What sort of world are we now living in? The right answer is one characterised by chronic economic and political ailments. Here then are six enduring conditions of the “new normal”.
First, deficient demand. The idea behind “secular stagnation” is that, without rapid asset-price inflation or exceptionally aggressive monetary policy, it has proved impossible to generate enough demand to absorb potential global supply.
Chronic demand deficiency is a global condition. It was in operation well before the 2007-2009 global financial crisis. It is in operation today. If anything, it is even getting worse. Overall, debt overhangs in crisis-hit economies remain very high. Meanwhile, the emerging economies, including notably China, have seen their own freedom of policy manoeuvre diminish as public or private debts (or often both) have soared. The only plausible offset is the fall in oil prices, which shifts income from savers to spenders. It should give relief, but only temporarily.