Econ, Oh My!
US jobs growth, high interest rates, supply chain disruption, and Meta: This week, Tocqueville 21 covers geopolitics, markets, and technology.
Tocqueville In Review: Downturn for What?
International trade snarls and high interest rates mean that the US is still vulnerable to both inflation and recession. This could impact the impending elections.
Dear Reader,
I usually refrain from writing too much about economics. But the impending election season prompts me to take a closer look at interest rates, global trade, and the potential for a recession that would turn a bitter rematch between Joe Biden and Donald Trump into a rabid one.
With the release of the most recent US employment data, most of the news about the state of the American economy is quite optimistic - another nod toward the long-awaited soft landing. This is, in my opinion, a case of selling the bear’s pelt before killing it: the disruptions in the Red Sea, which affect around 12% of global trade, have yet to resolve and their full impact has not yet been felt.
The past half-decade has had a massive impact on the global ecosystem and the way that we think about international order in many ways: proliferation of conflict, high inflation, global pandemics, great power competition, etc. But one of the biggest changes that is often discussed but seldom examined is the shift in global markets. The buzzwords are plentiful: decoupling, degobalization, multipolarity (to some extent), reshoring and friendshoring - all of them indicate a transformation in the way that trade operates on the global scale.
This is, to some extent, hokum: trade continues to muddle along, albeit haltingly and with a few more redundancies or middle-men. But the last five years have highlighted that international trade is not immune to geopolitical shifts and that no country is an island - costs felt in one area of the globalized economy will eventually be passed on to consumers in other areas, a spread of infection not dissimilar to a global pandemic. The assumption that the United States can avoid the inflationary effects of mass supply chain disruption is an iffy one at best, as demonstrated by the spike in shipping costs along routes that are nowhere near the Red Sea.
Another piece of relevant economic news: on Wednesday, the Federal Reserve Committee dashed hopes of an end to high interest rates in Q1 2024, citing ongoing inflation concerns. This was somewhat contrary to popular expectation but broadly aligned with received wisdom in economics - both the strength of the economy and, hopefully, the risk of unanticipated inflationary pressures may have pushed the Fed to hold off on reducing interest rates. This may have unintended consequences.
Despite a stronger-than-expected jobs report, the US economy is not endlessly resilient. US household debt is entering distressing new territory, with overall savings levels dropping. A prolonged period of high interest rates exacerbates the debt burden on households and makes a recession more likely. The heightened emotions of a recession would only worsen what is likely to be an … animated … election season, pushing more voters towards self-destructive isolationism - just one more reminder that geopolitical risk is an unavoidable consideration in both political and economic spheres.
Shane McLorrain
Managing Editor
From Art Goldhammer’s Blog
Attal’s “Rearmament”
In his inaugural speech to the National Assembly today, French prime minister Gabriel Attal used the word“rearmament” 14 times, “poverty” only once. He indicated that his government would be a government of deeds, not words, thoughts, or theories. And already he has been out on the hustings–of necessity rather than by choice–appearing behind improvised podiums made of haystacks to assure protesting farmers that he is with them in spirit, even as CRS armored vehicles shove their tractors off the roads. In short, tragedy and farce have now been supplanted by polished production values in a professionally orchestrated PR offensive designed to showcase the new PM as man of action, or perhaps more accurately, a man of tireless movement, prepared to criss-cross the country in search of the ideal photo opportunity. Read more.
From the Archives: Therapy for Middle-Aged Democracies, an interview with David Runciman
This week, Facebook’s parent company Meta announced its first ever dividend and a $50 billion share buyback programme after reporting the biggest single day increase in a company’s market cap in history. In the same week, Meta’s founder and CEO Mark Zuckerberg faced down a bipartisan grilling by the Senate Judiciary Committee. With Zuckerberg richer - and more influential - than ever, find out why David Runciman thinks Facebook’s founding father is more dangerous than Donald Trump by revisiting out 2019 interview with the host of ‘Past Present Future’ here.