A New Economic Era Is Dawning — And It’s Going to Be Ugly

The Global Economy Is Sick, And the Treatment — Make People Poorer! — Is Only Going to Make Things Much Worse

Image Credit: IMF

The world? It’s in a state of chaos. War. Climate catastrophe. Fascism, returning to Europe, American democracy under grave threat, still. What next? I can’t take much more. That’s the feeling of the age. Because by now, you can see the carnage out there. Day after day, central banks are hammering interest rates upwards. That, in turn, is because inflation’s skyrocketing. And all that? It’s exactly the wrong thing to do.

Here’s a secret.

We are on a suicidal course right now. Our civilization is like a patient going into organ failure. But instead, we — our decision makers, at least — are like doctors who imagine that the patient has cancer. People have gotten too rich! Raise rates, maniacally — and make them poor again!!

The patient doesn’t have cancer. What happens if you give a person in organ failure…chemotherapy? Bad idea. They die.

This is the course we’re on — at a civilizational scale. We are currently making the worst mistake in socioeconomic history, all of it, which is making people poor to deal with the problem of inflation, which is going to make investment impossible, because of course that can’t happen if people get poorer. But look around and tell me how we grow crops or have water systems or clean energy on a planet without investment — for even another few decades.

Like I said. Suicidal.

Now, that’s complicated. But I’m going to explain it to you in painstaking detail, and you’ll be, by the end — I bet — as horrified as I am.

We’re entering a new economic era. And it’s going to be deeply, deeply unpleasant. Worse than that — our institutions have no idea, really, what to do, and so they’re doing exactly the wrong thing, which is about to create a worldwide recession — if not a depression — in the middle of all these crises. Combine all that, and what do you get?

Let me try to explain.

Doctors treat cancer with chemotherapy. Chemotherapy is an amazing discovery. It comes from a plant, in case you didn’t know. And as amazing as it is, it works in a brutally simple way: it’s a poison. The goal is to kill the cancer, faster than the patient. Hence, the agonizing side effects it comes with.

This is how decision makers think of the economy, too. In times like these, inflationary periods, they hope to kill the cancer faster than the patient. Inflation? Raise rates. It’s going to hurt — but it’ll kill the cancer. Yet not only is that going to cause immense pain — what if it’s the wrong diagnosis to begin with? Then all that pain is worse than needless, because it doesn’t solve the real problem.

This is where we are as a world economy right now.

Let me demystify something shrouded in secrecy. How the mysterious things called “central banks” really work. Most people don’t know — why would they? That’s because central banks can only do three things, literally, as in, they only do three things, ever, period: they can raise rates, lower rates, or lend money to corporations and regular banks.

Hence, in times like these, inflationary ones, central banks act like killer robots. They do the only thing they were programmed to do: raise rates. And they keep raising them, over and over again, until inflation “cools down.” Even if that means causing a recession, depression, wrecking an economy.

Why does raising rates affect an economy? Well, because you’re paying interest on everything, more or less, since today, most people effectively live on a revolving door of debt. Mortgages, credit cards, student loans, medical debt, you name it. When interest rates rise, the cost of all these things rises. And in “normal” inflationary periods, that cools the economy down, because the idea is people have less to spend on other things, which they’re splashing out on, because suddenly, they got too rich too fast, hence, inflation.

For the last several decades, we’ve lived in a completely different economic age. When I say completely, I mean it. The end of the Industrial Age. It worked like this. Certain countries made stuff ultra cheap for the rich West to consume, artificially cheaply. Think of China. How were all the goods which Americans and Europeans now buy from Amazon actually made? Why were they so cheap? Well, China had a massive army of cheap labour — which lived in dormitories, and did little but work at factories, Victorian style, conditions Westerners wouldn’t accept at home. Then that army of cheap labour assembled everything from electronics to household goods with artificially cheap resources. Russian oil, gas, electricity, for example — whose real price we’ve now come to find out is bloody and brutal war, at the hands of dictatorship.

The result was the Age of Abundance, if you like — the period right at the tail of end of the Industrial Revolution, the last few decades of it, really. During this period — the 1990s until very recently, Westerners enjoyed an abundance of stuff like history has never seen. Figures like Bezos became billionaires by basically becoming merchandisers for this global economy — and then making it all even faster, figuring out to get all this Abundance to Westerners, now addicted to having it all, right now, the next day, very same day. This was the very peak of the Age of Abundance — order it from Amazon, have it delivered by 5PM.

What, exactly? All the artificially cheap stuff in the world. Everything, more or less, you could imagine, in a modern economy, whether smartphones or brooms or gadgets. Didn’t matter.

Now. What were the economics of the Age of Abundance? They were about not paying hidden costsWhether it was the true cost of the Russian oil and gas that keeps China’s factories humming — war and dictatorship. Or the costs of tearing down the planet’s forests and polluting its oceans with plastic and ripping apart its ecosystems — climate change and natural calamity. Though some warned of these costs, they were dismissed as fools and fear mongers and alarmists. The central idea was that Abundance could go on forever.

And this idea is what our economics are still based on. Hence, the treatment when inflation breaks out is chemotherapy — raise rates, just kill the cancer faster than we kill the patient, which is the whole economy. But what if the patient doesn’t have cancer?

Our world economy doesn’t have cancer. It has something even more serious than that — it’s in organ failure. Why are prices skyrocketing? It’s not cancer — people having too money, so the economy “grows too fast,” because wages are “rising too high.” This idea is ludicrous. Do you know anyone with too much money? You don’t unless, unless you’re best friends with billionaires — because real incomes have been flat for decades, and now they’re falling. It’s empirically false that our economies have cancer, and the treatment must be chemotherapy — that inflation is caused by “too much money” in the hands of ordinary people, so the way to fix the problem is to raise rates, which means they must pay more for mortgages, credit cards, student loans, business loans, and that’ll take care of it.

The diagnosis is wrong, and so is the treatment. Yet having assumed that our economies have cancer, that incomes are “growing too fast,” and people’s lives have to be crushed — now we’re on a ruinous course. An extra ruinous one, because we’re already, remember, in the middle of very real ecological, political, and socioeconomic crisis — what we’re doing to the economy is going to make all those crises much worse.

Why? Well, what’d happen if you gave a person who had organ failure — not cancer — chemotherapy? Gulp. That’d be a Very Big Mistake. Because the poison of chemotherapy wouldn’t just be pointless, no cancer to kill. It’d make organ failure happen that much faster and harder. That’s exactly what’s happening to our economies now. How so?

What’s really causing prices to spike worldwide? Three things are, which are all really one thing. Russia’s war is, the effects of Covid are, and climate change is. All of these are the same thing, which is the Industrial Age. Its side effects — which have come to dominate its “main” effects, all that false Abundance, which is proven to be short lived. Side effects of a fossil-based economy? The concentration of what economists call “externalities,” unintended effects. Concentrations of power, in the hands of dictators, who make wars. Of money, in the hands of billionaires. Of pollutants, in the skies.

For a very long time, we could pretend that the costs of the Industrial Age didn’t exist: money in all the wrong hands, pollution, inequality, despair, isolation, ignorance, and so on. But now we can’t. Because suddenly, there they all are, in ultra concentrated forms, and they’re pushing our civilization into organ failure.

When I say organ failure, it’s not really a metaphor. I almost mean literally. The organs of our civilization are dying. The lungs of the planet — the Amazon — are now a net carbon emitter, not a sink. Rivers around the world ran dry, and mega fires erupted. That led to mega-scale crop failures. Meanwhile, democracy itself is fading and failing, because stagnation for decades has caused people to give up on its institutions — and push fascist parties to power from America to former pillars of democracy like Sweden.

Organ failure. The lungs and liver — forests and oceans and rivers. Blood and heart — nations coming apart, drifting into isolationism, trade slowing down, wars breaking out. Kidneys and intestines, unable to process waste. Pancreas — enzymes that catalyze the body’s metabolism, or in our case, institutions. The limbs — people, taking collective action, to fix problems, animals, undergoing mass extinction. The brain — democracy.

We are in a state of civilizational organ failure. And that is why it appears our world is in an increasing degree of chaos, paralyzed, feeble, beset by problems we’re unable to solve.

Now all of that brings me full circle. What do you do for a patient with organ failure? Well, what you don’t do is give them chemotherapy. In our case, this mission of raising interest rates to historic levels — what will it accomplish? Precisely nothing. The price of food isn’t rising because people — LOL — have too much money, but because crops are failing and rivers running dry. The price of energy isn’t skyrocketing because people are flush with cash and outbidding each other for electricity — LOL — but because fossil fuels get more expensive by the year, whether through extraction or bloody war.

Chemotherapy isn’t going to work. What’s it going to do, instead? It’s going to kill the patient. In our case, raising rates like this — maniacally, in a frenzy — it’s just going to push people into poverty, and past the edge. How much is your mortgage, car payments, credit card debt going to rise now? You probably haven’t asked, because you probably don’t want to know, because you’re probably living at the edge, like most people, to begin with. But what happens past it?

Bang. Recession — and then depression — does. People grow poorer — even poorer than they did during the last few decades of stagnation, when everyone more or less had to take on debt just to make ends meet. That alone led to the rise of fascism more or less everywhere, because that’s declining living standards do — push people to fanaticism and extremism, make them prey for demagogues pointing at scapegoats. The last few decades eviscerated what was left of once healthy working and middle classes — so what do you think making everyone even poorer, suddenly, in an historic way, is going to do? It’s the biggest gift the fascist have ever had — like the Weimar Republic, but on steroids, everywhere.

How do we treat patients with organ failure? The answer’s pretty simple. We give them new organs. And that’s exactly what we have to do. When Antonio Guterres, the Secretary General of the UN, called for a Global New Deal, that’s what he meant — and he’s precisely correct to demand one, a visionary.

What does that mean — organ transplants — in practical, real terms? Well, something like this. Think again of nature. We are going to have rebuild all the ecosystems we’ve destroyed — or else, we don’t have a future, because we can’t produce crops, water, energy, air, at nearly the levels we’re accustomed to. The ecological organs of our civilization desperately need transplants.

Then there are the institutional organs. Think of central banks again. They do three things: raise rates, lower them, or lend money to banks and corporations. Not good enough. That was what they did in the Industrial Age — but now? They’re going to have to do way, way more than just those three things. You should have an account at your central bank — everyone should — so you don’t have to pay some Wall St sociopath 3% of your income every year, which is kind of like giving a religious tithe to ISIS — and that account should be free to use, and it should be topped up with “helicopter money” right about now, precisely because times are so tough, Guterres has called for a Global Stimulus. Precisely the opposite of raising rates — investing in people.

Finally there are socioeconomic organs. We need a huge, huge wave of investment in…everything. Obviously energy — but more than that, all our basic systems. How are we going to produce food on a superheated planet of crop failures? What water are we going to drink? Who’s going to put out the mega fires? How are we going to create careers like “Ecosystem Rejuvenator” or “Anti-Extinction Designer?” We’re going to need to rebuild and rethink it all. Basic systems from food and water to energy and medicine — all of which are currently breaking at light speed, which is why prices are rising so fast. To do that, we’re probably going to need to invest heavily in education, research, science, and arts, to understand how to build systems for all these basics, that last a thousands years, and don’t destroy the planet, while concentrating wealth and power in the hands of maniacs and despots.

Phew. That’s a Big Job.

Welcome to reality. These are the stakes. When Guterres speaks of a Global New Deal, this is the kind of thing he means. When he speaks of a Global Stimulus Package, this is what he’s talking about — and it’s at direct odds with raising interest into oblivion, which is going to cause crushing waves of poverty. What do those do? They empty the public purse, and make investment even less possible tomorrow — you know, by the 2030s, when our water and food and energy systems are going to actually and finally fail, for good.

See what a foolish course we’re on? We’re engineering a recession slash depression to “fix” the problem of rising prices.

Let me try to sum all that up. Organ failure. What is an organ? Our civilization’s basic functional systems — heart, blood, kidneys, liver — are in complete meltdown now, from ecological ones, to social ones, to political ones. Deliberately pumping chemotherapy into the system isn’t going to fix that. It’s only going to make it worse, because people already in massive debt, which is most of us, paying that much more for that debt is going to make it impossible to invest. And so by the 2030s, our systems, which are failing now, the basic ones, food, water, energy, medicine, democracy, money — they will actually and finally fail.

If we continue on this reckless and foolish course. Because we will have been totally and completely unable to really invest at the scale we needed to, at the precise moment we needed to — right now. Instead, having been crushed into poverty, people will be too poor, and public purses will run dry. Systems for everything, already cratering and breaking, will collapse, in short order. If you think I’m kidding, go ahead and ask me how the American West gets water, or what Europe eats when the crop failures of 2022 already hit maybe 30% of its harvest, or what happens when nations like Pakistan, one of the world’s largest producers of textiles, are underwater every year, or how the rich West keeps it lights on at all.

It’s not a drill, and it’s certainly not a joke. It’s a very, very real mega-scale crisis.

Abundance is over. Scarcity is here. And instead of solving the problem by fixing our systems — we’re making it worse. It’s a suicidal course.

I don’t say that lightly. I mean it, and I hope you’ll all think about it. Because the only way it changes? Is if we demand it does.

September 2022