Doom merchants of Davos
“Does economic punditry have to be akin to horror films? The last six years have been the most stable in the past four decades”
Newspaper doom and gloom about the economy is a response to market forces. Just as film companies have found that audiences like to watch sex, violence and horror, so editors are persuaded that economic commentary is most widely read if it is full of crashes and slumps. End-of-year forecasts for the year to come grab attention if they are loud with warnings. If we are to believe Ambrose Evans-Pritchard in the , “a great settling of scores” lies ahead and this time, unlike 2008, it might “sweep away the entire economic order”.
The same syndrome afflicts the World Economic Forum meetings in Davos, held at the end of January every year. Crudely, the organisers have to fill seats. The publicity blurb for the latest event told the international great and the good, as they put together the 50,000 Swiss francs needed for an invitation, that, “the global context has changed dramatically: geostrategic fissures have re-emerged on multiple fronts . . . Economic prosperity and social cohesion are not one and the same. The global commons cannot protect or heal itself.”
Given the hullabaloo, it is important to check whether the world economy really is beset by instability and turmoil, and “geostrategic fissures on multiple fronts”. The International Monetary Fund brings together data from its 189 member countries to give numbers for the level and growth rate of world output, with the series in its current database starting in 1980. They show that in the 38 years inclusive from 1980 to 2017 the average growth rate of world output was 3.5 per cent. Because of the magic of compound interest, that would result in world output rising about 25 times if it could be maintained for a century. Yes, 25 times! Perhaps an awful lot is wrong somehow and somewhere, and maybe the Davos script-writers are right that we poor humans lack social cohesion, and cannot “protect or heal” ourselves. All the same, we are lucky to live at a time of astonishing economic dynamism.
Of course, an average growth rate of 3.5 per cent might not be comfortable if it were accompanied by contractions in output in one year and leaps in the next. So how are we to think about 2017 and 2018 in the context of the last few years when, allegedly, change has been experienced too “dramatically”? The IMF again has the answers. In 2012 world output rose by 3.5 per cent, in 2013 by 3.5 per cent, in 2014 by 3.6 per cent, in 2015 by 3.4 per cent, in 2016 by 3.2 per cent and in 2017 by 3.6 per cent. The main feature of the recent past is not the severe instability of growth, but its remarkable stability. In fact, the last six years have been the most stable in the entire 38-year period covered by readily-available IMF statistics.
Sure enough, the Great Recession of a decade ago was a blot on the escutcheon. But the Great Recession was the exception, not the norm. Indeed, in one respect it was totally unlike the Great Depression of the 1930s with which it is sometimes compared. Whereas the 1930s suffered mass unemployment in North America and much of Europe, the decade since the Great Recession has delivered strong employment growth. Western societies may not have the degree of social cohesion that members of the World Economic Forum regard as right and proper, but unemployment rates in several advanced countries are close to 25- or 30-year lows.
Does economic forecasting and punditry have to be akin to the making of horror films? The anxiety may arise because the world’s impressive economic stability and prosperity has been achieved only at the cost of increased inequality. Will 2018 and 2019 witness the launch of a huge uprising by the downtrodden poor in the developing countries against the undeserving rich? Might the latter include the jet-setting plutocrats who pay 50,000 Swiss francs to make themselves feel guilty at the start of every year? Will that be Evans-Pritchard’s “settling of scores”?
Sceptics might wonder exactly what form the global jacquerie will take. With all the fissures, fractures, score-settling, protecting-and-healing and the like supposedly taking place around them, they might remind the over-excited opinion-formers of Satyajit Ray’s 1977 film, The Chess Players. The chess players in question ignored the epochal event in their immediate vicinity — that is, the British invasion and annexation of Oudh — and finished their game. (On the evening before writing this column, I played a five-minute game of chess over the internet with someone in Ethiopia. Even in the 1970s the possibility of chess in cyberspace with someone in Africa would have been regarded as the weirdest science fiction. Such are the marvels of technology amid the magic of compound interest. Anyhow scores were settled, and I lost. Perhaps my opponent in Addis Ababa wanted to come to my home in Gloucestershire and to bash me over the head, but I don’t think so. This is the real world — our friendly and cosmopolitan game of chess in cyberspace — and not the fantasy world of Davos.)