Home > The Great Unraveling? > Fragility in Economic Systems

Ten years after a financial crisis, the inherent instability of financial markets has been further confirmed by the coronavirus pandemic, while wider economic systems have become more fragile, including job insecurity and unsustainable levels of debt globally and across the corporate sector.

In this episode of the “Great Unraveling?” series, Nate Hagens joins Laurie Laybourn-Langton to explore fragilities in financial and wider economic systems.

Nate Hagens has written and spoken widely on ecological economics, energy systems, and sustainability. He’s an Adjunct Professor at the University of Minnesota and co-founder and director of the Institute for the Study of Energy And Our Future. Previously he worked in the financial industry at Lehman Brothers and Salomon Brothers. He has a Masters in Finance from the University of Chicago and a PhD in Natural Resources from the University of Vermont.


Laurie Laybourn-Langton
Ten years after the financial crisis, the inherent instability of financial markets has been further confirmed by the coronavirus pandemic, while fragilities in wider economic systems have been exacerbated from precarious work to the consequences of high levels of debt in the Global South and across the corporate sector.

In this episode, we explore fragilities in financial and wider economic systems. To do so, I’m joined by Nate Hagens, who has written and spoken widely on many of these issues. He’s an adjunct professor at the University of Minnesota in the USA, and his co founder and director of the organization energyandourfuture.org. Nate, welcome.

Nate Hagens
Hi. Great to be here, Laurie.

Laurie Laybourn-Langton
Let’s kick off with a quite large, expansive question. The coronavirus pandemic comes off the back of over 10 years in which we have seen how financial systems in particular and wider economic systems are beset by certain instabilities. Could you give us an idea of the kind of fragilities that we should be particularly aware of across these systems and what they mean for efforts to try and make a more sustainable world?

Nate Hagens
Yeah, the coronavirus didn’t cause these problems, but it triggered many of the things that have been building over time. I think right now we’re in an existential moment for societies in advanced economies. We have massive amounts of poverty and the stock markets are quite high right now.

That is a product of the crisis, not a green light that that we’re going to have some V shaped recovery. Because what’s happened is the stimulus from the government and the Federal Reserve, in aggregate, has been a firehose approach that they put towards the economy. That has been larger than the economic damage to the economy. But it all expires at the end of July, pretty much, so they’re going to have to redo more firehose.

Right now, this implies so many different things for the issues that we care about. And in my opinion, we are in this series of higher and higher hurdles, and we have to solve them sequentially.

There are 100 million loans that have been deferred in the United States. And there’s 50 million people—mostly in the middle class—who are getting these $600 weekly unemployment checks that are nowhere near what their previous income was.

So, we have to solve the economic and poverty crisis first. Otherwise, we don’t have a stable playing board to do longer term things like a carbon tax, or universal basic income or ecological restoration. We have to kick the can wisely and not kick the bucket in the process.

Laurie Laybourn-Langton
Could you go into a bit more detail about that stable foundation that we need to have created upon which we can start to, as you say, engage in things like an ecological transformation? And I’m assuming that the elements of that foundation are ones that cut through many countries, not just the USA as well?

Nate Hagens
Right. Well, in Europe, it’s the same thing. We need to stabilize society to the effect that institutions still work, that governance still works, that there’s trust in our financial architecture, that there is science.

A lot of the populist revolts in the United States right now are based on kind of this normative theory that everyone has their own objective view of the world. And there, there is no actual truth. So we need to have actual social discourse between the left and the right, that results in a reason and science and policy.

Right now, there are so many things that are just on a precipice. And you know, this doesn’t even really get into the longer-term financial and energy risks.

My opinion is—I can speak to the United States—we have $26 trillion in debt. We’re never gonna pay that back. We don’t have the energy and materials to pay that back. But now what we’re faced with is, we’re going to have to issue another $10 trillion, or something like that, in order to feed people keep small businesses afloat and support the people that you know—the broad swaths of hospitality, restaurants, retail, travel that are never coming back—even if we do get a vaccine or something like that.

So I think that the near term focus, and for the people in our tribe working to make a sustainable future, this dramatically changes the choreography. We have to know that, as a society, we’re going to kick every can that we can possibly kick until the road is full of cans.

If you anticipate that moment, it just changes how we look at sustainability. In my opinion, we are never going to vote on climate change to keep carbon in the ground, or things like that. We could do it indirectly if we navigate all this in the near term.

We could develop a cultural aspiration away from GDP, corporate profits, quarterly earnings, towards measuring people’s well being. And if people’s well being—you know, what we care about is basic needs, our social relationships, and nature—if we can construct a wellbeing matrix around those things, on how people are really experiencing their lives, it will turn out that we don’t need as much energy and stuff, and indirectly emissions, to have that.

But all these things—and this is my big, you know, concern—is we have this list of how the world should be… Well, let’s do this and it’s going to be much more desirable and sustainable… We don’t have the social and political wherewithal to get there. We have to stabilize the system first. Then that gives us a chance at this longer term emergency, where these ideas that our group is working on have a chance at germinating.

Laurie Laybourn-Langton
And looking forward to the next couple of decades—say in a world in which the consequences of climate breakdown and other environmental problems start to rise—what are the big fragilities in financial and wider economic systems that you think will become particularly important?

We hear often from central bankers the risks increasingly of failure to make the transition in fossil fuel industries or investments in there, as well as the increasing downside impacts coming from environmental shocks. I guess that would be one area. Are there others that you are thinking about in particular?

Nate Hagens
There’s so many, it’s impossible to fit into such a short call.

One thing I would say is that the super organism—which is the global industrialized, society—took a mortal blow in February 2020. I do not think we’ll ever get back.

Peak Oil is now in the past and I think there’s a reasonable chance that 2019 will be the high level of GDP and, therefore, emissions. And so that changes the choreography of a lot of this stuff.

As far as central banks, we’re in part of a giant musical chair game. And most people don’t think about it this way. The Federal Reserve has $38 billion in capital, but they have $7 trillion in things that they bought on their balance sheet. It’s an unbelievably leveraged hedge fund, basically.

And the central banks in Europe are little different, let alone Japan and China. So the risk is that we’ve grown our debt more than we’ve grown our GDP every single year since I was born. And we take it for granted, like a fish swims in water. But we have consumed beyond our means for two generations.

A lot of that we’ve used debt to pull consumption forward and that bill is coming due now. We have to stabilize that situation first. Otherwise, we can’t get back to the stability and discourse that we have today. So I’m actually very worried on that, and I’ve dropped everything to work on making sure that governments support businesses and individuals through the next six months, until we get through the worst of the medical side of the virus.

Laurie Laybourn-Langton
Do you think that when it comes to those decision makers who are actively working on this at the moment—those politicians who may be speaking to and working with—how much are they starting to put considerations of resilience at the forefront of their mind? And, in general, do you think people are starting to see the coronavirus pandemic not as one particular shot that’s come out of the blue but, more, they have a shift in how they approach the world and see that risk is inherent in a lot of systems?

Nate Hagens
Well, I don’t know about politicians. Politicians are riding high on the super organism. They’re just trying to get stuff to their constituents who are hurting.

The people I talk to in my network… Maybe someone who made $100,000 last year, and had to drive 45 minutes to Denver and back every day. And now they’re only making $90,000 a year, but they’re working from home and they have more time with their dogs and their kids and the forest… I think culturally, this pandemic has allowed us to ask questions about: “What’s it all for? And how do I make my own life better and how am I happy?”

I think, on the political front, the resilience questions are pretty far down the pipe. They’re just looking at what do we do now to help people. Which is why… Ecologically, climate change and the sixth mass extinction are, by far, the largest risk we face, Laurie, being alive as humans at this time, but behaviorally, emotionally, politically, they’re going to be pretty far down the list.

I’ve talked to 20 politicians in the last two weeks. The word climate change was never mentioned. And most of them were leftward-leaning politicians. Economy is going to be the focus and poverty for the foreseeable future.

We have to creatively think two or three steps ahead, and how we’re going to support via debts and other things. We have to think about how to do that with ecological restoration locally or different things.

The problem is we got to do this now. And there’s no infrastructure. We’re not an egoless society that thinks with intelligent foresight down the road. So it’s politically very difficult to, to accomplish these things.

I think education and inspiration about the specialness of our time, and that not everything is fully broken, and that we need to roll up our sleeves and collaborate with people… this is where we’re at right now.

One final thing. You know, we tend to talk to people only in our own group that care about ecology, and the oceans, and climate. We have to realize that there’s a whole other group that doesn’t even speak our language. I think the real hope is to find a different way of living with each other and the planet that 60, 70, 80 percent of people could agree with. Because otherwise it’s just this pendulum that swings left and right, and nothing ever gets accomplished. So, that’s kind of my thinking there.

Laurie Laybourn-Langton
Fantastic. Nate, We’ve run out of time. As always, too little. But thank you so much for joining us today.

Nate Hagens
You’re welcome, Laurie.

Laurie Laybourn-Langton
Thank you very much.