The response to the 2008 economic crisis has relied far too much on monetary stimulus, in the form of quantitative easing and near-zero (or even negative) interest rates, and included far too little structural reform. This means that the next crisis could come soon – and pave the way for a large-scale military conflict.
BEIJING – The next economic crisis is closer than you think. But what you should really worry about is what comes after: in the current social, political, and technological landscape, a prolonged economic crisis, combined with rising income inequality, could well escalate into a major global military conflict.
The 2008-09 global financial crisis almost bankrupted governments and caused systemic collapse. Policymakers managed to pull the global economy back from the brink, using massive monetary stimulus, including quantitative easing and near-zero (or even negative) interest rates.
But monetary stimulus is like an adrenaline shot to jump-start an arrested heart; it can revive the patient, but it does nothing to cure the disease. Treating a sick economy requires structural reforms, which can cover everything from financial and labor markets to tax systems, fertility patterns, and education policies.1
Policymakers have utterly failed to pursue such reforms, despite promising to do so. Instead, they have remained preoccupied with politics. From Italy to Germany, forming and sustaining governments now seems to take more time than actual governing. And Greece, for example, has relied on money from international creditors to keep its head (barely) above water, rather than genuinely reforming its pension system or improving its business environment.
The lack of structural reform has meant that the unprecedented excess liquidity that central banks injected into their economies was not allocated to its most efficient uses. Instead, it raised global asset prices to levels even higher than those prevailing before 2008.
In the United States, housing prices are now 8% higher than they were at the peak of the property bubble in 2006, according to the property website Zillow. The price-to-earnings (CAPE) ratio, which measures whether stock-market prices are within a reasonable range, is now higher than it was both in 2008 and at the start of the Great Depression in 1929.
As monetary tightening reveals the vulnerabilities in the real economy, the collapse of asset-price bubbles will trigger another economic crisis – one that could be even more severe than the last, because we have built up a tolerance to our strongest macroeconomic medications. A decade of regular adrenaline shots, in the form of ultra-low interest rates and unconventional monetary policies, has severely depleted their power to stabilize and stimulate the economy.
If history is any guide, the consequences of this mistake could extend far beyond the economy. According to Harvard’s Benjamin Friedman, prolonged periods of economic distress have been characterized also by public antipathy toward minority groups or foreign countries – attitudes that can help to fuel unrest, terrorism, or even war.
For example, during the Great Depression, US President Herbert Hoover signed the 1930 Smoot-Hawley Tariff Act, intended to protect American workers and farmers from foreign competition. In the subsequent five years, global trade shrank by two-thirds. Within a decade, World War II had begun.
To be sure, WWII, like World War I, was caused by a multitude of factors; there is no standard path to war. But there is reason to believe that high levels of inequality can play a significant role in stoking conflict.
According to research by the economist Thomas Piketty, a spike in income inequality is often followed by a great crisis. Income inequality then declines for a while, before rising again, until a new peak – and a new disaster.
This is all the more worrying in view of the numerous other factors stoking social unrest and diplomatic tension, including
- technological disruption, a
- record-breaking migration crisis,
- anxiety over globalization,
- political polarization, and
- rising nationalism.
All are symptoms of failed policies that could turn out to be trigger points for a future crisis.
.. Voters have good reason to be frustrated, but the emotionally appealing populists to whom they are increasingly giving their support are offering ill-advised solutions that will only make matters worse. For example, despite the world’s unprecedented interconnectedness, multilateralism is increasingly being eschewed, as countries – most notably, Donald Trump’s US – pursue unilateral, isolationist policies. Meanwhile, proxy wars are raging in Syria and Yemen.
Against this background, we must take seriously the possibility that the next economic crisis could lead to a large-scale military confrontation. By the logicof the political scientist Samuel Huntington , considering such a scenario could help us avoid it, because it would force us to take action. In this case, the key will be for policymakers to pursue the structural reforms that they have long promised, while replacing finger-pointing and antagonism with a sensible and respectful global dialogue. The alternative may well be global conflagration.
In the Midst of Clerical Misdeeds, a Crucial Moment for the Laity
It is hard to overestimate the storm that is brewing. Only penance and a complete housecleaning can restore credibility and trust.
I hope our bishops, especially the highest ranking and those closest to the epicenter of the Archbishop McCarrick case, hear just how angry the faithful are. I think it is hard to overestimate the storm that is brewing.
.. If any of our prelates think this latest storm will soon pass, they should ponder the more likely case that these are merely the outer bands of a Category 5 hurricane that is closing in and will likely make landfall in Baltimore at the November meeting of the United States Conference of Catholic Bishops (USCCB).
.. I have never seen people so serious and determined to take actions of their own. Frankly, as the faithful often remind us, their real power is the power of the purse—that and voting with their feet. I have usually dismissed plans to refuse to give to the Annual Bishop’s Appeal or other such collections as the threats of a few on the fringes, but I am now hearing such things from far more mainstream sources who say that it is the only way to get the bishops’ attention.
.. I have learned from Church history that reform almost never comes from the top; it comes from religious life and from the grass roots, from among God’s people. Please stay faithful to the Lord and His Body the Church. Pray as never before. Realize that the devil would like nothing more than for you to walk away from the sacraments.
.. feel freer than ever to confront Church leadership and insist upon reform
.. I encourage each of you to write personally to your bishop. It is not enough to sound off on social media or in comments sections on the internet. Be old-fashioned: write a physical letter to your bishop and request a written reply, at least acknowledging receipt. Be brief and charitable, but also be clear about the crisis of trust in episcopal and clerical authority and your deepening concerns over what this means if trust cannot be restored.
.. Remember, too, not every bishop or priest is equally to blame. Some are suffering as much as you are. However, no one, clergy or lay, should exempt himself from the task of summoning the Church to reform and greater holiness.
.. To those who are inclined to use financial withholding as an expression of concern, I ask that you remember that much of these collections go to help the poor. Please consider such a method as a kind of last recourse. Use it only if you must, and as a medicine not an expression of vengeance. I ask that you consider giving an equal amount directly to those who help the poor. Also, if you choose to do this, write to your bishop explaining what you are doing and why.
.. I am grateful that many lay faithful love the Church enough to be angry. Sometimes one must be angry enough to be willing to act for change and to persevere in that work. I hope you will honor your anger and use it to creative ends: to tirelessly demand real reform in all the ways God gives you to see. Be careful to target your anger and speak it in love and for the good of all.
Forget left and right. This is what will determine the midterms.
And the most powerful faceoff of all may be “reform” vs. “corruption.”
.. New York magazine’s Jonathan Chait was one of the first journalists to suggest how important corruption could be during this year’s campaign. Writing in April, Chait argued that it “should take very little work” for Democratic candidates “to stitch all the administration’s misdeeds together into a tale of unchecked greed.”
.. The advantages of the corruption issue are
(1) “corrupt” really is the right word to describe the Trump administration;
(2) a concern over corruption transcends philosophical dispositions; and
(3) the failure to “drain the swamp” is one of President Trump’s most obvious broken promises. Instead, Trump has turned the swamp into an immense toxic-waste dump.
.. Alas, we now know that basic expectations — from the release of tax returns by presidential candidates, to the avoidance of blatant conflicts of interest — must be codified. Scandals are like that: They teach us where existing laws fall short.
.. John Sarbanes (D-Md.) introduced a resolution outlining a broad agenda that has been co-sponsored by 163 House Democrats.
.. They would start by restoring the effectiveness of the Voting Rights Act, gutted by the Supreme Court in 2013; providing for nationwide automatic voter registration; ending purges that illegitimately disenfranchise many citizens; and outlawing gerrymandering by requiring states to establish cross-party commissions to draw district lines.
.. the package would codify ethics expectations of public officials — including presidents. To fight foreign meddling, it calls for “real-time transparency of political advertisements on all advertising platforms,” an ideachampioned by Sen. Amy Klobuchar (D-Minn.).
I Think I’m Going to Kathmandu, Say the Chinese
If things go as planned, one day soon Chinese trains will pull into Kathmandu, Nepal, on a new railroad built to lessen the landlocked Himalayan country’s dependence on India.
.. It’s time to acknowledge that in raw economic terms China has comprehensively outpaced India. If winning regional influence depends on building ports and railroads abroad, or dazzling visitors with skyscrapers and broad boulevards at home, then India’s prospects look bleak.
Compared with China, however, India remains a bastion of free speech, minority rights and judicial independence. New Delhi ought to play to these traditional strengths by deepening them.
.. On Monday, China blocked HBO.com after comedian John Oliver ran a segment that discussed Mr. Xi’s alleged touchiness about his purported resemblance to Winnie the Pooh.
.. it wasn’t always a certainty that China would pull ahead. According to the World Bank, as recently as 1990 India’s per capita income ($364) was higher than China’s ($318). Paradoxically, China’s communists unleashed market forces more effectively than their democratically elected counterparts in India.
.. Four years ago, Mr. Modi looked set to enact the sweeping reforms India needs to eradicate poverty and catch up with China. But despite a few successes, such as a national goods and services tax and a bankruptcy law that makes it easier to exit a failed business, the Indian prime minister disappointed. He more resembles his lackluster socialist predecessors than a market-friendly East Asian leader.
.. India’s archaic labor laws suppress job growth by making it extremely hard to fire workers during a downturn.
.. With a per capita income of $8,100, the average Chinese is nearly five times as rich as the average Indian. The gap has widened over the past 10 years.
.. 48 of the world’s 100 tallest buildings are in China. None are in India.
.. the ruling Bharatiya has earned a reputation for intimidating reporters with massive lawsuits, pressuring media barons to sack unfriendly editors, and using lap-dog television channels and a vicious troll army to smear political opponents.