Three Signals We’ve Entered a New Economic Era

<p>“From the U.S. Federal Reserve’s initial misjudgment that inflation would be ‘transitory’ to the current consensus that a probable U.S. recession will be ‘short and shallow,’ there has been a strong tendency to see economic challenges as both temporary and quickly reversible,” <a href="https://www.foreignaffairs.com/world/not-just-another-recession-global-economy" target="_blank">writes</a> the economist Mohamed El-Erian. “But rather than one more turn of the economic wheel, the world may be experiencing major structural and secular changes that will outlast the current business cycle.”</p><p>There are few people who understand financial markets or central banking as deeply as El-Erian. He is the chief economic adviser at Allianz, the president of Queens’ College, Cambridge, and the author of multiple books, including, most recently, “<a href="https://www.penguinrandomhouse.com/books/247268/the-only-game-in-town-by-mohamed-a-el-erian/" target="_blank">The Only Game in Town: Central Banks, Instability and Recovering From Another Collapse</a>.” Until 2014, he was the C.E.O. of PIMCO — which under his leadership was the largest bond manager in the world.</p><p>In recent years, markets have been roiled by significant shocks — from a global pandemic that snarled supply chains and disrupted labor markets to a Russian invasion of Ukraine that sent global commodities markets into a tailspin. But El-Erian believes we’re also witnessing a deeper structural shift in the very nature of the global economy. Economic policymakers today are trying to bring the economy back to that of 2019, but in El-Erian’s view, there is no going back. We’ve entered a new era that demands a different kind of response.</p><p>So I invited El-Erian on the show to help me understand the economic era he thinks we’re entering and how policymakers can respond. We discuss whether the United States is experiencing a permanent decline in labor force participation, why modern supply chains could continue to experience difficulties well beyond the pande