Vijay Kumar Gaba

2023 was a watershed year in many respects. The global economy, politics, geopolitics, climate, and technology witnessed some material changes that would have critical long-term impacts on human life.

Global economy

The global economy resumed the process of normalization after two years of disruptions caused by the pandemic and the Ukraine war. Supply chains were mostly restored. Fiscal and monetary stimulus unleashed to mitigate the impact of Covid-19 started to wind up. The prices of most commodities that had witnessed a sharp surge in the previous couple of years retraced back to their pre-covid trajectories. The interest rate cycle, which witnessed one of the sharpest hikes in policy rates in decades to rein the runaway inflation, also appears to have peaked.

The developed economies have been mostly successful in avoiding a meaningful recession, despite material monetary tightening, higher rates, and fiscal restraints. Most notably, Japan, which has been struggling with deflationary pressures for over a decade, managed to return to the path of growth with moderate inflation.

The overall economic growth is moderate as two of the primary engines of global growth the US and China stuttered. Germany and Sweden flirted with recession for most of the year, while the UK, France, and other European countries barely grew. In Latin America, Brazil managed to grow its economy by 3%, Argentina, and Chile were in recession, and other economies barely grew. The leading commodity-producing economies in Middle East Asia, Africa, and the Pacific (Australia) were either stagnant or contracted.

Geopolitics and politics

The Ukraine war in 2022 opened multiple fault lines in global geopolitics. The post-Cold War thaw in US-Russia relations evaporated completely. The US-Sino trade conflict that started to worsen in 2017 transformed into a major geopolitical standpoint. In 2023, the conditions seem to have worsened materially.

The latest episode of hostilities in the Gaza Strip has further widened the abyss. There were some indications of the Arab world mending its way with Israel. However, the Hamas attack on Israel in October changed everything. Middle East Asia is now a major flashpoint for a wider escalation of the conflict as groups of larger forces have pledged support to Israel and Palestine. The regrouping of Arabs with Russia and China alliance against the interest of the Western world is a clear pointer to the potential shape global order may be taking in the next couple of decades.

Hyper-nationalist right-aligned leaders/parties won elections in Italy, Argentina, and the Netherlands; while hardline leftists won elections (re-elections) in many jurisdictions, e.g., Germany, France, Australia, Chile, Mexico, Bolivia, Brazil, Peru, Honduras, and Columbia, etc. Both the Chinese Premier Xi Jinping and Russian Premier Vladimir Putin are firmly entrenched in their respective offices for as long as they wish, and actively working to polarize the world.

The commodity-producing and most populated emerging economies which felt that they had been at the mercy of the financialized Western world due to the overwhelming dominance of USD on global trade, regrouped (expansion of BRICS) to be in a position to command terms of trade.

Climate change

As the emerging economies and the developed economies made some progress in finalizing a workable deal to set effective emission targets at COP28 (Dubai), the weather conditions in the world worsened materially. Countries across the world witnessed dramatic changes in weather patterns, affecting crops, livestock, and human life. The global temperature continued to rise as many countries in Europe, North America, and Latin America witnessed episodes of extreme heat, rain, and snow. Floods were seen in many countries. The incidences of earthquakes, cloudbursts, cyclones, etc. also increased in many countries.

Technology

Artificial intelligence and blockchain technologies entered the mainstream in 2023. Cryptocurrencies and digital currencies gained much wider acceptance both as a store of value and a medium of exchange. Generative artificial intelligence entered the common man’s sphere, impacting the lives of households. Significant advances were made in the fields of biotechnology, green energy, astronomy, and space science.

Some of the key events of 2023 could be listed as follows:

·         Croatia adopts the euro and joins the Schengen Area, becoming the 20th member state of the Eurozone and the 27th member of the Schengen Area.

·         A deadly cold snap in Afghanistan kills 166 people and nearly 80,000 livestock.

·         A massive earthquake strikes southern and central Turkey and northern and western Syria causing widespread damage and at more than 59,000 fatalities and 121,000 injured.

·         The European Parliament approves a ban on the sale of new petrol and diesel vehicles in the European Union from 2035.

·         Lawmakers in the Russian State Duma vote to withdraw Russia from 21 conventions of the Council of Europe.

·         Vladimir Putin announces that Russia is suspending its participation in New START, a nuclear arms reduction treaty with the US.

·         The 2023 Chinese presidential election is held with the National People's Congress unanimously re-electing Xi Jinping as the President of the People's Republic of China to an unprecedented third term.

·         Iran and Saudi Arabia agree to resume diplomatic relations which were severed in 2016, at talks mediated by China.

·         OpenAI launches GPT-4, a large language model for ChatGPT, which can respond to images and can process up to 25,000 words.

·         Brazil and China sign an agreement to trade in their own currencies, ceasing the usage of the United States dollar as an intermediary.

·         San Francisco-based First Republic Bank fails and is auctioned off by the US FDIC to JPMorgan Chase for $10.7 billion. The collapse surpasses March's collapse of Silicon Valley Bank to become the second largest in US history.

·         Russia and Belarus sign an agreement in Minsk allowing the stationing of Russian tactical nuclear weapons on Belarusian territory.

·         Indian oil refiners started payments for Russian oil imports in Chinese yuan as an alternative to the US dollar due to increasing sanctions against Russia.

·         The world's oceans reach a new record high temperature of 20.96 °C (69.73 °F), exceeding the previous record in 2016. July is also the hottest month on record for globally averaged surface air temperatures by a considerable margin (0.3 °C (32.5 °F).

·         The global average temperature temporarily exceeds 2°C above the pre-industrial average for the first time in recorded history.

·         At the COP28 climate summit in Dubai, a consensus is reached for countries to "transition away" from fossil fuels, the first such agreement in the conference's 30-year history

·         India's Chandrayaan-3 becomes the first spacecraft to land near the south pole of the Moon.

·         The European Central Bank (ECB) raises eurozone interest rates to an all-time high of 4%, amid ongoing inflationary pressures across the continent.

·         Hamas launches an incursion into southern Israel from the Gaza Strip, prompting a military response from the Israel Defense Forces. Israel launched numerous air strikes on Lebanon after rockets are fired by Hezbollah and further attempts are made to penetrate Israel.

·         A series of earthquakes occur in Herat Province in Afghanistan, killing over 1,000 people and injuring nearly 2,000, with tremors felt in Iran and Turkmenistan. The earthquakes are the deadliest in the country since 1998.

·         The first AI Safety Summit takes place in the United Kingdom, with 28 countries signing a "world first agreement" on how to manage the riskiest forms of artificial intelligence.

 In a paper published in 1988 researchers William Samuelson and Richard Zeckhauser highlighted that a large majority of people have a cognitive bias against change in their present conditions. In their research, they found that “people show a disproportionate preference for choices that maintain the status quo.” They referred to this trait of human behavior as “status quo bias”. Several other researchers have added subsequently to the findings of Samuelson and Zeckhauser.

In my personal life, I have noticed several instances of status quo bias whether it is ordering in a restaurant, making investment decisions, buying vehicles, choosing healthcare professionals, or even voting in the elections.

I find that status quo bias is particularly strong during periods of stress or crisis. I have observed that during periods of stress or crisis (actual or perceived) people generally avoid trying new things, people, or places, etc. They prefer to trust their existing captain when the waters become rough, rather than preferring a change of guards.

The politicians world over perhaps recognized this cognitive bias of people a long time ago and internalized this in their election strategy books. In this age of social media, where information (especially falsehood) spreads faster than sunlight, they often manufacture crises to distract people from real issues and nudge them to maintain status quo, i.e., keep the extant establishments in power.

The reaction of many heads of government, e.g., the US, the UK, France, India etc., to the latest attacks of the Palestinian Hamas Militia on Israeli territories and people indicates their eagerness to shift the popular narrative away from the domestic problems to a distant localized geopolitical event, which may or may not have material implications for their domestic constituencies. To the naked eye, it appears that they are manufacturing a crisis that does not exist just to distract the attention of their domestic constituency and invoke their cognitive status quo bias.

The US economy is struggling to manage the mountains of debt it has accumulated in the past three years; elevated inflation that is hurting the household budgets badly; rising homelessness; rising crimes and drug abuse; crashing ratings of the incumbent President; an apparently clueless central bank; rising discontentment over its policy to fund Ukraine’s war efforts; and diminishing clout over global policy-making (especially in light of the total failure of economic sanctions on Russia and dismal impact of its tariff war with China), pensioners and savers staring at huge losses on their bond portfolios; and financial system placed precariously as MTM losses on their treasury holding climb (eroding their reserves), household delinquencies rising and corporate bankruptcies also rising ominously.

The situation in the UK and France is no different. It may actually be worse than the US, as any visitor to the cities of London and Paris would tell you about the collapse of civic infrastructure, and the rise in homelessness, petty crime, and racial slurs.

Back home, I find that “Hamas” and “Israel” are trending in all social media ahead of the Cricket ODI World Cup. This explains the kind of frenzy created to distract people from core issues that affect their day-to-day lives. Our government seems to have changed our long held Middle East policy of equidistance from both Israel and Palestine, without any discussion or offering any explanation, totally disregarding the fact that it could have serious implications for our energy security and internal security.

 Last weekend the already tense situation escalated materially in the Israel-occupied Gaza Strip area of the Palestinian state. Apparently, the Hamas controlled militia launched a massive ariel and ground attack on Israeli territories, killing over 700 people and injuring many more, including several civilians - women and children. In retaliation, Israeli forces attacked the Palestinian territories in the Gaza Strip, killing over 300 people, including women and children, and destroying several civilian targets. This is the deadliest episode since 1967, in the conflict that started in the late 1940s.