The Myth of Equilibrium

Will we ever get back to normal?

Photo: Reza Tizz. Source: Morguefile

Everyone wants the economy to normalize—normal interest rates, normal economic growth, normal inflation. But we never seem to get there. Something always seems to come up.

Ten years ago, the wheels came off the bus with the housing boom and financial crisis. Five years ago we had a Euro crisis and fears of “Grexit.” Now it’s “Brexit” and the most bizarre presidential contest in memory. Economists are debating whether we’re in a “new normal” or secular stagnation or if the rising “gig economy” will turn us all into innkeepers and taxi drivers.

Some see the market as an evolutionary mechanism, gradually adapting to change. But I see it as a complex ecosystem, with stresses that come from invasive species, severe weather, over-harvesting, and all kinds of other factors. If you walk into a forest, nothing is really stable. It’s always in a transition from something old to a new new thing.

I don’t believe in a past, present, or future economic equilibrium. The economy we see is the economy we have to work with. The market is always shifting, violating the most nuanced and elegant models. The market doesn’t do elegance. If you want elegance, go see a tailor.

Douglas R. Tengdin, CFA

Chief Investment Officer

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