I was born in 1951, so my seven decades of life now make me a senior citizen. As I think back, our country has been through many crises in those 71 years. In 1951, we faced the uncertainty of a war in Korea. Later came the Cuban missile crisis, John Kennedy’s assassination, the Vietnam War, eleven recessions, the largest single percentage stock market drop in 1987, the 9/11 attacks, the COVID-19 pandemic and numerous others. My point is that, as a country, we have faced many challenges just during my lifetime.
While not taking anything away from the previous tests to our country, I think a strong case can be made that this year — 2022 — may be the most traumatic and uncertain for our country, at least since World War II. A big reason is we don’t just face one or two uncertainties, but we are confronted with many.
Indeed, I count at least five big uncertainties, each one of which would be enough to make us worry. Ranked in no certain order are high inflation, the possibility of a recession, the Ukraine War, the talk of a nuclear conflict and significant changes to work.
The latest reading on inflation shows an annual increase in the typical consumers’ market basket of goods and services of 8.5%, the largest jump since 1981. Since most households are not receiving comparable increases in their wages and salaries, today’s inflation rate means the average standard of living — measured by what people can buy — is falling. This hasn’t happened in three decades.
The problem of high inflation directly leads to the next challenge of today — the possibility of an upcoming recession. The typical way inflation is corralled is for the U.S. central bank — the Federal Reserve (“Fed”) — to slow the pace of spending. The Fed does this by increasing interest rates and pulling cash out of the economy. The current Fed has already said they will use these methods to reduce today’s high inflation rate.
The Fed’s goal is to slow the economy just enough to moderate price increases without causing businesses to significantly reduce production and employment. If production and jobs were to plunge for at least six months, then economists would consider the pullback an official recession. While the Fed would not want its strategy to lead to a recession, there’s always the possibility — some say likelihood — it will. Just within the last couple of months, many economists have increased their chances of recession occurring this year.
Although the Ukraine War is foremost a geopolitical conflict — with the U.S. and its European allies backing Ukraine against Russia — it also has broad economic implications. The conflict has already caused many commodity prices, like oil, gold and wheat, to rise well above their levels at the beginning of the year. The price hikes reflect fears of shortages in supplies for many of the commodities. We’ve especially seen the impact of these higher commodity prices at the gas pump and in supermarkets.
But the higher commodity prices reflect another worry — the fourth uncertainty I mentioned — which would be the most worrisome of all. This is the possibility of a nuclear conflict.
Until now, the Ukraine War has been fought with conventional weapons. Yet, as Russia’s military goals have been stymied by the Ukrainians, Russian leaders have openly hinted about the possibility of using nuclear weapons both against Ukraine and countries backing Ukraine. This would be unprecedented. It raises images of a full-fledged nuclear world war, which would likely destroy most of civilization. As a youngster, I remember the last time the world was brought to the brink of a nuclear war during the Cuban missile crisis in 1962, and it was a tense and scary time.
The fifth worry — the swift changes happening in the labor market — are a feature of the post-COVID economy. COVID prompted three big shifts in the labor market. One was a reassessment of life motivating a surge in retirements of older workers and a departure from the labor market of many younger workers, especially those with children. The second was an up-skilling of numerous workers during the height of the pandemic, meaning when they returned to the workforce they left lower-paying jobs and moved to higher-paying jobs.
The third emerging labor market shift is a result of the first two. It is the accelerated use of technology and automation by companies that have not been able to eliminate their labor shortages. We will see much more labor-saving technology in coming years that will keep many workers guessing if they will continue to have jobs.
Every one of these uncertainties is important and hard to predict. They also have impacts that affect virtually everyone, but to have five of them together is, at least in my lifetime, extraordinary. This makes me believe 2022 is a unique year. It may very well go down in history as the “year of enormous worry,” yet hopefully — fingers crossed — with positive outcomes. As time passes, we’ll be able to decide!
Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.
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