Actually, no. We live in more or less normal times, even if the daily news makes it seem like apocalypse is always around the corner. In fact, there’s a remarkable amount of stability that keeps economies chugging along and living standards intact.
Citi researchers recently examined more than 100 years of geopolitical developments to assess where we stand now and what degree of risk global investors face. Their conclusion: Things aren’t too shabby.
“A common perception is that geopolitical shocks are becoming more frequent and severe,” a team led by Citi global chief economist Nathan Sheets wrote in a new report. “We find little support for this view. The world has seen an increase in geopolitical pressures in the 2020s compared with the relatively benign 2010s, but such pressures are hardly elevated relative to many previous decades.”
The data isn’t nearly that negative, however. Citi highlights a “geopolitical risk index” devised by Federal Reserve economists Dario Caldara and Matteo Iacoviello to measure current conditions in historical context. Their methodology includes detailed searches of English-language media going back to 1900 meant to capture references to wars and other crises that disrupt normal economic activity.
Not surprisingly, geopolitical risk spikes the most during massive wars, with World Wars I and II setting the upper bound for the risk index. Other events that caused unusually high risk during the past 124 years are labeled on the following chart.
Not every war sends geopolitical risk soaring. The Vietnam War, which hit peak intensity in the late 1960s and early 1970s, doesn’t correlate with a surge in geopolitical risk, probably because it was contained to a corner of the world that didn’t much affect the global economy. Smaller skirmishes in the Middle East cause more global risks since they can affect the world’s oil supplies.
The average index reading for the entire period is 100. So how have we been doing lately? The most disruptive events of the 21st Century were the 9/11 terrorist attacks in 2001, which pushed the index to 304, and the US invasion of Iraq in 2003, which cranked it up to 245. For most of the time from 2007 through 2021, the risk index was below the historical average. (The 2008 stock market crash and the 2020 COVID pandemic weren’t geopolitical in nature, so they don’t register on the index.)
Russia’s 2022 invasion of Ukraine obviously shattered the calm. The risk index jumped from a muted 85 at the end of 2021 to 167 right after the invasion. Markets felt the pain, with oil prices jumping from $90 to $120 during the next few months before settling back below $100.
Ukrainian rescuers work in the courtyard of a residential building damaged as a result of a missile attack in Dnipro on April 19, 2024, amid the Russian invasion of Ukraine. (Photo by ANATOLII STEPANOV/AFP via Getty Images) ·ANATOLII STEPANOV via Getty Images
As markets adapted to the Russian attack, the geopolitical risk index fell back into the normal zone until it jumped again after Hamas attacked Israel last October. But the index has since fallen from 137 to 104, as of March 1. That doesn’t account for the recent exchange of fire between Israel and Iran, but many analysts think that episode is over, with oil prices largely unaffected.
The upshot is that geopolitical risk is near ordinary levels compared with the last 12 decades. Yet people don’t feel like things are normal. Consumer confidence surveys are close to recessionary levels despite low unemployment, booming growth, and rising household wealth. President Biden’s approval rating is dismal, threatening his reelection bid.
What’s going on? Why are Americans so bummed out? Citi suggests one explanation is “recency bias,” the tendency to compare current circumstances to whatever is freshest in our memories. People don’t compare life in 2024 to the way it was in 2001 or 1944. They compare it to the last time they thought life was good, which might have been 2018 or 2019.
There are a variety of other reasons why the national mood is gloomy. Social media allows deep “doomscrolling” that wasn’t really possible before. Fringy news sites thrive on peddling outrage and grievance to anybody inclined to it. Politics has become toxic, with politicians and voters alike attacking those who disagree with them. A bout of inflation during the last two years has shrunk some wallets and made small privileges dear.
In polls, Americans cite a chaotic immigration system, poor government leadership, and inflation as the nation’s biggest problems. But pollsters don’t usually ask people about what’s going right, and a few things are. The United States has become the world’s top oil and natural gas producer, making it far less captive to supplies from the volatile Middle East than, say, during the oil shocks of the 1970s. Inflation has stung during the last couple of years, but the Federal Reserve has brought it down quickly without the sort of back-breaking recession it took to corral inflation in the early 1980s. Wars in Europe and the Middle East are unnerving, but American troops aren’t involved, and the nation’s costly excursions in Afghanistan and Iraq are largely over.
If you want to buck the trend and believe everything might be OK, the evidence will back you up.
