Until recently statistics pointed to increased peace and prosperity around the world. There were fewer conflicts, record trade, human rights were on the rise, and corruption or other abuse of power seemingly declining. Berkshire Hathaway founders often recalled how, thanks to this and technological progress, every American today is better off, and how they as very senior citizens would rather be born now than at any time in history.
But the real test of the system happens in a moment of crisis or when it starts to malfunction, which is what really happened in Great Financial Crisis of 2008. Some of our more practical colleagues in BB banks do not want to focus on the past, but this was a crucial moment, a tectonic shift, which paved road for the flow of history. Listening to more senior bankers is one of the advantages of career on Wall Street; they almost never write blogs and rarely reflect on such topics in interviews, however like nobody else they know how the system has changed. A good summary is provided in unfortunately way too long of a podcast series “Eurodollar university”.
In later articles, we would try to answer how the system has re-acted to 2008 crunch, whether it or policy (monetary and more recent fiscal one) adapted properly, and the consequences of that for broader public. Are widely debated digital assets (often called currencies) part of that response to GFC? Do solutions such as affordable housing, crypto, balance sheet expansion, and most recently paychecks encourage gambling instead, and is the crash necessary to start seeing long-term investment? What does another highly developed economy (Japan) teach us, as it continues to live through the aftermath of 1989 crash? (A local event similar to '07-08, which history is well described in the below substack, that wasn’t followed by hazardous betting in markets, but left other issues with resilience).
Taking into account the recent events (2020 — 2022) it may seem that global trade and open economies haven’t led to what George Soros refers to as prospering open societies. In his own words both Russia and China are en route to less freedom and may tow the rest with them. The West has united over threat but it’s questionable how strong the consensus resistance will remain over time. Internally, Western societies are worse off with polarized politics, record inequalities, debt, and decaying middle class under global economic dominance of otherwise isolationist America. Tech progress and individual freedoms are last benchmarks, if these fail, then we really need to reevaluate our attitudes towards last decades of stagnation. Could ESG as another attempted solution be more successful?
Authors have accumulated material over years of work, and now as times have proven to be indeed very interesting, is a good moment to publish for broader discussion. In this column there will be occasional focus on what capitalism evolved into, can we bring back days when more citizens benefited from it, and how the philosophers and modern thinking address such matters. It was a matter of time before consolidated industries led to supply chain crunch, and now the topic became relevant to everyone. How “everything is changing” with China limiting exports or refusing to act as global lender of last resort (as it did after ‘08), now going through its own “housing moment” (and housing there is really “money” as a store of value).
Good foundation for discussion provides this series of lectures, summarizing well among other the historical context (secular decline of Western middle class and flares of instability across the EM):
Power and Politics in Today's World
In conclusion, as we started we will end here with quotes from Berkshire's Warren Buffett:
“Things have been improved for the bottom 20 percent — you can see various statistics on that,” he said. “But it’s really been improved for the top 1 percent. We are a better society than we were 100 years ago. But you would think, with our prosperity, we would hold ourselves to even higher standards of taking care of our bottom 20 percent, particularly in a situation you’ve got today.”
He and Charlie Munger also mention how inequality has indeed increased in the developed countries, but is historically one of the lowest it ever was, globally.
In future posts we will question this as an achievement of capital, and whether it means Marx had been right to call for formation of International Working Class to start revolutionary changes on a global scale. Has globalization (just as in the beginning of 20th century) now led to workers having more in common with their peers from other countries rather than elites in their own?