sSince the start of 2022, the economic horizon has turned cloudy as short-term growth prospects have slowed, energy costs have risen, the trade balance has become more negative, the fiscal balance has deteriorated, portfolio capital inflows It’s gone, the rupee falls, companies get more cautious, markets panic, and consumers feel the inflation pinch.
All of these have proximate causes, many of them global in origin, but it would be a mistake to focus only on them. Long-term trends need to be understood.
Entropy, or disorder in a system, is a concept that is not commonly used to understand economic trends, but it is the best form of disorder and randomness at work today in determining the medium-if not the long-term course of events. describes. Entropy should increase over time, while economic trends tend to move in cycles; But if the cycle is long enough (for example, the Kondratieff technical cycle, believed to last 60 years) then the difference is not material.
Many elements move into complex molecules of increased economic entropy. First comes the disproportionate weight of globalization on the weak shoulders in both rich and poor countries, along with the rise of national and global elites that commanded previously unimaginable wealth.
Second, the more dramatic manifestations of sudden wealth have been fueled by the ideological triumph of financial capitalism (one of the causes of the 2008 financial crisis), followed by the now rising prominence of venture capitalism, and third but in parallel growth the power of Big Tech. and increase influence.
This rebirth of the Great Gatsby era has been accompanied by the rise of winner-take-all (or platform) businesses and their start-up wannabes, the replacement of secure jobs with the uncertainties of the gig economy, and disruptive disruption. Three examples of traditional finance due to digitization and big data are; Media due to sponsorship of toxic, mediated content by Big Tech; and retailing because of e-commerce.
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TeaThis fundamental change, creating the tendency toward binary societies of plutocrats and proles, is challenged by a fourth trend: the forced entry of large numbers of immigrants from poor countries into rich countries (under one-sixth of the world’s population). Fifth, the rise of China (and some smaller economies, such as India) causes changes in power, shaking the old balance of power but not churning out new ones.
Add to this the biology-driven havoc of a succession of pandemics/pandemics – mad cow disease, SARS, bird flu, COVID-19, and everyone knows monkeypox – among others, dangerous research work in secret laboratories and the destruction of animals and birds. Industrial farming (to which there has also been a growing backlash from the likes of financier Carl Icahn, who confronted McDonald’s over its treatment of pregnant pigs).
One consequence is the opening up of supply chains and injuring travel and tourism businesses: the movement of both goods and people has been disrupted. Finally, add to the technological changes being force-fed by global warming, causing sudden shutdowns of not only specific industries but entire sectors (energy, transportation, manufacturing).
Like the 2008 financial crisis, the economic consequences of these multiple, random elements of disorder are disorienting. Due to a dangerous cocktail of unregulated financial capitalism mixed with political urges in America to provide housing to economically stable income groups, the “solution” was a massive boom in public debt.
When Covid-19 posed a challenge, so was the monetary policy response. The result of the rollback attempt is now not only stagnation, but perhaps a recession, combined with inflation (in another deadly cocktail) and possibly a bear market for stocks.
Political-economy responses reflect disorientation, from the rise of political nationalism and economic nationalism to the spread of alternative truths, momentum Brexit and Donald Trump. The ideological challenge to the ideal of liberal-democracy through vigorous governance, even as changes of power (both up and down) have forced the country to increase defense spending – usually not a good precursor. .
The cycle of events could also end the Chinese super-growth story. While India may benefit from this, it must acknowledge that entropy is a bigger reality that must be considered.
By special arrangement with Business Standard
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