Liam Dann: Life on hold as economic ‘Great Malaise’ keeps us waiting

OPINION

“Life is what happens to you while you’re busy making other plans,” John Lennon sang.

Lennon, who (thanks to the wonders of AI and Peter Jackson) has a new song out this
week, was an advocate for living in the moment.

For those of us following the economic cycle of the past year, that hasn’t been easy.

Through decades of booms, busts, crashes and meltdowns, economic commentators (like me) have bemoaned the inability of financial markets to unwind and correct in a slow and orderly fashion.

Now it’s actually happening. And my gosh, isn’t it painful?

New Zealand’s electoral process has got nothing on the US Federal Reserve.

Central banks are cautiously squeezing out inflation pressures. Markets are drifting sideways, rising and falling on speculation and outright guesswork about the mood of the US Federal Reserve.

Economic data rolls in telling us it’s all sort of going to plan, prices are rising at a more moderate pace, unemployment has ticked up to to 3.9 per cent and wage inflation easing.

It feels like we’re in sight of a soft landing but the finish line keeps shifting. Six more months, 12 more, 18? Who knows?

No one is quite prepared to call victory in the war against inflation yet.

Meanwhile, our KiwiSaver and managed fund reports are about as much fun to read as post-match analysis of the Rugby World Cup final.

I don’t know if it will catch on, but I’ve dubbed this slow-grinding post-pandemic economy “The Great Malaise”.

Technically a medical term, malaise refers to a general feeling of discomfort, uneasiness or lack of well-being. Wikipedia tells me that the word has existed in French since at least the 12th century.

There’s nothing original under the sun of course.

It turns out The Great Malaise is also the title of an article written by Alan Greenspan in 1980 for an economic journal called Challenge.

Greenspan of course went on to become one of the world’s central banking legends, chairing the Federal Reserve from 1987 to 2006.

Like all good central bankers he is a controversial figure. He successfully presided over the last successful war against inflation.

But he also faced controversy for allowing lose regulatory policies that may have led us into the Global Financial Crisis in 2008.

After he testified in congressional hearings investigating the GFC, The New York Times wrote: “Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.”

While Greenspan refused to accept blame for the crisis, he “acknowledged that his belief in deregulation had been shaken”.

Back in 1980 Greenspan was describing a similar set of market conditions to those we face now: high inflation, low economic growth. But the malaise of that era really puts our current woes in context.

During the Jimmy Carter presidential era from 1976 to 1980, the Dow Jones drifted aimlessly – down 0.7 per cent across the period.

It was the death knell of post-war Keynesian policy and sparked the beginning of monetarist reforms still in place to this day.

This is also the era many older Kiwis remember and worried about returning as inflation spiked in 2021 and 2022.

In the late 1970s and early 1980s, under the National Government of the day, we let inflation slide and tried to beat it with a series of increasingly restrictive regulatory policies – that didn’t work.

It’s very clear now that is not happening in 2023.

So, if nothing else, it is heartening to compare and contrast Greenspan’s Great Malaise with the current era.

The world’s central banks kept economies afloat through the darkest days of the pandemic. Yes, in hindsight, they delivered more stimulus than was needed.

But almost as soon as the vaccines arrived they pulled their monetary tightening levers hard. The RBNZ was the first in the world to move.

They’ve signalled their intent and now they have paused to let higher rates do their job at a moderate pace -without triggering a deep recession and high unemployment.

In other words, they have held their nerve. And we should hold ours.

It does take time for policy to transmit. It can seem like a painfully long time.

But two years of market malaise in the wake of a such a world-shaking event as a global pandemic isn’t the same as the malaise of the late 1970s.

Perhaps we have another six or 12 months to wait. But the policy is working. In the meantime, perhaps we should stop playing the waiting game. It’s never good psychologically.

There is opportunity with the new Government, a sense that a line has been ruled on an era and a new one is under way.

There was some evidence of this last week with a bounce in business confidence.

The ANZ Business Outlook showed topline confidence jumped 21 points to +23 in October.

Predictable of course, these surveys always show business happier under National, with the promise of a more favourable regulatory environment.

But – as ANZ chief economist Sharon Zollner noted this week – that doesn’t mean the renewed optimism is “spurious”.

If firms follow through on it, then it will be self-fulfilling to some extent.

The big macroeconomic wheels have a way to turn yet before we can put the pandemic economy behind us.

But the waiting will be a lot easier if all of us – as businesses, as workers and consumers – get on with doing things and living life.