The Great Malaise


A Great Malaise is haunting the world. It is partly an economic illness, and partly a state of mind. The two are related, and bound to each other in a vicious circle, where they keep making each other worse.

The International Monetary Fund has just released its latest World Economic Outlook and it makes for a sobering and dispiriting reading. Consider a few figures:

  • Six years ago, in 2010, when the Global Financial Crisis was still just about raging, the global economic growth was 5.4 per cent per year. The advanced economies might have stalled in the grip of the Great Recession, but the BRICs and other stars of the developing world were keeping the average up. This year, eight years since the start of the GFC, the global economic growth rate is estimated at 3.1 per cent. Six years on then, the advanced economies have not really recovered while at the same time the developing powerhouses have been slowing down too.



  • In world trade, after a brief period of post-GFC recovery followed by a period of flat-lining, the growth of value and price of the trade flows are again in the negative territory like they were in 2008-10 (i.e. the trade is actually going backwards, or decreasing), while the growth rate of the volume of international trade is now close to zero, indicating stagnation.



  • All this is happening at the time of historically low inflation and historically low interest rates, as well as low oil prices and declining commodity prices. These factors should make for a booming economy and booming trade, but they don’t. Nothing seems to be able to generate new demand and shake off the malaise.



Globalisation is in the doldrums.

So are the people. The electorates are angry, cynical, restless; they are dissatisfied with the mainstream parties offering mainstream answers to their problems. Populist and protectionist sentiments are on the rise. There is nothing like an economic slump and stagnation to make voters believe only their political and economic elites have benefitted from globalisation while they, the forgotten majority, have gone backwards.

The reality is of course much more complex. The decades of post-war expansion have been a boon for just about everyone. But not equally so. Those who have lost their manufacturing jobs and weren’t able to reinvent themselves as nimble and innovative new economy entrepreneurs have not exactly been the winners. The majority, whose wages have been stagnating for a few decades now, also think they have missed out, particularly when compared to the top 1 per cent (never mind the top decile of the top 1 per cent). In reality they are still better off today than they were in 1970 because so many products are so much cheaper today (thanks to globalisation, among other factors), but the wage growth (as it was) has certainly not kept up with rising expectations.

Happiness is a relative rather an absolute value. The perception that different rules apply to the majority and to the elites stokes the disillusionment and anger. While the Average Joe is never too small to get laid off and lose his house, he is constantly reminded of those who are too big to fail; those who in good times make money hand over fist, and in bad times get bailed out – with the Average Joe’s tax money (when the Average Joe has an income to pay taxes on, that is).

A recent study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy argues that three quarters of the top 500 American companies structure their tax affairs in such a way (mostly through complex offshore tax haven arrangements) so as not to pay almost three quarters of a trillion dollars in taxes – a year. Let me repeat that: that’s US$715 billion a year in taxes not paid. Every trendy leftie’s favourite corporation, Apple, has last year spirited away almost US$220 billion in income, meaning they did not pay US$65 billion in tax they would have otherwise had to. Even if the numbers are off by 100 per cent, this is still a problem.

Apple and others are not doing anything illegal, of course; they just take advantage of the convoluted tax code. As I argued yesterday in my post about the meaning of Donald Trump’s tax returns, you cannot blame the very rich for doing everything within the law to minimise their tax liability, but neither I nor the Average Joe can – unlike companies – survive for periods of time on negative income and use it to minimise or eliminate our taxes in subsequent years once things pick up for us. Neither can we incorporate in the Virgin Islands, and channel and wash our income offshore so we end up not paying any income tax at all.

If, like me, you believe that free market and free trade have been good for the world, you should be worried by both the tangible and the intangible aspects of the Great Malaise. The crony capitalism of the government-industrial complex threatens to destroy the legitimacy of the economic system, which has delivered so much to so many, even if many among those many often feel, sometimes rightly sometimes wrongly, that it hasn’t always. Economic populism and protectionism will mean a step back; the baby will be chucked out with the bathwater. We need to rescue capitalism from those who have used the big government to tilt the playing field in their favour, otherwise we will all end up in an empty tub, going over the waterfall.