Hello, What Did You Think “Age of Extinction” Meant?
“Something is going to go boom.”
That’s how Kristalina Georgieva, the IMF’s Managing Director, put it, when discussing the state of the global economy.
So make it official. Just last week, the World Bank issued a report which everyone should know about — but few do. That report warned, in no uncertain terms, of a lost decade. For the world. It was entitled, grimly enough, “Failing Long-Term Growth Prospects.” Now, there are reports, and there are reports. By institutions — and institutions. This one? It’s a warning to our civilization. It is saying, effectively, what I do: we’re almost in the mid 2020’s, and ours is a portrait of a civilization in profound crisis.
Here’s how the report opens. “Across the world, a structural growth slowdown is underway: at current trends, the global potential growth rate — the maximum rate at which an economy can grow without igniting inflation — is expected to fall to a three-decade low over the remainder of the 2020s.” That’s… well, pretty bad. And if anything, they’re understating the case. Let’s keep going, though, for a second. Why do we face a lost decade?
Nearly all the forces that have powered growth and prosperity since the early 1990s have weakened, not solely because of a series of shocks to the global economy over the past three years. The growth rates of investment and total factor productivity are declining. The global labor force is aging — and expanding more slowly. International trade growth is much weaker now than it was in the early 2000s. The slowdown could be even more pronounced if financial crises erupt in major economies and spread to other countries as these types of episodes often lead to lasting damage to potential growth.
OK. Let’s take those one by one, so I can begin explaining to you what’s really at stake here. The Bank doesn’t call all the above “civilizational risk” — but it should.
Our global economy now has a missing engine. “All the forces that have powered growth since the early 1990s have weakened.” What does that mean? Well, what powered rising levels of prosperity? Growth in international trade, and technology — information technology. But now? Our situation’s very, very different. The way that we designed the last era of international trade has had a backlash — working classes in rich countries, who didn’t do well out of it, are giving up on democracy. Hence, the rise of the global fascist wave of now. Trumpism is the canonical example — but it’s also what happens when a global economy has a missing growth engine, because when people have nothing much to do, except despair, stew in fury, rot in rage, then of course they’re easy prey for demagogues.
What’s the great technology of now? Well, AI’s emerging. But it’s economic effects are going to be, to put mildly, disastrous. Unlike the last wave of info-tech, which let us accomplish tasks with a click, and arguably made the economy more efficient, AI’s effects are going to be weird, creepy, and ruinous. It’s going to basically cause a supply shock — a dramatic oversupply. Of what? Of all kinds of “content,” as we call it today. We used to call it “user-generated content,” what makes up most of the internet, but soon, it’ll be AI-generated content. Shudder. That’s going to devalue lots of people’s livings. Especially in the arts, in journalism, in creative fields.
It’s not that AI can write a cracking novel or a great song — it’s that the average person probably doesn’t care. Weary, depressed, you can see visibly that most people just want to tune out, no matter how low the quality of media is — hence, the rise of Netflix and Amazon as media giants. AI will finish the job of the race to the bottom, and carve a gaping hole in our economies as it does so.
Sure, there will be gains here and there — AI assisted surgeries perhaps, manufacturing advances, and so on. But the point is this. Our economy now doesn’t have a growth engine. And that is very, very bad news, in a world already turning swiftly anti-democratic, precisely because the last era of trade didn’t really lift the living standards of the working class in many places nearly as much as was promised.
It’s one thing to have a missing growth engine. It’s another to have a…house on fire. That brings us to climate change. What’s its effects on the economy? You’re already living them. Inflation, of an especially ruinous kind. Prices just keep on climbing. Corporations profiteer, adding to the burden, because, well, they can. Central banks, baffled by all this, their mindsets designed for the Industrial Age, only make the situation worse, by hammering home rising interest rates, all of which…accomplish nothing positive or constructive to solve the problem. It’s not as if a higher interest rate plants a tree or replenishes a river, after all.
Climate change’s economic effects are already upon us, and they’re ruinous. We haven’t quite connected the dots yet, because, well, we don’t want to. But some smarter minds are beginning to. Partha Dasgupta, one of the great economists of this century, is worth reading, eminently so. On the scale of everyday life, though, just ask yourself: how much longer can people take this pain?
People are already going into higher and higher levels of debt — record levels, in fact — to make ends meet. People aren’t taking on mountains of debt to buy luxury sky vacations — just to feed their families and pay the bills. Hence, the rise of buy now, pay later schemes — to fund the basics. These are dire, dire indicators, because they bring us to the Bank’s next point.
The slowdown could be even more pronounced if financial crises erupt in major economies and spread to other countries as these types of episodes often lead to lasting damage to potential growth.
How would that happen? Well, while this seems complicated, it’s actually devastatingly simple. People reach a point where they have been pushed too far. They can’t afford it anymore — basics, bills, interest. They begin to default — and by the way, delinquency rates are already creeping up — on all that debt they’ve piled up just to make ends meet. As that tipping point is hit, what happens? Financial crisis does.
Now banks have to absorb that bad debt. It doesn’t matter what form it’s in, really — that’s almost immaterial. What we can see is the setup for exactly this: prices skyrocketing, real incomes falling, hence debt levels rising, as people struggle to keep their heads above water. That can’t go on forever. At some point, the tipping point is hit, and people can’t pay anymore. Bad debts ensue — mortgage, credit card, auto, business, all of them, doesn’t matter. Banks begin to go bust. Seeing banks go bust, runs begin. A vicious circle sets in.
Now, this might all seem distant — but remember, it was just weeks ago that several historic banks failed. For exactly these reasons, more or less. The more debt there is in an economy, the riskier it gets, the higher rates get — the more banks fail. So it’s almost a foregone conclusion that this is where we’re heading, because, again, the average person’s income isn’t going up. In fact, it’s falling. That means that while, sure, some banks may have large cushions in the form of deposits from a billionaire here or there, in the end, our banking system is exposed to accelerating risk — the risk of stagnation.
It’s anyone’s guess when that crisis will hit. Will it be 2025, that we reach the tipping point, where things begin to go bust, because now life itself is unaffordable? 2027? Again, doesn’t matter so much. The point is that that is the course we are now almost inevitably on.
Yes, almost inevitably. Why are real incomes falling? Let’s go back to the first two points. There’s no growth engine in our economy. Civilization is made of a thing called “surplus.” Think of how agriculture made it possible for some people to be doctors and scientists, instead of everyone to scrabble for subsistence. Our surplus is running on empty. Because our planet has hit its limits.
I’m not kidding. People don’t really pay attention to how severe the situation is — and even the Bank isn’t worried enough. Let me give you an example of the kind of data that terrifies me.
Argentina’s already fragile economy is now taking a beating from nature, as the worst drought in almost 100 years decimates critical soy, wheat and corn production. Soy and wheat crops were halved this year, while corn yield was cut by more than a third, according to official projections, slashing Argentina’s exports in a sector crucial for the public purse.
Did you get that? Soy and wheat crops were halved. This is just the beginning of climate change’s mega-scale impacts. And yet in many nations, they’re already disastrous. It should hardly take a genius to understand that your grocery prices keep skyrocketing because now, at a civilizational scale, we are running out of the basics.
Now think of a “growth engine.” What does it mean? Well, let’s go back to the IPCC’s handy list of stuff we need to do.
There are feasible adaptation options that support infrastructure resilience, reliable power systems and efficient water use for existing and new energy generation systems (very high confidence). Energy generation diversification (e.g., via wind, solar, small scale hydropower) and demand side management (e.g., storage and energy efficiency improvements) can increase energy reliability and reduce vulnerabilities to climate change (high confidence). Climate responsive energy markets, updated design standards on energy assets according to current and projected climate change, smart-grid technologies, robust transmission systems and improved capacity to respond to supply deficits have high feasibility in the medium- to long-term, with mitigation co-benefits (very high confidence).
If we invested in all that stuff, seriously, at an historic level, now? What would happen? The very first thing that’d happen is that incomes would rise. Whole new sectors, fields, industries, jobs would be created. Research and development in them. Management of them. What do you do? I manage closed loop water systems. I work on circular manufacturing. I’m in green agriculture. I’m researching replacements for plastic.
Those are the growth industries of tomorrow. Only they’re stillborn, because we are barely investing anything in them. And so of course incomes aren’t rising, because the sectors and jobs and industries of tomorrow aren’t here. Instead, the average person is trying to eke out a living in an Industrial Age economy — which has fewer and fewer decent jobs, and has centralized both power and wealth at the very top, as systems in decline tend to do. So we have four to five generations in downward mobility, because, well, what are they supposed to do? The jobs of tomorrow don’t exist, and so young people today are baffled by the lack of opportunities — rightly so, because we as a civilization haven’t created them.
And so incomes are falling. We’re all trying to subsist on a shrinking pie now, and it’s not going well, and it’s not going to go well. When the pie shrinks, in real terms — which is what falling real incomes mean, that 2% of “growth” and more being immediately absorbed by the wealthy and powerful from the get-go — what happens? Conflict does.
These are the conditions for fascism and authoritarianism, and the reason we have a wave of those again this century is precisely that the pie is shrinking in real terms. When it does, then we have to bicker and squabble our slice of it — band into tribe against tribe, back the most violent demagogue, regress back into hatred and prejudice. See a world like that? Now you know why.
Think again of the IPCC’s list. We’re nowhere close to it. I said that if we invested in all that, the first thing that’d happen would be rising incomes — because of course that investment would mean people had real work to do, not just exploitative bullshit jobs to make billionaires richer. But the second thing that’d happen? We’d have a surplus again.
We human beings are clever — when we put our minds to it. If we did invest in that list — how long do you think it’d take? For it to reach fruition? A decade, two, three? We probably can solve those problems — the larger one of planetary resource limits — by fundamentally reimagining our systems and institutions. And then we can have plenitude again. Hey, all this stuff is being manufactured in lossless loops? Cool, great, have as much as you want. You see my point a little bit.
With investment, after a time, would come surplus. And it’s surplus that’s key to undoing the ongoing sudden, rapid decline of democracy, which, not a coincidence, almost perfectly tracks the rise of climate change and its evisceration of our civilizational surplus, too. If we did manage to grow the pie again — really grow it, not just for billionaires and creeps, but for everyone — then the preconditions for authoritarianism and fascism and theocracy, too, would be undone. We’d probably head back to an age where democracy and peace grew again.
But all that depends on having that missing engine of growth. All of it. And on that score? Let’s do a little report card. Biden’s the world leader in this, crazily enough. Europe’s trying desperately to copy Bidenomics. And that’s about it. Bidenomics is excellent, wonderful, a fantastic first step. I’m not knocking it. But it’s just a first step. All the stuff on the list? Bidenomics is just a baby step towards it. In larger economic terms, Bidenomics — or Europe’s plans to copy it — still aren’t anywhere near enough investment to really move the needle. That’s not my opinion, it’s why the World Bank’s forecasts are this dire.
To really move the needle? We need to invest in the stuff above at a genuinely historic scale. Not tomorrow, not the next day, right now. I know you’ve heard me say this before. And I wonder: have you thought I was exaggerating, being an alarmist, being hyperbolic?
It should be becoming clearer to you, by the day, I hope, that I wasn’t. We really are in a dire plight now, and our institutions are beginning to wake up to it. The World Bank’s report is an excellent beginning — even if it doesn’t fully unpick all the feedback loops I have for you. Me? I get to say what I want. A report like that has a hundred authors and more. Hard stuff to agree on. Good job to them for saying it out loud.
Are we facing a lost decade? The answer is that’s the wrong question. We’re facing a Lost Age. A Lost Civilization. Remember the missing growth engine? It’s not going to spontaneously combust itself into being. We have to create it, forge it, make it. That’s going to take investment. The idea many people have when they read folks like me is that it’s a choice. Invest or not. Just like any other false “choice” that, say, pundits present you with. This isn’t a choice.
It’s a necessity. Until and unless we invest? Our growth rates will never go up. They will keep on declining. Remember my six words to sum up the future? Falling incomes, rising prices, shrinking economy. Not a choice. A certainty. Either we invest, or that happens, which is all this, right now, continuing to happen. Every day we delay, the more that we have to invest to make that growth engine work. To think that it’s some kind of choice is folly. Either we do it, or this is the future. A lost one.
If that sounds pessimistic, by the way, remember — I said I think we can do it: the biggest challenge of all, which is bringing civilization back to surplus, which is the key to everything a civilization is. But we have to try a lot harder than we are right now.
Umair
April 2023
