The Road to Fascism
As if the economic fallout from COVID-19 and Russia's war on Ukraine wasn't difficult enough, one also must worry that the response by policymakers will make a bad situation even worse. Growing hardship is all but assured in 2023, and it will provide even more fertile ground for dangerous demagogues.
NEW YORK – Economics has been called the dismal science, and 2023 will vindicate that moniker. We are at the mercy of two cataclysms that are simply beyond our control. The first is the COVID-19 pandemic, which continues to threaten us with new, more deadly, contagious, or vaccine-resistant variants. The pandemic has been managed especially poorly by China, owing mainly to its failure to inoculate its citizens with more effective (Western-made) mRNA vaccines.
The second cataclysm is Russia’s war of aggression in Ukraine. The conflict shows no end in sight, and could escalate or produce even greater spillover effects. Either way, more disturbances to energy and food prices are all but assured. And, as if these problems weren’t vexing enough, there is ample reason to worry that the response from policymakers will make a bad situation worse.
Most importantly, the US Federal Reserve may raise interest rates too far and too fast. Today’s inflation is largely driven by supply shortages, some of which are already in the process of being resolved. Raising interest rates therefore might be counterproductive. It will not produce more food, oil, or gas, but it will make it more difficult to mobilize investments that would help alleviate the supply shortages.
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