ZURICH – Just get me talking about the world today and I can pretty well ruin any dinner party. I don’t mean to, but I find it hard not to look around and wonder whether the recent turmoil in international markets isn’t just the product of tremors but rather of seismic shifts in the foundational pillars of the global system, with highly unpredictable consequences.
What if a bunch of eras are ending all at once?
What if we’re at the end of the 30-plus-year era of high growth in China – and therefore China’s ability to fuel global growth through its imports, exports and purchases of commodities will be much less frothy and reliable in the future?
“Now that this debt bubble is unwinding, growth in China is going offline,” Michael Pento, president of Pento Portfolio Strategies, wrote on CNBC.com last week. “The renminbi’s falling value, cascading Shanghai equity prices (down 40 percent since June 2014) and plummeting rail freight volumes (down 10.5 percent year over year) all clearly illustrate that China is not growing at the promulgated 7 percent, but rather isn’t growing at all. The problem is that China accounted for 34 percent of global growth, and the nation’s multiplier effect on emerging markets takes that number to over 50 percent.”
What if the $100-a-barrel oil price era is over and all these countries whose economies were directly or indirectly propped up by those prices will have to learn to grow the old-fashioned way – by making goods and services others want to buy? Thanks to steady technological advances in America for fracking, horizontal drilling and using big data to identify deposits, OPEC’s pricing power has disappeared. Countries that have set their budgets based on $80- to $100-a-barrel oil will find themselves vastly underfunded just when their populations – in places like Iran, Saudi Arabia, Nigeria, Indonesia and Venezuela – have surged.
What if average is over for countries? During the Cold War you could be an average, newly independent state with artificial borders drawn by colonial powers. There were two superpowers ready to throw foreign aid at you, educate your kids in America or Moscow, build up your armed forces and security services and buy your crummy manufactured exports or commodities.
But what if the rise of robots, software and automation mean that these countries can’t rely on manufacturing to create mass labor anymore, that the products they can make and sell can’t compete with Chinese goods, that climate change is pressuring their ecosystems and that neither Russia nor America wants to have anything to do with them because all either wins is a bill?
Many of these frail, artificial states don’t correspond to any ethnic, cultural, linguistic or demographic realities. They are caravan homes in a trailer park – built on slabs of concrete without real foundations or basements – and what you’re seeing today with the acceleration of technology, climate change stresses and globalization is the equivalent of a tornado going through a trailer park. Some of these states are just falling apart, and many of their people are now trying to cross the Mediterranean – to escape their world of disorder and get into the world of order, particularly the European Union.
But what if the EU era is over? Reuters reported this week that Germany is telling other EU countries that if they don’t prevent the influx of more refugees into Europe from the Mediterranean and “relieve Berlin of the lonely task of housing refugees, Germany could shut its doors.” Some Germans even want a border fence. One senior conservative was quoted as saying, “If you build a fence, it’s the end of Europe as we know it.”
What if the era of Iranian isolation is over, just as the Arab system is collapsing and the two-state solution between Israelis and Palestinians is history? How will all those molecules interact?
And what if all this is happening when the two-party system in America seems to be getting most of its energy from the far left and the far right? Bernie Sanders’ platform is that we can solve our most onerous economic problems if we just tax “The Man” more. Donald Trump and Ted Cruz are running on the theme that they are “The Man” – the strongman – who can magically fix everything.
What if our 2016 election ends up being between a socialist and a borderline fascist – ideas that died in 1989 and 1945 respectively?
And what if all of this is happening at a time when our government’s ability to stimulate the economy through either monetary or fiscal policy is constrained? Unless we go to negative interest rates, the best the Fed can do now is rescind the tiny rate increase made in December. Meanwhile, after all the vital government spending to stimulate demand after the 2008 crisis, there is no consensus in the country for another big round.
These what-ifs constitute the real policy landscape that will confront the next president. But here’s the worst “what if”: What if we’re having a presidential election but no one is even asking these questions, let alone “what if” all of these tectonic plates move at once? How will we generate growth, jobs, security and resilience?
There’s still an opportunity for someone to lead by asking, and answering, all of these “what ifs,” but that time is quickly coming to an end, just like the last dinner party I ruined.