The New Normal As a System Challenge

Since the Lehman shock 2008 there has been a growing sense that the economy is out of joint. The world is not as it used to be during the period of Modern Normal, roughly from 1870 to 1970.  The growth potential and progress of advanced economies is lost in systemic changes.

There have been several attempts at grand diagnostics. Francis Fukuyama and Avner Offer have described the Great Disruption in the microsystems of social life as a consequence of mass opulence. For the majority of people in the advanced world biological survival is no longer a daily concern, therefore the traditional foundation of morals have been eroded.

The New Normal argument by Tyler Cowen and Richard Gordon has it that “the low hanging fruit” of modern technology, demographics, the cold war, and educational mobilization have been picked.

The fall of the iron and bamboo curtains have opened the world and, according to Moises Naim, created the “more, mobility, and mentality revolutions”.  Daniel Alpert argues that the main disruption is an oversupply of both capital and labor, and a lack of aggregate demand. Edmund Phelps details how massive borrowing is not channeled into productive investments, but absorbed by new corporatism. Tyler Cowen argues that due to Internet, globalization and smart machines “average is over” and the middle classes are shrinking. Ian Morris builds a historical argument about “growth ceilings” that can’t be penetrated without major systemic changes.

In the international debate Japan is seen as an example of things to come. In spite of economic and demographic decline, social order and reasonable labor force participation have been maintained. Therefore the question is, can Japan again be seen as “number one” in adjustment to the New Normal?