Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.
Ferguson spoke to CNBC in Italy at the Ambrosetti Forum. He said that the events needed to trigger a repeat of 1970s. This period was marked by political unrest, financial shocks, and political conflict. But this time, those shocks were likely to be worse and last longer.
Ferguson said that the ingredients for the 1970s were already in place to CNBC’s Steve Sedgwick.
He said that the monetary and fiscal policies errors of last year which caused this inflation are very similar to the 60s, comparing recent price increases to 1970’s stubbornly high inflation.
“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.
Like Russia’s war in Ukraine today, the 1973 Arab-Israeli War prompted international intervention from the Soviet Union (then superpower) and the U.S.A. This led to a larger energy crisis. It lasted only 20 days. Russia’s unprovoked invasion in Ukraine now enters its sixth month. It is possible that there could be worse consequences for the energy market.
Ferguson said that the war in Iraq is longer than 1973, and the energy shock it causes is likely to continue for a much longer time.
2020 will be worse than the 1970s
The fallout has been felt by politicians and central bankers who have sought to reduce the impact of inflation through raising interest rates and less reliance on Russian oil imports.
Ferguson has written 16 books including “Doom: The Politics of Catastrophe” and said that there is no evidence suggesting that the current crisis could be prevented.
“Why should it not be as terrible as in the 1970s?” He stated. He said, “I am going out on a limb. Let’s think about the possibility that 2020 could be even worse than 1970s.”
He stated that there are currently lower productivity levels, greater debt levels, and less favorable demographics today than fifty years ago.
“In the 1970s there was some detente between superpowers. At the moment, there isn’t much detente among Washington and Beijing. He said that he actually sees the contrary. recent clashes over Taiwan.
Global crises: The Fallacy
People like to think that shocks can be predicted or ordered. Ferguson said that such a belief is fallacious.
He explained that rather than having an evenly-spaced history (like a bell curve), disasters often occur simultaneously and non-linearly.
Ferguson said that historical distributions are not normal in particular when it is about things such as wars, financial crises, and pandemics.
“You start with a plague — or something we don’t see very often, a really large global pandemic — which kills millions of people and disrupts the economy in all kinds of ways. You then hit it with big fiscal and monetary policy shocks. Then you throw in the geopolitical shock.
This miscalculation can lead to people being overly optimistic and unprepared to deal with major crises.
“They think the world is just a series of averages. There are very few likely outcomes.” People are prone to being somewhat optimistic, he stated.
As an example, Ferguson said he surveyed attendees at Ambrosetti — a forum in Italy attended by political leaders and the business elite — and found low single-digit percentages expect to see a decline in investment in Italy over the coming months.
He said, “This country is heading towards recession.”