracies.
Although the pandemic and, shortly thereafter, the war in Ukraine, were the crescendo, things started to unravel in earnest around 2015, when Syria’s horrific civil war spilled over into Europe. An unprecedented influx of refugees and a series of terrorist attacks afforded opportunistic politicians a chance to leverage the crisis for political gain. Which they did, almost always with the help of non sequiturs (nationalism, even intense nationalism, needn’t always be exclusionary and xenophobic, but conflating national pride and patriotism with a disdain for “outsiders” is a poignant political tactic). Sometimes it worked. Brexit happened. Sometimes it didn’t. Marine Le Pen still isn’t the French president.
An ocean away, Donald Trump played the same cards, but more skillfully. He capitalized on the visceral fear of external threats while (perhaps unwittingly) following a classic playbook that teaches would-be authoritarians to amplify voter disaffection with nostalgic appeals to bygone national “greatness,” purportedly lost to posterity but for the efforts of a populist savior. In almost all cases, that playbook entails conjuring a list of scapegoats, some real, some imagined and some in-between.
Globalization was one of Trump’s scapegoats and it, at least, wasn’t imagined. The US submitted to a Faustian bargain on behalf of the middle class and blue collar workers, who weren’t consulted. The loss of good-paying jobs, the hollowing out of the country’s industrial base and the generalized demise of labor as an economic actor with clout, were “paid for” by ever cheaper goods. Yesteryear’s “good day’s work” is today’s demeaning, servile shift in the leisure and hospitality sector, but even a Starbucks barista has an iPhone and a 70-inch flatscreen.
It’s ironic that the peak of American influence and economic clout coincided with, and was facilitated by, hyper-globalization, the same phenomenon that slowly eroded the middle class, sowing the seeds for a reckoning at some indeterminate future date. The excesses of capitalism were turbocharged by the opening of global markets, while the availability of cheap, overseas labor bolstered corporate bottom lines, enriching executives and shareholders. It created a chintzy facade of prosperity which belied societal decay. Irony of ironies: A younger Trump, in all his gold-leafed glitz, was a symbol of the era which destroyed a middle class he later claimed as his congregation.
What we thought were the halcyon days — what we mistook for the dawn of a new era defined by peace and prosperity brought to you in part by Americanism in all its manifestations — were in fact a brief interlude that not only presaged, but in fact incubated, the return of chaos.
Macroeconomic developments progressed along the same arc. Globalization was disinflationary, and it lulled policymakers into a false sense of security. Inflation wasn’t vanquished, nor was the business cycle tamed. Macro volatility didn’t die, it just went into hibernation.
Over and over again since 2019 I’ve revisited the disconcerting hypothesis that the decades since the demise of the Soviet Union were an anomaly. Stability isn’t humanity’s natural state, nor is it natural for inflation and growth outcomes to be staid and predictable. After all, economies are comprised of humans and humans are neither staid nor predictable.
As I never tire of reminding myself (and readers), we should’ve known better. All sorts of things went disastrously wrong during the 1990s and 2000s, the period we typically associate with widespread peace and prosperity. We just tended to ignore them because, by and large, they happened “over there” somewhere. That illusion was shattered one bright blue morning in September of 2001, but once the dust settled, that too became an “over there” problem.
In 2020, “over there” became everywhere. In perhaps the greatest irony of them all, the entire globalization superstructure — a grand “pan-” if ever there was one — shuddered and gave way to a pandemic. A borderless, free-roaming virus closed borders and stopped the free-flow of capital and commerce. Not so long after, war came to Europe.
There’s a sense in which central banks’ fraught efforts to rein in inflation are a reflection of the futility inherent in the developed world’s broader struggle to reclaim something that was never real in the first place. Recency bias and, to a lesser extent, misplaced optimism about humanity’s capacity to cooperate in pursuit of something greater than wealth and territory, led too many of us to the naive conclusion that the latter decades of Pax Americana and, in the economic context, The Great Moderation, were somehow the norm, rather than the exception.
In a recent note, Rabobank’s Michael Every cited a chart of UK inflation outcomes dating back to 1600 on the way to asking: “Is what we’re now seeing a blip before a return to normal, or was The Great Moderation under inflation-targeting the blip?” The same could (and should) be asked of the world more generally. That is: Is what we’re seeing now a violent, irrational blip before a return to normal, or were the last thirty years the blip?