Prominent historian Niall Ferguson warned Friday that the world is sleeping in an era of political and economic turmoil similar to the 1970s – only worse.
Speaking to CNBC at the Ambrositi Forum in Italy, Ferguson said the triggering events had already taken place to repeat what happened in the 1970s, a period characterized by financial shocks, political clashes and civil unrest. However, this time around, the intensity of those shocks is likely to be greater and more sustainable.
“The ingredients of the 1970s are really there,” Ferguson, a senior fellow in the Millbank family at Stanford University’s Hoover Institution, told CNBC’s Steve Sedgwick.
“The monetary and fiscal policy mistakes last year, which led to this inflation stopping, are very similar to the 1960s,” he said, likening recent price hikes to the high inflation of the 1970s.
“Just as in 1973, a war is happening,” he continued, referring to the 1973 Arab-Israeli war – also known as the Yom Kippur War – between Israel and a coalition of Arab countries led by Egypt and Syria.
As with the current Russian war in Ukraine, the 1973 Arab-Israeli war led to international involvement by the great powers of the time, the Soviet Union and the United States, resulting in a broader energy crisis. Only at that time, the conflict lasted only 20 days. Russia’s unprovoked invasion of Ukraine is now in its sixth month, suggesting that any fallout on energy markets could be much worse.
“This war lasts much longer than the 1973 war, so the energy shock it causes will actually be more sustainable,” Ferguson said.
2020 is worse than the seventies
Politicians and central bankers are vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reduce dependence on Russian energy imports.
But Ferguson, who has written 16 books, including his most recent “Death: The Politics of Disaster,” said there was no evidence to suggest current crises could be avoided.
“Why can’t it be as bad as the ’70s?” He said. “I’m going to go out on a limb: let’s think about the possibility that the next decade will be worse than the 1970s.”
Prominent historian Niall Ferguson has said that the world is on the cusp of a period of political and economic turmoil similar to the 1970s, but worse.
Southern China Morning Post | Getty Images
Among the reasons for this are lower productivity growth now, higher debt levels, and a less favorable demographic now compared to 50 years ago, he said.
“In the 1970s at least you had a détente between the great powers. I don’t see much détente between Washington and Beijing right now. In fact, I see the opposite,” he said, referring to Recent clashes over Taiwan.
The fallacy of global crises
Humans like to believe that global shocks occur with some degree of order or predictability. But Ferguson said this is a fallacy.
In fact, rather than spreading evenly across history, like a bell curve, disasters tend to occur nonlinearly and simultaneously, he said.
“The distributions in history are not really normal, especially when it comes to things like wars, financial crises or pandemics,” Ferguson said.
“You start with the plague – or something we don’t see very often, a really big global pandemic – that kills millions of people and disrupts the economy in all sorts of ways. Then you hit it with a huge monetary and fiscal policy shock and then you add the geopolitical shock.”
This miscalculation, he said, leads humans to become over-optimistic and, ultimately, unprepared to deal with major crises.
“In their minds, the world is a bunch of averages, and there are not really likely to be bad outcomes,” he said. “And that leads people… to be somewhat over-optimistic.”
For example, Ferguson said he conducted a survey of attendees at Ambrosetti – a forum in Italy attended by political leaders and the business elite – and found that low single-digit percentages expect to see a decline in investment in Italy over the coming months.
“This is a country heading into recession,” he said.
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