Since January 2020 when Covid was declared a global pandemic, the world has been obsessing about uncertainty. Russia’s Ukraine war and Chinese self-goals have made it worse.

But actually it’s not uncertainty that’s the problem. It is the risk that uncertainty causes. The two are different because while you can manage risk, you can’t, by definition, do anything about uncertainty.

That aside, proximate reasons have their limitations. They diminish and disappear.

So we must look for deeper or structural reasons. In my view there are two of these, which is why in October 2008, a month after the Atlantic financial crisis started, I wrote an article in this newspaper saying that the world was confronted for the very first time by an excess supply of both labour and capital and, furthermore, that this had happened over the previous 40 years because of improvements in health care, on the one hand, and the freedom that America had had since August 1971 to print as many dollars as it wanted, on the other.

This was in sharp contrast to the past when either labour or capital was always in short supply. The short interlude in the 1930s when both were in excess supply led to an explosion of macroeconomic analysis, which was quite new.

The key question then was whether the markets for labour and capital would adjust automatically and quickly on their own. It was assumed till then that they would.

But John Maynard Keynes, an English economist, showed why they wouldn’t, and from that, he went on to show the need for government intervention in the economy. This solution was intended for specific circumstances of insufficient aggregate demand which would be revived by government spending.

Silver bullet

But over the last 60 years it’s become the go-to solution for all economic problems. Politicians see it as the key to electoral success. For many decades many economists resisted this trend. But now even they have been converted. You hardly see any objections to excessive government spending. All you get is suggestions of ways of managing it.

However, since a government can only tax so much to finance expenditure, an increasing proportion has had to come from government borrowing, because first, such debt is cheap and second, because politicians who borrow now know that it is the next bunch of politicians who will have to repay the debt later.

Left liberal political parties have always practised this. The right liberal ones have also adopted this method. Global debt today is so large that no one quite knows how much it is.

But there’s a problem: if finance is what economists call the dependent variable, labour — or the birth of babies — is a totally independent variable. That’s why the world today has too much of both and not just capital.

But capital always requires efficiency while labour always requires equity. They thus pull in opposite directions.

The resolution obviously lies in reducing the amount of one of these two. Since it can’t be labour, it has to be capital. There’s simply no other way.

So, folks, it’s not, as the Finance Ministry thinks, inflation that’s going to be the problem. It’s deflation. All asset prices are going to get punctured badly as governments act belatedly to control inflation and overshoot.