By James Meadway who hosts the weekly economics podcast Macrodose and is director of the Progressive Economy Forum. Previously, he was economic adviser to the shadow chancellor, and chief economist at the New Economics Foundation. Originally published at OpenDemocracy.
The working assumption, for governments and central banks across the world, is that at some point soon everything will get back to ‘normal’ – our economies will return to either pre-pandemic or, sometimes, even pre-2008 crash levels.
These beliefs are reinforced by media economics commentary and across political parties.
But what if they’re wrong? The world’s largest asset manager, overseeing $10trn in assets across the globe, thinks we are, instead, entering a period of increased risk and uncertainty, defined by unavoidable recession and much higher inflation.
BlackRock – a well-connected, influential and hugely profitable pillar of global capitalism – made the predictions in its ‘2023 Global Investment Outlook’ report.
It states: “The Great Moderation, the four-decade period of largely stable activity and inflation, is behind us.”
Instead, BlackRock forecasts a new regime with a “brutal trade-off” – falling living standards for the many becoming profits for the few.
This reality, of a world undergoing fundamental transformations and disrupting our settled modes of existence, has so far barely entered the economic mainstream.
For BlackRock to break with this consensus might, potentially, be one of the first signs of a broader shift in how major institutions in the Western economies view the world.
Annual food inflation in the UK rose to 13.3% – an all-time high – last month, according to trade body the British Retail Consortium, ahead of the official government figures out later this month.
This situation – though slightly worse in the UK due to a flawed Brexit deal and the falling value of the pound (critical as a major food importer) – is common across the globe. Even as wholesale energy prices have dropped from their summer 2022 peak, the price of food everywhere is soaring. United Nations’ forecasts show a major risk of widespread famine in the Global South over the next year, with harvests continuing to underperform.
This global spike in prices over the past 18 months was initially described by the economic establishment as “transitory”. Then, as inflation continued remorselessly upwards, familiar explanations reappeared: notably, excessive worker power (but real wages in the Global North are still falling) and excessive printing of money through quantitative easing (but we’ve been running QE since 2009).
The economic profession as a whole, and institutions such as the major central banks, have typically written down the obvious evidence of global instability as temporary factors, rather than something more systemic.
This means we’re trapped with central banks that still think pushing up interest rates to induce a recession is a smart way to bring down inflation. We have governments committed to holding down wages and salaries while allowing profits to explode.
But BlackRock believes the world is now “shaped by supply that involves brutal trade-offs” – in other words, the world economy is less effective at supplying goods and services than it was.
The after-effects of the pandemic have caused supply chain problems, as we all know, but they also think an ageing population means fewer workers, pushing up the cost of labour; that “geopolitical tensions” will disrupt global supply chains; and that the shift to net-zero carbon emissions will involve “demand and supply mismatches”.
Put all this together, and BlackRock thinks inflation will come down to the 2% level we’ve been used to only if central banks are prepared to ‘crush’ their economies into a severe recession. Since that’s unlikely, inflation will stay much higher than we are used to – combined with a miserable recession over the next year or so.
Massive profits for the lucky few
But BlackRock’s predictions don’t cover everything.
Its report misses the longer-term effects of Covid – both in terms of the impact on healthcare and, as we’re currently seeing, continuing waves of infection. It also misses, critically, the wider ecological impacts of climate change, biodiversity loss and resource depletion.
It is possible to imagine a world where peace returns rapidly to Ukraine, and the subsequent disruptions to global food and fertiliser trade are reduced. It is not possible to imagine a world where climate change and ecological destruction are thrown into reverse – indeed, some of the effects felt today, notably, biodiversity loss, are irreversible.
This twofold combination has led ecologist Nicholas Beuret to describe a “climate supercycle” of food shortages and rising prices running well into the future. (A recent episode of my podcast ‘Macrodose’ examines the coming food shortages for UK farmers.)
And, finally, BlackRock misses the extreme profits that shortages over the last year have generated for a select few multinationals, such as those supplying oil and gas.
It’s the last part that’s critical. A more unstable world affects everyone, but it will affect everyone differently.
For most of us, on the wrong side of food price hikes and extreme weather, the future is not great. But for the lucky few, shortages have been turned, through price rises, into massive profits