The Elusive Steady-State

Will the economy ever get back to normal?

Source: Wikipedia

Everyone wants the economy to normalize—normal interest rates, normal economic growth, normal inflation. The Fed is talking about that issue this week in Jackson Hole, Wyoming. But we never seem to get there. Something always seems to come up.

Ten years ago, the economy crashed during the financial crisis. Five years ago we had a Euro crisis and fears of “Grexit.” Now “Brexit” and the most bizarre presidential contest in memory are roiling expectations. Economists debate whether we’re in a “new normal” or secular stagnation or if the rising “gig economy” will turn us all into innkeepers, taxi drivers, and dog-walkers.

Some see the market as a complicated machine, with levers and buttons for policy-makers to push and pull. All we need to do is find the right mechanism to increase output. But it’s really a complex ecosystem, with stresses and stimuli from invasive species, new adaptations, over-harvesting, and an infinite number of other internal and external factors. If you walk into a forest, nothing is ever stable. It’s always in a transition from something old to a new new thing.

Photo: Petr Brož. Source: Wikipedia

The economy never has been nor ever will be in equilibrium. The economy we have is the economy we need to work with: first to understand it, then to encourage increased, sustainable growth. Markets are always shifting, challenging the most nuanced and elegant models. But markets don’t do elegance. If you want elegance, see a tailor.

Douglas R. Tengdin, CFA

Chief Investment Officer

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