There is really nothing so dehumanising and dispiriting as seeing a war unfold, in real-time, very visually, as we do these days, apart from being a victim of it. Honestly, the conflicts in Ukraine, Tigray, and Gaza over the past year have just broken my heart — there is no other way to say it. I honestly thought we were largely over this stuff. Since 1990, the average number of deaths from human conflicts was around 50,000 per year.

The Institute for Economics and Peace’s annual Global Peace Index, reported in its 2023 study, which tallies annual 2022 numbers, that conflict has increased internationally 360%. The 2023 figures are likely to be higher still, particularly after the Gaza war, probably making it the highest year for conflict deaths this century. The institute found rising levels of warfare around the world in 13 of the last 15 years. 

But, with the most heartfelt sympathies to the people involved in these conflicts, there are caveats. Even in 2023, the institute found that within most countries in the world, peacefulness increased, despite some instances of dramatic increases in extra-country conflicts. Overall 84 countries recorded improvements in peacefulness compared to 79 where it declined, sadly, it must be said, most often the countries where it was pretty safe already. 

And, as cruel as it might seem, it would be wrong to ignore the context. Even after the increases over the past year, the number of people who die in global conflicts is 0.003 of the total world population, less than a quarter of the number of people who die in car accidents globally every year. It doesn’t seem like it, but over the longer term, the world is a safer place. 

Let’s turn to another topic on the same broad subject that I have written about before, economic miserableness. This time last year economists predicted 2023 would be a miserable year economically. Actually, it turned out to be pretty good. China’s growth was fine, despite the Covid clampdown at the start of the year: US growth was positively boomy; commodity prices stayed strong, and bond yields rose, but then dropped again.

There is now an economic side issue for many economists in how, precisely, when you are presenting your numbers for 2024, do you explain your mistakes of 2023? Humility is obviously required, but how much? How much “explaining” is necessary? As someone intimately familiar with the process of eating humble pie, let me assure you, it’s tricky. You don’t want to seem ridiculously apologetic, and you don’t want your logical explanations to sound like excuses. But you do want to make those excuses because some of them are valid. You think.

So, why did the economists get it so wrong? This bears some analysis. Two things happened in early 2023: first, the yield curve inverted. What this means is that interest rates on two-year US Treasury bonds surpassed those of 10-year bonds. Normally, the longer the redemption period, the higher the interest rates, because as an investor, your money is being tied up for longer. 

So when the rates inverted in July 2022, the expectation was that history would repeat itself and recession was on the way. Second, Google searches for the word “recession” hit their highest point in history – another usually reliable indicator that a recession was on the way.

Here is the really knotty question: why did those seemingly reliable indicators not result in a recession this time? Somewhat irritatingly, the economists who got it so wrong don’t seem to be asking themselves this question. One possible reason is that the world is basing its economic decisions on outdated theories. Or, 2023 was just an anomaly.

If it was the former, the logical explanation would work like this: the world has swung too far in favour of the very trendy new subject of behavioural economics. The idea here is that old economists are too locked into stodgy, mathematical models premised on the idea that people are rational beings who generally make optimal choices. Alas, they are not: they are irrational and make stupid choices and wrong decisions. Hello Donald Trump. Brexit. War. Whatever. 

Yet, for the world to have avoided a well-nigh inevitable global recession, one credible explanation is that the global population didn’t panic, they realised inflation would come down, so there was no need for us to get our knickers in a knot about it. Keep calm and carry on, the saying goes, and the world did. We were all essentially very rational.    

The general mood of miserableness was emphatically underlined by the World Economic Forum global risks report released last week. The report found that Davos groupies have, “a predominantly negative outlook for the world over the next two years that is expected to worsen over the next decade”, with 54% braced for “some instability and a moderate risk of global catastrophes” in the short term — and 30% predicting severe upheaval”. I am not making this up. 

I suspect that what is happening here is that the world’s belief in the notion of rationality is waning, and that might be one reason why the risk report surprisingly highlighted misinformation and disinformation as the world’s top short-term risks. Fake news is very obviously having a huge moment. 

FT columnist Gillian Tett has a wonderful take on the WEF risk report: why not flip the question and ask what are the 10 possible positive surprises the world might experience? For example, a game-changing leap in green tech; life sciences research accelerated by artificial intelligence; and autocratic leaders getting ousted by once-passive voters, among others. None of these is out of the question; they seem positively likely. 

She suggests a “positive risks” section for the survey next year. “It might not grab headlines, but investors could find it even more interesting,” she writes.

The point, I guess, is that when you go through a global pandemic, high inflation, and a big increase in armed conflicts, as well as the myriad other issues of our day, it’s easy to come to the knee-jerk reaction that reality is losing its grip. Yet, the real lesson of the past few years is that the world is probably more resilient than we might instinctively believe. 

And BTW, 3% of economists are now predicting a recession in the US for 2024.

Happy investing,

Tim Cohen