Does Nothing Happen, or Too Much?

During a year of tumultuous events in geopolitics, much of the global economy, and stock prices, have remained buoyant. This may not be the contradiction it appears. Despite what appears to be significant potential for economic disruption, some investors have adopted an attitude of ‘nothing ever happens’, to counter a tendency to over-react to events provoking headlines that have – or may have – little lasting economic impact.

The ‘nothing ever happens’ mantra is not a matter of ignoring global events, but rather coolly assessing the actual economic impact. Of course, some turbulent events in geopolitics are notable more for their potential, than the short-term reality.

 Threats or hints of nuclear weapons being used are unlikely to lead to an actual nuclear war, but the risk of nuclear weapons being fired in anger is not zero, so it is one to watch.

In the financial markets, weak signals that could herald a shock on the scale of 2008 are observable – high valuations in the stock market, also in crypto at a time of weak regulation – but it is impossible to gauge if these signals are a harbinger of an impactful crash, or whether they remain weak. And if there is a shock, could it occur this year, or in five years’ time?

If one looks historically at the events that have had a major economic impact, there have been few. Examples include the oil price shocks of 1973-74 and 1979-81 which led to stagflation in many economies, and the financial crash and banking bailouts of 2008 – although the impact of the latter was largely confined to western economies which had banks directly exposed; Gulf countries were largely unaffected. 

Of greater impact globally was the Covid-19 pandemic of 2020-22, owing the strict lockdowns.

It is long established in the academic disciplines of cognitive behavioural psychology and behavioural finance that, as a species, we are more drawn to dramatic and negative developments than benign ones; loss aversion is more powerful than the prospect of gains, and bad or shocking news is effective as clickbait. 

This means that the discipline of staying informed through news media can result, paradoxically, in a skewed understanding of global developments. Complicating the issue is that much news is gathered through social media that is not fact-checked.

In its 2024 Global Risks Report, the World Economic Forum cited disinformation as the most serious destabilising factor for the short-term, citing the use of deepfake videos and other misuses of AI.

These phenomena lend weight to the idea of downplaying the significance of narratives shaped by headlines.

Another element is that, far from ‘nothing’ happening, there is too much. The projections from early 2025 by many economists of the impact of President Trump’s tariff policy have been way off, with a typical estimate of 0.1% reduction of GDP for each 1% added to tariffs proving to be inaccurate. The issue may be the sheer complexity and interconnectedness of the global economy, which makes it is doubtful that it can be modelled or projected in a meaningful way.

Economic historians note that protectionist policies were likely a significant cause of the Great Depression in the 1930s. In the 2020s, trade of goods is, proportionately, a smaller part of the economy, compared with services, including much activity that is online. Entrepreneurialism and business growth are now global phenomena.

It would probably be impossible accurately to quantify this proportion, but one proxy indicator is that only around 17% of the earnings on the S&P 500 are directly affected by tariffs, according to an analysis by Deutsche Bank. Moreover, while the US is the biggest market, it is around 24% of global GDP, compared with over 40% in the 1960s.

There is a risk that the ‘nothing ever happens’ movement could under-estimate the impact of a succession of developments which, individually, may not amount to much but which cumulatively can become impactful. 

These include President Trump’s tariffs, his firing of the head of the Bureau of Labor Statistics, the rise of public debt in the US and other western economies, the concentration of stock market gains within just a few tech firms, Trump’s threats to the chairman of the Federal Reserve, his deregulation of crypto. Some of these individually may be judged to be of minor significance, but the accumulation may be beginning to be felt.

Of these, probably of greatest long-term significance is rising debt, which means an increasing proportion of government expenditure being devoted to interest payments placing pressure on public services, and the progressive erosion of value of fiat currencies. 

The prices of tangible assets, such as gold, property and land, have been appreciating. This slow, long-term development will almost certainly become of greater magnitude, in economic terms, than many of the more dramatic developments that prompt headlines.