The surprising impossibility of steady growth. Phin Upham discusses the geopolitical dangers facing the world.
A gold coin invested at 3% above inflation at the time of Christ would be worth today as much as a sphere of gold four times larger than the world. This implies that over time even this growth rate is not feasible – not because it is high in times of stability but because every few hundred years the world goes through some event which results in the destruction of the stock of economic wealth. Forest fires are said to be essential to the health of hardwood forests, indeed firemen sometimes light them on purpose to “rejuvenate” a forest. It seems that perhaps economic forest fires may be a fact of life as well.
As peace and growth in the world occurred since 1950, and globalization became preeminent the wealth was funneled into developing the periphery nations where cheap labor and natural resources could be funneled back into the core. With this crisis the wealth has shrunk back into the core (only recently has some risk appetite returned) and the periphery is the most unstable. People worry about the EU but no feasible outcome of the PIGS crisis there will result in anything like global conflagration.
The premium in the modern world has turned from economic growth to political stability. The future might belong not to the fastest growing but to the most stable – by in large the US and Japan.
The financial of the US and the world is at one of the hardest points to predict in the last hundred years. Geopolitical uncertainty, economic uncertainty and political uncertainty make this one of the hardest markets for investors in memory. The only thing that is certain is that one needs to watch everything, because it is all interconnected, that one needs to be a student of the past but be aware of the uniqueness of the future, and that nothing, nothing is from the global forest fire that has only begun. Perhaps “Caveman Economics” is the right strategy for the coming decade – an age where one must accumulate and protect, vigilantly watching for dangerous predators.
Samuel Phineas Upham has a PhD in Applied Economics from the Wharton School (University of Pennsylvania). Phin is a Term Member of the Council on Foreign Relations. He can be reached at phin@phinupham.com