Rabo: Markets Are Struggling To Understand What Is Happening To Our “Infinite Game”
By Michael Every of Rabobank
Finite and Infinite Great Games
Spending time on social media is a great way to pollute one’s mind with ill-informed idiocy, bile, narcissism, and the most trivial of all trivia – which is why we all spend so much time doing it. However, it does also offer the occasional diamond in the rough as a platform for some genuinely interesting discussions.
Yesterday, I watched Bret Weinstein’s ‘Dark Horse’, where Jamie Wheal pronounced that –from an American perspective– what we are currently experiencing is a “meaning recession”. To summarize his argument, for most of mankind’s history, the social order was fixed, with power centered on religious authorities: this offered “salvation” at the price of “inclusion”. Following the Enlightenment, Western society shifted to secular, rational, humanist foundations that offered a level playing field of “inclusion” –in theory– at the price of *public* “salvation”. Yet Western belief in religion as the central organizing force of society, and in democracy, free speech, liberalism, and capitalism’s ability to provide a real ‘level playing field’ are now collapsing in tandem. As such, Wheal argues we don’t know what things mean at the most fundamental level anymore: and the answer is to grasp for the solidity of fundamentalism, of any form, or of nihilism. In short, this is an existential argument underneath the socio-economic/historic (as offered in ‘FX Wars’, ‘On Your Marx’, and ‘The Age of Rage’ over 2015-2019) to explain why we are seeing rapid, deep polarisation, and a wall-to-wall, floor-to-ceiling Overton Window.
Weinstein, an evolutionary biologist, added a further element: the physiological. He argued when humans live in a state of uncertainty and anxiety, it triggers hormonal responses that boost the deep-rooted biological imperative towards the comfort of tribalism: to associate with people ‘like me’. In this state of mind, people shift from seeing things around them as a positive-sum to a zero-sum game. Or, to phrase it the way he did, to shift from seeing social encounters as an ‘infinite game’ with no winners and losers that benefits both sides, to a ‘finite game’ where one side wins and the other must lose. Both speakers agreed we can hope to find a new paradigm that allows “inclusion” and “salvation”, but the heuristics –of the pre-Enlightenment vastly exceeding the post-Enlightenment in both longevity and global breadth– are a very fat tail risk. (And if you disagree, reach out to Weinstein or Wheal: I am just the messenger!)
Such existential, physiological, perhaps evolutionary biological problems are potentially thick layers piled on, or under, the socio-economic problems we know we already face. Yet for markets it really comes down to this: is the neoclassical economics ‘infinite game’ of free trade compatible with the long-run avoidance of a ‘finite game’ psychological response?
If it is, then we can proceed as things have for decades; if it isn’t, then things will change a lot. The problem, as argued back in ‘The Great Game of Global Trade’, is that while the conditions for an ‘infinite game’ approach to free trade can and do exist between *some* countries in *some* time periods, history does not suggest it does for *all* countries at *all* times. Indeed, for much of history, trade was a ‘finite’ game controlled to certain ends, just like society. In short, one could hypothetically posit that to retain an infinite-game society may necessitate a far more finite-game approach to trade. Markets are already struggling to understand what is happening to our ‘infinite game’ globalised economy as first bursts of populism, and now shortages of key inputs, ripple through it: imagine the tail risks if biology is teleology.
Meanwhile, within this paradigm, we are all looking for meaning:
We know what evils a planned economy can lead to – and so many will still opt for free-market fundamentalism despite the backlash. And for some it is the techno-libertarianism of crypto. Yet the PBOC just underlined something I warned of repeatedly: economic power no longer lies with organized religion, but with organized money – and that power brooks no rival. China has said for its banks, all crypto is no-go. Only the eCNY shall pass. (If anyone actually wants it.)
The UK is grappling with what Brexit means in terms of a trade deal with Australia. Should it opt for zero tariffs and allow in Aussie agri to Go Global? Or should it look to electoral realpolitik and its own domestic food supply in an uncertain world, but in doing so show Brexit Britain cannot be a swashbuckling Thatcherite free-trader AND “Level Up”? (Or at least it cannot do so without being a net exporter, which is the point I made earlier.)
China has stopped producing accurate data for its agri imports now after Cofeed, a Beijing-based private agricultural consultancy, has mysteriously stopped updating its website. Just what we need with markets already so haywire and geopolitics so high-wire.
The US has another problem with a key oil pipeline that has led to a supply shortage in some states (including ones with key military airbases): somebody Russian in the ‘grey zone’ playing their own ‘finite’ game? And yet, according to Axios, the White House is not going to sanction the Russian firm building the NordStream2 gas pipeline to Germany. The US does not want the project to proceed, but Axios states it is not willing to confront Germany –so an ‘infinite game’?– despite German politics suggesting the government’s stance could change.
What happens with the US and Iran over the nuclear deal also moved energy prices yesterday: it’s still a case of so near and yet so far for now, apparently. However, a (likely very partisan) article in Tablet Magazine argues the ultimate outcome is already decided: the US wants a regional realignment which means Iranian oil will be back sooner rather than later. That will play out well with central banks wanting lower oil prices; not so much in many regional capitals.
Linked to all the above, and eclipsing them, the IEA has shocked the world by saying that if we are to meet net zero climate targets, no new oil, gas, or coal developments can now occur anywhere globally. If you want to talk about a zero-sum game and shocks to psychology, how about that: no more Chinese coal plants; no more tapping Russian or Middle-Eastern oil or gas; no new African energy. Only Green – and where a huge chunk of global solar panels are made in China, and allegedly, some with forced labour.
On which, a Uniqlo shipment of clothing was just stopped at the US border for potential forced labour involvement. Uniqlo protested all cotton involved was grown outside China – but the US denied this protest because there was not sufficient evidence to disprove its claim. Think how tricky this will make exporting textiles ahead if that is now the benchmark.
The Great Game rolls – infinitely.
Wed, 05/19/2021 – 09:59