More On: Economics
Covid lockdowns, money pumping, and attempts to impose a new green economy are all having an effect. This will not be forgotten any time soon.
The acts of governments in industrialized nations, which are largely a continuation of the Keynesian economic policy rhetoric, have tarnished the economies. In the face of predicted destitution due to COVID, lockdowns, and other global challenges, these initiatives include massive stimulus and nearly unfunded government indexation of voter income.
To keep electoral support, the administration is making money cheaper. This causes demand to disperse and a profusion of zombie enterprises, confuses the incentives for healthy competition, decreases corporate efficiency, and kills the economic growth factor of innovation. Most crucially, it produces leverage, or the domination of requirements over opportunities, demand over supply, resulting in significant market instability.
Such imbalances were bought with fresh leverage before COVID times, and the imbalances went away for a while, only to be replaced by new imbalances in the future. The Austrian cycles are ideal for describing this process, its beginnings, and its outcomes. In truth, this leftist social agenda for purchasing electoral allegiance is a new political ideology predicated on simplicity and, above all, the elimination of any concern for the future.
However, in COVID times, everything has changed. Another massive influx of cash happened against a backdrop of blocked demand, rather than declining owing to economic slowdown. As a result, all agents' savings rose unnaturally, individuals stopped wishing to work, and investment into the stock market and financial assets increased, causing hyperinflation and causing them to depreciate in value.
Because supply has the capacity to fulfill demand, the idea was that once the limits were eliminated, the heightened and unmet purchase intentions would dramatically accelerate the economy, because supply has the capacity to satisfy demand, synergistically driving the economy. However, structural alterations as a result of excessive lockdowns have occurred, including holes in supply chains, lower labor force participation, and general labor shortages, hypertrophied commodities market expansion, and geopolitical tensions that strengthen all of the aforementioned issues. As a result of the cheap money, supply is failing to satisfy demand, and inflation is once again ravaging the economy.
Simultaneously, rather of limiting its clumsy involvement, the government expands social programs and government investment in the form of infrastructure projects. As a result, it depresses business by increasing the tax burden, which further adds to supply compression, less efficiency, decreased motivation to invest, and, in general, lowering business expectations while extending the mandate and number of bureaucratic institutions.
Against this context, the government is pressing a green agenda at the worst possible moment by maintaining its conciliatory policy with resource autocracies, underfunding both conventional and alternative energy, which cannot meet the present demand for conventional energy capacity. A quick perusal of Klaus Schwab's The Great Reboot demonstrates the insufficiency of such a utopian notion, which, as we can see, has anti-utopian effects when followed.
As a result of divergent interests, desires, and expectations among global actors, geopolitical tensions emerged: Russia, as a resource dictatorship, perceived a window of opportunity and the Collective West's economic fragility - and played the tactical card. The assessment was true in the near term: post-conservative externalities and leftist populist policies of Western power elites undermined developed economies, caused stagflation, and raised the risk of recession. The armed war in Eastern Europe and its aftermath struck the Western world at just the right time for the resource autocracy, which required a new push for self-preservation and population validation of the regime's legitimacy.
What do we end up with? When all of the post-Soviet difficulties accumulate, we end up with structural upheavals. Today, stagflation is a truth; tomorrow, recession is unavoidable. Social unrest, which will inevitably occur and is already occurring in various parts of the Western world, will force governments to focus on today without considering tomorrow - and to continue populist and leftist expansive discourse policies, which will inevitably lead to even more leverage and exacerbate economic and social imbalances.
Commodity inflation will take time to subside since major raw material exporters are at odds, and alternate pathways for resource imports have yet to emerge. When old energy imports from the resource autocracy are restricted, new energy is plainly insufficient. This necessitates recanalization of traditional energy supplies, which will certainly result in higher costs and faster inflation. Increasing expenses are putting pressure on supply, including logistical bottlenecks, commodity inflation, and labor shortages. A new source of stress is on the horizon, or rather, already present: increasing lending prices and a possible reduction in demand.
At the same time, China gains in the near term as the personification of an alternative sociopolitical pole. Against the backdrop of global volatility and socioeconomic inequity, the capacity to centrally boost the market during the early phases of the capitalist drive can be quite a success story. There are no acute reliance on state injections, no significant supply and demand imbalances, and no ideological limits on imported raw materials at this time.
With its own issues of expanding state capitalism in the form of hypertrophied infrastructure expenditures and an authoritarian political framework that leads to long-term market and innovation inefficiencies, China now has a distinct edge. It is seen in the ability to implement directed economic management and linear monetary and fiscal incentives. This is an edge that Western governments no longer have, and that China will soon lose as well, because "big government" games do not last very long. They all lead to the same thing: social and economic collapse in diverse forms and consequences.
As a result, Western economies confront a conundrum unlike any other: whether to continue state growth and addiction therapy with a fresh dose, or whether to begin bringing the economy back into balance. Naturally, this is linked to difficult and unpopular political decisions, which are all the more painful in a time of global tension. But it is precisely in this scenario that politicians demonstrate their genuine abilities, notably the capacity to persuade voters to give up something today in exchange for a better tomorrow. There will be no tomorrow if this does not happen.
Only one thing has been confirmed to us thus far: we are living in one day and there is no tomorrow. In other words, we're all going to perish in the end, just like Keynes said. We've probably gone through this previously.