It doesn't take much these days to feel miserable. We seem to be living in an age of fear; economically, politically and financially.
Economically, there are lots of reasons one could feel gloomy. Never ending austerity, slow growth, fear of deflation by many, fear of inflation returning by some. Stock markets seem becalmed as the FTSE fluctuates in a narrow range between 5,800 and 6,300; and certainly unable to break out of the 7,000 ceiling it has almost entirely been below throughout this century. China is, we are told, set to crash any day now, overwhelmed by a tidal wave of debt unleashing financial armageddon on us all. US infrastructure is crumbling with an additional $1.4tn dollars now required to catch up the backlog (according to a recent survey by, ahem, admittedly the American Society of Civil Engineers). Europe stagnates under its own huge debt burdens and the spectre of deflation. Commodity exporting economies such as Brazil, the Middle East and Russia swoon under the pressure of the commodity super cycle coming to an end. And so, it goes on.
Politically, there is also plenty to worry about if you choose to. Trump is now the presumptive candidate for the Republicans and has turned on the charm. I'm not sure which version I find scarier. Hillary meanwhile inches closer to the nomination and, as predicted here a few months ago, the contest will be between a reformulated Trump and an unreconstructed Hillary. Time will tell. In the UK, we flirt with Brexit. The only certainty is that the uncertainty is impacting the economy with inflation falling, the UK jobs market cooling, the housing market slowing (a good thing in the long run perhaps but with consequences for the here and now) and business essentially sitting on its hands waiting to know which way it will it go.
Meanwhile, across the world, anti-establishment parties are growing in stature as the decline of the middle classes and widening inequality undermine the social compact that has existed for the last few generations. Generational inequality is also an increasingly pressing issue, with politicians everywhere pandering to the needs of one generation (with a high propensity to vote) whilst ignoring (largely) the needs of the next generation who have a higher propensity to protest but not necessarily vote. And waves of immigration crashing upon the shores of the advanced economies have led to political turmoil, as politicians struggle to find a path through the conflicting pressures of the human desire to help, with the equally pressing human desire to protect our own interests.
Financially, we're in an Alice in Wonderland world of zero or sub-zero. One-third of the world's sovereign bonds now trade fully at negative yields. You pay to lend your money to them. And yet, those same sovereign states are sufficiently gloomy about world prospects not to spend this free money on vital infrastructure to improve future productive capacity. The obsession with austerity in these circumstances is puzzling for anyone who can look beyond kitchen sink economics.
It’s depressing, no?
Well, actually, no, I don't think things are quite so bad. Yes, we certainly do live in strange times. Yes, it is perfectly possible that a recession is not too far away now. This cycle is getting old and only a fool would do a Gordon, as it's known in the trade, and predict the end of the business cycle. However, recessions come and go. It could even be said by some that we need a good recession to clear out some of the excess capacity that is dragging our economies towards deflation. It may be that the measures taken by monetary authorities globally over the last decade, whilst avoiding a very real possibility of depression, have instead condemned us to an alternative fate of endless stagnation. We wouldn't share that view but even if there is a recession we'll emerge from it a little stronger, a little wiser. It is undoubtedly true that policy makers have fewer tools at their disposal than may have been the case in the past, but they are not powerless to restart the engine when it eventually does stall.
Meanwhile - humankind progresses. You hold vastly more computing power and can access much more information on your phone than anyone thought possible just 30 years ago. Medical science continues to achieve astonishing progress. Despite the frisson of fear it creates (there it is again), Artificial Intelligence promises new ways of working that can continue to improve the human condition. We make steady (if slow) progress towards a greener world. Creative destruction is part of capitalism. Look at the industries that have or are being turned upside down by our progress. The book sector, the music sector, the film sector, the retail sector, the personal transportation sector. Go and look at the long lines of empty black metal tins (taxis) lined up outside rail stations waiting for a fare. Is that efficient compared to the Uber experience? Other industries will also change beyond recognition and some are just starting to feel the cold winds blowing. The banking sector; where the big players are just starting to team up with some of the fintech revolutionaries. The car industry; whose head honchos are starting to sit up and take notice of the threat posed by the ride sharing upstarts. I have a car in London. Why?
Capitalism causes casualties in the name of providing more overall. This is economic evolution at work. We should mitigate the consequences for and support those affected but we should not fear change. For, as someone famous once said, a life lived in fear is no life at all.
If you would like to discuss any of the issues raised, please get in touch with Rob Donaldson or your usual RSM contact.