GRI was delighted to have William White join us for a thought-provoking presentation and discussion on current stress factors within and outside the economy. He also covered the broad-ranging impacts of macroeconomic policy in transition.

Mr. White started with his view of the overall economy as a complex adaptive system instead of a simple, static, fundamentally self-stabilizing one. There are many other related complex adaptive systems in addition to the economy, with each system having many heterogeneous agents interacting and working together, trying to be efficient. However, when such complex adaptive systems search for efficiency, it comes with a downside – more and more underlying stresses.

Potential and actual economic policy solutions to the longstanding side effects and other problems of ultra-low interest rates and increasing government, individual and corporate leverage have become critical parts of the problem in that:

• The government debt buildup and private sector debt growth encouraged by ultra-expansionary monetary policy could be unsustainable;
• Financial regulation has significant shortcomings; and
• Widening safety nets by central banks (market makers of the last resort) and governments might create longer-term problems.

Underlying problems in the economy and financial markets are building, including:

• The slow growth of investment and productivity;
• Record high debt levels of decreasing quality;
• The stability of some financial institutions is questionable;
• Many historically high asset prices with rising volatility;
• Markets functioning badly, including at times, US Treasuries;
• The resurgence of fraud and outright delusion; and
• Uncertainties arising from the Russian invasion and financial sanctions.

Besides these economic and financial stress indicators, Mr. White pointed out a list of key underlying risk factors in other related systems, such as environmental systems stressed by population growth, political systems threatened by growing inequality and polarisation, and public health systems threatened by COVID-19. Just like an economic or financial crisis would threaten other related systems, the stresses mentioned above in these related systems also affect the economy as they continue to manifest themselves. Therefore, this holistic and systemic approach raised by Mr. White has robust merits in assessing macroeconomic issues in themselves and as part of a broader-ranging, multi-faceted policy approach.

Mr. White also highlighted that there are reasons to fear stagflation with negative supply-side shocks that have the impact of both rising prices and lowering growth:

• Pre-pandemic resource misallocations;
• Post-pandemic hysteresis; 
• Population aging in both developed and developing economies;
• Climate change and costs of mitigation and adaptation;
• Energy shocks aggravated by the Russian invasion of Ukraine; and
• Deglobalization and the need for “resilience”.