This is the opening of an IMF email issued yesterday:
As inflation and interest rates continue to decline and the likelihood of a recession slowly fades, financial markets have seen big equity gains. But the latest Global Financial Stability Report (GFSR) warns of several factors that could upend the recovery, including the apparent disconnect between market buoyancy and heightened uncertainty, especially related to geopolitical risks.
There are many occasions when I feel as though I live in a parallel universe to the one that global finance appears to think exists.
Its failure to recognise that climate change is real clearly separates our worldviews.
So, too, however, is its ability to ignore all risks, let alone uncertainties. In a world where I see precariousness for most, global finance only sees optimism.
Trump is threatening fascism.
Netanyahu is delivering it without any pretence to hide the ugliness of its meaning.
And I am not ignoring the fact that Israel is not the only source of instability in the Middle East.
China also sits, lurking with regard to Taiwan.
And there is no end in sight in Ukraine as Putin also pursues a fascist agenda.
Amongst all this, global markets are getting euphoric about AI, which is most likely only to make things worse because of the enormous energy and water demands that it will create, which canno0t be met in a world where the reality of finite resources is becoming ever more apparent.
This disconnect is profoundly worrying. It is intensely destabilising. It gives no reason to believe that markets have a clue as to what is going on. It only adds to the threats to our well-being.
It is hard to think that what is happening is sane, and I prefer to live in a world that enjoys that quality - but plenty clearly do not.
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You are right, Richard. We are surrounded by huge and immanent dangers and governed in all the polities, with any major sort of influence on events, by blind and deaf fantasists.
AI may be the latest layer of delusion with the potential to spiral into ecological disaster, but there remain the long established areas with capacity for catastrophe. Take one close to home example – this morning’s report on Sellafield is simply appaling from continuous and planned (!) leaks to cyber insecurity in the biggest nuclear dump and plutonium store in Europe – and our ‘government’ is set to build more nuclear plants with more waste AND more nuclear weapons with more plutonium!
Horror comics don’t even come close.
Talking about precarity.
https://consciousnessofsheep.co.uk/2024/10/22/the-blind-sadism-of-the-do-gooders/
Tim Watkins is right, although I would vouchsafe that the insurance industry has moved on, a lot, since his experience with UNUM.
“It gives no reason to believe that markets have a clue as to what is going on”
– point is, “markets” are short term cost optimisation mechs. They work OKish when things are stable – but short term means that expecting them to do anything other than have a short term outlook is dreaming. In theory, our elected politicos are there to “keep the show on the road” and ensure that short-termism does not “Rule-OK!” – sadly, the likes of the ghastly Thatcher (+ Ray-gun and his mob, plus the moron Clinton etc etc) were seduced by “market” & now all one hears is “market mechanisms”. When short comings are pointed out (elec. water, sewage. trains……NHS) the response from politicos is “more market” (thus echoing the imbeciles that pull their strings). The blog on water is illustrative – reality is ignored. I have passed the point where I get upset – I just look on in contempt, as assorted imbeciles (politicos and journos) knowlingly lie & lie & lie on a daily basis – & if they are not lying then they are unfit to hold the positions/jobs they do – because thay are far too stupid (thus echoing Bevan ref Eden).
“Markets can remain irrational longer than you can remain solvent”. Keynes.
But why? It is certainly a move I missed.
First, all the gains have been concentrated in a few stocks that dominate the market… and this links in with your piece yesterday about large and small business. We have allowed corporations to capture the political process and increase their profits. (That is, perhaps, a rational market response).
Second, increasing wealth inequality is driving this. Those with wealth have to park it somewhere; they are all given the same advice – buy equities…. so they do, they go up and it reinforces the idea that it is the correct strategy.
Third, technology and the rise of gambling. Betting (mainly by young men) has exploded; this was focussed on sports but has spilled over into “investing” in markets. I am shocked at how many folk are punting markets.
Will it last? Well, I go back to Keynes quote……
@ Clive Parry
“…(That is, perhaps, a rational market response).”
Yes it is. It’s short-termist but rational if you think short-term.
Isn’t that the lesson of 2008? Nobody wanted to get off the carousel while it was still turning.
And who said ‘in the long term we are all dead’. ‘Milton’ Keynes I think.
It is the job of government to think long-term, but alas our governments do not see beyond the next election and I think this one is already focussed on that. The ‘hundred days’ has passed. The direction of travel is not encouraging.
Richard,
It is worth recalling that Sir David Attenborough is fond of saying “Anyone who thinks that you can have infinite growth in a finite environment is either a madman or an economist.” These views are supported by recent earth satellite data on global tipping points – Link A – and in the work of the late John Kenneth Galbraith, who, in his 1958 essay – see Link B – reflected on the conservation implications of conspicuously wasteful consumerism. Galbraith pointed to the possibility that this “gargantuan and growing appetite” might need to be curtailed. “What of the appetite itself?” he asks. “Surely this is the ultimate source of the problem.”
Link A: https://www.esa.int/Applications/Observing_the_Earth/Space_for_our_climate/What_are_climate_tipping_points
Link B: http://www.preservenet.com/flexibleworktime/GalbraithHowMuchShouldACountryConsume.html
What economists in the IMF needs to ask themselves is should the economy keep growing as fast as we can? Is there the spectre that someday growth will peter out on its own? Do we therefore need to start looking at post-growth alternatives? Some leading economists (e.g., Tim Jackson, Charles Jones, etc.) who sit outside the purview of the IMF, believe that growth will eventually slow. Indeed, they believe that it’s already slowing now, that the factors behind the slowdown will only get more severe as time goes on – see Link C – and that growth poses existential risks.
Link C: https://web.stanford.edu/~chadj/existentialrisk.pdf
The IMF would do everyone a big favour if there organisation moved slightly beyond neoclassical economics – and into the domain of earth sciences – to understand what prosperity is and explore how humans can live well in a world without economic growth. Fortunately, this subject has been launched in a new exciting EU Horizon policy research agenda – see Link D
Link D: https://www.realpostgrowth.eu/#:~:text=REAL%20investigates%20the%20policies%2C%20politics,for%20all%20within%20planetary%20boundaries.
Thanks
Yes I think I live in a parallel universe – politically, in terms of economic policy and the environment.
It has been noted before – many times – from Greenspan to Robert Shiller that markets are always over optimistic and that crowds are not really a store of wisdom – more likely a store of greed and short term-ism.
But still, nothing gets done.
@ PSR
“…But still, nothing gets done.”
Oh, stuff its getting done alright.
It just isn’t the right stuff.