In an excellent piece published in Foreign Policy, historian Niall Ferguson illustrates the broad geopolitical ramifications of economic decline. Ferguson contrasts the willful malice of George Bush’s “Axis of Evil”, against the less intentionally destabilizing influence of regimes undergoing waves of political and fiscal turbulence.
Ferguson’s “Axis of Upheaval“, as he calls it includes Russia, Somalia, Mexico and other nations desperately fighting to stay afloat through the gale-force winds of political instability: An instability magnified by a world undergoing economic deflation.
Now the third variable, economic volatility, has returned with a vengeance. U.S. Federal Reserve Chairman Ben Bernanke’s “Great Moderation”—the supposed decline of economic volatility that he hailed in a 2004 lecture—has been obliterated by a financial chain reaction, beginning in the U.S. subprime mortgage market, spreading through the banking system, reaching into the “shadow” system of credit based on securitization, and now triggering collapses in asset prices and economic activity around the world.
After nearly a decade of unprecedented growth, the global economy will almost certainly sputter along in 2009, though probably not as much as it did in the early 1930s, because governments worldwide are frantically trying to repress this new depression. But no matter how low interest rates go or how high deficits rise, there will be a substantial increase in unemployment in most economies this year and a painful decline in incomes. Such economic pain nearly always has geopolitical consequences. Indeed, we can already see the first symptoms of the coming upheaval.
As the economic conditions within his “Axis of Upheaval” disintegrate rapidly, so too do the socio-political moorings of society – A deterioration which will likely result in radical power-shifts, militarization, social divisions and other bad eggs which are often mitigated during eras of economic prosperity. Ferguson also points out that these ill-effects are compounded by our decreasing ability to intervene through the traditional means of financial incentive or military intervention:
The problem is that, as in the 1930s, most countries are looking inward, grappling with the domestic consequences of the economic crisis and paying little attention to the wider world crisis. This is true even of the United States, which is now so preoccupied with its own economic problems that countering global upheaval looks like an expensive luxury. With the U.S. rate of GDP growth set to contract between 2 and 3 percentage points this year, and with the official unemployment rate likely to approach 10 percent, all attention in Washington will remain focused on a nearly $1 trillion stimulus package. Caution has been thrown to the wind by both the Federal Reserve and the Treasury. The projected deficit for 2009 is already soaring above the trillion-dollar mark, more than 8 percent of GDP. Few commentators are asking what all this means for U.S. foreign policy.
The answer is obvious: The resources available for policing the world are certain to be reduced for the foreseeable future. That will be especially true if foreign investors start demanding higher yields on the bonds they buy from the United States or simply begin dumping dollars in exchange for other currencies.
Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.
Ferguson’s essay is an excellent read and highly recommended by The Analytic:
http://www.foreignpolicy.com/story/cms.php?story_id=4681
