An economist’s wish for 2024 — markets that tell better version of the truth

It is that time of year when economists pen their predictions for everything from stock markets to interest rates and commodity prices and in which the peculiar little town of Davos has been attracting disproportionate column space in the business dailies.

Economic predictions have always been a speculative and precarious business, but in 2024 they seem mildly ridiculous. Amidst new global conflicts, fiscal stimuli for green tech across the United States coupled with sustained monetary policy tightening, China’s accelerating demographic decline and a raft of important elections, knowing what you can’t know about the future seems better for decision-making than hubris of assuming you can predict the future.

At a personal, corporate and country scale, the ability to recognise and accommodate radical uncertainty seems important for good decisions, if not sanity. This will not stop economic predictions but requires reading these predictions more as wish lists useful for prompting thinking on how these wishes might be materialised.

Right on cue, the World Economic Forum (WEF) released the 19th edition of its Global Risk Report in mid-January. In recent years this analysis has been disaggregated into “long-term” (10-year) and “short-term” (two-year) risks.

Top of WEF’s long-term risk, in what has become its customary position, is “trajectories relating to global warming and related consequences to Earth systems (climate change)”. This is no surprise: 2023 was, by a considerable margin, the hottest year in at least the last 100,000 years; global emissions went up by 1.1% in 2023 and are required to peak in 2025 if we are to avoid runaway climate change; global financiers continued to invest in “carbon bombs” and the precedents for how to protect political and social capital while managing the economic transition to climate sustainability seem slow to emerge, even illusive.

Top of the Global Risk Report’s short-term list was “misinformation and disinformation” — a new entry. This risk is explained as technology-enabled amplification of ideological and geoeconomic divides, often harnessed for political gain at the expense of functional democracies. In the process, all information becomes untenably contested and people live in echo chambers of information that entrench their worldview, regardless of the facts.

Better performance

Combining WEF’s short- and long-term risks presents an important implication for markets in 2024: it remains reasonable to wish that markets impute a better version of the available information. This is particularly true for climate change, but extends to all things we depend on and value as living beings.

This is not an idealist wish for market optimisation. Kenneth Arrow won a Nobel Prize for showing that, even with perfect information, there is no single market price that would fix complex problems for everyone; it is “impossible” to fairly aggregate individual preferences into a single societal preference set.

Rather it is the pragmatic wish that markets do better. Markets currently contain some very obvious blind spots when it comes to the information they factor into the prices they confer. As a result, most financial markets provide a very poor reflection of what people need to stay alive, healthy and happy.

If the purpose of markets is to allocate resources in support of societal well-being, then it seems clear that markets could, with less dis- and misinformation, do better. At a minimum, they could stop replicating social harm.

Examples include:

• Pricing in the damage caused when carbon dioxide and other greenhouse gases end up in the atmosphere. One European country puts this cost at €302 per tonne of emitted CO2e in its policy analysis, but this price never influences actual decisions or allocations of capital. If it did, nobody would invest in fossil fuels;


• Factoring in what society loses when children do not receive adequate nutrition in their first four years, or what happens to diabetes and immune systems when people are fed only processed hyper-glycaemic foods;


• Including in the value of tech stocks the mental health and societal cost of teenagers dependent on the dopamine hit that accompanies the various versions of “like” and “kudos”;


• Imputing the cost of political instability, crime migration and poor health for rich and poor alike, that result from rising inequality; and


• Pricing in the activities that are destroying nature’s biodiversity on which all living things depend.

The list goes on, and maybe that is the problem. To what extent can we expect markets to factor in all information across time and space? Would we even want this if it was possible and who are we referring to when we talk about markets? Those are ideological questions, but regardless of the answer, two things seem clear.

Markets can do better, even if only for their own self-interest. The longstanding financial sector game of privatising gains and socialising losses is up now that the risks that incubate in social and ecological systems have started to bite back.

Institutions responsible for allocating capital have evolved explanations, sometimes hardwired into mandates and algorithms, for why they continue to ignore clear and present risks.

However, being selective about what information to impute and ignoring the information that is too complicated or damaging to acknowledge is a source of risk in its own right. While probably not what the WEF had in mind, it is part of the “mis- and disinformation” identified by the Global Risk Report.

Second, we need better regulators. Attempts to make prices a better reflection of value, including internalising the externalities, seem to be either missing or ham-fisted. With the benefits of big data and computational power, it should be easier for regulators to formulate the nudges and incentives to protect the public goods on which life depends without defaulting to authoritarianism.

Over the past decade, the regulatory drift in market economies has been away from effective regulation, ironically strengthening the hand of authoritarian regimes. We don’t know what good regulation looks like in 2024, but it remains reasonable to wish that regulators do better in making market constructs give us more of what people — all people — need.

The test of this wish list will be the US election. If Donald Trump is re-elected to the White House in 2024, stock markets should, with their vaunted foresight, crash on what will almost certainly be a dramatic haemorrhaging of trust, social security and natural capital and an uptick in anomie.

But (at the risk of contradicting myself on the merits of prediction) I suspect stock markets will rise in anticipation of less regulation, short-term corporate profits and less tax. Perhaps, the real question is why markets cannot price a leader as inept as Donald Trump out of the contest altogether.

On climate change and broader risks, we have an incentive and the means to ensure that markets not only look after our savings, but also invest in a social and ecological world in which the very ideas of saving and retirement still have value.

Immediate improvements on the current low base are not as complicated as the market machinery peddling misinformation and disinformation would have us believe. DM