Shocks in Stock – The Future of Our Democracies Depends on Our Ability to Absorb the Growing Number of Ruptures.
All these shocks seem to modify in depth the fundamental equilibrium of societies.
A feeling of incomprehension about economic developments seems to be increasingly shared by citizens around the world. We no longer understand a growing number of developments by resorting to traditional explanatory variables. If we break down the phenomena into the deterministic and random parts, the former seems to be regressing in favor of the latter. In short, the economic and financial world seems to be increasingly stochastic, volatile, and uncertain.
This observation is explained by the multiplication of shocks and ruptures of all kinds, which disrupt traditional cycles and trends. We can thus mention :
The war in Ukraine, triggered by Vladimir Putin's expansionist madness.
The Brexit, which will persist despite the upcoming departure of Boris Johnson from 10 Downing Street.
The terrorist attacks in the Western world.
The energy crisis.
The return of high inflation, not seen at these heights for 40 years in the Western world. 9.1% in June 2022 in America.
The natural disasters that are multiplying due to climate change and the inaction of countries for too many years.
…
The shocks collide. The war results in a food crisis, the energy crisis fuels inflation, which causes a stock market shock ... And all these shocks spread throughout the world, creating a resonance effect that amplifies them.
Conflicts are on the rise
By definition, these shocks are not predictable. We can estimate their probabilities of occurrence, but even the underlying distributions appear incomplete and unstable. These are low frequency, high severity events that belong to the tails of probabilistic distributions, which are the most difficult to model. And the scenario or “stress test” approach does not seem convincing.
The increase in stochasticity (which is a matter of chance) is synonymous with an increase in risks in the broadest sense of the term, which may affect the moral, psychological, and economic well-being of our fellow citizens. The universe of risks is expanding. But risk aversion is the most widely shared thing in the world! We also know that, according to Albert Hirschman, there are three possible attitudes to risk:
Exit.
Voice.
Loyalty.
This phenomenon brings water to the mill of those who shout, makes those who flee even more resigned, and discourages those who hold on. What a strange alchemy!
There is no doubt that this will increase conflict, a source of new risks. All this seems to be self-perpetuating in a downward spiral from which it is difficult to see a positive outcome.
Growing fatigue in society
In a world of shocks and ruptures, public authorities always seem surprised, quickly overwhelmed, and multiplying emergency measures. While the shocks are multiplying, we note that nothing, or almost nothing, has been done ex-ante to mitigate their consequences.
The contingency approach is very little developed. Overall, public risk management is embryonic. And mistrust of leaders is affecting a growing number of democracies. When the turbulence is strong and shaking more and more, the passengers wonder if there is a pilot in the plane...
Evidence of the rising level of hazard can be found in the increasing use of the concept of resilience, which describes the ability of an object to return to its original form after a shock. Our collective resilience has indeed been put to the test since the beginning of this millennium.
Yes, our societies have so far managed to bounce back without breaking up. But have they recovered their original shape? The spring returns to its original shape after being stretched or pressed, but only if it does not break...
There are many signs of the growing fatigue of the social body, which is constantly confronted with traumatic ruptures. Could it be that the “elasticity limit” of our modern societies has been crossed, that is to say, that all these shocks deeply modify the fundamental equilibrium of societies?
This question is at the heart of the future of our democracies.
Some reading
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