For 2023, what has been striking is how far the tone of the discussion is shifting towards a recognition that in the previous couple of years the world has decisively modified. Because the Financial Times reports: “In the course of the… three-day symposium, current and former policymakers from world wide voiced worries that the well-established economic relationships that underpinned government authorities’ policy decisions were in jeopardy.
“They issued an urgent call for a revised playbook to raised understand and reply to a rapidly changing landscape that threatened to stoke more frequent supply shocks, higher prices and heightened volatility across financial markets.”
Now all this might sound reasonably familiar to regular readers of The Ecologist, but what’s notable here is how the good and good of economic governance are attempting to catch up.
Particularly notable, because the FT says, was the speech by Christine Lagarde (pictured), who told the central bankers that: “There are plausible scenarios where we could see a fundamental change in the character of world economic interactions… we could also be entering an age of shifts in economic relationships and breaks in established regularities.”
Lagarde highlighted “profound changes within the labour market and the character of labor”, including large numbers dropping out of the labour market within the wake of covid and digitisation; the “energy transition”, because the world moves out of fossil fuels, but in addition including future energy supply shocks; and “deepening geopolitical divide and a world economy that’s fragmenting into competing blocs”.
Putting all this together, Lagarde argued that “we’re prone to experience more shocks emanating from the provision side itself” and that these might be more prone to transmit through the system on account of “firms changing their pricing strategies” and staff “in a stronger position to recoup real wage losses”. The result can be higher and more persistent inflation into the long run.
It’s price reading her whole speech, which places the ecological catastrophe in a context alongside the chaotic geopolitical shifts and technological transitions were reside through – collectively, often labelled the “polycrisis”.
I’ve argued the case previously that the shocks of the previous couple of years or so indicate the beginning of latest, more volatile and positively more costly economic period – during which, on the positive side, labour may find itself in a stronger bargaining position than previously; but, on the negative, capital might be seeking to dump the rising costs of climate change, ecological collapse, geopolitical tensions, technological failures and so forth on to wider society.
Economic historian Adam Tooze called covid “the primary crisis of the Anthropocene” – I believe it’s price taking that time seriously, with the eruption of the pandemic acting as a phase-shift in how our global systems operate.
In a historical period like this, where growth stays broadly lower, the economic decisions we face begin to boil all the way down to a blunt query of understanding whose side you might be on: should labour, which is to say staff, their families, their allies, their communities, carry the prices of the Anthropocene; or should it’s capital and the rich?
Lagarde, you’ll be surprised to listen to, doesn’t put the query this, as a substitute specializing in how monetary policy might still (one way or the other or other) be used to stabilise the economy.
But one other speech, also attracting attention, by Barry Eichengreen, the economic historian perhaps best known for his classic history of the Great Depression, Golden Fetters, laid out the beautiful bleak outlook for presidency debts the world over in an age of what elsewhere has been called an age of “fiscal activism”: that repeated shocks, and the upper costs of providing the essentials of contemporary life, from healthcare to education to infrastructure, means governments might be spending more.
Eichengreen’s argument, with Serkan Arslanalp, comes all the way down to the popularity that we might be entering this recent period of shocks and uncertainty carrying the large debts of the old, closing down the room for relatively painless transition by the assorted governments of the world.
All the pieces will cost more; options for presidency borrowing or, for that matter, the type of central bank interventions we’ve seen since 2008, via Quantitative Easing, may possibly be reduced; and so the result might be more fights over who has to pay for it – which can mean primarily via taxes. Take into consideration, for instance, what’s been happening with ULEZ in Britain, and multiply this, over and over over.
There’s a severe naivete amongst many politicians about this: either they think the magic of green growth will provide a price free transition or, far worse, there’s a still a gaggle of them that think the prices of transition and the ecological crisis will be simply wished away.
What’s going to occur as a substitute is prone to be a version of what we’ve seen in Britain, where failures to cope with problems today stoke up massively greater problems in the long run – all with less and fewer capability to cope with them.
Dr James Meadway is an economist and former political advisor. This text is a transcript from his Macrodose podcast.