In the financial world these days there’s a different but equally acrimonious debate going on over what the prospects for investors will be like in coming years. One side is represented by Mohamed El-Erian, CEO of the bond giant PIMCO. He believes that the global economy is entering what he has termed a “new normal”:
Some of the characteristics of this new era are slower growth worldwide (more so in the G-3 than in emerging markets), higher unemployment, more deleveraging, more regulation, and a weaker U.S. dollar. He states that government interventions around the world may avoid a depression, but the actions will not be successful in returning economies to the high growth and low inflation of the past few years.
Of the banking system, El-Erian says it “will be a shadow of its former self,” changed for years to come because the sector will be “de-risked, de-levered, and subject to greater burden of sharing.”
El-Erian calls future economic growth “muted” because of “excessive regulation, higher taxation, government intervention,” and he opines that the greater risk for equities over the coming 3-5 years is pointing downward.
The other side, represented by Ken Fisher, CEO of Fisher Investments Inc., dismisses any notion of a new normal as “idiotic”:
“We are chimpanzees with no memory,†Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.â€
Barry Ritholtz responds with a view that I would endorse:
I disagree with the New Normal thesis, but for very different reasons than Fisher does. I’ll post more on this later this week, but the shorter version is: The past few decades have been aberrational, and we are returning to the old normal.
In my view we are returning to trend rather than breaking from it or continuing it and that is largely mediated by demographic forces. I’ll be interested in reading how Mr. Ritholtz expands on his thesis.
In a post yesterday I asked why is unemployment so high? In my view any realistic consideration of the question must recognize that there is no single magic bullet, that there are multiple reasons that unemployment has reached levels atypical for this stage of a recovery, and why it is so persistent.
More fundamentally I think it may be the wrong question. The better question is why was unemployment so low for so long? And I think the answer to that lies in the effects of the post-war generation in the United States on the U. S. and world economies.
I’m sorry, but this sounds delusional. The 1990s had a bubble economy as well, the tech bubble. Granted when it burst it wasn’t as bad ad the housing/financial bubble, but still this this knucklehead suggesting that the forward is from bubble to bubble?
I’ve pointed this out before, not here, but I believe on OTB and also my blog before I let it go. But unemployment levels have been quite low historically speaking. Could that be one reason why unemployment remains so “high” after a recession? That getting back that low takes longer and policies that may not be all that wise?
The prism in which these developments are viewed does not reflect the prime cause that gave birth to our human economic, social, cultural and political constructs. If one traces it back far enough you will find that scarcity was the motivating agent for much of human dynamism. We now live in an age were constraints (meaning capacity/capability rather than political malfeasance,) relating to scarcity have virtually disappeared. The entrance of material abundance, in pretty much any category one can choose, is now on an output scale beyond human experience. Do not fret though the current crops of the best and brightest are doing their level best to reconstruct the scarcity paradigm.