Uncertain Twilight

Our revels are now ended

Maybe you haven’t noticed, but the future’s not what it used to be. Inequality has soared, social mobility has stalled, and astronomical housing prices have forced young people to camp with their parents. Those young people could quite possibly end up poorer than their moms and dads. A pandemic — symptomatic of a biosphere crisis — has upended billions of lives and hammered the world economy. Superstorms rage where superstorms are not supposed to be, and all those bugs that used to splatter your windshield as you headed for the cottage have vanished. Droughts stalk the heartlands, forest fires rage in the West, flash floods have become commonplace, and everywhere temperature records topple like dominoes.

In The Next Age of Uncertainty: How the World Can Adapt to a Riskier Future, a former governor of the Bank of Canada, Stephen Poloz, warns us that the upcoming years — and decades — will be even more volatile, less predictable, and trickier than the recent past. “The question often posed is whether things will ever return to normal,” he writes in his introduction. “The book-long answer to that question is that ‘normal’ is not what most of us think it is.” He elaborates on this point over the course of thirteen chapters, while also offering an action plan — and some practical advice — for how governments, businesses, and individuals can minimize the downsides of this new age of precariousness.

But how did we get here? Well, the first half of the twentieth century was, in geopolitical terms, a catastrophe: the world wars, the influenza pandemic of 1918, innumerable revolts, revolutions, civil strife, invasions, the Great Depression, and the Holocaust — all added up to a death toll of well over 100 million. With the end of the Second World War, in 1945, the victors — the Western Allies, at least — were determined to avoid the mistakes of the past. Instead of punishing the defeated, as they had done with the Treaty of Versailles, they cooperated on the Marshall Plan to kick-start the economic recovery of Western Europe. To replace the clatter of guns with the chatter of diplomats, the Allies founded the United Nations, a reinvigorated version of the defunct League of Nations. And to create a global system in which countries such as Germany, Japan, and Italy did not feel they had to wage war to access raw materials, markets, and Lebensraum — but could instead prosper and feed their populations through peaceful trade — the Allies drafted the General Agreement on Tariffs and Trade. It would discipline commerce, reduce protectionism, and make autarchy and old-fashioned military imperialism obsolete. The United States, the new hegemon, backed up the whole thing with its mighty dollar, linked to gold by a fixed price. Buttressed by the International Monetary Fund and the World Bank, the gold-exchange standard was designed, in theory, to ensure stability.

This inspired tinkering led to capitalism unleashed, and over seven feverish decades it triggered the greatest period of economic expansion ever seen — along with the greatest period of population growth. In 1940, humans numbered 2.3 billion. Today we are just short of 8 billion, and the tide continues to rise. Not only are there more of us, but each of us, on average, produces and consumes on a scale far beyond that of the typical person seventy years ago. At the beginning of the ’50s, the world’s gross domestic product was estimated at $9.25 trillion (U.S.). In 2022, it is estimated, in constant dollars, at over $108 trillion. Never in the history of the human race have so many — billions of people — been lifted out of poverty. Never have we so greedily devoured our resources. Never have we produced so much garbage and waste — or such a volume of greenhouse gases.

Poloz argues that as we entered the third decade of the twenty-first century, the epoch of supercharged growth had come to an end. For him, five “tectonic forces” are now pushing us into a time of spiralling uncertainty: an aging world population, accelerating technological change, increasing inequality, soaring levels of private and public debt, and, finally, climate change. The five forces don’t just act alone; they interact in complicated ways, which makes the future even more chaotic and unpredictable.

The first tectonic shift — that of an aging population — shrinks the labour force relative to the population as a whole. Fewer workers must toil to provide the incomes, as well as the flow of goods and services, that keep a mass of baby boomer geezers alive and entertained.

An aging population means that savings will go up, Poloz argues, since traditionally the old save more than the young, a tendency, he predicts, that will keep interest rates low. (Ironically, since the book’s publication earlier this year, central banks have begun ratcheting up rates in response to the post-COVID inflationary bump caused by supply chain snarls and labour shortages and by pent‑up consumer demand. Yes, central banks can control interest rates independent of savings levels, but they can also be wrong; in this case, they may be overreacting to temporary factors.)

A greater proportion of older people also means that the types of jobs that are available will shift. The personal care and health sectors — where it is particularly difficult to increase productivity — will soar as other areas decline. Given a shrinking workforce, economic growth will be mediocre. Individual countries, Poloz suggests, can respond to a lack of workers by employing aggressive immigration policies to attract young, skilled, and entrepreneurial people. These new active citizens can help fund the lifestyles of the inactive retirees and ensure continued GDP growth.

Poloz’s second tectonic force, technological change, almost always unleashes what the Austrian political economist Joseph Schumpeter called waves of “creative destruction.” (Karl Marx put it another way: “All that is solid melts into air.”) Jobs, skills, even social hierarchies are rendered obsolete overnight. Just think of the disappearance of well-paying assembly line work in blue-collar Detroit and Oshawa. By continually creating losers and winners and by devastating entire industries, communities, and professions, technological change triggers fear and resentment, widespread crises of identity, and a search for scapegoats. It fosters polarization, nurtures populism, exalts nationalism and tribalism, and accentuates political instability — threatening globalization and amplifying risks.

Technological change also directly impacts Poloz’s third tectonic force, inequality. Computers, the internet, and instant communications networks — plus the mighty container ship — make downsizing, outsourcing, offshoring, and complex global supply chains possible, even easy. Thus technology adds hundreds of millions of low-paid workers to the international labour pool. And these workers are in direct competition with those in the rich, highly developed countries. So wages in places like the American Rust Belt are forced down, or jobs that formerly afforded a solid middle-class existence simply disappear. Robotics and other digital advancements further fragment the working class, which makes the labour movement seemingly irrelevant and the organization of workers or employees an arduous enterprise. The balance of power — not only economically, but also organizationally and politically — shifts from labour to capital.

By destabilizing entire industries, technological change creates losers and winners among individuals and social classes, as well as among companies and sectors. What emerges is heightened and accentuated risk for entrepreneurs, managers, and investors. In an era of rapid change, who can know in advance which version of a new technology will be a winner? And who can guess which company will best exploit it? As we wait for the victors to emerge, legions of businesses will bite the dust.

According to Poloz, technological — or industrial — revolutions generate successive boom-and-bust cycles. He traces how the first one, based on the steam engine and the railroad-building frenzies of the mid-nineteenth century, ended in the Long Depression of 1873–96; how the second one, based on electrification and the internal combustion engine, ended in the Great Depression of 1929–39; and how the third, that of digitization and computers, ended as the dot‑com bubble burst in 2000. The fourth industrial revolution, which features the widespread use of artificial intelligence, advanced biotechnology and genome editing, multiple uses of virtual reality, a vast extension of robotics, and manufacture through 3‑D printing, is currently unfolding. This revolution, combined with Poloz’s other tectonic shifts, promises to be particularly disruptive.

Since the Second World War, policy makers have used fiscal and monetary instruments to better avoid the massive slumps that are the result of technological disruptions. But, Poloz points out, these tactics may mean that increases in productivity have been compromised. Whereas severe downturns once weeded out the weak and strengthened the strong, more moderate oscillations may have left a number of low-profit, low-productivity, zombie companies standing, depressing the dynamism of the whole economy.

Poloz’s fourth tectonic force takes the form of soaring global debt. According to BNN Bloomberg, that figure now stands at around $300 trillion (U.S.), more than 300 percent of the world’s yearly economic output. Higher debt can make households, companies, and governments more vulnerable to shocks and to shifting interest rates. Even with very low rates, it can leave governments less room to manoeuvre when a crisis does hit. But if rates remain relatively low, Poloz argues, and if economic growth is at least equal to the basic interest rate, then individuals, businesses, and countries should have no problem servicing their debt.

Even the best crystal ball is cloudy. With central banks now raising interest rates, various bubbles — in real estate, stocks, and bonds — are bursting. This financial hiccup could, as in the past, bring the “real” economy — jobs and production — crashing down. Where does this leave Poloz’s prediction of low rates going forward? If the price stability of recent years was due not so much to the wisdom of central bankers as to the flood of cheap labour toiling in China and elsewhere and if the global supply chain is breaking down, then we may be in for a period of rapidly rising prices combined with high interest rates and slow growth, something like the stagflation of the ’70s. But if our supply chain woes, the war in Ukraine, labour shortages, and the current consumer frenzy are a blip and not a feature, then we may see a return to moderate price rises and interest rates. The imponderables are many and the jury is out — just one more example of the uncertainties Poloz predicts.

Climate change is Poloz’s fifth tectonic force. Weather that is more variable and less predictable will mean more droughts, floods, fires, crop failures, and soaring temperatures — and additional precarity. Vast and heavily populated areas may become virtually unlivable, which will almost certainly trigger mass migrations, which will likely lead to political instability — both where people are leaving and where they are heading — if not to war and civil war. Highly variable weather patterns — too cold or too hot, too wet or too dry, too soon or too late — will also increase uncertainties about harvests and food stocks. Soaring grocery prices and supply problems will trigger general unrest, creating yet more insecurity.

Given political and military volatility, climate change will make lengthy and tortuous supply chains even more vulnerable and risky, which will threaten the very foundation of globalization’s postwar miracle of productivity and prosperity. Increasingly, companies will face painful trade-offs, between higher production costs and greater unpredictability.

In addition to climate change itself, Poloz goes on, policy responses to it will create still more uncertainty and risk. Governments will be forced to make complex and unpopular choices involving carbon taxes, carbon markets, and regulations of all sorts. They will surely impose transparency requirements on a wide swath of businesses and enforce climate-friendly financial reforms. Almost every change, however minor, will trigger furious opposition and amplify instability. When enacted, these policies will be multi-layered and evolving. Poloz predicts an irritating zigzag process of trial and error. Almost certainly, the rules will differ from jurisdiction to jurisdiction, meaning extra navigational headaches for companies everywhere. Policy changes, including those that are well designed, will also exacerbate the effects of inequality and political polarization. In some cases, governments will topple; and so the policy response to climate change will compound the instabilities created by climate change itself. Everything, in short, is related to everything else. Poloz sees a future full of intensifying feedback loops — positive and negative, economic, social, and ecological.

The Next Age of Uncertainty is stimulating and ambitious, though I do have a few quibbles with it. First, it seems to me that Poloz minimizes — even ignores — the role of political power in creating income and social inequalities, particularly after the shift to neo-liberal policies at the end of the ’70s. He downplays, as did the former U.S. Federal Reserve chair Alan Greenspan, the importance of asset-price inflation and, consequently, the responsibility of central banks in facilitating — perhaps helping to create — the speculative frenzies and asset-price bubbles that have inflicted huge damage on economies, businesses, and individuals. Such bubbles can lead to massive misallocations of resources, as in our recent real estate boom, when money poured into condos in the sky rather than into productive investments on the ground.

I also find Poloz far too optimistic about climate change — and he virtually ignores the problem of an overpopulated world, arguably the elephant in the room. The ultra-rapid mass extinction of other species is an “externality” that certainly merits more attention. Plastic pollution is another.

While Poloz concentrates on GDP, he pays almost no attention to per capita GDP, which is what actually determines standards of living. A focus on the former, as opposed to the latter, leads to the idea that high levels of immigration are the solution to many of our ills; this may be so, but maybe not. In some ways, bringing in young people to support the old brings to mind a classic Ponzi scheme: finding new investors to pay dividends to those who’ve already signed up. Economists and their economic models often treat individuals as ahistorical, interchangeable billiard balls and, in general, ignore the weight of history, culture, language, and deeply embedded identities. This tunnel vision, which I’d argue Poloz occasionally shares, can lead to policy recommendations that backfire and can set off dangerous social and political reactions, as we see in Brexit and in the rise of right-wing nativism almost everywhere.

Finally, I detect in The Next Age of Uncertainty an almost endearing sense — a tincture of retro nostalgia — that, in spite of all the turmoil, we simply can go on purchasing more houses and cars. That we can, as it were, go back to something like the ’50s, to something like the future as it used to be. But how can that ever be?

Nonetheless, Stephen Poloz has given us an admirable framework for thinking about many of the crucial issues facing humanity in general and each of us as individuals. He also provides incisive, practical suggestions on climate change policies, housing, and the role debt should play in individual planning. These are all tremendously useful points to make in an ongoing conversation that is essential to our survival.