As rare as it is to get any two economists to agree, the chances are even slimmer of hearing three Nobel economics laureates concur.
And so it was that each of the award winning economists — Eric Maskin (2007), Michael Spence (2001) and Robert Merton(1997) — all had their own take on the legacy of three years of financial and economic crises when they spoke to a conference organised by Pioneer Investments in London last week.
To be fair, they broadly coagulated around the inevitability of greater regulation of banking and finance and also on the enormity of China’s now imposing position in world economic affairs.
That said, when it came to the burning issue of the moment — whether Greece’s deepening government debt crisis sounds a death knell for Europe’s single currency — they were poles apart. Maskin reckoned markets were correct to question the euro’s future; Spence felt “creative solutions” would be found to see monetary union muddle through.
But if you’re wondering why markets seem to have got the heebeegeebees about the global economic recovery all of a sudden this year, Bob Merton — no stranger to markets doing the unexpected in his 1998 role as a director of failed hedge fund Long Term Capital Management – captured it best.
Aiming to describe how no two cycles are identical and illustrating ill-advised faith in perfect “mean reversion” — to doff a cap to jargon of the learned gentlemen — Merton used the analogy of changing fashion in ties.
If the width of men’s ties in vogue expands or narrows every few years, he opined, surely you should keep those fat Kipper ties in a bottom drawer for the day the skinny mod numbers are passe once again. The reason we don’t, he concluded, is that those old 70s throwbacks never quite match the new cut and we just end up looking dated and a bit foolish.
So, if Merton is to be believed, investors are doing well to be ultra-cautious of yet another potential threat to European monetary union; yet another inflation/bubble scare in China; and yet another round of political sabre-rattling at profligate banks. Past performance alone may suggest these will come to nothing — but most are reluctant to just whip that fat tie out of the bottom drawer. Given the experience of the last few years, it would be folly to rule anything out.