The only common factor on the economy viewed from the mainstream in the past few years is the shrinking standards by which it is judged. Janet Yellen can somehow suggest erratic 2% GDP growth is ‘overheating’ or close to it only because that is the reduction of the ‘new normal.’ Because that has been so declared by the very same people who never saw it as possible, that is the ceiling by which everything was to be measured. Now, however, even the ‘new normal’ is undergoing its own discounting.
In early February, Mohamed El-Erian raised doubts about the term and thus the circumstances of the economy by implication. That was important (supposedly) because he is the person credited with coining it at the 2010 Per Jacobsson Lecture in a speech titled Navigating the New Normal in Industrial Countries. In 2016, what was supposed to be low and steady growth is now doubted even though the very notion of the ‘new normal’ itself already exhibits grave doubt.
Just when the notion that Western economies are settling into a ‘new normal’ of low growth gained mainstream acceptance, doubts about its continued relevance have begun to emerge. Instead, the world may be headed toward an economic and financial crossroads, with the direction taken depending on key policy decisions.
It’s a proclamation that is being echoed throughout the ‘elite’, as partly due to finally acknowledging reality (the final end of the absurd notion of ‘transitory’) but also subtly nudging where all this is going next. The head of the IMF, Christine Lagarde, was today less subtle but very much in the same arena. Rather than alluding to shifts out of the ‘new normal’ she outright declared a ‘new mediocre.’
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ April 5, 2016.
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