John Rapley is a political economist at the University of Cambridge and the author of Twilight of the Money Gods: Economics as a Religion and How it all Went Wrong.
Coronavirus may be with us forever, but this pandemic will end. With vaccination under way, we’ll start emerging from the woods sometime this year. So while this winter may feel dark, the future looks bright.
In fact, some commentators feel so sprightly, they’re predicting that not only will 2021 be better than 2020 – not a high bar, admittedly – but that the year will launch another Roaring Twenties. Let’s face it, we’re all sick of takeout food, working in tracksuits and sitting at home. Eager to get out and mingle, we’ll soon tidy ourselves up, pack the clubs, theatres and restaurants and splurge on clothes. And we’ll have the money to do it. Governments showered us with cash during the pandemic, but we had so little to spend it on, we ended up saving. Canadians at one point were setting aside almost a third of their incomes, four times the usual rate and a trend mirrored in other developed countries. So, say the hipster Gatsbys, as soon as we’re set loose, we’ll ring in a decade of soaring stock markets, raucous parties, casual sex and crowded shops.
Or perhaps not. Although it’s a safe bet the next holiday season will be plenty more festive than this one, so what? Have you never entered a restaurant so famished that you order everything on the menu, only to find that halfway through you’ve eaten your fill? This may be the year that, as one journalist put it, we accept every invitation that comes our way and then, after the initial euphoria wanes, begin inventing excuses to go home and watch Netflix. For one thing, just because we stashed some cash during the pandemic doesn’t mean we’ll spend it all in a hurry. Some of us will, especially if we have secure incomes. But anyone who lost their job during the pandemic, and the many more who fear they still might, will likely be dipping into their rainy-day funds prudently.
More to the point, we’re not living in the 1920s. A century ago, the Western world was younger. Literally younger, in that the vast majority of the population was working or soon to enter the work force, meaning there was lots of latent energy ready to get things moving. But the West was also figuratively younger. Most people still had little more than primary education, which meant the great productivity improvements that come with secondary and, to a lesser extent, tertiary education still lay ahead. The half-century after the Great War saw a massive expansion of education, which, coupled with the great technological leap caused by widespread electrification, meant the West was just entering the most dramatic period of productivity growth it would ever know. Taken all together, just as a young person can recover more quickly from injury or illness than an elderly person, the youthful society of the 1920s was able to bounce back strongly after the 1918 flu pandemic.
Today, in contrast, with roughly a fifth of the population of Western countries retired, the ability to ramp up our output will be more constrained. By the 1970s, the productivity gains of the earlier era started petering out. Since then, growth has slowed to a crawl. And don’t get too excited about a surging stock market. We may have put the cart before the horse with that one. In the 1920s, economic expansion drove up profits, which drove up share values. Today, share values have already been inflated to bubble-like levels by central banks, and it’s a brave soul who predicts the kind of stock market gains we saw last year continuing through the decade. With so much of the population dependent on investment returns for their incomes, the economy can ill afford the collapse in asset values of the sort that used to occur regularly in capitalist countries. Over the past generation or so, each time the market has crashed, central banks have rushed to the rescue, flooding the markets with money. They did it again last year. That’s kept those of us dependent on investment income out of the poorhouse. But it’s not great for the economy. As anyone who has recently tried to start a business or buy a house can tell you, the costs of mortgage payments and rent make it harder to move up the ladder than it was in the 1920s.
Past economic cycles were predicated on a simple model: When we spend, we create jobs, which creates more income, which creates yet more spending, all of which prompts businesses to expand their operations. Applied to today’s landscape, the model anticipates that with U.S. companies sitting on more than US$3-trillion of cash, investment is ready to explode. Unfortunately, most of that money was borrowed, largely from central banks and largely last year, when businesses were building cash floats to survive lockdowns. It’ll take years to service those debts. So we may wait in vain for an investment cavalry to ride to the rescue.
That points to another factor that could shorten the legs of the coming boom. If spending rises faster than output, inflation could tick upward. At the moment, only a handful of economists are predicting the return of 1970s-style inflation. Nevertheless, most expect prices to rise more in coming years than they did in the recent past. If they start to drive up interest rates, that could further inhibit investment. In a worst-case scenario, it could even trigger a market crash – much earlier in the decade than the one that capped the Roaring Twenties.
So in itself, the swallow of a late-year rebound hardly makes a long, hot spring. All the same, even if the coming rebound doesn’t usher in a decade of opulence, we may nonetheless have entered an extraordinary and transformative time. That’s because some trends that will alter the way we live and work, and which were expected to play out over decades, were rushed into production by the pandemic.
Start with the forced experiment in remote working. Many employers will stick with the new model not because they fear another pandemic – although that will remain a concern – but because it has reduced costs with little apparent loss in productivity. Cities won’t die, but megacities may get taken down a notch, as people continue moving to smaller cities, towns and suburbs. Hitherto lucrative commercial properties that provided steady incomes to pension funds, such as office towers and shopping malls, may lose value. In Canada, lots of retail space may remain empty. Policies that assist the conversion of such properties to new functions – turning them into co-working spaces or accommodation, widening sidewalks to encourage footfall, allowing rents to fall so new businesses and residents can move in – could pay handsome dividends. Done properly, they could even prompt a new efflorescence in neighbourhoods, even leading to the emergence of a “15-minute city.”
Meanwhile, we may be standing on the cusp of an energy revolution. The pandemic revealed two things: the heavy price tag of uncontrolled development and the immense possibilities of ambitious government. Economic growth that has pushed humans deeper into virgin forests has released a series of zoonotic diseases over the past couple of generations, and the sudden blow of COVID-19 has sharpened the focus on the kinds of shock that climate change will similarly bring. By the same token, after years of hearing our leaders tell us how big government was a problem, we saw last year that it can actually be our salvation. Massive government action kept many of us alive and employed during a pandemic, while public investment helped fast-track the development and distribution of vaccines.
With governments around the world now signalling that they intend to get serious about climate action, investors are rushing to place their bets. Last year, the oil giant Exxon lost half its market value. Tesla’s rose sevenfold. In the coming years, legacy industries, firms and funds, including pension funds, with heavy exposure to fossil fuels could potentially face a collapse as deep as the horse-drawn transport industry did when Henry Ford gave us the Model T.
Along with this shift to green energy, companies will want to build resilience to the sudden supply shocks of the sort the pandemic brought. When farms that relied on migrant labourers found their supply suddenly cut off, they faced potential ruin. Those that can afford to will accelerate the application of robotics and artificial intelligence in harvesting their crops. This so-called fourth industrial revolution will likely affect many hitherto-protected jobs as well, particularly in the professions, where the substitution with computers, big data and algorithms has already begun.
It’ll also mean many jobs that had stayed at home amid the first wave of globalization, in medicine and professional services such as accounting, might get outsourced to low-wage zones. During the lockdowns, medical clinics had to provide many services over the phone. Now that we’ve got into this habit, what’s to stop us being transferred to a doctor in a developing country who can feed our information into a massive database that spits out a diagnosis at a fraction of the current cost?
All told, the coming decade may well bring a revolution in the way we live and work. This could be both exhilarating and frightening. As happens in any revolution, there will be winners and losers, and governments face the tall order of smoothing the transition to this new world. It’s not clear all of them are up to the task. Those wedded too heavily to nostalgia, to getting back to normal or returning their societies to the “good old days” and to preserving old industries will struggle as mightily as they did to restore life as usual at the height of the pandemic. Similarly, those governments that fancy themselves future-focused, but trust that technology will solve all the problems it creates, will fail to prepare their societies for the disruptions that lie ahead. In the 1920s, a horse groom who lost his job could usually find new employment in one of the many car-related industries that had put him out of work. In the 2020s, a pensioner whose income depends on a rental stream from large properties that now lie half-used might face fewer options.
As a result, the volatile politics of the past year, when opponents fought in U.S. streets, looks likely to endure. Getting those arguments off the streets, and into the electoral assemblies, will be one of the greatest challenges of the coming years. In consequence, the roar of this decade may be heard less in the markets and parties than in the protests and political speeches.
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