From the acting editor...
The past few years have not got off to a smooth start. In 2020, we saw an attempt to overturn the US election, large swathes of Australia catching fire and then a global pandemic. The tail end of that year and the beginning of 2021 had the arrival of a new Covid variant that sent many countries down even more authoritarian and unjustifiable paths than their initial reaction. Then 2022 began with Russia invading Ukraine.
This time, it seemed like we might have escaped the curse, until the US shot down a Chinese spy balloon and three more unidentified flying objects in rapid succession (see page 9). The long-term implications of this are not clear, but they are unlikely to be good. No wonder there is a feeling that globalisation is unravelling (see page 4).
Repairing the damage
So it may seem difficult to find much to be optimistic about, but not all trends are hopeless. Shipping rates have plunged back to pre-pandemic levels (see page 22). This is bad for shipowners’ margins, although that is now reflected in share prices that offer opportunities for bargain hunters, says David in our article. Still, it shows how the global economy is recovering from the incredible damage caused by governments treating a serious but conventional respiratory pandemic as if it were an invasion by alien zombies. Sadly, the social consequences of this – from setting back children’s education to rising poverty – are still becoming apparent and will be harder to fix.
The pandemic showed how many world leaders see themselves as infallible protagonists in their own high-stakes disaster movies, when the reality is that they are manufacturing those disasters. That continues, but one can find microscopic signs of improvement. Most notably, the three-ring circus that passes for Britain’s government is reportedly looking for ways to rebuild relations with the European Union. While this undoubtedly won’t go as far as it should, any stronger ties would benefit the UK economy. Simply not making things worse on a daily basis would be a vast step forward. While we can still expect almost two years of culture-war nonsense and petty cruelty as the Tories try to stave off a crushing default in 2024, this might be the start of a political turning point that makes UK markets a little more attractive.
Give the workers a raise
Finally, there’s inflation. This remains high in the UK (10.1%) and the US (6.4%) in this week’s data, but is not ticking up. At the same time, UK wages rose at a faster-than-expected 6.7% annual rate in the fourth quarter of 2022. Central bankers fret about wage rises, even urging employees to show restraint, but never ask companies to consider curbing profits. Yet labour’s shrinking share of income is part of our woes; if conditions are changing so that workers can demand more, that’s cause for hope.
The real cure for high prices caused by exogenous factors such as commodity crunches is more supply, brought about by high prices. Markets work. Central bankers are hiking rates from a belief that the answer is to crush the economy. They are wrong, just as they were wrong to keep rates at zero because of disinflationary trends caused by other exogenous factors. Yet rates are still below where they should be anyway, and by hiking banks will burst the asset bubbles they created. If inflation remains high, they will have no excuse to cut too soon. That’s also good news.
“Central bankers ask employees to show restraint, but never ask firms to curb profits”