The World COP: Neoliberal Profiteering Dressed Up As Altruism

By Michael Every of Rabobank

The World COP

Today’s Daily is truly Global. For those who only want to hear about US inflation, especially all those beating down commodities and the US dollar on the view that things are transitory again, I offer ‘History Lessons: How “Transitory” Is Inflation?’ based on the 1970-2022 inflation experiences of 14 OECD economies. Its key conclusions are:

• “The US Federal Reserve Bank’s expectations for the speed of reverting to 2% inflation levels remains dangerously optimistic.”;

• An inflation jump to 4% is often temporary, but when it crosses 8%, it proceeds to higher levels over 70% of the time;

• If inflation is cresting, levels of up to 6% revert by half in about a year;

• If inflation is accelerating, 6% inflation reverts to 3% in a median of about seven years;

• Reverting to 3% inflation is easy from 4%, hard from 6%, and very hard from 8% or more; and above 8%, reverting to 3% usually takes 6 to 20 years, with a median of over 10 years; and

• Nobody is even mentioning 2%.

Those interested in the global outlook feeding this sticky inflation, please look around you.

COP27 just concluded in Sham el-Chic. Few seem happy with the outcome, and the EU27 nearly walked out. The final communique, in the words of Bloomberg’s energy voice Javier Blas, “is full of diplomatic language gymnastics… the reference to “low-emission” energy to mean gas and nuclear (and probably carbon-captured oil)…. no advance from COP26 on coal… coal remains a phase down, not a phase-out (and, in reality, coal demand is going up, on track for a record high both in 2022-23, surpassing the 2013 peak)… doesn’t move the needle on fossil fuels either, simply copy-and-pasting COP26 language on the need to phase-out “inefficient fossil fuel subsidies” (but, in reality, subsidies are up!!). Early attempts to call for a phase down of fossil fuel *consumption* were killed… While everyone is talking about “loss and damage” (but where’s the money?), to me COP27 key is the lack of progress on what really matters: fossil fuel consumption and emissions. And there, an alliance of big fossil fuel producers and consumers has delayed-or-muted action.”

Is that at least deflationary near term if it means more fossil fuels for several years? Perhaps – just look at oil prices today.

Then again, Daniela Gabor argues the Wall Street consensus won at COP27, noting “central banks’ journey from restrainers of carbon finance to derisking ‘influencers’” as they will use Blended Finance Initiatives for “marginally bankable transition projects to attract private capital.” So, central banks will back loss-making transition projects, guaranteeing the tax-payer wears all losses while all profits flow to Wall Street. Yet such neoliberal profiteering dressed up as altruism is perhaps not a million miles away from my argument of inevitable rate hikes and MMT: we would still get higher rates alongside de facto public subsidies for infrastructure – just hiding the role of the public sector as the loss maker while lauding the ‘bravery’ of the private sector getting guaranteed profits. It depends on what we do with the inevitable losses – will they be monetised?

Is that deflationary? Over the medium term on the supply side, yes: but there is a big J-curve as investment ramps up, while investment and monetisation depress the exchange rate and raise inflation until new supply, and so healthier trade balances, kick in; and this neoliberal version offers more financialisation and high-end consumption to boot.

Not far from Sham el-Chic, and full of fossil fuels and high-end consumption, Qatar kicked off the 2022 World Cup – with no booze for fans staying in $200 a night tents, and ‘polite’ requests for no loud noise, music, or public displays of affection of any kind (but some more than others): the Daily Mail is doing its usual pot-stirring in calling it a ‘Qatarstrophe’. The dazzling opening ceremony involved Morgan Freeman and the reception Trump got in Saudi minus the Palantir, and talked about mutual respect and being “one tribe”. The football was less dazzling, with the hosts losing 2-0 to Ecuador and the Guardian noting: “This was the global game in its final form, a private power-show for the benefit of a very small group of very rich people… They were 2-0 down by half-time… whereas people and presidents and slogans can lie, elite sport rarely does.”

Notably, the World Cup is not a distraction from our problems, but in many ways emblematic of them: how do we make things work globally when we can’t agree on what that even means?

On a level fans can understand, how did we end up with the World Cup being held in Qatar in November? Why do FIFA run ‘The people’s game’? Can we get rid of them? Forgetting about their legitimacy, their corruption is a matter of public record (and prosecution).

More politically, the BBC refused to carry the opening ceremony, instead covering the trail leading to Qatar’s selection as host, alleged human rights abuses there, and recorded deaths among the migrant workers who built the new football stadia nobody will use when the competition is over. (Qatar’s official mascot is ironically a friendly ghost.) Beforehand, FIFA General Secretary Infantino launched a bizarre rant claiming, “Today I feel Qatari. Today I feel Arab. Today I feel African. Today I feel gay. Today I feel disabled. Today I feel a migrant worker,” adding he had been bullied for being a redhead long before he was a slaphead, and that any Western accusations against Qatar are hypocrisy because of the West’s actions over the last 1,000 years.

Branko Milanovic made a typically poignant observation back in 2015 when noting the expansion of the World Cup to new venues represents a shifting of global power from an old European and Latin American aristocracy to a more inclusive kleptocracy. There is more money; more people are involved – if ‘people’ means a larger elite; but the football gets worse for the working class base in the former aristocracies. Nobody wanted to see the 32-team tournament this time round but Infantino and teams not good enough to qualify for 24 slots. But wait until the 2026 World Cup in Canada, the US, and Mexico –two of which have no interest in the sport. There, instead of nobody being able to travel anywhere as in tiny Qatar, nobody will be able to do so because of the huge distances involved – and 48 countries’ fans will be involved. By 2034, perhaps every country qualifies automatically, and we all form a global league that plays non-stop?

This is the issue with globalisation: there are winners and losers, and new power structures emerge – with obvious limits involved to those who are not being paid not to see them.

Some argue alongside Qatar 2022 –and Saudi Arabia’s MBS and its Emir shaking hands when the former was recently considering building a moat around the latter– COP27 showed geopolitical gains for smaller economies demanding payments from the West for damages from climate change; the G20’s ‘middle powers’ took the lead in making the US and China back off slightly; the International Institute for Strategic Studies confab just saw smaller economies argue together they can constrain larger ones; and even France’s Macron told the Indo-Pacific not to allow the larger beasts of the jungle to set the rules. In short, perhaps middle powers present a middle path to us all via a ‘new non-alignment plan’.

However, what if the old football aristocracies with all the money and talent say enough is enough? What happens if UEFA, flirting with its own deeply unpopular stupid European Super League, says it won’t release players to even bigger, sillier World Cups? (Or national leagues to UEFA?) When push comes to shove, true footballing power lies with the old elite not the new. What could other footballing countries do? Refuse to let their talent play in Europe and develop their own leagues over decades? If it were that easy, why don’t they just do it now?

Brexit was an attempt to just that, botched by tautisms, contortions, and deliberate distortions. The British government is now pushing back against suggestions it is now interested in a ‘Swiss’ route back to Europe again. After all, the government is about to embrace EU style fiscal rules and taxation just as Europe realizes how stupid they are. Yet opinion polls make abundantly clear the Conservatives won’t be in power for long, and perhaps ever again(?) Looking forward, one can say that with a structural energy crisis, high taxes and crumbling public services, a rump nationalist demographic, geopolitical delusions of grandeur, and an economy driven by mainly one sector with a cloudy global future, the UK would fit back into other EU economies snugly.

Donald Trump, now back on Twitter and running for President again despite the mainstream press and billionaires trying to ignore him, also claimed to want to do the same for the US. Trump is less relevant now because we are all Trump to varying degrees. Yet imagine what a Trump unencumbered by wanting to please either the Republican establishment or billionaires might want to do in power. Time for some serious ignoring from mainstream thinkers!

Indeed, for now we are all pretending to be “one tribe” cheering a game where 22 men kick a ball for 90 minutes, even if Gary Lineker’s “…and the Germans win” seems less likely on and off the pitch. Everyone is friends with everyone else again, despite PM Trudeau’s on-camera dressing down in Bali; middle powers are pretending they can swing outcomes in their favor; France and Germany are pretending they have strategic autonomy, as is the Netherlands in saying it won’t follow the US lead on tech controls vs. China when its semiconductor firm ASML is reliant on US inputs; Australia’s PM is pretending he can block Taiwan joining the CPPTP then suddenly remembering he can’t.

But let’s see how long it is until things we are sorted into World Cup groups, or things kick off. China just told Russia it is happy to work together with “like-minded countries”, and Thailand that they are “one family”. The US is sending F-22s to Japan and other bombers to Australia, and is extending and deepening its mutual defense treaty with the Philippines; the White House is also to help Thailand and the Philippines develop nuclear power. (If middle powers play against both sides smartly, they prosper; if they play against both sides badly, they get sent off.) The Wall Street Journal carries a detailed report showing EU-US trade and FDI is surging, dwarfing that of both into China in some respects – and European firms are looking at the US as an industrial base.

Is this deflationary? The sharp economic downturn we have coming ahead certainly is. The grim outlook for net exporters facing up to no more net exports certainly is. Yet a surge in new infrastructure and industrial investment, even if private-sector led and loss-stop bank-rolled by central banks, and into new up-to-downstream supply chains into new defence spending, is going to be very inflationary almost immediately afterwards. It is, as they say, a game of two halves.

As is my Bloomberg morning screen today, where headline one says ‘Locked Down: Covid Curbs Return to City Rumoured to Be Reopening’; and the one underneath says ‘China stocks to Jump on Reopening, Property: Hao Hong’. And you thought footballers who were not very bright but made too much money – at least they can kick a ball.