INET recently posted a short article by William White in which he stated that the failure of Lehman Brothers should not be treated as an isolated event. Its ultimate cause was a longer-term process through which a combination of monetary, regulatory and safety net policies were steadily increasing systemic risks and making significant financial crises almost inevitable.
The Global Risk Institute in Toronto has just posted the paper linked below. It suggests that at least three conditions will have to be satisfied to meet the global challenge of mitigating climate change. We need to know what we should do. We need to have the power to actually do what needs to be done. Finally, we need the will to act, to do what we should do. The paper focuses on current impediments to meeting each of these three challenges. The paper finishes by discussing the possibility that we are inadvertently (“sleepwalking”) towards a polycrisis; that is, the possibility of a cascade of tipping points in a number of systems (economic/financial, political and environmental) that are each fragile and are also nested within each other. The second link is to a video recording of my session at the GRI Summit 2023.
https://globalriskinstitute.org/event/sleepwalking-towards-a-global-polycrisis-gri-summit-2023/
William White gave the commencement address to the graduating class of the School of Social Sciences at the University of Manchester on 12 July. After congratulating the graduates for their success, due in part to their own efforts, White urged them to reflect that simple “good luck” might also have played a role. If so, they had a moral obligation to create “good luck” for others. He went on to suggest that the economic world they were entering would be unusually challenging. Yet, it would also provide opportunities for economists with good professional training, which the University of Manchester had provided, and for those with enough humility to recognize the further need for a lifetime of adaptation and learning.
This article was recently published in the Summer edition of “The International Economy”. It suggests that we are moving from an “Age of Plenty” to an “Age of Scarcity”. For the last few decades we have benefited from a variety of positive supply shocks. Unfortunately, every one of these shocks has now turned negative. Moreover, there is now a need for much higher investment levels to minimize the effects of these negative shocks. The legacy of this fundamental change will be that inflationary pressures will prove more persistent that currently anticipated, that consumption must suffer and that interest rates will stay “higher for longer”.
InternationalEconomyComingAgeofScarcity
INET posted this Working Paper on 14 August 2023. It is argued that monetary policy should be guided much more by financial sector developments (credit and debt) and much less by near term targets for inflation. This argument is first supported by an historical review of the negative outcomes produced by the current policy framework. A second level of support is provided through questioning the theoretical arguments underpinning the current framework. The search for an alternative monetary policy framework would begin with the observation that an economy is a complex, adaptive system like many others in nature and society. From this perspective, arguments for introducing a “narrow money” regime need more attention than they have thus far been given.
John Plender of the Financial Times wrote an article, published on 12 August 2023, in which he referred at length to my thesis that the world is moving from an “Age of Plenty” to an “Age of Scarcity”. This was the transition referred to by Keynes and which prompted him to write “How to Pay for the War” in 1940. My use of Keynes’ words was intentional and was intended to suggest that we might be facing similar economic and financial challenges in the near future.
https://www.ft.com/content/91f39150-9abe-4257-8d52-17520d35e534
William White contributed to a “Math for complex climate challenges workshop” held at the University of Waterloo from May 1 to May 4. He pointed out that there were many deficiencies in our global efforts to mitigate climate change. Not only were there shortcomings in identifying what we should do, but the adequacy of our capacity and willingness to act were also in doubt. White concluded by referring to a still broader problem identified in a a recent paper from the Cascade Institute at Royal Roads University. It calls for more research on the steps needed to avoid a polycrisis; namely, the likelihood that a number of the systems required to support human life and civilization might all fail in a cascade of “tipping points”.
FieldsWaterlooPaperMay2023PDFhttps://www.youtube.com/watch?v=EeZh1Qew9Lc
MNI Market News posted on 3 March a podcast with William White, conducted by Greg Quinn of the Ottawa bureau. White listed a variety of reasons for expecting future aggregate supply to be constrained, and for future investment needs to strengthen. This implied a sustained need for higher real and nominal interest rates, raising fears of both financial instability and fiscal unsustainability. White suggested that fiscal restraint, directed primarily to reduce consumption, could aid in the battle against inflation and would also help ensure longer run fiscal sustainability.
https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGhvbmUuZm0vbW5pZmVkc3BlYWs/episode/ZGE4NGQzY2UtYjlkNy0xMWVkLWI2NDAtMGYzZGMzZWZkMDY5?sa=X&ved=0CAUQkfYCahcKEwjA6Nu8jsD9AhUAAAAAHQAAAAAQAQ
An interview given by William White to Mark Dittli of “The Market” was posted on 23 February. Faced with secular forces likely to lead to a more inflationary future, central banks should raise nominal rates to allow real rates to adjust upwards. However, high levels of both private and public debt (encouraged by earlier monetary easing) imply that higher rates bring significant risks of financial instability as well as the unsustainability of public finances. White suggests measures to help avoid these risks, but they imply pain for consumers. Political authorities might rather choose policies of “financial repression”. After World War II inflation rose, but interest rates were held down and the real burden of debtors was reduced over a number of years at the expense of savers. In todays world, the political implications of such redistributive policies could be important.
William White participated in a webinar panel organized by the American Enterprise Institute on 18 January 2023. White began his remarks with a long list of reasons to be concerned about financial instability. He then went on to note that, absent an “immaculate disinflation”, there might well be the need for more restrictive macroeconomic policy than is currently envisaged. With further monetary tightening likely to be constrained by fears of private financial instability, as well as fears of government debt service becoming unsustainable, fiscal restraint had to be considered more seriously. Absent the political will to do so, “financial repression” might be turned to as an easier alternative.
https://www.aei.org/events/soft-economic-landing-or-financial-market-crisis/