We are all zombies now

May 16, 2024·Alasdair Macleod

For decades, all G7 nations and more besides have prevented the creative destruction upon which economic progress depends. Whole countries are now zombified.

The consequence is soaring, unproductive debt both in public and private sectors. In the past, debt levels have been low enough for central banks to force through further interest rate suppression to perpetuate malinvestments. That is no longer possible, with G7 government debt to GDP ratios commonly exceeding 100%. This article argues that interest rates will not fall materially, if at all, but will continue to rise.

Rising interest rates threaten to destroy the stagnating businesses which make up most of G7 economies, threatening entire banking systems. As their power has increased, central banks now bear responsibility for the financial integrity of the business environment as well. Individual insolvencies may be tolerated, but the prospect of wholesale failures requires governments and their central banks to prevent them.

Consequently, Schumpeter’s concept of creative destruction has not been permitted to work its magic, and without which capitalism fails to deliver economic progress. We are usually aware of the economic progress arising from new technologies because it is plain to see. But we are less aware of the need of more mundane processes to continually evolve. In free markets this is achieved by competition among suppliers to improve products and services for the consumer. 

It follows that a Darwinian process of natural evolution must occur, whereby those businesses not fit to survive competition must die, and their capital and labour resources redeployed towards production that is viable and capable of anticipating ever-changing patterns of consumption.

The rest of this article is available for paid subscribers to MacleodFinance Substack