2023: Echoes of 1973

So what’s changed? Everything, but mostly beneath the surface churn of circus and theater.

2023 is echoing 1973 in potentially consequential ways.. It’s not just one year, of course; the entire era from 2019 echoes the era that started in 1969, when the second-order effects of postwar policies finally started kicking in.

Consider these similarities / echoes:

1. Major shifts in global capital and trade flows that attracted little notice start to matter in terms of currency valuations, inflation, monetary and fiscal policy and geopolitics: check.

2. After decades of modest inflation, inflation not only rises but is sticky rather than transitory: check.

3. Major shifts in the power structure of global oil markets: check.

4. Cultural and social shifts become divisive, reaching destructive extremes: check.

5. A global superpower is ensnared in a hot war in which the other side is supplied by a superpower rival: check.

6. Political scandals upend the cozy arrangements of political elites: check.

7. A new wave of geopolitical rivalries arise between allies and rivals alike: check.

8. Stock and bond markets keep rallying like nothing’s changed, but since things have changed, each rally fails: check.

Let’s focus on #8: market participants continue assuming that the past 15 years are an accurate guide to the next 15 years, unable or unwilling to face the enormity of the changes that have already occurred in the fundamental structures of state and private-sector finance and the economy. (I discuss these in my book Global Crisis, National Renewal.)

These shifts guarantee the next 15 years will not follow the low-risk scripts of the past 15 years. I’ve explained here many times that systems have their own dynamics, and so they don’t respond to our desires or opinions or our policy tweaks. No matter how many policy tweaks you throw at diminishing returns, for example, returns still diminish–though you can mask this reality temporarily behind extremes of stimulus and other financial sleight of hand.

Tightly bound systems, i.e. highly centralized systems, unravel far more abruptly than loosely bound systems, no matter how many fiscal or monetary policy tweaks you throw at the system.

Path dependency and dependency chains direct what happens next and constrain policy options no matter how many policy tweaks you throw at the system.

Emergent systems exhibit characteristics that are different from those exhibited by each of the component systems. This means that we can combine financial “innovations” that generate X and economic policies that generate Y and end up with Z (for example, the whole shebang collapses in a heap.) What If the Whole Shebang Unravels?

Emergent systems exhibit characteristics that are different from those exhibited by each of the component matter how many policy tweaks you throw at the system because policy tweaks don’t actually add any meaningful feedback loops or change the tightly bound centralized system. All the tweaks can do is modify a parameter here or there–meaningless to the fundamental dynamics of the system as a whole.

What’s different now is our ability to make realistic assessments has effectively collapsed. As a society and economy, we only seem capable of careening between two states:

1. Complacency / denial

2. Panic

Neither are useful in problem-solving. Rather, both are toxic to problem-solving. Not only do we face an inter-connected tangle of emergent problems, we’ve frittered away our institutional and cultural ability to make realistic assessments, solve the problems in practical, pragmatic ways and agree to share the necessary sacrifices to get the train back on the tracks.

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