Why The Next Decade Will Be Hard: Part 2

The Supply Side Is Back

This is part 2 in our 2 parter on why the next decade will be hard.

In part 1, we established that the reason things were so great in particular during the NICE period (early 90s to 2008) and more generally during the Great Moderation (early 80s to 2008, or even later) is that the supply side was incredibly supportive. There were few notable negative supply shocks, meanwhile, there were huge expansions in supply, for instance due to globalisation and demographic trends.

This pushed up real GDP and real wage growth, and pushed down inflation and unemployment, and made things quite simple for central bankers – absent negative supply pressures, low inflation meant cut rates and high inflation meant raise rates.

We have established that the 40 years to 2015 ish were pretty great, but we are left to justify our claim that things are changing.

The Supply Side Has Already Been Acting Up

In our part 1, we noted that the good times ran from the early 80s to roughly the mid-2010s, which as you may n…