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Armageddon is not upon us, writes Peter Lyon.
Sharemarkets are tumbling. Economies are teetering. Massive debt mountains are about to implode. Economic Armageddon is upon us. We are about to pay a huge price for our unwise proclivities and extravagances.
This sounds like a great narrative. A biblical tale of excess and downfall. There's just one major aspect that such preachers of doom overlook. We are living in the most prosperous period in human history. The standard of living of humans is the highest it has ever been.
More people are living better lives than at any point in human history. They have more stuff. They are living longer and better than ever before in most parts of the world. They have greater access to food, medicines, housing, transport, education and communication than ever before. We are living in the best of times.
Certainly, our world is not perfect; but it's much better than during the Cold War or Victorian era or the Middle Ages or during the Roman and Han Empires.
I am a share investor. My net wealth has tumbled over the past week. My reaction has been to do nothing. If markets continue to tumble in the next few weeks my reaction will still be to do nothing.
When I buy a share I am buying a business that makes stuff. I am a small part-owner of airports, rest-homes, casinos, chicken processors, electricity companies, tech firms, and telecommunications outfits. They make things that people buy and will continue to buy. I prefer to buy shares in businesses that make stuff that people need rather than want. They will continue to buy these products regardless of the broader state of the economy.
Listening to some of the doom mongerers in the media becomes tedious. Their arguments about impeding economic Armageddon are often contradictory. A favourite is that interest rates are about to rocket which will topple the private debt mountain.
People won't be able to service their debts. The problem with this argument is that interest rates are largely set by central banks. Since the global financial crisis, central banks have shown they will flood their economies with easy money rather than allow a 1930s Depression.
The massive inflation that was meant to arise from this policy never eventuated. The likely reasons were the huge increase in output in the world economy, and the fact that much of this easy money flooded into asset markets such as housing or shares.
So these asset markets are due for a correction. But a massive meltdown is unlikely as central banks and governments have shown they are unwilling to allow that to happen.
Rather than a global economic meltdown there are a number of equally likely scenarios.
High debt levels may herald a long period of stagnation. Asset prices such as housing and shares may level off until incomes rise and debt levels are reduced. Another scenario could be huge technological breakthroughs that lead to higher growth rates. A further scenario is a period of economic muddling with occasion mini meltdowns as we have experienced in the last decade.
The end of the world as we know it is somewhat unlikely. I will hold on to my shares.
As Lance Corporal Jones in Dad's Army said, ``Don't panic, Captain Mainwaring!''
Peter Lyons teaches economics at St Peter's College in Epsom and has written several economics texts.