Krugman on the Postnormal Economy

Things are blurrier than ever.

I believe the threshold of the postnormal was the early 2000s, the point at which more than 50% of work become cognitive, non-routine. Likely as much as 70% now. It also was the turning point of productivity growth, which tailed off after the transition to an internet/computer economic platform.

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Paul Krugman doesn’t use the term postnormal in Crashing Economy, Rising Stocks: What’s Going On?, but consider the strange inversions that have come since 2005 that he discusses:

Back to the disconnect between stocks and economic reality. It turns out that this is a long-term phenomenon, dating back at least to the mid-2000s.

Think about all the negative things we’ve learned about the modern economy since, say, 2007. We’ve learned that advanced economies are much less stable, much more subject to periodic crises, than almost anyone believed possible.

Productivity growth has slumped, showing that the information technology-fueled boom of the 1990s and early 2000s was a one-shot affair. Overall economic performance has been much worse than most observers expected around 15 years ago.

Stocks, however, have done very well. On the eve of the Covid crisis, the ratio of market capitalization to G.D.P. — Warren Buffett’s favorite measure — was well above its 2007 level, and a bit higher than its peak during the dot-com bubble. Why?

The main answer, surely, is to consider the alternative. While employment eventually recovered from the Great Recession, that recovery was achieved only thanks to historically low interest rates. The need for low rates was an indication of underlying economic weakness: businesses seemed reluctant to invest despite high profits, often preferring to buy back their own stock. But low rates were good for stock prices.

Did I mention that the stock market is not the economy?

None of this should be taken as a statement that current market valuations are exactly right. My gut sense is that investors are too eager to seize on good news; but the truth is that I have no idea where the market is headed.

No one does. No one can. We live in a volatile, uncertain, complex, and ambiguous (VUCA) world. And just because things are moving faster does not mean we can see farther: on the contrary, things are blurrier than ever.

Originally published at

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