4 August 2022
Ziņas un Viedokļi
A Lottery Ticket to the “Green World”

The transition towards a “green economy” has so often been discussed recently at all levels that one would imagine it is difficult to add something new to everything that has already been said. And, at the same time, there is a feeling that certain issues were left unaddressed. This is probably due to the fact that the parties involved in the discussion are doing it so vigorously and emotionally that there is simply no time, strength and energy left to discuss “boring” details and circumstances. Nonetheless these details and circumstances are very wide-ranging and extremely informative.

For example, Larry Fink who runs Black Rock, the world’s largest asset manager, believes that the biggest political problem in the future may stem from a need to reconcile the transition to a “green world” with the fight against inflation due to the fact that the available technologies are not yet sufficiently developed. [1] As a result, politicians will have to make a choice between a “green transformation” of the economy and inflation. It is difficult to suspect Black Rock CEO in supporting the “anti-green” agenda. Maybe such pessimism is rooted in his previous experience and he simply finds it difficult to let it go? One may recall that Larry Fink started working in finance in 1976 during the so-called stagflation period when the consumer price index in the United States rose by 138% between 1973 and 1983. Probably, he simply underestimates the accelerating pace of scientific and technological progress which will enable us to solve many complex problems? Unfortunately, one should acknowledge that there is a certain element of truth in Larry Fink’s remarks.

It may sound shocking to many but for some time we have been living in the age where the rate of scientific and technological progress has been slowing down rather than accelerating! For experts and people from the world of academia this has long been an open secret. In a recently published study [2] McKinsey, a management-consulting firm, provides the following figures: in the age of “renewed economic progress” from 1939 to 1973 the average annual per capita GDP growth rate in the United States and Europe was 3.1%. During the “stagflation” period from 1973 to 1983 the average annual per capita GDP growth rate in the United States fell to 1.3%. During the “lost decade” in Japan from 1992 to 2002 the average annual per capita GDP growth rate in this country was 0.7%. Finally, during the period of “low growth and/or great divide” from 2007 to 2019 the average annual per capita GDP growth rate in the United States was only 1%. McKinsey also comes to the conclusion that in the period following the Global Financial Crisis innovations and technological advances have been primarily concentrated in leading sectors and largest companies. In a situation when consumer demand was particularly weak this, in turn, contributed to a rise in inequality, the persistence of high unemployment and low economic growth rates. The Organization for Economic Cooperation and Development arrives almost at the same conclusion by observing that the annual rate of labor productivity growth in developed countries has declined from 3.7% in the 1970s to 0.7% in the 2010s. [3]

One of the largest experts in the field of long-term economic growth Professor Robert Gordon from Northwestern University in the United States believes that over a hundred years up to 1970 — “the special century” — all the key technologies of modern society were put in place: sanitation, electricity, mechanized agriculture, highways, air travel, telecommunications, and the like. [4] Since 1970 the only notable exception has been the exponential growth rate in the field of information technology which has reached the consumer in the form of the Internet and various mobile devices. In other areas, according to the professor, the life of people in developed countries in 2019 was not that much different from their life in 1979 or 1989.

But some observers point out that after 50 years of growth even in the field of information technology there is a decline in the pace of innovation. [5] After all, the first operational version of the Internet was launched back in 1969, the first mobile phone was introduced in 1973, the first personal computer in 1974, the first portable computer in 1975, the GPS navigation system was launched in 1978, the first commercial mobile network in 1979, while the first smartphone became available in 1992. Even such a popular field as Artificial Intelligence is just at the very beginning of its development and at present is more IA (Intelligent Automation) than AI (Artificial Intelligence).[6]

Do the low rates of scientific and technological progress have an impact on the economic well-being of individuals and communities? Undoubtedly, they do and in the most direct way. In fact, politicians in developed countries were faced with this problem already during the stagflation period in the 1970s and early 1980s. Bearing in mind that advances in science and technology are not “programmable” processes with a guaranteed positive outcome, the politicians of the day made a decision to liberalize the financial sector in order to stimulate the economy, companies and consumers by the way of making credit more available while reducing the role of public spending and the size of the tax burden as well as promoting economic deregulation. It was then that the heads of central banks, starting from Paul Volcker and Alan Greenspan, turned into “superstars” while the role of monetary policy was becoming ever more crucial. It made it possible to successfully resolve the issue of high inflation and control the cost of credit.

The debt burden, particularly in the private sector, began to rise (see Picture 1 and Picture 2 below). The opening up of the economies of China, countries of the former Soviet bloc and many other developing nations in the 1990s and the subsequent transfer of many types of production to these locations led to lower production costs, and, consequently, to lower prices for finished consumer goods and consumer prices in general in the developed world. With inflation rates remaining low the world’s major central banks could pursue a policy of relatively low interest rates, and this, in turn, allowed to accumulate even higher levels of debt. Declining interest rates triggered a rally in bond, equity, housing and commodity markets. This continued up until the Global Financial Crisis of 2007–2008 when the governments of many countries were forced to “refinance” the private sector while the central banks were forced to “refinance” the governments by bringing interest rates down to zero and even lower. Consumer inflation remained low due to a weak demand during the recession, while asset inflation, after a correction, continued up until the beginning of the pandemic (see Picture 3 below). Since financial assets are distributed unevenly across various population groups, the level of financial inequality has been continuously rising (see Picture 4 below).

So, what happens to the long-term well-being of the people in the wake of such policies? Unfortunately, nothing good. Furthermore, Bloomberg News analysts warn that the Millennial Generation in the United States is approaching the moment when they simply will not have time to build the foundations of their financial well-being by lagging behind the generation of their parents — “the Baby Boomers” — on almost all financial metrics [7] (see Picture 5 below). The rise in real wages, which in the long term relies on the rise in labor productivity, has been practically stagnating in developed countries for several decades. At the same time, the rising prices of financial and non-financial assets, as well as the cost of education, puts many representatives of this generation in a clearly difficult situation.

This situation finds its reflection in yet another phenomenon. Commenting on the fact that the share of retail trading in US stock-market activity has reached a new record (see Picture 6 below), an expert from BNP Paribas, one of the leading French banks, note [8] that this is supported, firstly, by stimulus measures implemented by central banks and governments; secondly, by extra savings in the amount of 5.4 trillion USD compared with the pre-pandemic period; thirdly (most interestingly!), a generational wealth gap as a result of which many representatives of younger generations perceive financial markets as a “lottery ticket to riches” being under the influence of the FOMO and NGMI syndromes (“Fear of Missing Out” and “Not Gonna Make It”). A similar situation is observed in other countries as well. [9] Incidentally, the sales of traditional lottery tickets are also rising during the pandemic. This is the reason why it is so difficult to convince people to adhere to the “old-fashioned” principles of diversification. And the situation will most likely normalize only when interest rates start to rise.

And what were the governments and central banks hoping for? They were hoping that by deregulating the economy the pace of scientific and technological progress would accelerate again, thus boosting the rate of economic growth. This, in turn, would help in solving the debt problem. In other words, the monetary policy implemented over the last decades provided some respite but it could not solve the underlying problem.

What to do in this situation and what does the “green world” have to do with it? The thing is that economics is the science that studies the use, exchange, distribution and redistribution of scarce natural resources in order to meet the unlimited wants and needs of the people. This definition clearly implies that solving economic problems requires making a certain choice.

The most radical solution would be to reduce the number of people. As a matter of fact, humanity itself has resorted to such a solution during military conflicts, social upheavals and the implementation of birth control programs. Humanity has also faced epidemiological and natural disasters. In our time man-made or technogenic disasters are also possible. But I would like to leave the discussion of this topic in the hands of experts.

We can continue operating within the current framework by focusing on monetary policy, maintaining low interest rates and hoping that there will be a scientific and technological “breakthrough” to allow for a more efficient use of available resources. This should boost the rate of economic growth and, thereby, provide help in solving the debt problem. Unfortunately, we may have to wait for such a “breakthrough” for many decades to come. One can recall the fact that the first electric car was created back in 1881. And the current “EV wave” can probably be considered the fifth attempt to make a “breakthrough” in this field. It is enough to read the tech predictions from 10 years ago [10] to find out once again that to make predictions is easy, yet it is much harder to make the accurate ones. All this is well explained by the concept of a planning fallacy. [11] Back in 1977 Kahneman and Tversky, the founders of behavioral finance, pointed out that the implementation of plans and projects almost always requires a longer time than initially expected. This is due to the fact that people intuitively make forecasts by focusing on the project itself and imagining in their heads how it will be implemented. We never quite manage to imagine a wide array of possible negative scenarios. This applies both to the implementation of huge infrastructure projects and personal plans. As a result, 90% of infrastructure projects experience cost overruns and implementation delays. Between a rational choice and hope, humans intuitively choose hope. Therefore, when implementing revolutionary, groundbreaking projects, negative scenarios should be truly pessimistic.

At the same time, the need to maintain low interest rates within the current monetary policy framework, regardless of the high level of consumer price inflation, will further facilitate the current trend of rising debt levels, the uneven distribution of wealth, the growing popularity of alternative assets and the fintech sector associated with political instability. High inflation is definitely bad for bondholders (read: pension funds and insurance companies). But experts also point out that historically a high rate of inflation, exceeding 5%, was as bad for stockholders as deflation (see Picture 7 below).

There remains the option of reducing or modifying consumption. This can be achieved by strengthening the direct role of the government, particularly in the context of the “green transformation” of the economy. Given that the last generations have grown up in a consumer society, just encouraging the people to “change behavior” and “become green” may not have the proper impact. Even if the prosperous and “progressive” Swiss although narrowly (52% voted against and 48% voted in favor) yet still rejected the government’s initiatives submitted to a nationwide referendum in June last year to approve legislation seeking to prescribe the reduction of CO2 emissions by half by 2030 compared to 1990 levels, the ban on synthetic pesticides, the preservation of subsidies only for those farms that do not harm the environment and do not pollute drinking water sources, the introduction of additional taxes and surcharges on automobile fuel and air tickets, [12] then even less enthusiasm can be expected from the governments and the people in developing countries. The biggest surprise, though, was that the percentage of people in the age category from 18 to 34 years, who voted against all three pieces of the proposed “green” legislation, ranged from 60% to 70%. These are the “millennials” and the members of Generation Z that follows them. [13] One can try to implement this policy by using administrative measures or ruling by decree, but usually this kind of policy turns out to be counterproductive in the long run.

In the long term the most sustainable solution could probably result from a change in motivation, if you wish, a change of “values”. In the consumer society material and financial success is synonymous with success in general. However, from the point of view of a human being as a biological and social being, biological success in the form of physical and mental health, as well as social success in the form of socialization, maintaining contacts and even potentially profitable “connections” is undoubtedly no less important. Changing the motivation system and modifying consumption requires, in turn, changes in many other areas, starting with the education system, for example. But most importantly, it will require examples from the “very top” of society to be worthy enough to follow. For as long as there is a large gap in the level of material well-being in society, appeals aimed at reducing consumption may turn out to be “screaming into the void”. One may call it a “socialist” approach, but an excessive income and wealth inequality is as harmful to society in terms of social stability as is the lack of motivation under a simplistic wage “equalization” system.

An increasing number of members of the “elite” start to recognize this fact. It is no coincidence that even conservative and business publications have recently started to publish opinion pieces calling to introduce a “wealth” tax in order to avoid social upheavals in the future. [14] And in the wake of a truly serious crisis many “impossible” things often become reality. For example, experts point to the experience of the Great Depression in the United States (1929–1950) when the share of wealth held by the top 0.1% of US residents fell from 24% to 10%, while the top marginal income tax rate rose from 24% to 84% (see Picture 8 below). [15] Following the Global Financial Crisis (2007–2016), the share of wealth held by the top 0.1% increased from 17% to 19%, while the top marginal income tax rate went up only from 35% to 40%.

“Going green” involves many ethical, socio-economic, scientific and technological issues. But if we implement a policy aimed at changing the motivations that are prevalent in today’s consumer society, while proportionally raising the financial contribution of the most successful segments of the community, as well as supporting innovations outside “Big Tech”, then, sooner or later, we may have a decent chance to pick a shared winning lottery ticket to the “green world” after all.


[1] «Blackrock CEO Fink Sees Potential For Big Shock From Inflation», Annie Massa, Bloomberg, 2 June 2021.

[2] «Will Productivity and Growth Return After the COVID-19 Crisis»?, Jan Mischke, Jonathan Woetzel, Sven Smit, James Manyika, Michael Birshan, Eckart Windhagen, Jörg Schubert, Solveigh Hieronimus, Guillaume Dagorret, and Marc Canal Noguer, McKinsey Global Institute, 30 March 2021.

[3] «OECD Employment Outlook 2021», 7 July 2021.

[4] «Despite What You Might Think, Major Technological Changes Are Coming More Slowly Than They Once Did», Wade Roush, The Scientific American, 1 August 2019.

[5] «Is Technological Progress Slowing Down?», Nate Nead, ReadWrite.com, 1 February 2021.

[6] «Is Artificial Intelligence A Myth?», Hod Fleishmann, Forbes, 19 February 2020.

[7] «Millennials Are Running Out of Time to Build Wealth», Olivia Rockeman, Catarina Saraiva, Bloomberg, 3 June 2021.

[8] «In the FOMO Economy, Everyone Is Making Money But You», Lionel Laurent, Bloomberg, 10 June 2021.

[9] “Broke Millennials Turn to Day Trading to Strike It Rich in Korea», Heejin Kim, Bloomberg, 20 September 2020.

[10] «5 Failed Tech Predictions for the 2010s That Didn’t Work Out», Mary Meisenzahl, Business Insider, 30 December 2019.

[11] «From Vaccines to Homework, Why Humans Can’t Stop Overpromising», Tim Harford, The Financial Times, 12 February 2021.

[12] «Swiss Voters Reject Key Climate Change Measures», BBC, 13 June 2021.

[13] «Swiss Reject Climate Legislation», Eurointelligence, 16 June 2021.

[14] «A Wealth Tax Is The Economic Buffer Rich Nations Need», Tim Bond, The Financial Times, 8 February 2021. «Business Elites Fear Revolution Is At Hand», Ambrose Evans-Pritchard, The Daily Telegraph, 9 February 2021.

[15] «The Pandemic Will Reduce Inequality — or Make It Worse. The Rich Got Even Richer After the Great Recession, But The Great Depression Changed The Social Order», Ben Steverman, Bloomberg, 29 April 2020.

Autors: Oļegs Jemeļjanovs, LinkedIn profile

SWEDBANK FINANŠU TIRGUS DAĻAS INVESTĪCIJU JOMAS VADĪTĀJS Oļegs Jemeļjanovs Latvijas Universitātē ir ieguvis maģistra grādu uzņēmējdarbības vadībā, kā arī doktora grādu ekonomikā Roterdamas Erasma Universitātē Nīderlandē. Arī ir ieguvis sertificētā finanšu analītiķa (CFA) kvalifikāciju. Ir strādājis finanšu jomā gan privātajā, gan valsts sektorā (Latvijas Banka, FKTK, Finanšu ministrija). Finanšu tirgus jomā ir strādājis kopš 1999. gadā, tirgus risku vadības, finanšu aktīvu pārvaldīšanas un pārdošanas sfērā. 2019. gadā kļuvis par Swedbank Finanšu tirgus daļas investīciju jomas vadītāju.