Does gloom beget gloom?

Does gloom beget gloom?

There is a strand of debate doing the rounds at the moment focusing on the potentially self-fulfilling effects of declinism and other similarly morose patter. The argument stems from an emerging area of scholarship focusing on a notable change in language used in the aftermath of the European enlightenment – the ensuing heightened belief in the possibility that scientific and industrial pursuits could benefit humanity, reflected in language, is contrasted with today’s techno and wider pessimism.¹

Importantly, the observed change in attitudes towards industrial and scientific progress preceded Britain, and ultimately the wider world’s, emancipation from millennia of economic stagnation.² The questions posed by this debate are many, but key for our purposes as investors is whether a change in language can cause progress? Furthermore, at this moment of giant technological change, what role could culture play in deciding the winners and losers at the country level?

Culture and growth

The role of culture in economic outcomes is a fascinating and often dangerous area of study. Cultural determinism veers towards ugly all too easily in the wrong hands, as amply illustrated by many of the world’s most pressing geopolitical stresses of the moment.

Meanwhile, this role is of course notoriously hard to pin down, quantitively, or qualitatively. Even those credibly claiming a part for culture in the economic (and living standards) take-off of the 18th and 19th century³, often put it somewhere in the middle of a very long causal chain.

Schisms in European and particularly British culture could conceivably date to the advent of the stirrup and its effects on Carolingian conquest. Or perhaps to the Catholic church’s attempts to expand in the setting Western Roman empire and the subsequent effects on European marriage patterns.

The point to register here is that even if you think culture was/is important, the change in language observed by these proliferating studies likely followed rather than led.

A mistimed bout of pessimism

This is obviously not the first time the world – but importantly, not financial markets – has been brought low by a collective sense of gloom. In fact, a recently published book documents one interesting forerunner at the end of the 18th century. Many of the intellectuals of the time saw only horror ahead, with Britain’s piratical rise to empire centre stage.⁴

If only some of these doomers could have lived a little longer, they would have seen their predictions proved spectacularly, albeit unevenly, wrong (Figure 1). The point of maximum gloom was also the point at which the UK and world economy was finally locating the complicated trick of sustained economic growth. The widespread horror of the time, from the reign of terror in France to the worst excesses of colonialism, may simply have contained very little information about what lay ahead.

Or maybe there was cause in there somewhere.

Was this difficult moment for the world actually part of the messy process of locating the right institutions and governance framework to allow innovation and invention to thrive?

Figure 1: Phenomenal poverty reduction in spite of sharp population growth

Source: OurWorldInData.org, Barclays. Data from 1820 to 2018.

And so to today

There can be little doubt that we remain in our own very difficult moment. This year’s election geyser may demonstrate that the West’s populist insurgency is not spent quite yet. Meanwhile, the scope for catastrophic misstep in the conflicts blighting our world is greater than we’ve seen for some time. The two could be related.

However, in amongst the understandable gloom, there is still cause for optimism. Both in that historical narrative discussed above and some of the incoming news. The benefit of hindsight shows that the well-founded pessimism amongst the big public brains of the late 18th century was heroically misplaced. New technologies arrived on the scene and met, in the UK’s jostling entrepreneurial society, a perfect seedbed. Take off followed, to the benefit of most.

The outlook for productivity growth, the engine for everything from living standard improvements to investment returns, is better than it’s been for some time. Generative AI is part of that, but so are advances in other parts of the technological frontier, from biotech to batteries. In this context, valuations across the multi-asset sphere, from stocks to bonds to commodities, look far from intimidating.

There could be a global recession ahead, however the latest snapshots provided by this week’s leading and lagging data, should not add to such fears. Quite the opposite, we are still seeing considerable resilience and some lead indicators suggesting acceleration, not deceleration, ahead.

And circling back to the question posed at the start: Does gloom beget gloom? The answer is – not necessarily, and not currently. 

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