The purpose of this column is only a plea to you to confront these escalating, mutually reinforcing catastrophes we humans are causing
Opinion: Despite all the severe stresses and strains in our economy, the outlook is reasonably OK over the next three years or so. At least in broad terms, inflation will likely ease and GDP will continue to grow.
But don’t be fooled into thinking we’re tackling our big risks and opportunities. We aren’t. In common with the rest of the world, our problems are compounding rapidly. The solutions to them are as obvious as ever; and hard as ever to act on.
Still, let’s start with the relatively cheerful short term. The forecasts are encouraging in the Reserve Bank’s latest Monetary Policy Statement, out last week, and telling a similar story to most other forecasts.
Quarterly production GDP
Of course, the Reserve Bank failed to forecast inflation accurately over the past decade or so, always expecting it to rise when it remained stubbornly low. It will likely miss the mark again this time.
However, there is good evidence here and abroad that our first bout of relatively strong inflation in three decades is transitory rather than structural. Two key drivers, energy and food prices, are easing. More importantly, there is little evidence here or in most other countries that expectations of high inflation are embedded in the behaviour of consumers and producers.
CPI inflation
A recent Reserve Bank poll of 35 experts showed a consensus of around 3 percent inflation two years from now. A similar poll by the New York Fed showed a range of 2 to 3 percent inflation a few years out.
Big economic transformations are one reason high inflation is not embedded, as it last was in the 1980s. Two examples: the power of the internet for price discovery and ease of searching for competitively priced sources of goods and services; and the extraordinary industrialisation of China as a source of goods, as this data video from Statista shows dramatically.
However, the risk remains of further, short-term spikes in prices driven by disruptions of many kinds in global supply chains.
But we have yet to act decisively and strategically to remedy our economy’s ills. To name a few of the big ones: Low wages and skills, over-dependence on imported labour, and low investment and productivity. Under-investment in education and health. High-cost housing and over-investment in real estate. Rapid depletion of natural resources and increases in pollution to produce low value commodity exports.
The adverse human impact is immense. For example, we are the worst among developed countries for the high proportion of lower income people burdened by high rent or mortgage payments. The story’s told by this chart, which Bernard Hickey ran in his Kaka newsletter this week.
Housing cost overburden among low income earners and tenants
All those are familiar stories, of course. What’s dramatically new here and abroad is how interlinked we’ve made these problems. We’ve created mutually exacerbating, escalating risks to humanity across our environmental, economic, social and political, domains.
As UN Secretary General António Guterres said in his 2020 State of the Planet report:
“We are facing a devastating pandemic, new heights of global heating, new lows of ecological degradation and new setbacks in our work towards global goals for more equitable, inclusive and sustainable development.
“To put it simply the state of the planet is broken. Dear friends, humanity is waging war on nature. This is suicidal.”
These risks are ranked each year by members of the World Economic Forum. The 2022 edition breaks new ground by asking members which risks are the most dangerous now and over the next two years, and which do they expect to be so five to 10 years from now. More than 12,000 country-level leaders in 124 countries responded to the survey.
The current ranking is notable for the dominance of social and environmental risks. Only two in the top 10 are economic ones.
Critical threats in the next two years
But looking out five to 10 years, the top five risks are environmental, the next two are social and none are economic. Of course, that doesn’t let economies and the people who shape and drive them off the hook; and the responsibility to act goes way beyond the cohort that jets into the Forum’s annual gathering at Davos.
Deeply systemic and damaging economic practices are the key causes of all those risks and many more. We are all responsible.
Critical threats in 5-10 years
The purpose of this column is only a plea to you to confront these escalating, mutually reinforcing catastrophes we humans are causing.
Don’t deny or look away. Each of us can make only an infinitesimally small contribution to the deep transformations humanity must make to avert disaster. But collectively, we can succeed.
Seeking hope on these critical issues, I’ve long searched widely and continually for inspiration. I find most of it among steely-eyed younger generations. Often, they are more realistic, more ambitious than their elders, as the Forum found in the 2021 edition of its global risk survey.
The respondents were divided into “Shapers” – younger people driving dialogue, action and change – and “Multistakeholders” – older people in senior leadership positions.
The younger generation ranked every risk as more likely to happen and with a greater impact when it does than did those who believed they were in charge, as the charts below show. My money’s on the Shapers.
