‘Why shouldn’t it be as bad as the 1970s?’: Historian Niall Ferguson has a warning for investors
Top historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.
Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterized by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was likely to be greater and more sustained.
“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.
“The monetary and fiscal policy mistakes of last year, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970’s doggedly 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.
As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that time, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could be far worse.
“This war is lasting much longer than the 1973 war, so the energy shock it is causing is actually going to be more sustained,” said Ferguson.
2020s worse than the 1970s
Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reducing reliance on Russian energy imports.
But Ferguson, who has authored 16 books, including his most recent “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could be avoided.
“Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s.”
Among the reasons for that, he said, were currently lower productivity growth, higher debt levels and less favorable demographics now versus 50 years ago.
“At least in the 1970s you had detente between superpowers. I don’t see much detente 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 happen with some degree of order or predictability. But that, Ferguson said, is a fallacy.
In fact, rather than being evenly spread throughout history, like a bell curve, disasters tend to happen non-linearly and all at once, he said.
“The distributions in history really aren’t normal, particularly when it comes to things like wars and financial crises or, for that matter, pandemics,” said Ferguson.
“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. Then you hit it with a big monetary and fiscal policy shock. And then you add the geopolitical shock.”
That miscalculation leads humans to be overly optimistic and, ultimately, unprepared to handle major crises, he said.
“In their heads, the world is kind of a bunch of averages, and there aren’t likely to be really bad outcomes. This leads people … to be somewhat overoptimistic,” he said.
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.
“This is a country that’s heading towards a recession,” he said.