In its 2023 Global Outlook, BlackRock rued the close of what it called the Great Moderation, the 40-odd years since the policies of Reagan and Thatcher brought forth from the malaise of inflation and stagnation a great flourishing of human creativity and productivity, and the concomitant upward rise in just about everyone’s standard of living.
BlackRock also implicitly revealed its significant role in ending the good times and its continuing contribution to the revival of a new age of economic sclerosis.
The Outlook, dubbed “a new investment playbook,” described the Great Moderation as “the four-decade period of largely stable activity and inflation,” and of “steady growth.” This period is over, replaced by an age of “brutal tradeoffs” demanded by new “productive constraints,” labor constraints and geopolitical rivalries.
This may all be correct, in its way. But BlackRock’s discussion of the future is hindered by its unwillingness to admit to investors and potential investors just how big a role it has played, and continues to play, in bringing about these negative developments.
The discussion of productivity constraints is confused as an initial matter by its discussion of inflation. The Outlook asserts that inflation has been generated by “shift[s] in consumer spending from services to goods [that] caused shortages and bottlenecks.” That’s wrong twice.
First, this account is profoundly incomplete. Shortages and bottlenecks weren’t caused wholly, or even primarily, by a shift in consumer demand (and certainly not a voluntary one). Rather they were caused by authoritarian (and counterproductive) government regulation: The lockdowns, which cut into production and transportation and otherwise damaged the smooth working of the economy. So the solution, contra BlackRock, the Fed and far too many economic commentators, isn’t “crushing demand,” but getting government regulation out of the way so that production can snap back as quickly as possible.
Second, as has been explained many times in these pages: Price increases are not always due to inflation. Increases in the price of, say, energy, do nothing to undermine the value of any currency. Because they don’t, responses designed (however well or badly) to preserve the value of the currency are beside the point. Responses that are designed to seize up the economy so hard that the price of energy drops because no one is using it to be productive anymore are frankly insane: they fetishize some particular level of one price while necessarily ignoring other prices and the effects of this sort of maneuver on anyone’s general or specific happiness.
What the Outlook says about energy prices is internally contradictory. BlackRock admits that “the transition to net-zero carbon emissions is causing energy supply and demand mismatches.” This is coyly worded tripe. What the Outlook authors are trying very hard to avoid saying is that the political-schedule push away from reliable carbon-based energy to unreliable (and dirty, and demanding of unfree labor) energy sources has caused energy scarcity and unreliability. But they couldn’t write that, of course, because BlackRock actively and aggressively pushes companies to move away from the reliable and affordable stuff, thereby causing the scarcities and price increases that it po-facedly laments.
To maintain even the gauziest pretense of attending to its fiduciary duties, BlackRock has to pretend that its net-zero push accords with technological and financial realities, as in its declaration that “the global transition could accelerate, boosted by significant climate policy action, by technological process reducing the cost of renewable energy and by shifting societal preferences as physical damage from climate change – and its costs – becomes more evident.”
If decreasing costs and increasing reliability were leading the transition, then we’d need not worry about the “energy supply and demand mismatches” that BlackRock rightly identifies as being significantly responsible for the end of the Great Moderation – because they wouldn’t happen. It’s the absence of those “mismatches” that would make the switch affordable and reliable, thereby signaling that the time was right.
As for the other factors the Outlook mentions, BlackRock also doesn’t consider the possibility that there might be “significant energy policy action” by voters and polities to restrain the move to net-zero on political schedules, with the broad run of votes and citizens deciding that they’d prefer to stick with reliable and affordable fossil fuels. They ignore entirely that this is already happening in the United States and around the world.
No, no. Larry Fink and BlackRock want to “force behaviors,” like getting to net zero at speeds that will cause energy to be so costly and unreliable as to destroy the Great Moderation. And they will breach their fiduciary duties by cherry-picking data, ignoring or misconstruing factors that work against their policy-preference goals, and otherwise rigging the system in order to decarbonize by an arbitrary date, thus causing the negative productivity – and prosperity -- effects.
The Outlook identified “aging populations” as another reason for the end of the Great Moderation. It explained that “[a]ging populations mean shrinking workforces. An ever-increasing share of the U.S. population is aged 65 or older when most leave the workforce. This is one key reason the supply of U.S. labor is currently struggling to keep up with the demand for labor.”
The problem with having more retirees is that it creates more non-productive people that need to be provided for by a smaller pool of productive people in the workforce. But aging is certainly not the only reason that the workforce is decreasing. In its next breath, the Outlook admits that “the share of the adult population that’s inside the labor force … is still well below where it was when the pandemic began.” The Outlook ascribes this continuing paucity to aging, but that’s nonsense: not even the screwiest of Covid pearl-clutchers claimed that the illness made people chronologically older. Rather, the reason that workforce participation hasn’t bounced back is because “emergency” measures put in place during the lockdowns made it much more remunerative not to work than it had been before. Many of those programs remain in place, as do many of the overhang effects.
Needless to say, BlackRock doesn’t point in the Outlook or anywhere else to instances in which it used all its power and influence – or any – to oppose those programs or otherwise to advocate increased labor-force participation and labor productivity. In fact, the other main area in which it has been “forcing behaviors” on companies has been equity-based discrimination. That is to say, it has been actively pushing companies away from merit-based hiring and promotion (the way to maximize labor productivity, and thus cushion the effect of aging populations) in favor of hiring and promotion based on the irrelevant (and illegal) surface characteristics such as race, sex and orientation.
In other words, it dons its faux-woe mask again, bewailing the fact of decreasing labor participation and productivity, even while usurping the power of its investors’ capital to push policies that will decrease it yet further.
Finally, the Outlook points to increased international tensions as part of the cadre of Great Moderation assassins, noting that the fragmenting of globalization “comes at the cost of economic efficiency. Sourcing more locally may be costlier for firms, and we could also see fresh mismatches in supply and demand as resources are reallocated.”
Well, it’s nice to see even BlackRock recognize that China is an adversary, and is getting more adversarial as Xi tightens his grip. But the effects of this new clarity in international affairs would be lessened were we able to produce what we need in the free world reliably without needing significant inputs from unfree and re-authoritarianizing regimes. This would counsel for having more western control over key inputs, like energy. Instead, of course, BlackRock pressures western companies like Exxon to give up reliable-energy projects that then get snapped up by Chinese companies. By such methods BlackRock exacerbates the Great Moderation-killing effects of global refragmentation.
In its Outlook, BlackRock ostensibly mourns the passing of the Great Moderation, but in fact, and in each relevant instance, it is hastening its demise and heightening the negative consequences of its passing.
The question before this house, then: Why?
