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.
After Democrats lost the 2016 presidential election, a certain conventional wisdom congealed within the pundit class: Donald Trump’s success was owed to the Democratic abandonment of the white working class and the party’s emphasis on identity politics. By failing to emphasize a strong economic message, the thinking went, the party had ceded the election to Trump... the meantime, Trump’s administration has seen that economic message almost entirely subsumed by the focus of congressional Republicans on tax cuts for the wealthy and plans to shrink the social safety net. But even as the message has shifted, there hasn’t been a corresponding erosion in Trump’s support. The economics were never the point. The cruelty was the point... Nevertheless, among those who claim to oppose identity politics, the term is applied exclusively to efforts by historically marginalized constituencies to claim rights others already possess... Trump’s campaign, with its emphasis on state violence against religious and ethnic minorities—Muslim bans, mass deportations, “nationwide stop-and-frisk”—does not count under this definition, but left-wing opposition to discriminatory state violence does... A November panel at the right-wing Heritage Foundation on the threat posed by “identity politics,” with no apparent irony, will feature an all-white panel... But the entire closing argument of the Republican Party in the 2018 midterm elections is a naked appeal to identity politics—a politics based in appeals to the loathing of, or membership in, a particular group. The GOP’s plan to slash the welfare state in order to make room for more high-income tax cuts is unpopular among the public at large. In order to preserve their congressional majority, Republicans have taken to misleading voters by insisting that they oppose cuts or changes to popular social insurance programs, while stoking fears about
- Latino immigrants,
- Muslim terrorists, and
- black criminality.
.. In truth, without that deception, identity politics is all the Trump-era Republican Party has.
.. Trump considers the media “the enemy of the people” only when it successfully undermines his falsehoods; at all other times, it is a force multiplier, obeying his attempts to shift topics of conversation from substantive policy matters to racial scaremongering.
.. The tenets of objectivity by which American journalists largely abide hold that reporters may not pass judgment on the morality of certain political tactics, only on their effectiveness. It’s a principle that unintentionally rewards immorality by turning questions of right and wrong into debates over whether a particular tactic will help win an election... In the closing weeks of the campaign, the president has promised a nonexistent tax cut to the middle class after two years in which unified Republican control of government produced only a windfall for the rich.. Trump’s nativism, and the Republican Party’s traditional hostility to government intervention on behalf of the poor, have had a happier marriage than some might have expected.
.. But that wasn’t what Trump promised—rather, his 2016 campaign pledged both generous social-insurance benefits for working-class white Republicans and cruelty for undeserving nonwhites.
.. Republicans are scrambling to insist that they will cut taxes on the middle class, offer robust health-care protections, and protect Medicare, Medicaid, and Social Security, even as GOP leaders in Congress plot to slash all three to cut the deficit created by their upper-income tax cuts.
.. When armed agents of the state gun down innocent people in the street, when the president attempts to ban people from entering the U.S. based on their faith, or when the administration shatters immigrant families, these are burdens that religious and ethnic minorities must bear silently as the price of their presence in the United States.
And in the impoverished moral imagination of Trumpist political discourse, any and all white Americans who also oppose such things must be doing so insincerely in an effort to seek approval.
.. America is not, strictly speaking, a center-right or center-left nation. Rather, it remains the nation of the Dixiecrats, in which the majority’s desire for equal opportunity and a robust welfare state is mediated by the addiction of a large chunk of the polity to racial hierarchy. It is no coincidence that the Democratic Party’s dominant period in American history coincided with its representation of both warring impulses and ended when it chose one over the other. The midterms offer a similar choice for the American voter, in rather stark terms.
The fate of Khashoggi might come as a shock to many Americans, but it’s nothing new. A U.N. report reveals that over “3,000 allegations of torture were formally recorded” against Saudi Arabia between 2009 to 2015, according to The Guardian, with the report also noting a lack of a single prosecution of an official for the conduct.
I have been attempting to expose this for many years. Others in the U.S. government know it, but either won’t admit it or attempt to brush it aside. It’s a fact that the Kingdom of Saudi Arabia is the largest sponsor of radical Islam on the planet, and no other nation is even close.
.. Since the 1980s, over $100 billion has “been spent on exporting” Wahhabism (the brand of Islam that controls Saudi Arabia and is most prevalent in madrassas). According to Foreign Policy Magazine, an “estimated 10 to 15 percent of madrassas are affiliated with extremist religious or political groups,” while the number of madrassas in places like Pakistan and India has increased exponentially – from barely 200 to over 40,000 just in Pakistan.
Even the State Department noted during the Obama administration that Saudi Arabia was the “most significant source of funding to Sunni terrorist groups worldwide,” and said Qatar and Saudi Arabia were “providing clandestine financial and logistic support to ISIL and other radical Sunni groups.”
.. Of course, this isn’t new, as the previously classified 28 pages of the 9/11 Commission report can also tell you.
The Saudis have exported this radical ideology worldwide. They have also committed war crimes in their Yemen war – a war for which American taxpayers are being used as unwitting accomplices.
The Yemen war, fought with American weapons and logistical support, has killed tens of thousands and, according to The Washington Post, left 8 million more “on the brink of famine,” in what it calls “the world’s worst humanitarian crisis.”
.. There is ample evidence of mass incarceration, indefinite detention, torture, and a complete lack of the rule of law and due process within Saudi Arabia. As a matter of understatement, this is antithetical to American ideals.
The ostensible purpose of your ban is to keep Americans safe from terrorists by barring visitors, refugees and immigrants from Iran, Libya, North Korea, Somalia, Syria, Venezuela and Yemen. So let’s consider, nonhysterically, what such a ban might have accomplished had it come into force in recent years.
It would not have barred Ramzi Yousef, the Kuwait-born Pakistani who helped mastermind the 1993 World Trade Center bombing.
It would have been irrelevant in the case of Terry Nichols and Timothy McVeigh, the American perpetrators of the 1995 Oklahoma City bombing in which 168 people were murdered.
It would have been irrelevant in the case of Eric Rudolph, the Christian terrorist who killed one person at the 1996 Atlanta Olympics and later bombed abortion clinics and a gay bar.
It would not have barred Mohamed Atta, ringleader of the 9/11 hijackers. Atta was an Egyptian citizen who arrived in the U.S. on a visa issued by the American Embassy in Berlin in May 2000.
It would not have barred Atta’s accomplices, all in the United States on legal visas. Fifteen of them were from Saudi Arabia, two from the United Arab Emirates and another from Lebanon.
It would have been irrelevant in the case of the 2001 anthrax attacks, in which five people were killed. The attacks are widely believed (without conclusive proof) to have been the work of the late Bruce Ivins, an American microbiologist.
It would not have barred Richard Reid, who tried to blow up a Miami-bound airliner in 2001 with explosives hidden in his shoes. Reid was a London-born Briton who converted to Islam as an adult.