Bleakonomics

Octavian Report: What are the macro issues in the economy today that have you most worried?

Dambisa Moyo: I think you can classify them into two groups. There are what I call tactical, short-term risks, of which geopolitics has obviously come from further down into the number-one spot — at least to my mind. And then obviously within that is what happens this year in terms of the path of interest rates and what that might mean for the economy in the United States and more generally the global economy.

Then there are a whole host of what I call longer-term, or structural macroeconomic issues that have not gone away. Everything from policy questions around technology and the jobless underclass to issues around income inequality to the continually burgeoning global population to concerns about productivity declines.

Of course, one of the biggest ones is the sheer amount of debt that the global economy is burdened with right now, and what implication that might have for longer-term economic growth.

OR: What do you think, particularly with the last two, are the big implications for growth?

Moyo: All the evidence has been that debt actually does provide an overhang to economic growth prospects. I think that we don't know exactly how we're going to get out of it. In places where we're seeing more improvements in economies, there's a prospect of interest rates rising. This could contribute to a global slowdown and recession.

So I think there are a lot of questions around what that global debt looks like. There are many other ways to get out of it. You hope that you can grow out of the debt, but at the same time, they're having lots of debates about default and issues around inflating the debt away.

I think in particular, of all the countries, the U.S. is the one that everyone is really focused on because it has an enormous amount of debt and the dollar is a reserve currency. Particularly since large countries like China are the largest foreign lenders to the United States. I think those questions are still very much in the minds of investors but also public policymakers.

One comment in terms of productivity. Obviously there are lots of surprises around productivity, given the fact that you would have thought that an increase in technology on the scale we have seen over the last decade or so would actually have improved productivity. And it did. But the question now is: what exactly is happening? Are the full effects of the benefits of technology in terms of productivity now fully embedded? This is one of the questions that continues to pervade public policy, specifically because productivity is the biggest contributor to economic growth after labor and capital.

OR: From a historical perspective, to what extent have longer-term American and European economic policies contributed to these issues?

Moyo: I think there are a lot of assumptions made in the past that were not necessarily borne out. I think that there was a lack of understanding of exactly how the global economy ebbs and flows and evolves over time.

I'll give you a specific example. When I was doing my Ph.D. at Oxford, we never, ever talked about income inequality. The assumption in economics was that what you needed to focus on was economic growth. A country that was growing would, essentially passively, solve the problem of income inequality.

Now income inequality is, I would say, a top-three agenda item for public policymakers and politicians, and a lot of that has been because we've seen that social mobility has declined. I think it's halved in the United States over the last 20 years. So there are real questions around assumptions that have been made about income inequality and how to resolve it.

But that's also true for things like globalization more generally. I think one of the most interesting comments that has been made recently around globalization has come from Alibaba’s Jack Ma. He — I think rightly — pointed out that it's not globalization per se that's been a problem. It's that the U.S. has benefited incredibly, earning a lot of money and creating a lot of jobs on the back of globalization. But unfortunately those returns, in terms of the money that was generated, have largely been deployed to fight wars and underwrite public goods globally as opposed to investing in America's heartland and infrastructure.

OR: You mentioned before that geopolitics constitutes a cluster of risk in macroeconomic issues. To what extent do you think that the problem you just outlined is fueling that geopolitical threat?

Moyo:  I think that there's a fundamental problem, which is that the tools of politics and the tools of economics that we relied upon in the 20th century are essentially impotent in the 21st century.

We know that the tools of monetary policy — cutting interest rates and quantitative easing, plus this idea of fiscal policy — worked to solve economic booms and busts throughout the 20th century. Unfortunately, while it may have some short-term benefits, we have not seen what the long-term consequences of this strategy might be.

So in that regard, our tools, economically, are impotent. In terms of geopolitics, the environment in which there was diplomacy and bilateral and even multilateral engagement through multinational institutions has also come under fire. We now have many other non-state agents that are determining public policy, whether it's philanthropists and other very wealthy individuals or non-state actors who pursuing interests not in line with what the United States or other leading economies want.

We are working in a very different world, and I think that the models of economics and politics of the 20th century need to be upgraded to reflect the network effects and some of the other challenges that the economy has been dealing with.

OR: Other than an update of these models, what else is needed to mitigate these risks?