What If ‘Normal’ Isn’t What We Think It Is?

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?


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17 thoughts on “What If ‘Normal’ Isn’t What We Think It Is?

  1. What if the result of the war in Ukraine is a collapse of the remainder of the “soviet” leadership of Russia and the creation of actual democracy in Russia? What if China decides to avoid Japan’s December 7, 1941 (or July 7, 1937) mistake and decides it is more profitable to adopt international standards? On the other hand, what if Russia launches a nuclear strike at NATO nations? Predicting the future is difficult. In the long run, climate change will affect humanity more than will politics, warfare, etc. Given all the young Russian people who hate the war and the increasing damage to the economy of Russia, I can’t rule out political change in Russia.

  2. Excellent summary and perspective about the impact of globalization on our work, lives, and economy. Kudos! Thanks very much, Walt. Wish we had the blessing of hindsight, and we could do it over again.

    Among other things, your summary shows, simply, that we tend to fool ourselves individually and collectively. We deceive ourselves by believing we have understanding and control. But we’re not gods, nor are we God-like. Human “dominion,” or control, or even understanding of the earth or nature or humanity is and always has been an illusion, incomplete at best. Needless to say, though, we persist in telling ourselves otherwise.

    Not unlike picking stocks, we can “read” the tea leaves. But, for all of our education and experience, no matter how long our lives, we as a race lack understanding of our humanity and our world. We will know failure. We will delude ourselves. We will have conflict. We will have losses. And the story changes and evolves as we speak. Such is our lot.

  3. Listening to the “Winds of Change” at KKMC nights in the spring of 1991 i understood instinctively that the song was a delusion, but i would not let myself believe it to be so. It sounded so good in my GE walkman, (that thing had a workable three band equalizer) following our glorious war in hell where the frosting on the cake was unknowingly being exposed to chronic low level Sarin. That song sounded so damn good against the 14 hours a day 6 days a week work load on behalf of a US defense contractor and their new found windfall.

    Should of taken my CO’s advice and stayed in Korea and the old normal, like he wanted me to do.

    1. Thanks, TB, for sharing your experience. You helped me to recall those days, and fond memories of the Walkman.

      My comment above is meant to note a truth about human limits and tendencies. We are among the beasts that roam the earth, having only a slight edge in our capacity to reason over other beasts – like elephants, for instance. And not unlike elephants, we have feelings too, which complicate matters.

      It sounds like there were no ill-effects from listening to “Winds of Change” in ’91, and you enjoyed it. I’m guessing you left Korea in pursuit of an environment that offered different choices because you were able take that step outside of the country you knew. You made a decision.

      That work with a defense contractor probably helped you expand your bank account, but you worked crazy hours. And being young at the time, you decided to bear the burden. I did the same thing as a young man. I overestimated my capacity and resilience. With age my perspective changed and so did my work. I can write well into evening. But I need rest.

      There may be no ill-effects if you decided to return to Korea next week, next month, or next year. But you would not know the ill-effects until you make that decision. Whether you stay or go, your reasons are your own, of course. Just like investing. You are on your own. You foresee and control very little. There may be consequences you do not foresee. You take a risk. And you may not know what risks lie ahead.

      I’ve decided not to retire to Florida or Arizona, like many Americans. The value of retiring to those places, in my opinion, is terribly overblown. They offer no romance for me. Why would I want to burn up in the desert? Or be oppressed by Florida’s humidity?

      It may be a short-coming on my part, but I tend to feel more comfortable with the people and places I know. I prefer to be useful and to be with friends. I’ve decided to deal with Chicago winters, which, with climate change, are virtually nothing in comparison to the winters of my childhood.

  4. This was a nice summation of our evolution from the reference frame of “globalization” but omits the beginning of the story. We are a capitalist society and profits are still the basis for stock values. Not keeping people happy or giving workers great jobs, but making profits for shareholders and now, at least, company bosses. It was ever thus. My dad grew up in Lawrence, MA, where along with Haverhill, virtually all the nation’s linens were made by Pepperell and other such firms. My dad’s first job was as a part-time bobbin carrier (these things weigh 40 or 50 pounds and there are thousands in use in a plant making bed sheets. He was 12 at the time. The problem with this idyll was that labor in new England was expensive so all these companies up and moved to the Carolinas where there was cheaper labor and no pesky unions. Following suit Pittsburgh steel went to Alabama, cars moved south out of Detroit, or to Canada for the same reasons. Not globalization, just regionalization, still in the good ole USA, but more profitable. Then it was the escape from New York by clothing makers, first to Puerto Rico for a time, and then on to the the Far East.

    It is the fiduciary responsibility of a company’s board of director to invest the firm’s assets for the benefit of its shareholders. That’s corporate law, and economic law as well. The hollowing out of labor was inevitable. The trick is figuring out where else companies should be going to boost both the economy and the labor force, which after all provides the economy with its consumers. Tech has been a good spot, but the expertise for chips and electronics has still inevitably shifted to the Far East for the same reason our clothes and shoes are made there. There are checks and balances to these trends. At some point (we might have reached it) it costs more to ship many items from the Far East than is saved by making stuff there. And really there is no place else to go.

    Another problem with globalization is not just that it has hollowed out our labor force, it has hollowed out our human intellectual capital. Expertise in many areas of industrial design and manufacturing process have been shifted away from the US leaving us with reduced on-shore expertise. This lost “art” is tough to rebuild. Many firms have confronted this problem by importing labor and leadership from the Far East and other places to better control their IP. Michael Porter’s book, “The Competitive Advantage of Nations” offers interesting insight of why globalization has been inexorable (Summary at: https://hbr.org/1990/03/the-competitive-advantage-of-nations)

    Shifting costs to suppliers off-shore, for example, accomplishes at least one other thing besides lower labor costs, it greatly reduces some key risks and changes the nature of costs for companies. When a firm contracts with firm X to supply it with parts, the price of the parts shifts to being 100% variable. Variable costs help manage gross margins, but eliminate operating leverage, a not insignificant trade-off. Also, if someone else makes your parts they take on the cost and risks of inventory, fixed assets, etc. If demand for a company’s final product falls, instead of laying off workers and shutting down internal parts supplies, it just cancels orders from the other companies making its stuff. Apple, for example, makes these adjustments every quarter. Globalization will not go away easily and neither will supply side factors driving inflation.

    1. The global quest for profit has enriched a few at the expense of many. Perhaps, how long we stay a free capitalist society hinges on keeping people happy and giving workers decent jobs. When it all starts to shift, we’ll probably see armed mobs invading our capital, summer long protests and riots in streets of major cities, suppression of the impoverished by over policing and even police executions in the streets and finally a corrupt autocrat in the Whitehouse because he promised to make everything great again. After those troubling times, the question asked by the economics students in future generations’ may be – was it worth it? Really?

      1. bereft

        I agree that the system is at risk. We are not the first to identify this dichotomy. The debate began with an economist named Karl Marx in his landmark book, Das Kapital. Together, Malthus and Marx warned of us of existential threats they saw as much more immediate than they turned out to be at the time, over 150 years ago. Maybe those future econ students, along with the rest of us, will finally be asking these questions about population, labor conditions and resource shortages more seriously. I saw data today showing real median family income has reached $73k, but also that is is still essentially flat in real terms for a couple of decades and for sure the average is much lower than the median. And Jackson, MS still has no water. That condition lasted many weeks in Des Moines a couple of decades back. Oh, and Gov. Newsom of the no more gas by 2030 has told his fellow CA citizens the can’t plug in their EVs just any old time without crashing the grid. I, too, am bereft.

      2. Marx and Maltus were a little late to the party. A dude named Timothy in biblical times is rumored to have said “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.” In our times, fictional but period appropriate Gordon Gekko said “Greed, for lack of a better word, is good.” And here we are… pierced through with many sorrows.

        Latest greed/corruption report from Mississippi is: The state auditor says $70 million in federal welfare funds went to Favre, a volleyball complex and a former pro wrestler in a scandal that has rocked Mississippi. And then as you read the report it gets uglier. https://www.nbcnews.com/politics/politics-news/nations-poorest-state-used-welfare-money-pay-brett-favre-speeches-neve-rcna45871 I’m not sure capitalism without greed is a thing. If not, we need to re-install some guardrails before it’s too late. Just my opinion for what little it’s worth.

    2. In the 1790s and most of the 19th Century corporations were regulated by their charters. The corporation was created for the benefit of the public good per the legislation that was enacted then. If the corporation didn’t abide by the charter, it could be dissolved and the assets returned to the shareholders. Some states set up their charters so that they were renewed periodically. Your suggestion that “a capitalist society and profits are still the basis for stock values. Not keeping people happy or giving workers great jobs, but making profits for shareholders and now, at least, company bosses” …. is not historically accurate. Since the Constitution and the US founding and early years of the republic corporations were regulated for the benefit of its citizens within the state that it was regulated. After the reforms of the Great Depression were implemented, regulatory capitalism again constrained cowboy capitalism method of operation it had exploited in the Gilded Age through the early 20th Century. Businesses had to abide by the rules of the road or face antitrust lawsuits, and a host of the regulatory bodies that were set up for the benefit all stakeholders in the economy. It was only after the 70s did the US revert back to its Gilded Age norms by deregulating the banks, airlines, freight, retail, communications, etc., that we now have a return to the philosophy of that capitalists are entitled to make earn profits and the public be damned. The upshot is the capitalist, the holding company, the trust, the conglomerate, the multinational are oxymoronic enterprises based upon approximately 125 years of US history.

  5. Once again, great article and great comments. I have believed forever that stating the problem is essential, otherwise hope is a strategy. This is why I believe our economic problems are political, and our political problems are psychiatric. Just because I can identify a problem doesn’t mean I have the solution. I’m waiting for a retired politician to say “Our solutions were even worse than our problems.” What are the politicians tools? Lying, cowardice, ass kissing and threats….

  6. The i phone and the large screen tv are the twenty first century versions of bread and circuses. For parents of teenagers: how many kids do you know are taking anti anxiety meds?

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