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SOMEWHERE BETWEEN 2 and 3 billion years ago, what scientists call the Great Oxidation Event, or GOE, took place, causing the mass extinction of anaerobic bacteria, the dominant life form at the time. A new type of bacteria, cyanobacteria, had emerged, and it had the photosynthetic ability to produce glucose and oxygen out of carbon dioxide and water using the power of the sun. Oxygen was toxic to many anaerobic cousins, and most of them died off. In addition to being a massive extinction event, the oxygenation of the planet kicked off the evolution of multicellular organisms (620 to 550 million years ago), the Cambrian explosion of new species (540 million years ago), and an ice age that triggered the end of the dinosaurs and many cold-blooded species, leading to the emergence of the mammals as the apex group (66 million years ago) and eventually resulting in the appearance of Homo sapiens, with all of their social sophistication and complexity (315,000 years ago).
I’ve been thinking about the GOE, the Cambrian Explosion, and the emergence of the mammals a lot lately, because I’m pretty sure we’re in the midst of a similarly disruptive and pivotal moment in history that I’m calling the Great Digitization Event, or GDE. And right now we’re in that period where the oxygen, or in this case the internet as used today, is rapidly and indifferently killing off many systems while allowing new types of organizations to emerge.
.. Just as in the Great Oxidation Event, in which early organisms that created the conditions for the explosion of diversity had to die out or find a new home in the mud on the ocean floor, the early cohort that set off the digital explosion is giving way to a new, more robust form of life.
.. FROM THE OUTSET, members of that movement embraced nascent technological change. Stewart Brand, one of the Merry Pranksters, began publishing the Whole Earth Catalog in 1968, which spawned a collection of other publications that promoted a vision of society that was ecologically sound and socially just. The Whole Earth Catalog gave birth to one of the first online communities, the Whole Earth ‘Lectronic Link, or WELL, in 1985.
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.
We rarely agree with socialist Congresswoman-elect Alexandria Ocasio-Cortez, but she’s right to call billions of dollars in taxpayer subsidies for Amazon “extremely concerning.” These handouts to one of the richest companies in the history of the world, with an essentially zero cost of capital, is crony capitalism at its worst.
.. New York is even more generous, with starting subsidies of $1.525 billion. As Amazon put it on its website, this works out to $48,000 per job. Apparently bodega owners in Brooklyn are supposed to be happy about subsidizing a third of the salaries of hipster techies.
.. New York City is kicking in its own subsidies, though its biggest concession was to waive local control over city land—a privilege other businesses don’t get.
.. Congress created opportunity zones to reinvigorate neighborhoods that have a hard time attracting private investment. But the danger is that Uncle Sam might subsidize investments that would have been made anyway. Long Island City is a classic example as it’s already been undergoing an investment boom.
.. The worst actors here are the politicians who pose as job creators but are essentially job buyers. New York Gov. Andrew Cuomo once famously said he’d change his name to Amazon Cuomo if the company located in New York, but he didn’t need to pay such a Queens ransom. Google and other companies have created thousands of jobs in New York without similar subsidies, and Amazon might well have done the same given the city’s intellectual capital.
.. The Governor also says he had to offer subsidies to compete against states that don’t have an income tax, though that admission underscores the state’s lack of tax competitiveness. Mr. Cuomo taxes New Yorkers at confiscatory levels, giving himself more money to spend. Then he turns around and takes credit for sparing powerful interests from those taxes.