Will 2023 Be "Just an Average Recession in an Average Year" or Will It Be Transformational?

It shouldn’t surprise us if 2023 turns out to be atypical and disruptively transformational in ways few believe possible.

It seems expectations about 2023 cleave neatly into two camps: the dominant mainstream view is that 2023 will be economically difficult due to a mild recession, but this will be nothing more than a run-of-the-mill recession.

Inflation will likely moderate but remain higher than recent averages. Everything else–politics, social issues, entertainment, fashion, social media, etc.–will continue on whatever path it is currently on.

In other words, 2023 will be much like any other year.

The implicit assumption in the mainstream view is that historical cycles are figments of fevered imaginations. The flow of human history is entirely contingent and follows no pattern or cycle.

The much smaller “outlier” camp sees the potential for a disruptive transformational year.

Those of us who conclude cycles are based on the ebb-and-flow dynamics of credit, energy and human nature and are therefore not just real but consequential despite their predictive imprecision see 2023 as a potential pivot in cycles which entered a new phase in the 2020-2021 time frame.

This cyclical shift isn’t a result of Covid or the response to Covid. It’s the result of diminishing returns and the exhaustion of the dynamics which powered the previous era: hyper-financialization, hyper-globalization and low-cost, abundant energy.

In terms of human nature, confidence and complacency rise and fall, euphoric greed and panicky fear ebb and flow and as Peter Turchin has demonstrated, order and disorder take turns as reasons to cooperate decay into reasons not to cooperate.

As David Hackett Fischer demonstrated in The Great Wave: Price Revolutions and the Rhythm of History, systemic increases in price–what we call inflation–sow the seeds of economic, social and political disunity, conflict and collapse.

In his book The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization, Thomas Homer-Dixon proposes a cyclical dynamic powered by the relative costs and rewards of participation in the status quo:

Once the costs exceed the rewards, people lose the incentive to support the status quo with their labor and participation. They drift away (what I term opting out) or reduce their effort to align with the diminished rewards and opportunities to advance their own interests.

The Russian economist Kondratieff famously observed how credit cycles between expansion and contraction, and this cycle powers economic expansion or contraction.

The Collapse of Complex Societies by Joseph Tainter outlines a dynamic in which the advantages of adding complexity to a social / economic system are substantial at the beginning but as the returns from additional complexity diminish, the costs eventually outweigh any gains and the system decays.

The success of adding complexity is institutionalized by the status quo, which then clings to this strategy even as the returns on adding complexity become negative and thus destructive.

I call this “doing more of what’s failed.”

Other systems analysts (Donella Meadows et al.) have illuminated the nonlinear character of systemic transformations. Ugo Bardi calls this “The Seneca Cliff”: systems which expanded slowly and steadily can decay and collapse quite suddenly and violently, surprising everyone who took the previous stability as permanent.

Systems follow their own rules, and so unlike politics, our opinions don’t change the results.

All of these dynamics are (in my analysis) clearly visible in the global status quo. The rational conclusion is the risks of disruption, disorder and conflict as things decay and fall apart are relatively high.

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