A bumblebee should not be able to fly. Small wings and a large body, according to the laws of physics, do not provide it with the prerequisites for flight. And yet it flies!
Something similar applies to the global economy. Despite all the blows it has suffered in the last three and a half years, according to the laws of economics, it should have already plummeted. But it hasn’t. It is still flying. Low, but still holding in the air.
This comparison has gained a new argument in recent days. The express bankruptcy of the American Silicon Valley Bank should have already triggered panic and a series of bankruptcies of other banks in the U.S. and in the rest of today’s highly interconnected financial world. As it seems at this moment, a domino effect will not occur. Actors around the world are trying to contain the panic and patch the holes created by the collapse of a bank specialized in startups whose leadership was overly exposed to investments in bonds.
A shock to the financial global system would be, if it were to spread, the fourth horseman of the apocalypse. First, the global economy was attacked by the coronavirus. Just as the pandemic and the resulting break in global production and supply chains began to ease, a second blow came – the Russian aggression against Ukraine. This caused additional shocks in energy supply and many other raw materials. When the world, as usual, got used to the war in Ukraine, the third horseman of the apocalypse arrived – inflation. And when that began to calm down, signs of perhaps the most devastating monster appeared – a crisis in part of the financial architecture.
The Dividend of Globalization
As much as it seems that recession and depression are inevitable, this scenario has, fortunately, not yet occurred. It is unclear whether the absence of a global recession is a result of resilience created by globalization and effective state interventionism or if the real consequences are merely being postponed for a year or two.
The main argument for why the global economy is holding together may lie most in the dividends of three decades of globalization. On one hand, many markets have been opened, and industrial plants are more evenly distributed. Expansive monetary policies alongside freer markets have created new financially capable members of the consumer potent emerging middle classes. In China or India, for example. Even with the now rising protectionist-deglobalization trends, there is still a motor that prevents recessions.
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Another possible reason why the ‘bumblebee’ is still flying is the surprisingly strong coalition promoting the slogan ‘there is no reason to panic’. Most important actors, as much as they panic in the solitude of their offices, are trying to convey the impression that everything is actually fine. Global finances are not on thin ice. They are as solid as a rock. And that is not a bad approach. There is room for panic, but there is no benefit from it. The lesson has been learned in the past.
A third reason could be the improved state interventions. It is not surprising that in crisis situations governments try to mitigate the blows. It is strange that this, for now, works.
A fourth possible reason is the fuel injected into the global economy by the digital revolution. New technology, simply put, provides great opportunities for innovation in all sectors of human activity. Demand is created from the human desire for a more comfortable life. This buzz raises the creation of added value, and there is also a multiplicative effect. Technological revolutions in history have raised GDP growth rates. Or, at this time, have helped mitigate the decline in GDP.
What Strange Times!
This is the more optimistic version of the story. It starts from the premise that humanity, despite all its flaws, still has an ingrained instinct for self-preservation. The more pessimistic story is based on the geopolitical power struggles of the world powers, primarily the U.S. and China. Where at one moment human communities and their leadership cease to be rational. Then, driven by the desire to defend the first place (U.S.) or the thought that it is time to remove the competitor from the throne (China), they overdo it in the fight. This then triggers the aforementioned panic and the collapse of the actually fragile political and economic stability of the world.
If one were to bet on whether the structure will hold or break, the odds might be 50 to 50 percent. This is indeed a strange time. Nothing is clear. Old laws seem not to apply, and no one has clearly articulated new laws yet. It will be interesting in five or ten years to read what conclusions a leading global macroeconomist has drawn about the beginning of the 2020s. Who may not be a human, but an upgraded version of today’s captivating ChatGPT.
(Lastly, about the bumblebee. Research has shown that the secret of its flying is that unlike other flyers, it does not flap its wings synchronously. And that, surprisingly, yields results.)
