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A blog by Leon Oudejans

It’s stopped making sense (Axios)

7 August 2022


Axios Markets title: It’s stopped making sense
By: Felix Salmon
Date: 30 July 2022

There’s an air of unreality to the news these days — one perfectly in keeping with the “nobody knows anything” vibe that arrived with the onset of the pandemic in 2020 and never really left.

Why it matters: Recent days have seen a flurry of headlines that feel as though they’ve been run through an impossibility drive.

  • My job, as a newsletter writer, is to make sense of those headlines and to deliver you a story that explains them. But the honest truth is that there is no such story, and that things are very messy and weird right now — not always in a bad way.

Driving the news: The economy has spent the past six months shrinking, per the official Q1 and Q2 GDP reports. Other data, like gross domestic income (GDI), tell a different story — as does the labor market. The strong dollar cuts both ways, depending on how you look at it.

In Washington, the announcement on Wednesday that the Inflation Reduction Act would likely pass the Senate upended all manner of conventional wisdom. Among the impossible things that happened:

  • Senator Joe Manchin went from fickle obstructionist to master tactician overnight. Larry Summers became a hero to the left.
  • America has some claim now to be a climate leader, should this bill pass and succeed in reducing U.S. carbon emissions to 40% below 2005 levels by 2030.
  • The global 15% minimum corporate income tax is now back on the front burner — and there’s a decent chance that the carried interest tax loophole, much beloved of private equity and venture capital executives, will finally be abolished.

The big picture: The pandemic precipitated an epistemic crisis, as well as a medical one. To this day, the amount we don’t know about the SARS-CoV-2 virus is enormous, and the uncertainty around economic and financial issues is just as large.

Between the lines: Inflation is creating cognitive disconnects everywhere. Second-quarter growth came in at an annual rate of $24.9 trillion, for instance, up 2% from the $24.4 trillion seen in Q1 and up more than 9% from the $22.7 trillion a year previously.

  • A mature business that saw revenues rise 2% in 3 months and 9% in 12 months might be thought to be doing OK. But after accounting for inflation, Q2 GDP declined by 0.2% quarter-on-quarter, which is definitely not good (although it could yet be revised upwards).

The bottom line: If you are clinging to a simple narrative that explains the current situation, where a character like Vladimir Putin or Joe Biden or Jay Powell is determining the outcome of the global economy, you are wrong.

  • Everything is in a messy flux right now, and no one is holding the reins.”



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