Note From A Big Country

Perhaps the biggest surprise that emanated from this week’s trip to North America has been the extent to which the topic of secular stagnation has come back onto the agenda, despite all the excitement over the prospect for as yet unfortunately still undefined tax cuts by the Trump Administration. Previously, when market participants had considered the presumed slowdown in trend growth (which admittedly was not that often in most cases…) it was generally couched in terms of the presumed effects of excessive regulation, unfair foreign competition or the result of simple miss-measurement of the economy.

On this latest trip, we observed that the notion there still being too much regulation was definitely still very much a theme, particularly with regard to Healthcare and within the financial sector. The thorny issue of foreign competition obviously still exercises the collective mind of politicians – witness the now widely expected breakdown in the NAFTA talks – but we found less discussion of this hypothesis within the private sector, presumably because import prices have been rising of late.

Finally, although even six months ago the notion that the digital economy was producing more than was being measured by the statisticians (and that there therefore was not a stagnation occurring) was still a remarkably popular viewpoint, on this trip we heard little talk of this supposed problem. The consensus seems to be coming to appreciate that whatever the New Economy does do, it does not seem to produce profits or income growth. In fact, parts of the new economy are increasingly being viewed as being the ‘Bad Guys’ in the secular stagnation story.

More specifically, it seems to be becoming more widely recognized that the increasing concentration of economic – and equally importantly financial - power within a relatively small number of ‘new mega companies’ is indeed becoming detrimental to the outlook for the economy in general. We had previously viewed such a theory as being decidedly ‘alternative’ and limited to only a relative few cynical analysts such as ourselves but this seems no longer to be the case.