The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan’s appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.
Here is the crux of the matter as expressed in a piece which I wrote last year:
The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out….
Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.
Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.
As I view the current world landscape, I am reminded of two movies (which I’ve written about before) that I think capture the zeitgeist: Melancholia and Take Shelter. In both the protagonists increasingly sense that something is terribly wrong, but can’t quite put their finger on it. Everyone around them thinks they are ill or crazy. But for both protagonists, their anxiety comes from an inner vision that stems not from mere psychic disturbances, but rather from alarming real-world circumstances that are about to break into the open.
In a sense, these two characters represent those of us who cannot repress the pervasive anxiety of our times and who seek not merely to alleviate it, but rather to face it–to find out its origins and address its causes.
And here we return to the god Pan, mentioned at the outset. It is fitting that this god of nature–of shepherds, flocks, and wild places–should also in our age be associated with the panic we feel. For it is nature itself which is weighing on our economy in the form of climate change and fossil fuel depletion. As California–the seventh largest economy in the world behind France–burns in the heat of a multi-year drought, the grim consequences of our poor stewardship are becoming apparent. The images of fiery forests and dust-dry fields command our attention.
But hidden from the view of most is the role that increasingly expensive energy has played since the beginning of this century in slowing economic growth. The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels. Now we are going after the hard-to-get remainder which are costly to extract. That takes resources away from the energy-consuming part of the economy and creates a drag on economic growth. Hence, a dramatically slower economy in 2015 after four years of record or near record average daily prices for the most critical fossil fuel, oil. (The recent drop in oil prices is primarily a reflection of slowing demand that comes from a slowing economy.)
The financial industry through the media has intervened forcefully during the recent stock market sell-off to tell us all not to panic. These corrections are normal, they say, and long-term investors–that is, virtually everyone except Wall Street–should ignore them. What the industry and the media do not tell us is that these are not normal times.
Circumstances have changed dramatically. The evidence is there if only we have eyes to see it. Interest rates in much of the world are still stuck at or near zero seven years after the last worldwide downturn. How will the world’s central banks stimulate the economy after the next inevitable recession? By lowering interests that are already at zero? In the post-World War II paradigm, rates would be at much higher levels today, say four or five percent, and economic growth would be much faster.
Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates.
And, as mentioned above, the geopolitical stability that has been the backdrop to the pervasive buy-and-hold investment mentality has disappeared. Like the protagonists of Melancholia and Take Shelter, we anxiously await we-know-not-what.
As we do, Pan makes his ever-more-frequent appearances. Franklin Roosevelt is famous for saying: "The only thing we have to fear is fear itself." But fear is a protective mechanism. We are right to fear things that can hurt us and to act accordingly. We cannot solve our problems if we refuse to accept that we have them.
Sometimes Pan is trying to help us by warning us. Sometimes it is possible to hear him playing his flute long before he arrives on the scene. But can we listen and act in some way other than panic?
Painting: "The Closed Bank" (Die geschlossene Bank). 1870s. Edoardo Matania (1847–1929). Via Wikimedia Commons.