What We Learned in 2022

by | January 2, 2023

The past year has been one of surprise and tumult. Events not seen in a generation or longer, including resurgent inflation and an unprovoked military invasion of a European nation, sent economic, political, and financial shocks reverberating around the world. The US Supreme Court jettisoned precedent and overturned its most important judicial ruling in a half-century. Scientists appeared to have unlocked the potential of nuclear fusion, possibly a species-saving breakthrough arriving just as humanity buckles under soaring temperatures, drought, flooding and other extreme weather events linked to climate change.

2022 was a year of significant events. Too many led to human suffering and unspeakable tragedies. Yet, in each of them, we also find reasons for hope. Indeed, it is necessary for our species to turn suffering and tragedy into aspiration if we are to improve the human condition. 

Here are the 2020 events that stood out to us.

Russian invades Ukraine. Not since the end of World War II had one European nation militarily invaded another. (We exclude the Soviet-era military suppressions of Hungary in 1956 or Czechoslovakia in 1968 as both countries were essentially already occupied by the Soviet Union.) To be sure, Russia’s illegitimate military seizure of Ukrainian territory had already begun in 2014, when its forces seized Crimea. But this time, the result was open warfare between European nations,  indirectly also involving many of the world’s great powers.

The war has brought enormous human suffering to Ukraine. According to the United Nations, roughly 14 million Ukrainians have been displaced by conflict, half migrating to other countries and the other half forced to move within Ukraine. The US Chairman of the Joint Chiefs of Staff, General Mark Milley, estimates that over 200,000 combatants and 40,000 civilians have died in the ten months since the outbreak of war. Millions have been subjected to shelling, arial bombardment and drone strikes. Destruction of hospitals, power facilities and water supplies have inflicted a particularly high toll on the young, the elderly, and other disadvantaged members of Ukrainian society. 

Yet as horrific as the news and images of war have been, it is equally important to note that from the onset of the invasion Ukraine has defended itself unexpectedly well. And since mid-year, Ukrainian forces have been regaining captured territory. Military aid from the West has been crucial, but Ukraine’s battlefield successes owe much to the resolve, bravery and organization of its citizenry, military, and leaders. Contrary to all expectations at the start of the war, Ukraine has fought its much larger and more populous neighbour to a standstill. In the process, Ukraine has reminded Russia (and the world) that cynicism is no match for self-determination. 

Tragedy in Ukraine has also revealed a capacity for compassion and sacrifice elsewhere. Various European countries, above all those on Ukraine’s western borders, have welcomed millions of refugees with scant complaints or political backlash. Together with the US, the EU and UK have agreed to a series of escalating sanctions on Russia despite their detrimental impact on their economies. Prices of natural gas, essential for European industry and everyday household use, have soared well beyond rates of energy inflation in other parts of the world, yet they have been stoically accepted by a vast majority of Europeans. 

Nothing can compare with the tragic loss of life and devastation caused by Russia’s criminal invasion of Ukraine. And yet humanity has risen. Ukrainians have outmatched their opponents on the battlefield, motivated by the justness of their cause. Europe has found a higher purpose in compassion and sacrifice. The West has become more unified in the moral imperative to confront injustice. NATO has found its reason for being again. None of those outcomes were givens, and few would have been predicted at the outset of the invasion. Yet they offer solace and hope that tragedy and suffering have not been in vain.

Inflation soars. 2022 witnessed an acceleration of inflation to levels not seen in many countries since the 1970s. As a result, central banks in virtually all developed and many emerging economies responded with aggressive monetary policy tightening steps, including interest rate hikes and moves to rein in balance sheets. 

Surging inflation and monetary policy tightening sent shudders through financial markets. Global equity and fixed income markets tumbled, leaving investors without options to diversify risk. So-called balanced portfolios comprised of stocks and bonds suffered their largest drawdowns in a half-century. Borrowing demand shrivelled and real estate markets wobbled. Many commodity prices, which initially surged on the outbreak of the Russia-Ukraine war, were in full retreat by the end of 2022. 

Worldwide, wages and incomes have largely failed to keep up with soaring prices. Real incomes for most Americans, Europeans, and Japanese have fallen in 2022. Even harder hit, especially by soaring energy and food prices, were residents of emerging and developed economies, for whom rapid price increases pose existential threats of deprivation and even starvation.

Yet, for all the economic pain and human suffering caused by high inflation and rising interest rates, the global economy has coped better than most observers expected. Few countries or regions have fallen into recession. In large part, that is because labor shortages have contained the rise in joblessness that typically ensues when central banks tighten monetary policies. 

Similarly, fears of widespread social and political unrest that might have been unleashed by the economic pain caused by high inflation have not materialized in either developed or emerging economies. And, apart from the apparent fraud-induced implosion of the cryptocurrency exchange FTX, extreme financial stress has not followed the rapid tightening of monetary conditions, as many had feared.

Perhaps the economic, political, and financial fallout from soaring inflation and tighter monetary policies is yet to arrive. Certainly, it would be wrong to be complacent about those risks. But it is also possible that lower levels of household indebtedness, increased financial industry regulation, and the emerging rejection of extremism (see below) may be contributing to the resilience of economies, financial systems, and societies to deal with the 2022 inflation shock.

Authoritarianism and extremism checked. Historians may look back on 2022 as the year when the decades-long and ominous rise of worldwide authoritarianism and extremism began to recede. 

Ukraine’s military and moral success against Vladimir Putin’s imperial obsessions are surely the best examples of successful resistance. But so, too, has been the endurance of democracy. In the US November mid-terms, voters clearly rejected extremist candidates and positions. In the UK, a narrow base of Tory party members rejected the wacky fiscal follies of the short-lived Truss government, just as they had tossed out an increasingly unstable Prime Minister Boris Johnson earlier in the year. 

In Brazil, voters ousted the far-right Bolsonaro government, while in various countries ranging from Iran to China, brave citizens have taken to the streets to demand change and improved governance. Across Latin America, elections have seen the restoration of centre-left and even left-wing parties, bucking the previous winning streaks of right-wing populists. And where extreme parties secured power in 2022, such as in Hungary or Italy, a combination of domestic political and international laws and norms have constrained their abilities to act unilaterally and detrimentally to the liberal world order. 

Even the US Supreme Court’s tilt toward more extremist interpretations of US constitutional law (which arguably began over a dozen years ago with controversial rulings on gun rights or the stripping away of voting rights) appears to be meeting its match. In overturning the landmark 1973 Roe vs. Wade decision that had granted women the right to an abortion, the nation’s highest court had placed the US in the shocking position as the only democracy in the world to potentially outlaw all forms of abortion. The result was a strong backlash in the US midterm elections, marked by higher voter turnout by women and younger cohorts, motivated to politically re-establish what the court had judicially removed. Even in traditionally conservative states such as Kansas or Michigan, voters overwhelmingly rejected the Supreme Court majority in supporting abortion rights in law and state constitutions.

Climate change, science, and behavior.  2022 was a year of extreme weather events. From cyclones in Africa to wildfires in Europe to heatwaves in the US to typhoons in Japan and flooding in Australia, exceptional climate change events are becoming the norm. The human costs are tragic, as dramatically underscored by the more than 16,000 people who died in Europe due to extreme heat or the approximately 1,700 people who perished in Pakistan from flooding.  

And yet, there is hope. First, critical behaviors are changing. Worldwide, electric vehicle sales surpassed 10 million units this year for the first time, easily topping the total annual vehicle sales of General Motors, a sign of their growing acceptance by consumers. Transportation is the largest contributor to greenhouse gas emissions, so this tipping point of progress with EVs is encouraging. Second, the misnamed Inflation Reduction Act is the single most important piece of climate change legislation ever enacted in US history. It is politically attractive because it employs rewards (incentives in the form of subsidies) to encourage renewables rather than penalties (carbon taxes), making it politically and economically more advantageous. It has drawbacks, including potential violations of international trade law (WTO), but it is a huge step forward. 

And finally, science and capital are joining up to develop new technologies to innovate in sustainable energy and to explore deep space. For the first time, scientists (at Lawrence Livermore National Laboratory) ignited a fusion reaction that produced more energy than was used to create it. Numerous well-funded business start-ups, from Commonwealth Fusion (backed by Gates and Soros) to General Fusion (backed by Bezos) to TAE Energy (backed by Google and others) are achieving breakthroughs in parallel, heralding a not-so distant future where unlimited clean energy will be in humanity’s grasp. Meanwhile, NASA’s astonishing James Webb telescope and recent Artemis mission around the moon remind us that for all of humanity’s frailty, we can still achieve the remarkable.

On behalf of all of our contributors at Jackson Hole Economics, we wish you a peaceful and joyous holiday season and may 2023 be a year of hope realized. 

Filed Under: Featured

About the Authors

Larry Hatheway

Larry Hatheway has over 25 years experience as an economist and multi-asset investment professional. He is co-founder, with Alexander Friedman, of Jackson Hole Economics, LLC, which offers commentary and analysis on the global economy, policy & politics, and their broad implications for capital markets. Prior to co-founding Jackson Hole Economics, LLC Larry worked at GAM Investments from 2015-2019 as Group Chief Economist and Global Head of Investment Solutions, where he was responsible for a team of 50 investment professionals managing over $10bn in assets. While at GAM, Larry authored numerous articles on the world economy, policy-making and multi-asset investment strategy. Larry was also the lead investment manager for various mandates, funds and an actively managed multi-asset index. Larry also served on the GAM Group Management Board, was Chairman of the GAM London Limited Board and served as member of the GAM Investment Management Limited Board. Larry was also Chairman of the GAM Diversity & Inclusion Committee. During his tenure at GAM, Larry was based in London, UK and Zurich, Switzerland. From 1992 until 2015 Larry worked at UBS Investment Bank as UBS Chief Economist (2005-2015), Head of Global Asset Allocation (2001-2012), Global Head of Fixed Income and Currency Strategy (1998-2001), Chief Economist, Asia (1995-1998) and Senior International Economist (1992-1995). During his tenure at UBS, Larry was also a standing member of the UBS Wealth Management Investment Committee. While at UBS, Larry worked in Zurich, Switzerland, London, UK (various occasions), Singapore and Stamford, CT. At both GAM Investments and UBS Investment Bank Larry was widely recognized for his appearances on Bloomberg TV, CNBC, the BBC, CNN and other media outlets. He frequently published articles and opinion pieces for Bloomberg, CNBC, Project Syndicate, and The Financial Times, among others. Before joining UBS in 1992, Larry held roles at the Federal Reserve (Board of Governors), Citibank and Manufacturers Hanover Trust. Larry Hatheway holds a PhD in Economics from the University of Texas, an MA in International Studies from the Johns Hopkins University, and a BA in History and German from Whitman College. Larry is married with four grown children and a loving Cairn Terrier, and resides in Wilson, WY.

Alex Friedman

Alex Friedman is the co-founder of Jackson Hole Economics, LLC, a private research organization which provides analysis on economics, politics, the environment and finance, and develops actionable ideas for how sustainable growth can be achieved. Friedman is a senior leader with two decades of experience growing and transforming organizations in the financial and non-profit industry. He was the CEO of GAM Investments in London and chairman of the firm’s executive board. Previously, he was the Global Chief Investment Officer of UBS Wealth Management in Zurich, chairman of the UBS global investment committee, and a member of the executive board of the private bank. Before moving to UBS, Alex Friedman served as the Chief Financial Officer of the Bill & Melinda Gates Foundation. He was a member of the foundation’s management committee, oversaw strategic planning, and managed a range of the day-to-day operating functions of the world’s largest philanthropic organization. Friedman also created the foundation’s program-related investments group, the largest impact investing philanthropic fund in the world. He started his career in corporate finance at Lazard. Friedman served as a White House Fellow in the Clinton administration and as an assistant to the U.S. Secretary of Defense. He is a member of the board of directors of Franklin Resources, Inc. (Franklin Templeton), a member of the Council on Foreign Relations, Chairman of the Advisory Board of Project Syndicate and a board member of the American Alpine Club. Friedman is a regular contributor to a range of newspapers and thought leadership groups and is also the author of Babu’s Bindi, and The Big Thing, both children’s books. He is an avid mountaineer and rock climber and led the first major climb to raise money for charity through an ascent of Mt. McKinley. Friedman holds a JD from Columbia Law School, where he was a Harlan Fiske Stone Scholar, an MBA from Columbia Business School, and a BA from Princeton University.

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