Normal? Who can say?

Gary Shilling sells economic forecasts to institutional investors and corporations. He also provides investment advice to individuals. He basically makes a living by predicting what will happen in the economy and markets.

Over his 35 year career he has sometimes been right, and sometimes been wrong. In general, he has predicted far more doom and gloom than has materialized. His latest post is much more upbeat. When Gary is optimistic, it catches my attention. Right or wrong, I found it to be thoughtful and interesting. You might too.

How long is forever?
You can read for yourself his specific outlook on productivity and growth metrics. What may be more important is his discussion of other economists and commentators who have been talking about “slow growth forever.” A permanently sluggish economy is the latest in a long line of alleged “new normals.”  Over the last 50 years pundits have told us that inflation will be high forever, or stock returns will be low, or unemployment will be stuck on an endless plateau, or Japan will outgrow the US indefinitely.

We are told to accept these things as givens, because they will just never change back to what we knew in the old days. It is easy to believe these theories as they usually come along during long dark phases, such as the economic crisis five years ago, when it is especially difficult to see light at the end of the tunnel.

With the benefit of hindsight, we typically find that new normals, predicted to last forever, don’t. Some are quickly forgotten; others hang on for years or even a decade, but ultimately the balancing forces of innovation, free markets, and government intervention (interference to some) do their magic and the new normals dissolve.

Interesting, but not instructive
You may wonder how we will adjust our client portfolios based on Gary Shilling’s thoughts. The answer is that we won’t. We do read commentaries like his out of professional curiosity, but we don’t place bets on them being right or wrong. No matter how compelling the analysis, no matter how logical the conclusions, we know that even the most educated guess is still a guess.

Because we cannot predict or control the future, we focus on what we can control: diversification, cost control, tax efficiency, customized for you. That’s our normal, and it’s not new.

by Steve Mott