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Okay, Just How Screwed Is Our Economic Future?

We asked an economic historian if our future is as doomed as our past.
Image via Shutterstock

This year we held Australia’s biggest millennial money survey. We’re spending the next few months trying to unravel the parts of our economic lives that cause us so much anxiety. Stick with us, we’re all in this together.

In 2008, the world faced one of the worst global economic disasters in human history. In a very small nutshell, the Global Financial Crisis (or GFC for short) was the result of the American credit and housing bubbles bursting, followed by a banking crisis, and the stock market crashing. What began in the US was quickly felt worldwide. The hit was especially cauterising for millenials, many of whom were graduating school and university. Out of nowhere, job opportunities vanished and our transition into adulthood and economic security looked a lot more dire.


Ten years later the world is recovering, especially in Australia, but it’s hardly smooth sailing. Across the globe many economies are still experiencing extensive inflation. Europe’s debt crises has lead to serious unemployment rates. The trade war between China and US is intensifying every day. And at home? Well the house price to income ratios are soaring, our debt to GDP percentage is more than 40 percent, and the “housing boom” looks like it’s on the decline.

That line-up of global issues has lead some financial experts, services, and publications to predict another massive global recession in 2020. For a generation that came of age during the greatest financial crisis in recent memory—who are only just starting to feel like maybe we’ll be able to secure the opportunities our parents had—it’s a devastating prediction.

Speaking to VICE, economic historian Adam Tooze offers some watery comfort though, assuring us that we’re not facing a financial crisis on the level we saw in 2008. That’s not to say we’re fine, though. Rather, Adam—a GFC expert and professor of history at Columbia University—explains that what we’re facing is more like the flu than a heart attack.

Wait, what’s the difference between a Crisis and a Recession?

At this point, it’s important to differentiate between the two. Recessions are normal, recurring every seven to 10 years and typically caused by a variety of downfalls, such as a loss of faith in investment. They suck, but things almost always perk back up and normalise.


A crisis is more complex. They tend to be a combination of these aforementioned economic downfalls happening concurrently. Or as Adam puts it: “You’re looking for the earthquake, the tsunami and the nuclear reactor being swallowed.”

He doesn’t feel the combined financial issues we’re seeing are enough to cause a crisis.

As for what would cause a crisis—that’s dependent on China’s economy staying afloat. “[China] accounts for almost 40 percent of global growth. It’s more than the US, Europe and India put together. If China sneezes, we all catch a cold. China is the heart of the story,” Adam continues.

So let’s talk about China

China has a big influence on the global economy. They have the world’s second highest nominal Gross Domestic Product (GDP) after the US, the highest purchasing power, and are attributing to a third of the world’s economic growth. Yet China has problems, the worse being a very large, very significant credit bubble. And as we learned with the US in 2008, bubbles do burst.

Whether or not China’s economy will actually collapse has experts divided. For example, Wang Xiaosong, a research fellow at the Renmin University of China, argued last month that if the US-Sino Trade War escalates further, then collapse is super likely. That’s a terrifying reality for many countries, Australia being no exception.

But Adam cautions that when comparing 2018 China to 2008 US, one needs to consider its economic management.


In the West the economy is regulated by an independent Central Bank. China’s economy is tightly regulated by its political regime. This means crises like a crash could be avoided through presumptive management. “[China’s] capacities for economic management have been nothing short of astounding and they are already trying to proactively de-risk bits of their financial system”, Adam tells VICE. Phew.

Talking about being proactive, is the rest of the world prepared for another downturn?

Ten years on, it’s worth asking what we have learned about our economy since the last crisis. Prior to the GFC, the global economy was doing quite well, with a GDP Growth Rate of 5.5 percent. But now it’s at 3.8 percent. The McKinsey Global Institute have also flagged that a decade later, national debt is still a problem for a lot of countries around the world. Remember, debt is a big part of what got us into that 2008 mess.

So although we may not be facing a GFC, whether or not we’re ready for anything is a different question altogether.

“For some people, the future is as bright as it’s never been,” Adam tells VICE. “The opportunities are astonishingly wider than they ever were, even for my generation coming up in the 70s and 80s. We didn’t have a sense of a global economy like we do today. No one would ever dream of visiting China. India was a desperately poor place, ravaged by the wars between Pakistan and Bangladesh. Famine in Africa. The 70s were grinding times for much of the world’s populations.”

But he tempers the enthusiasm by noting that in order to secure those opportunities and achieve wealth, the only solution is education. “The chances are constantly being redistributed by the present and the only thing that offers any kind of security is really high levels of education,” Adam tells VICE, before quickly adding. “Not just regular [university] degrees, but the most sophisticated postgraduate degree you can afford.”

So there you have it. We’re probably good when it comes to predicting another 2008-style financial disaster in the next few years. But that doesn’t mean we should totally relax. Because although the global economy, as Adam says, is facing a flu rather than a heart attack, we’re far from golden. “Our future is astonishingly open-handed and promising, but at the same time, fiercely competitive.”

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