Having visited Washington DC, London and Beijing in the last fortnight, the eerie feeling is a perspective of confused existentialism. In Washington, the mood is “My Way or No Way”; in London, “If Brexit, May Exit”, and in Beijing, “One Belt, One Road”.
Events recently demonstrated that going forward, anything is possible. The long-awaited (but as yet unpublished) Mueller Report is seen as a simultaneous victory for both Republicans (no collusion) and Democrats (obstruction of justice).
Every eye is on the 2020 Presidential elections, with the spectrum of political views spanning from right wing white supremacy fringe to extreme left wing socialism. The buzz word in Washington DC is Modern Monetary Theory (MMT), which suggests that central banks can print as much as money as necessary to fund fiscal deficits without inflation.
Of course, the Fed has been following a variant of MMT, since it has already signalled that no more rate cuts are necessary this year in the face of a slowing US economy.
The stock market took a sharp rally, before retreating as the US Treasury bond yield curve inverted (long-term yield lower than short-term rates), suggesting that the US economy is slowing into a recession.
If this happens, one can see not only the Fed cutting rates, but also reversing its decision to unwind quantitative easing – namely, expand its balance sheet once again. In short, print more dollars.
All this is happening despite the US Congressional Budget Office’s estimate, based on current friendly low interest rate environment, that the Federal debt would nearly double from the 2018 level of 78% of GDP to 152% of GDP by 2048.This unprecedented scenario can only be reversed by huge inflation, large tax increases or spending cuts, each of which would send the global economy into disaster territory.
In London, Brexit has revealed that anything is possible, when Parliament rejected all seven possible options for Brexit. In a desperate gambit, besieged Prime Minister Theresa May has volunteered to resign if a Brexit deal is done and agreed.
From the voting pattern in Parliament, it does seem that the mood to Remain (not leave EU) within some kind of European Common Market seems achievable, because no one liked a No Deal Brexit.
I do not recall at any time in history, except in wartime conditions, when the British were so uncertain about their future. Deep down, the British bulldog spirit – will go it alone despite the odds – should serve the nation well in the long-run, but in the short-run, whatever the outcome of Brexit, the British economy will have to re-engineer to produce new goods and services in a world without the EU.
In Beijing at the recent China Development Reform Forum, the Chinese audience heard in stony silence Professor Larry Summers lecture them on why US-China relations are so fraught with tensions.
The reaction among the audience was mixed. Some Americans thought that Larry was being tough on China, because he may be playing to the gallery for the next Democratic administration, when he may re-enter the Cabinet.
The Chinese heard his message clearly that there is US bipartisan view to shape China in their own image of what a big number 2 should act like, namely, toe the US line.
But as George Washington University Professor Amitai Etzioni wrote perceptively in “Avoiding War with China (2017)”, the US itself has not fully answered its own policy issue of how to respond to the rise of China.
For example, “calls for China to be integrated into the liberal international order are often combined with putting various obstacles in China’s way.”
The hawks may want to argue for war for their own reasons, but in a nuclear age, one certainty is that everyone will lose, both immediately from nuclear devastation, but also from long-term radiation pollution on the whole world.
The irony is that the “United States and China have a very large number of shared interests, including combatting climate change, preventing the proliferation of nuclear weapons, curbing jihadist terrorism, countering piracy on the high seas, and redirecting funds from a military buildup towards urgent domestic needs.”
My own view is that climate change is the foremost existential threat, and lack of global cooperation to deal with such natural disasters from drought, famine and pandemics, will give rise to greater social inequality, state failure, revolution and then massive human migration, all politically unacceptable.
That would increase the risks of war and conflict exponentially.
We can solve these problems through greater public goods, investing in infrastructure, education and medical care, but these need global cooperation, not global rivalry.
Reducing funds for global public goods by protectionist measures on grounds of national security will only aggravate the risks of armed conflict, because any failed state will invite tense geo-political interventions. Russian military presence in Venezuela is an example where accidents are waiting to happen.
It is a cliché to say that the world is moving from a unipolar to a multi-polar order. But the concept of a universe (a single world under the unipolar power) is now rapidly morphing into new realities of multiverses – with each country, city or community searching (and willing to fight) for their own unique identity. Francis Fukuyama has correctly identified that “Identity politics” has revived the ghosts of tribalism in nationalistic, religious, ethnic, gender or cultural behaviour.
Despite growing diversity, each group is building their own multiverse world with little common ground of mutual respect and accommodation for everyone else. This naturally leads to fragmentation, polarization and conflict.
Perhaps it will have to take another large climate disaster to convince everyone that the common enemy is not each other, but what man is doing to Mother Nature. Climate disasters like tsunamis and forest fires are Mother Earth’s revenge for abusing natural resources through over-exploitation, pollution and elimination of many species and biodiversity.
American exceptionalism suggests that everyone can engage in excess consumption through monetary creation. This is why modern monetary theory, on the assumption that the US or anyone else can consume more without savings, is disaster for Mother Nature and for everyone else.
On such existential dreams lie the future of mankind.
Tan Sri Andrew Sheng writes on global issues from an Asian perspective