We Are Watching The Global Economy Being Re-Organized Before Our Eyes
5th July 2023
In April of this year, Christine Lagarde gave a speech before the Council on Foreign Relations in New York in which she warned that “we are witnessing the fragmentation of the global economy into competing blocs”. Regular readers of this Daily will be familiar with the speech; we made quite a big deal of it at the time, because it is a big deal! We have been warning of this fragmentation for a number of years. Great Power competition is back, and we’re not going back to the halcyon days of US hegemony, ever-liberalising trade, secularly lower inflation and assumptions of the death of history anytime soon.
The Lagarde speech will be rightly viewed as a watershed in years ahead. Much like “whatever it takes”, or comments from Paul Volcker in the late 1970’s when he told students at Warwick University that “it is tempting to look at the market as an impartial arbiter… But balancing the requirements of a stable international system against the desirability of retaining freedom of action for national policy, a number of countries, including the United States, opted for the latter… Controlled disintegration in the world economy is a legitimate objective for the 1980s.”
We’re watching the global economy being re-organized before our eyes and, like Volcker in the 1970’s, policy-makers are prioritizing freedom of action for national policy. Increasingly, we are seeing financial markets and global trade being more clearly subordinated to national policy objectives. There are no atheists in a foxhole, and no free-market liberals in a multipolar world (at least not in the halls of power).