Rarely does an idiom manifest itself in as many mediums as does the seemingly ubiquitous “Fade to Black.”
Spreading far from its beginnings as the director’s call to slowly dim the lights, end the scene and fade away, it runs the gamut from dark beer, to mystery novels to documentaries, from slasher films, to music, lots and lots of music. And, with the music there can be darkness, perhaps even the darkness of suicide. Dire Straits’s self-titled cut is a bitter rebuke to a wicked woman with black widow tendencies. Tommy Cash chose the idiom but not the darkness in his 2008 album, “Fade to Black: Memories of Johnny,” a tribute to his older brother, “The Man in Black.”
Urban lore consigns to Metallica, the thrash metal band formed in 1981 Los Angeles, the honor of bringing the most darkness and crossing the boundaries of metaphorical meaning in its version of “Fade to Black.” Have a listen: “I have lost the will to live, Simply nothing more to give, There is nothing more for me, Need the end to set me free.” Now, you may think there’s no gray area in those words, but you would be wrong. Rather than suicidal tendencies, the song was written by James Hetfield, the group’s lead singer, after the band’s van was broken into leaving him robbed of his favorite Marshall Amp. Call that a really bad day for the lead of one of the 80’s “big four” thrash metal bands.
And for us, is there a fading to black that could bring us a really bad day? Miles of airwaves have been devoted to the vulnerable state of an enormous economic engine. Will the backlash against globalization and the rise of protectionism herald the death of global trade as we’ve known it for most of our adult lives? Late last month, the World Trade Organization (WTO) dramatically decreased its forecast for the growth in the trades of goods in 2016 to 1.7 percent from 2.8 percent. The implication was that trade would grow at a slower pace than global gross domestic product for the first time in 15 years. The outlook beyond year end is no more uplifting. The WTO lowered its 2017 forecast to between 1.8 percent and 3.1 percent from a previous 3.6 percent.
For any of you wondering if this development came out of left field, look no further back than March 2015 when the Baltic Dry Index (BDI), a gauge of shipping rates, hit a 30-year low. At the time, The Economist cautioned worrywarts to not get carried away with the dire message the index was communicating, pointing to several commentators’ suggestions that the decline was a good thing.
Forbes Contributor Tim Wortstall best captured the tenor of the glass-is-half-full thesis. He observed that while there was a possibility that the crash in the BDI reflected curtailed demand for shipping, the more likely cause was an increase in the supply of tankers, which reduced shipping costs and was therefore a good thing. His conclusion: “Other than a few ship owners who might now regret having ordered more ships, that’s actually good news, not bad, for the global economy.”
It’s conceivable that investors in South Korea’s Hanjin felt a wee bit more than “regret” when news arrived August 31st that the world’s seventh largest shipper had filed for bankruptcy, the largest in the history of the industry. Perhaps the punditry should have paid closer attention to the CEO of Maersk, who warned over a year ago that it was not an oversupply issue but rather slowing economic growth in every country outside the United States that was pressuring shipping rates downwards.
The sticky part comes down to where the onus lies to escape the global economy’s slide. As has been the case for all too long, most continue to look for refuge in central bankers’ actions. If only we could get economic growth off the floor, a virtuous cycle could be ignited as a trade revival follows.
While the drumbeat of this modern-day zeitgeist is convenient to embrace, evidence to the contrary suggests the actions of other leaders, as in those of the political ilk, are needed to begin to fill the economic vacuum. That’s where the situation gets dicey, as yet another detracting obstacle presents itself, that of the growing protectionist movement sweeping the globe.
In the event you missed it, the Economist also recently did a deep dive into the protectionist movement and its underlying causes. The conclusion was much more nuanced than you would have thought looking purely through the prism of traditional macroeconomics. An extensive study of 40 countries cited in the special report found that borders closed to trade resulted in high income earners losing 28 percent of their purchasing power. For the lowest 10 percent, however, 63 percent of their spending power would vanish into thin air due to a heavier reliance on cheaper imported goods.
Before closing the case on this stark conclusion, consider the veritable plight to which many of the least educated in developed countries have been subjected. The situation in the United States is particularly fraught. Most rich developed countries spend 0.6 percent of GDP per year on “active labor market policies,” as in retraining and helping retrofit displaced workers so they can become once again gainfully employed. That little thing we refer to as dignity is thus preserved. The U.S. for its part, though, assigns a mere 0.1 percent of GDP.
It’s with less frequency that yours truly agrees with the Economist, for many reasons. But the newspaper’s conclusion on the travesty of encouraging permanent workforce refugees is spot on: By neglecting those whose jobs have been swallowed by technology or imports, America’s policymakers have fueled some of the anger about freer trade.” Does anyone object to adding to that list neglecting to reform the education system such that all American children have opportunities to excel in STEM studies after, and if, they graduate from high school?
Exacerbating this dynamic is what is not happening in the land that consumed so many manufacturing jobs in developed nations during its historic and compressed rise as an economic powerhouse.
Leland Miller is a good friend who also happens to be an expert on China. From his perch as the head of the China Beige Book (CBB), a quarterly survey that tracks the world’s second-largest economy, he sees troubling signs that suggest the slide towards protectionism will get little in the way of relief from China. The country’s leadership has been bending over backwards to convince the rest of us that it is intent on retreating from its role as a predominantly export-driven nation.
“While it’s only one quarter, CBB’s data saw an almost total reversal of rebalancing trends in the third quarter,” said Miller. “Spurring growth is the only priority and restructuring is being left by the wayside.”
Miller worries that there is too little recognition among policymakers and that exporting their way out of economic trouble is not a viable option. It is rather a “laser-focus internally on structural reform” that holds the key to future prosperity. He adds that the quiet currency wars underway render the dynamic that much more sensitive.
“Who is doing this well?” Miller asked. “Maybe no one; certainly not the USA and certainly not China.”
The deterioration in world trade, multiple depressants and all, presents yet another example of the rising cost of our world leaders being incapable, or worse yet, unwilling to address the serious challenges facing the global economy. This will not end well. The more money central bankers pump into the financial system, the greater the divide that opens between the haves and have nots, a direct consequence of the fallacy of the wealth effect. Global trade fading to black is simply what stares back at central bankers when they look in the mirror even as the anger rises unchecked in nearly every corner of the globe.
It’s interesting to note that Metallica’s version of Fade to Black was by no means the band’s most popular, though it was certified gold by the Recording Industry Association of America. Rather than fading in popularity, it became a staple of the band’s tour repertoire. It never has, though, lost its reputation as an anthem to demise. It was thus fitting that it was the last song played on the Los Angeles heavy metal radio station KNAC, which went off the air on February 15, 1995, as the metal movement faded, making way for the next musical wave.
World leaders should be so lucky. But first, they must get out of their own ways and implement the structural reforms needed to shore up their domestic economies — without stifling trade. Though a nettlesome needle to be threaded no doubt, pigheaded politicians could find themselves unwillingly channeling the ghosts of Smoot & Hawley as the world economy itself fades to black in coming years.