Our economic future depends on adaptability.
Michael T. Burr is Fortnightly’s editor-in-chief. Email him at burr@pur.com.
For the past several months, analysts and pundits have been using the term “the new normal” to describe post-recession economic conditions. The phrase describes a variety of changes, from stock-market returns to personal savings rates, but it boils down to this: After the recession, the economy will go through a soft recovery, and it won’t return to pre-recession levels of financial and market activity in the mid-term future.
The idea is centered primarily on trends in banking and finance—which makes sense, since that’s where the meltdown began—but of course the whole economy depends on the strength of our financial institutions. Nobody is exempted from the new normal. “The forces of consolidation and shrinkage will spread beyond banks, impacting a host of non-bank financial institutions,” writes Mohamed El-Erian, CEO of PIMCO, in the firm’s May 2009 outlook titled A New Normal.
El-Erian’s scenario also predicts that governments around the world will continue their trend toward intervention in markets. “Burden sharing will feature more prominently,” he writes, forecasting a “heavier hand of government in economic life.”