Oxford Martin School

On Thursday 12 November, Dr Mohammed El-Erian, Co-CIO of PIMCO, the world’s largest bond fund, and one of the world’s most respected economic analysts, came to the 21st Century School to deliver our Michaelmas term Distinguished Public Lecture at Oxford's Sheldonian theatre. A podcast and video of the event are now available. Photos from the event are available on our Flickr site.

In a lecture titled 'The End of Business as Usual: Navigating the New Normal', Dr El-Erian spoke about the state of the global economy in the wake of the recent financial crisis. In contrast to predictions from other financial experts, Dr El-Erian made the provocative argument that the global economy is not on route to return to its pre-crisis state, but is instead on a 'bumpy road to a new normal'. He shared his thoughts on what this might mean for the future.

El-Erian began by setting out where the global economy finds itself today. Following massive government interventions and some of the biggest stimulus packages of all time, we have successfully avoided a major depression. The general consensus appears to be that the economy is now in the middle of a cyclical bounce, or recovery. However, Dr El-Erian pointed out that longer term indicators are not reacting in quite the same way as the short-term indicators on which this consensus has been built, and argued that investors should not assume that an increase in growth can be interpreted as a recovery that will extend beyond 2010.

A key point in this thesis is the idea that the 2008 financial crisis was not 'a flesh-wound', it was something far more profound. El-Erian believes that this crisis was unprecedented in its significance because it shocked the financial system at its very core, the US economy. He argues that when the core of the global financial system is shocked, investors, and policy makers need to step back and ask what the consequences will be.

In El-Erian's view, we do not currently have a full understanding of how consequential the financial crisis will prove to be. The global economy is undergoing a paradigm shift, in which the slow process of realignment from a US-centred to a multi-polar global economy, has been accelerated. The world is now in a transition phase, at what Dr El-Erian referred to as the 'point of maximum confusion'. This process will affect every level of society, from individuals and firms to national governments and international institutions. In Dr El-Erian's words: we are on a bumpy road to a new normal, but no-one knows exactly what this new normal will look like, or how to navigate the road.

However, this does not mean that the outlook is bleak. Dr El-Erian ended his lecture with the advice that the key to successful navigation was to be agile, but also adaptable. Firms and institutions that fail to change their behaviour, that respond with more of the same, will not prosper in the new global economy. It is those who are willing to adapt, to respond to the realities of the new global economy, who will be best equipped to navigate the road to the new normal.

The discussion following Dr El-Erian's lecture touched on a wide range of issues, from the role of the IMF in this new economy, to how Kindleberger's 'public goods' (traditionally provided by the US) would be provided in a multi-polar economy, and from the implications of putting the human element back at the centre of economics to what effects a new climate change agreement might have on the global economy.

We invite continued discussion and comments below.