The writer, an editor of the FT, is a former chief economist at the Bank of England
What happens when two waves meet, disorder meets disorder, uncertainty meets uncertainty? This question has long puzzled oceanographers and complexity scientists. But economists and financial professionals are now also concerned with estimating the effects of two waves, of unknown size and speed, crashing over them at the same time.
The first wave is of a geopolitical nature: the rupture in the global rules-based order. Or rather, the transition from order to disorder in everything from global trade to global security. Without these rules, the laws of motion of the world are more quantum than Newtonian, intrinsic and radically uncertain.
That uncertainty is a plague on all our homes. For companies, this means a costly rewiring of global trading and financial systems; for governments: rethinking defense spending and reshaping security alliances; for citizens, threats to their public goods, including the independence of central banks, courts and parliaments. Each of these entails economic and budgetary costs that we can ill afford, given low growth and high public debt.
This uncertainty is also changing financial markets as investors look for refuge. It is telling that they do not do this by investing in ‘safe’ government bonds, but in precious metals. Prices have doubled in the past two years, while those of many longer-term government bonds have fallen. Geopolitical risk means that it is about gold, and not about the government, we now trust.
Yet this only tells half the story. The fattening of the bottom tail due to increased geopolitical threat coincides with the fattening of the top tail due to a rising wave of technological opportunities. This is made possible by the potential of AI and the prospect of quantum computing.
This technology wave has already led to a huge flow of investment in risky assets, both real (about $1 trillion has been poured into AI infrastructure every year over the past two years) and financial (the prices of some technology stocks have more than doubled in the same period).
That in turn has led to a mini-boom in growth in the US, the center of AI invention, which has averaged around 3 percent recently, bucking global trends. Moreover, buoyant demand has occurred despite the weakening employment outlook, implying that US growth has been underpinned by productivity gains. This could be the first harvest of the Fourth Industrial Revolution.
The turbulence generated by these two waves gives the outward appearance of chaos. But the current situation is better described as ‘kurtotic’ – a statistical term for distributions with thick top and bottom tails – rather than chaotic. The double waves make the world look more and more like a barbell, with more weight at the ends, instead of a bell curve. This has important consequences for economies and financial markets.
Even small differences in weight balance can produce very different results. We see this in the large differences in growth between countries – compare the technology-oriented US and the technology-oriented Western Europe. And we also see it in the growth differences inside countries – the K-shaped pattern of recent US growth reflects the contrasting economic fortunes of the technology-exposed rich and the tariff-exposed poor households.
The slowdown behavior is also clearly visible on the financial markets. The combined effects of the twin waves have led to high, rising and volatile prices at both ends of the risk spectrum: in ultra-safe precious metals, but also in ultra-speculative crypto and technology stocks. These are the gold and fool’s gold of today’s dumbbell wallets.
Even small shifts in the probabilities of either tail can throw the barbell out of balance and cause excessive reactions: “excessive sensitivity” of asset prices in response to small shifts in sentiment. The sharp decline in the prices of both precious metals and technology stocks so far this year, despite little news on fundamentals, is evidence of that vulnerability.
Finally, as these geopolitical and technological waves converge, should we expect chaos or calm? Oceanographers and complexity scientists have long grappled with this question. The short answer is: it depends. When a rapidly retreating wave coincides with a powerful incoming wave, the effect is to neutralize the collective force and not increase it. Encounter disorder then generates peace and resilience.
That was the story of last year, in which economic and financial resilience surprised many. The shock and awe of geopolitical risk and rates in the first quarter caused a rapid decline in risk appetite and growth forecasts. But these forces were then neutralized by the incoming AI wave, leaving asset prices and growth prospects higher overall. In 2025 the barbell was balanced. A kurtotic world was self-stabilizing and resilient.
Unfortunately, that happy coincidence cannot be guaranteed in the future. When two waves collide on their crests, their forces increase. This is a recipe for chaos and not calm, and for vulnerability and not resilience. It’s the perfect storm for an oceanographer. If an extreme risk were to arise – such as war, real or trade-related – that would wipe out innovation, geopolitical and technological systems would become interconnected. A kurtotic world could quickly become chaotic. Economies and financial markets would then all be at sea along with the oceanographers.
