Ukraine & Economics
(Image source: ULI Charlotte)
In February 2020, Gillian Tett stood before the annual Urban Land Institute Carolina Meeting’s audience on the eve of a pandemic and presented patterns she sees in the global economy. Thursday evening Tett was back, picking up where she left off, a new crisis on the forefront of all our minds.
Gillian Tett is an accomplished journalist and professor, currently working as the U.S. Managing Editor for the Financial Times and professor at Columbia University. Leaning on her formal training in anthropology to integrate invisibly and understand different environments, she became an award-winning author following her reporting and book on the 2009 recession.
The Keynote Presentation, aptly titled “Dazed and Confused: Making Sense of an Uncertain Economy” began on a more personal note. Tett took no time to address the issues on the forefront of our minds, stating
“When I called this talk “Dazed and Confused” I thought that I would be talking with you about mere monetary policy and mere inflation and economic issues like that. I had absolutely no idea that I would be talking to you on the day that war has broken out in Europe and as you just heard it’s a very personal issue for me, I’ve actually spent the last 48 hours communicating with people in the region”
Nevertheless, Tett began her presentation with economic growth in the twenty and twenty-first centuries. Articulating that while the COVID-19 crisis certainly disrupted the global economy, overall growth has almost entirely corrected itself, to continue along its previous trajectory. Tett tracks Goldman Sachs economic indicators, remaking that the global yield curve, indicating short-term and long-term bond rates, is currently flattening. This can be an indication that investors are losing faith in a market long-term. It, unfortunately, aligns with overall confidence in markets.
According to Edelman’s 2022 Trust Survey, an annual record of global trust, economic optimism is on the decline. Particularly, trust in societal leaders is going down, while trust in neighbors (despite them being close in proximity but lacking expert knowledge) is increasing. Now you may ask: what does this have to do with our economy? As trust in societal leaders declines, so does trust in democracy. Historically, this has meant war. As for 2022, Tett says the Russia Ukraine conflict poses the greatest economic threat to energy markets and overall market confidence. Focus on context, trust, and community is key to understanding our economic future in uncertain times.
The Russia, Ukraine conflict isn’t the only challenge facing the modern global economy. While renewed focus on Environmental, Social, and Corporate Governance (ESG) began as activism it is now used to analyze the risk associated with an investment. Like COVID-19, climate issues know no borders and they are changing our economy. Tett declared, “If you want to make sense of the world in 2022, it’s time to wake up and move beyond tunnel vision to lateral vision. The stuff that we used to think was external to the economic models is becoming incredibly important today. Be that geopolitical conflict, be that environmental issues (which weren’t in the economic models 10 years ago), be that social issues, it’s time for lateral vision”
According to a January 2022 McKinsey & Co. study on necessary infrastructure spending for managing climate issues, global infrastructure spending needed to achieve net-zero emissions could be $9.2 trillion per year until 2050. The investment required to deal with future challenges will challenge our financial systems.
As people question today’s capitalism and share ideas and opinions on social media, the geopolitical environment widens. Innovation, democracy, globalization, and free-market capitalism will drive our economy. Despite the fact that, as Tett says, “We’re not dealing with Putin the rational…. But Vlad the mad”, she remains hopeful. Noting that the sense of calm we have had in the economy for decades is rare but that humans are more adaptive than we often assume, and we will survive.