This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
If you think you know what is happening to the economy, you have not been following it closely enough.
Clearly the tenor of the economy is changing – I think – but who can be sure following the disruptions of the Covid pandemic. There is a price surge which seems to have largely arisen from overseas shocks although there is enough loose money in the economy to fuel it. The surge may become entrenched into inflation or it may not. (Serious observers of the international economy are divided too.) There is growing evidence that economic activity is slowing down, but it is not obvious that amounts to a conventional recession.
My caution arises because any serious analysis of business cycles requires a view of the (underlying) secular trend of the economy. If the economic growth rate remains on its long-term trend in which per capita incomes double every 50 years or so, then we are probably going into a conventional recession. But what if we, I mean the affluent world, are going into a secular (long-term) stagnation?
In fact the norm in the history of humankind has been little per capita material growth. The last couple of centuries have been a growth miracle. Why should we think it an eternal one? There is a galaxy of eminent economists who have expected economic growth to stagnate – ranging from Thomas Malthus and David Ricardo, through Karl Marx and John Stuart…
