Permacrisis - not a 1980’s hairstyle gone wrong
“Permacrisis” has entered the Collins English Dictionary as the word of 2022, defined as:
an extended period of instability and insecurity, esp one resulting from a series of catastrophic events.
Certainly 2022 so far has had its moments: Russia’s invasion of Ukraine, the revitalized NATO engaged in a proxy war, a European energy crisis, global inflation, market turmoil, threats by Russia to use battlefield nuclear weapons, the end of Finnish and Swedish military neutrality, China rattling its sabre at Taiwan, the re-militarization of Japan, the resurgence of radical politics with the re-election of Hungary’s Victor Orban, the strong run of Marine Le Pen in the French presidential election, the rise of Italy’s Northern League and Brothers of Italy, and the return of former prisoner Lula da Silva in Brazil. That is before one thinks on the political chaos in the UK, and entrenched and increasingly toxic political and social conflicts within the US. This is what we would euphemistically call “political risk”; the risk that unsuitable people end up in leadership positions doing the wrong things. And there is a lot of it about.
Politicians are now back in control of economics, unfortunately
What marks the current era apart from what came before, and what most of us spent our lives experiencing hitherto, is that economics and investing - the value of our pensions, houses and jobs - has changed from being driven by fundamentals to being driven by politics; I hate to say it, but rather as it was in the 1930’s. Central banks are entirely distracted by fighting inflation, and have ceased providing endless liquidity via QE; as they shrink back to more limited monetary policy roles, the politicians are taking over the fiscal (tax and spend) side of the economic equation.
The theory of political economy - and the various “isms” that go with it - has returned with a vengeance. All of our personal assets, wealth and future prospects are not going to be dictated by growth, efficiency, technology, saving the planet, or basic economics, but by ideologically driven politicians engaging their various personal biases: for the last 40 or 50 years politicians in the larger economies had to be regarded as broadly economically competent to be - or stay - elected. Now politicians are elected if they are going to expand the state, punish the rich, liberate business, fight authoritarianism, promote authoritarianism, end wokism, promote wokism, get Brexit done or make America Great Again. If Marx, Grotius, Hobbes, or even Keynes were still around they would each be saying “I told you so”; particularly, Marx, as he was that sort of guy.
Not much COP-27
The COP-27 climate summit is being held in Egypt this week, among its key aims is the much debated 1.5c temperature limit (ie the obligation of countries to collectively limit the global average temperature rise to no more than 1.5c above pre-industrial levels).
There are a few things wrong with this: first, although there is a surprising amount of consensus among scientists and official bodies who measure land and sea temperatures (including NASA, The UK’s Met Office, and the US National Oceanic and Atmospheric Administration) it is hard to obtain very accurate data from before 1850; indicative data can be gleaned through sources as diverse as farming records, soil samples, tree growth rings, wildlife records and sea levels; long-term accuracy may be hard but it is clear the planet is warming up after a cooler period between the 14th and 18th Centuries, but by exactly how much compared with before 1850 is not clear.
This makes some of the debates about reparations (in COP speak “Loss and Damage”) for who caused what pollution when, spurious, albeit it may not change the outcome: there are very valid reasons to financially support populations in the Global South from the consequences of pollution caused by the Global North (which includes China of course). The second thing that isn’t much discussed is that an average global increase of what sounds like a modest 1.5c actually equates to very extreme increases in some places, notably the Arctic, which has seen average temperatures increase by 6c in recent decades (as a result of the so-called “Arctic Amplification” where carbon dioxide concentrates at higher latitudes). Even notoriously predictable London (where, as an American friend once said to me, the temperature never goes lower than 4c or higher than 23c, and if it does there is a crisis) had temperatures in excess of 42c this year.
The planet may warm up and cool down at fairly regular intervals, but it is usually the result of volcanic activity and solar radiation. Generally speaking if solar radiation drops and volcanic activity goes up, the planet gets cooler; and vice versa (sulphur dioxide from volcanoes reflects solar radiation). This time global warming is driven not by those processes but by human produced carbon dioxide and other greenhouse gasses, which work like a pane of glass, letting sunlight in but preventing heat from escaping. The great physicist Carl Sagan pointed this out in the 1980’s. Let’s hope the sun doesn’t have a long spell of increased solar radiation any time soon.
COP-27 will be fraught with politics; the US and China, as the world’s biggest economies and largest polluters in absolute terms are still not in compliance with their targets: in fact China is doing better in some respects than the US, generating 8.75mt of greenhouse gasses per capita, compared with the US 18.43mt (2018 data), albeit China’s total emissions keep going up while the US is falling. It is rather alarming to think that the original UN climate change treaty was signed in 1992; it has taken 30 years - and 27 conferences - for it to be taken more seriously by politicians and the public at large.
US Mid-terms; Divisions and Lame Ducks
As I write the US goes to the polls in the mid-term elections; mainly for the House of Representatives, although some Senate seats are also being contested. It is predicted that the Democrats will lose control of the House, to a resurgent Republican party, which would make it hard for President Biden to get any more legislation through in the remainder of his term. A Republican dominated Congress may also seek to impeach President Biden; some senior Republicans feel it is the wrong thing to do, but the fact it is even being suggested as a possibility is a sign of the political times. The Republicans have also indicated that their support for Ukraine would be more limited than that provided so far; President Biden may also have some difficult times with questions about his son Hunter Biden and his very well paid role with the Ukrainian gas company Burisma (which ended in 2019), as well as his well publicized struggle with drug addiction.
The US economy is the World’s most powerful, and with a slight increase in unemployment reported on Friday, markets flickered upwards slightly, cautiously wanting to believe that the Fed’s rate hikes are having their desired counter-inflationary effect; although a lot more data will be needed to reassure everyone that inflation is indeed under control. All else being equal the US seems destined to sail out of the economic doldrums first, and as it does so it will drag the rest of the planet’s economies with it. The only real threat to that global recovery is US political turmoil. We should all hope for benign politicians with boring and sensible views, that can be changed by new information. Wishful thinking.
Be good, everybody.