Is this the economic apocalypse? If so, where are the fallout shelters?
While there’s debate about exactly what will transpire, there’s broad consensus that we are in for a period of economic turbulence. What does that mean for gig-economy types?
I’m not sure if it’s a good or bad thing, but the older I get, the less excitable I become. As a result, I wasn’t overjoyed last year when consuming media reports about how we were heading into a ‘roaring’ 1920s-style period of post-plague technological innovation and strong economic growth.
Likewise, I’m not wracked with despair reading recent media reports insisting we are destined for 1970-style stagflation. After half a century on the planet, with almost half of that time spent working as a journalist, I know that things are never as catastrophic or wonderful as the media makes them out to be.
First off, let’s all calm the fuck down about fleeting paper losses
Imagine – and if you’re under 40, you really will have to try hard to imagine this – you bought an investment property in late 2020. In 2021 it increases in value by 15-20 per cent. In 2022 it decreases in value by 15-20 per cent. At some point during 2021-2022, you raise the rent by 15-20 per cent. You have no plans to sell the property until 2030, by which time it will almost certainly have at least doubled in value.
Have you been brutally reamed by capricious economic forces? Will you be forced to subsist on cat food in an unheated studio apartment in your later years?
I would submit not.
Second off, let’s show a little gratitude for the return of full employment
“Recession is when your neighbour loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”
Ronald Reagan, before the 1980 US presidential election
When I finished my undergraduate degree in late 1992, the official unemployment rate was 10 per cent. The youth unemployment rate was three times that. The official unemployment rate didn’t get back into single-digit territory until the mid-1990s and below five per cent until the new Millennium.
Then as now, governments went to great lengths to massage the figures, so the real overall and youth unemployment rates were almost certainly higher. That harsh labour market environment was one reason I opted to do a post-graduate degree. Plenty of my fellow graduates spent a significant amount of time on the dole. Others counted themselves lucky if they could pick up some casual work delivering pizzas or picking up glasses in a pub.
And these were academic high-achievers, usually from middle class or upper middle class backgrounds. The situation was even grimmer for those less fortunately situated.
Thankfully, as far as I know, most of the ‘Class of 1992’ eventually went on to forge meaningful and, in some cases, lucrative careers. But I doubt any of them forgot that feeling of despair arising from doing everything you were supposed to do only to find yourself flailing around in the quagmire of unemployment or, at best, poorly paid, insecure work with no reason to believe things were going to get any better any time soon.
Given the life-long ‘scarring’ effects even a relatively brief period of unemployment can have on people, it’s perhaps unsurprising that Gen X never exhibited the optimism, or enjoyed the prosperity, of their boomer predecessors.
To summarise, the main reason recessions suck is because they lead to more unemployment, which really sucks, especially for younger and older individuals. (Of course, it’s no picnic for those in their thirties and forties either, especially if they have a mortgage to pay off and kids to support. But people in this age range are old enough to have acquired some valuable skills and contacts and young enough not to be too disadvantaged by rampant employer ageism.)
At the time of writing, bar a handful of tech companies, Australian businesses aren’t laying off staff. Quite the contrary, they are desperately trying to find local workers and pleading with the newly elected Labor government to allow them to import foreign labour. For the first time I can remember, there are now as many job vacancies as there are unemployed Australians.
If that means it costs $10 to buy a head of lettuce for the next few months, then that’s a price I’m happy to pay.
The end of two, possibly three, eras
If you’re reading this Substack, you undoubtedly have a first-rate intelligence. That’s handy, because I’m about to ask you to hold two opposing ideas in mind at the same time and still retain the ability to function. On the one hand, the recent gyrations in share, crypto and real estate prices are just noise, a tale told by an idiot signifying nothing. On the other hand, they are simultaneously signal, announcing the end of at least two, and quite possibly three, eras.
The end of the era of American primacy
In recent months, I’ve read Viktor Shvets’s The Great Rupture: Three Empires, Four Turning Points, and the Future of Humanity and Ray Dalio’s Principles for Dealing with the Changing World Order: Why Nations Succeed or Fail. After hearing Balaji Srinivasan on Tim Ferris’s podcast in recent days, I’m planning on reading his recently released book, The Network State: How to Start a New Country, at the earliest possible opportunity.
The tl;dr version of all these books is, “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.” With more or less delicacy, all three authors observe that the US, and other Western nations, are now led by weak men while China is very much led by a strongman.
Shvets, Balaji and especially Dalio all note America has a genius for reinvention and argue it’s not yet too late for it to pull out of its decline into decadence and irrelevance. But they all also concede that all great empires inevitably end up in a death spiral where they overextend themselves militarily, take advantage of minting the world’s reserve currency to rack up unsustainable debts, then start lurching from one economic, military or domestic political crisis to the next.
There is a great deal of ruin in a nation, so let’s park the hotly debated question of whether America, and the West in general, is in irreversible decline and move on to less disputed ground.
The definitive end of the neoliberal era
Neoliberalism’s demise was being proclaimed even before Covid hit, which now seems like an eternity ago.
Way back in 2017, the newly elected leader of the ACTU, Sally McManus, declared the neoliberal experiment was over and that while it had “created vast wealth for Australia”, that wealth had not been equitably shared. Surprisingly, Paul Keating, the great champion of Australian neoliberalism, more or less agreed with her, conceding, “Liberal economics had [in the past] dramatically increased wealth around the world, as it had in Australia… But since 2008, liberal economics has gone nowhere and to the extent that Sally McManus is saying this, she is right. We have a comatose world economy held together by debt and central bank money. Liberal economics has run into a dead-end and has had no answer to the contemporary malaise."
That pretty much sums it up. Four decades of business-friendly governments (of the centre-left as well as the centre-right variety) and ever freer markets have generated vast wealth, but only a fraction of it ever trickled down to the bottom 80 per cent.
We’re now at the stage where even most working class Tories and lower middle class strivers – the kind of people who passionately supported the likes of Reagan, Thatcher, Howard and, more recently, Trump believe the system is rigged and there is no way those from non-elite backgrounds can get ahead, bar perhaps getting in on the ground floor with cryptocurrency or trolling Wall Street hedge funds.
When people say, as they increasingly do, we are heading back to the 1970s, they are essentially saying we are going back to a world without neoliberalism. If the events of 2020-2021 didn’t drive a stake through the shrivelled, black heart of neoliberalism, the events of 2022 surely have.
The end of the post-GFC cheap money era
For the decade and a half since the GFC, inflation and interest rates, as well as real wage and productivity growth, have been struggling to get above zero. The result was that asset owners – that is, older and/or wealthier individuals with one or more properties and/or substantial share portfolios – did very well for themselves.
Everybody else, not so much.
The end of the cheap money era isn’t going to be all upside for those with few or no assets. It may well end up making life even more difficult for those on mid-to-low incomes. But, by definition, a period of economic and political turbulence always creates new classes of winners and losers. But rather than try your patience any further, dear reader, I’ll save my thoughts on how gig-economy types can position themselves to be winners in the new economic order until next week’s missive.
END OF PART ONE