Wednesday, 30 December 2009

The Decade's Most Influential Events and Trends

I thought this might be a good time to reflect on the past decade by reflecting on the events and trends that appear to have had the greatest impact.

  1. 9/11 -- Much has been written about the impact on attitudes and policy in the US, but the terrorist attacks that day have been wildly successful as an inspirational call to arms for many disaffected mulsims around the world.

  2. Supreme Court case Bush v Gore -- In deciding in favor of Bush, the Supreme Court set the US and the world on a trajectory that almost surely would otherwise have been radically different.

  3. Obama's election -- Though it's too soon to declare the election of 2008 a fundamental political realignment, already in its first year the administration has engineered dramatic shifts in policy, particularly in the areas of health care, financial regulation, autos, bankruptcy, private sector pay, the environment, taxation, the size of the federal government, and fiscal deficits.

  4. Western intelligence failings -- From the George Tenet's claim that weapons of mass destruction in Iraq were a 'slam dunk' to the National Intelligence Estimate in November 2007 that Iran had halted its nuclear weapons program in 2003 to the recent failure to adequately disseminate advance warnings of the Nigerian Christmas bomber, western intelligence has had some significant disappointments this decade.

  5. Palestinian elections -- Hamas' victory over Fatah in 2006 set the stage for the current split between Gaza and the West Bank, effectively preventing progress toward peace between the Palestinians and Israelis.

  6. An Inconvenient Truth -- With this documentary on global warming, Al Gore tipped the debate, with the result that climate change is now taken as an article of faith among opinion-leaders and decision-makers globally.

  7. Media fragmentation -- Radio and television stations now cater to every political view and cultural demographic, so that many people in the west go for days without hearing a contrary opinion that challenges their world view. The resulting political fragmentation makes good governance problematic.

  8. Inflation targeting -- The broad adoption of inflation targets as rigid policy goals has distorted monetary policies, particularly in small, open economies such as Sweden, Norway, and New Zealand. Even in the US, the risk of deflation in 2003 was cited as a reason for leaving the Fed Funds rate lower and for longer than it would have been otherwise -- a development that has been attributed by many as having contributed to the formation of housing bubbles in the US and elsewhere.

  9. Rise of China -- China has been on a course of rapid growth and global integration since the reforms of Deng Xiaoping in the late 1970s. But it was only in this decade that the Chinese economy became large enough to meaningfully influence economic developments in much larger economies. With its inexpensive labor and exports of inexpensive goods, China has exerted downward pressure on many inflation indices, but with its demand for commodities, it's at times exerted upward pressure on inflation measures -- with the net effect of widening the gap between headline and core measures of inflation in some countries. Though less discussed, China has also exported a very low intertemporal marginal rate of substitution (real interest rate), exerting additional downward pressure on both real and nominal bond yields globally.

  10. Momentum trading -- The tendency to chase bull markets was evidenced during the tech boom of the late 1990s, which burst ignominiously in 2000. Not dissuaded, the public hopped on the housing bandwagon as the next trend, driving house prices to levels that proved unsustainable. The subsequent downward correction resulted in huge losses for banks, many of whom kept many of the AAA tranches of the mortgages they had securitized.

Finally, I'll note two themes that characterize these events and trends. First, a number of these were not identified as critical developments at the time, highlighting the limits to our abilities to contemporaneously understand the eventual importance of events undolding around us. Second, many of these events and trends are still unfolding. As a result, it's still too early to judge their ultimate importance. In the end, as always, history will be the judge.

No comments: