Worse than Fatal Distraction

The risk map of the world is looking pretty sick at the moment. There are a number of risks which have enormous potential for dislocation and harm and the likelihood of their crystallising is increasing remorselessly. The following are just two very different issues each of which is capable of having a massive impact on the lives of everyone on the planet.

By far the most important and increasingly urgent issue is climate change. The evidence for the reality of its connection to man’s use of fossil fuel is so well established I take it as a given. The deniers no longer deserve the compliment of treating them as susceptible to rational argument. The problem is we are nowhere near to taking the scale of actions needed to keep the temperature increase below 2 degrees celsius. Much good work has been done and alternative energy is making real progress but the pace of change has to accelerate significantly if we are to achieve the targets agreed by 190+ countries  at the Conference of the Parties in Paris in 2015.

If we are to achieve the reduction in fossil fuel required it means well in excess of 50% of the proven reserves currently on energy providers balance sheets will  be stranded in the ground. Clearly, this will have a major economic impact. The more delay in addressing the issue means the greater the threat from runaway climate change, or the greater the dislocation to the economy when action is taken, or both. As risks go, making planet Earth uninhabitable is about as bad as an impact can get.

The second major area of risk is the continued financialisation of the global economy. The issues which preceded the 2007/08 credit crunch and subsequent Great Recession are still with us and indeed growing again. Trade imbalances, growth of debt – public and private, lax regulation of the financial sector and threats of even that being weakened.

It is not just millenarian communists who think the financial system is inherently unstable. Hyman Mynsky, an economist widely seen as having identified the mechanisms leading to the credit crunch identified a cycle of investment behaviour which inherently lead to crises over time. Initially cautious investment strategies become less and less so as a benign environment lulls people into a false sense of security. Following this of course there is, what has come to be known as the Minsky moment where creditors look down and find, like Wile E Coyote (Road Runner), they have run off the edge of debt mountain and there is nothing holding them up but their hubris.

The financial sector now completely dominates the real economy and economic decisions are overwhelmingly determined by financial considerations. We have, what has been called “quarterly capitalism” where long term growth and productivity are sacrificed to short term dividend payments.

This financialisation of the economy has driven a massive increase in debt. In 1950 the average level of private-sector debt across advanced economies was 50% of national income. By 2006 it was 170%. Adair Turner, Chairman of Financial Service Authority in 2008, charts the growth of debt and argues it is now a major source of instability in the economy and needs to be much more effectively regulated.

The credit crunch and subsequent Great Recession confirmed the scale of the impact of financial crashes. They are notoriously difficult to predict but perhaps more worryingly with the continued growth of the financial sector and the contraction of the state it could well be that, next time, some institutions are too big to save.

There are of course a host of other major sources of instability and risk. The growth of public debt, automation of jobs and growing intra-state inequality.  Political instability in the Middle East, the Ukraine, the South China Seas, North Korea generate the potential for international conflicts and the risk of nuclear exchanges. They also sustain the environment, albeit with great help from the developed world, for international terrorism. A terrorism which generates enormous amounts of fear in the Christian West and enormous numbers of dead people in the Muslim Middle East.

Whilst the risks are all very distinct with different drivers and consequences they do have one thing in common. They are global risks. They can only be properly addressed by concerted, international, government action. And what are we in the process of doing? Separating, building walls, exiting international agreements, imposing religiously discriminatory travel restrictions, constraining international trade, generally pulling up the drawbridge.

Since the outcome of the US election commentators and politicians from all sides in the States and abroad have attempted to put a positive spin on the matter. From a mixture of wishful thinking, and patriotic desire to rally around the head of state a number of reassuring stories have been woven. Some argued the campaign rhetoric would prove to be just that and evaporate once the keys to the Oval office had been secured. Others claimed Mr Trump was really a smart guy who would recognise his need to surround himself with advisors that knew what they were doing. Yet others suggested that within the Whitehouse machine there are people and mechanisms to prevent a rogue president from doing something completely stupid. There were even those who thought that the shock of victory would somehow jolt Trump into being a rational human being when he faced the awesome responsibility of office.

As time has passed and he has pull together his team and started signing executive orders the truth has forced itself into the light, when something looks like a duck, walks like a duck, is called Donald and quacks you have got to give up believing its going to be a swan.

Neglect of the challenges facing the world is not President Trump’s style, he seems absolutely determined to make them worse. His climate change denying beliefs mean he has put someone in charge of the Environmental Protection Agency who feels the link between climate change and human activity remains to be proven.

His campaign pledges about dealing with Wall Street are to be taken forward by ex Goldman Sachs trader Stephen Mnuchin as Treasury Secretary and it looks like their first action is going to be to review the Dodd-Frank “Wall Street Reform and Consumer Protection Act”. What betting they are determined to strengthen it to something like the more radical Glass-Steagall Act, repealed by President Clinton, which had the intended consequence of preventing financial crashes!

His approach to international relations seems to be to fight fire with petrol. First he alienates the whole of the Muslim world, if not all the Muslim states, by attempting to impose a religiously discriminatory immigration ban. Beyond that is the threat of a much more aggressive screening programme for immigrants. One can only imagine what that will look like. Ellis Island may yet become the only point of entry. He rapidly moved on to charge his defence staff with providing  options to defeat IS, options which might have been considered “off the table” under the previous administration.

President Trump is not politics as usual. Dealing with him politicians need to recalibrate their basic assumptions about how diplomacy and international relations and international co-operation work. The result of the US election has to be respected and realpolitik means efforts need to be made to establish a working relationship with the “leader of the free world”. But one should sup with this man with a barge pole. It is not just that he is completely incompetent, he cannot be trusted .

In more stable times he would be a fatal distraction from the real job of governments, right now he is even worse than that.




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