The global economy is slowing down. The US economy is also slowing down. A major contributing factor to both is the widening gap in new income generation, between the super-rich and everyone else. It is now widely argued we are living through a “new Gilded Age”, where high-powered, high-visibility interests prosper and everyone else struggles.
To be “solid gold”, by contrast, an economy needs to generate an overall increase in wealth flowing from expanded income, everyday empowerment, and wellbeing, for everyone—not only for narrowly capital interests. This is not what is happening right now.
Bloomberg is reporting:
Consumer spending decelerated to a 1.8% pace, below projections and the weakest since the first quarter, while a key gauge of prices watched by the Federal Reserve rose less than expected. Nonresidential business investment declined for a third straight period, the longest stretch since the last recession.
Demand in the US grew at its lowest rate since 2013, the beginning of President Obama’s second term, when the country was still focused on rebuilding its way out of the Great Recession. This indicates a decline in consumer savings and/or excess disposable income, relative to increasing costs.
The New York Times cites Brad W. Setser—a senior fellow in international economics at the Council on Foreign Relations—as saying:
There is no growth in exports, and manufacturing is weak. So to the extent that tariffs have succeeded in bringing the trade deficit down, they have done so largely by reducing U.S. demand, not by raising U.S. production.
When demand declines and production increases, the hugely expensive business of oil exploration, extraction, refining, and commercialization, is simply no longer as profitable. In other words, it is not adaptive enough to manage the complex, nonlinear, compounding fluctuations of the 21st century information economy. Oil will not own the future.
Financial gains are not converting into generalized enhancement of wellbeing or overcoming global risks.
While the World Economic Forum examined converging global risks in Davos, one executive noted “it doesn’t feel like the market is up 30%”—a grudging recognition of the fact that capital gains appear to be increasingly detached from the underlying landscape of everyday economic activity.
What seems certain is that a major financial-sector reckoning is coming, at least on the scale of 2008. But a reckoning doesn’t have to be a collapse, or an emergency. Some would argue the emergency actions taken after 2008 were effective at quelling the emergency, but did not amount to a deep reckoning with the problematic prevailing business model.
We should read announcements from major investment institutions like BlackRock in this light. BlackRock has announced it will make sustainability its “new standard for investing”, and this is as it should be, and BlackRock should be commended for this act of leadership. But beyond the better future value of that change in strategy, there is a structural imperative, which can be phrased as follows:
If you don’t know whether your investments are tied to resilient infrastructure and sustainable practices—and so to the relevant business models and emerging financial flows—then you don’t know how much your investments are worth.
Shock events are becoming more common everywhere in the world. Australia’s horrifying, unprecedented fires are just one example. Degradation of biodiversity, ecosystem health and resilience, water and food supplies, and extreme income inequality, are threats to long-term sustainability. They also deepen serious climate vulnerability and make destabilization of institutions, and of whole economies, more likely.
Sustainable investment is not just about doing good; it is about safeguarding your future ability to invest and earn, reliably.
Mindy Lubber, CEO of Ceres, writing in Forbes today, reports:
The U.S. economy has experienced more than a half-trillion dollars of direct losses over the past five years from climate-related extreme weather events…
This is a signal of deeper losses to come. Lubber also notes:
The National Bureau of Economic Research predict the U.S. economy could lose up to 10 percent of its GDP by 2100 if global emissions are not significantly reduced, dwarfing the 4.3 percent lost between 2007 and 2009.
2019 was a boom year for Earth systems science and sustainable investment innovation.
Leading global science institutions revealed that our food system is at risk, that biodiversity is collapsing, on land and in the ocean, and that we need to transform our patterns of industry and land use at nearly incomprehensible speed, to avoid irreversible unaffordable loss of vital natural systems.
The good news is: we also learned that there are ways to achieve the fast-moving transition to sustainable practices, and mainstream financial sector decision-making can and should be a driving force. What is new in this conversation about sustainable innovation and finance is that we have already crossed the threshold beyond which:
Unsustainable investments cannot increase the overall pool of value, and the overall pool of value cannot be increased without a shift to sustainable priorities.
Failure of finance to shift will not only undermine the transition to sustainable practices; it will undermine the future of finance operationally.
- Converging forces are undermining conventional industrial sectors.
- Industrial food production is undermining the stability and future viability of the food supply.
- Adverse effects of climate pollution are undermining resilience in local and national economies.
- Financial institutions are still heavily tied to outmoded fossil fuel assets.
- Income inequality is undermining demand for growth in consumer spending.
The global economy needs to go green and value natural systems in order to secure the possibility of generalized sustainable prosperity.