That was the most prominent question every asset manager, venture capitalist, politician (Nigel Farage, European Parliament and UKIP) and taxi driver asked me during my one-on-one meetings with them in London last week.
The fear is palpable.
Action equals reaction
The answer to that question is a function of the change you intend to apply to the economy, and varies from “no” to “yes” depending on whether we apply downstream economic innovation (like quantitative easing), upstream economic innovation (new economics), or the fast track to a new reality that incorporates both.
Based on our current economic strategy that implements nothing but corrections to the unwanted outcome of a supposed self-regulatory free-market, the answer can only be “no”.
Corrections such as easings and the lowering of interest rates only prolong the dying of a flawed implementation of economics that has not been kept in tune with the needs of the assets to which they are applied.
But perhaps what is more interesting than the question about whether the economy will recover are the people who ask the question.
Talking to many influencers over the last 5 years, I have met many a polished politician, a self-proclaimed economics expert or an astute financier who by virtue of not blowing the whistle allowed us to gradually and comfortably slide into the economic maelstrom we are in. And now, when the writing is on the wall, they are supposed to come up with answers as to how to clean the mess up. To no avail. Traditional economists have gone eerily quiet too.
At least those who take the time to meet with me serious, realize that if they do nothing their economies and assets will turn inevitably subprime with devastating consequences for us all.
The death of economic smoothies
Secretly they hoped, I sensed from their questions, that I would bring them another yet undiscovered economic smoothie, fresh out of a blender filled with complex intertwined economic stimuli, dirty finance secrets, and gentle easings doused in Keynesian or Friedman sweeteners they could sell to their constituents with minimal political friction or admission of guilt.
But the times for economic sub-optimization and endless corrections have come to an end. Our economic systems have failed us.
Or more accurately, we have failed to implement rudimentary economics that would have prevented the evolution of our most valuable assets from turning by economic principle subprime. Not our economics theories have failed, but our implementations.
Upstream economic innovation
So, to turn the answer to whether the economy will recover from a “no” to a “yes” means we need to apply some upstream innovation to the way we deploy economics and unlearn some bad habits.
Economic innovation, like any other meaningful innovation, takes a fresh look from the top and assesses the world anew. And asks the question, why?
- Why do we build economic and social systems that coral and reward all those who are in compliance, while most economic output is derived from outliers?
- Why do we expect to yield a meritocracy of production when financial arbitrage, that decides on production’s fate, does not abide to the economic disciplines of a meritocracy?
- Why do we want the rest of the world to aspire to our implementation of a free-market, when our financial footprint reaches a controlling stake of eleven times the size of production, suppressing the ability to create authentic socioeconomic value that defines our freedom?
- Why do we want and expect the rest of the world to implement our financial systems that are in blatant violation of free-market principles, and by economic definition turns its underlying assets guaranteed subprime?
- Why do we preach about being the most free-country in the world, when all countries and people are entitled to their own definition and aspiration of freedom, and to bring peace to the world we simply need to define a single economic system flexible enough to embed them all?
- Why do we build economic systems that are static in behavior and control while the assets they are applied are not?
The framework of a new economic system (the subject of my upcoming book) will address all those questions and more. It will answer the fundamental entrepreneurial question, if we were to build this world anew today, knowing what we know now and embracing everyone’s aspirations, how would we build it?
All of our governments are now doing their best to curtail the down-slide of many decennia of prior economic neglect. No small feat. And no single President, politician or political party should be isolated and punished for the Neanderthal state of our economic implementations. Instead, they should all be held responsible.
But the “laws” of innovation dictate that the pain first has to become big enough for the many downstream innovations to be usurped by less frequent but more impactful and disruptive upstream innovation. And I think we can all agree that economic pain has now reached a dangerous threshold.
We, the people, define our future
So, now is the time for our government to not just focus on preventing the furthering of our inevitable economic down-slide, but to simultaneously pay attention to how we drive upstream economic innovation that can meet the challenges of this world anew.
We the people (all over the world) are responsible for designing and approving the innovation to our economic systems, around some of the polarities framed above, that not just stave off failure, but promote renewable success, prosperity and happiness.
Economic recovery in sight
Yes, our economy can recover. But only if we are willing to make significant investments to drive progress in our economic methods and implementation. The time has come for upstream economic innovation to obliterate the need for endless downstream.
Yet that economic fundamental change may hurt a little bit at first and cannibalize those who benefitted from downstream, but a short-lived hurt towards success is much sweeter than the chronic hurt from spiraling demise.
- Equality is a fantasy of extraordinary proportion. — Georges van Hoegaerden - January 21, 2015
- If no man is created equal, why then do we debate equal pay? — Georges van Hoegaerden - January 21, 2015
- CalPERS pre-empts asset allocation - January 21, 2015
- Homogenization of people is a bad idea, we ought to focus on the value of our differences, not on the rut of our commonalities. — Georges van Hoegaerden - January 14, 2015
- Only realism can breed justifiable optimism. — Georges van Hoegaerden - January 14, 2015
- The fix to improving asset management’s effectiveness lies in its reinvention, not in the optimization of its bloated past. — Georges van Hoegaerden - January 13, 2015
- How to fix Twitter - January 8, 2015
- CalPERS change, a new schtick or a new stick? - December 28, 2014
- The risk profile – not money – determines what innovation can be discovered. — Georges van Hoegaerden - September 16, 2014
- An outlier knows no precedent. — Georges van Hoegaerden - September 9, 2014