Economics Weekly: The Next Wave of Globalisation

Friday, March 15, 2019

In Sebastian Mallaby’s biography of Alan Greenspan, entitled "The Man Who Knew: The Life and Times of Alan Greenspan", Mallaby paints a picture of a quirky, intelligent, but also highly political/wily Fed chair. Greenspan made two very big errors of judgement during his tenure and one very successful call. First, while he “knew” that there was an equity market bubble taking place under his watch, that there was ample credit in the system, and that equity valuations were being pushed to extraordinary levels, he still only made a very vague attempt (back in 1996) to deflate this euphoria with his “irrational exuberance” comment. The impact of this was only fleeting, and the market soon took off again for another four years (it wasn't until 2007 that the market was able to recover its lost ground). His second mistake was, of course, to allow the even more devastating credit and housing market bubbles to take place—something he also didn't have to "mop up afterward," given that he retired as Fed chair in 2006, just before the crisis was unfolding.

In terms of his triumphs, however, what he got absolutely right and what he also knew well ahead of his colleagues (due to his love of statistics and deep data sleuthing from as early as 1996) was that a productivity revolution was underway. This insight was key in enabling him to crush any opposition to keeping rates on hold, versus the large increases that most of his FOMC colleagues had been pushing for. In this week's Economics Weekly, we examine the new productivity revolution that is unfolding today—one that is coming at a much faster pace and that will impact an entirely new and different group of workers, with radical implications for the global economy.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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