When Markets Collide

6th February, 2009

This is the name of a superb book which I’m reading late at night and early in the morning. The author is Mohamed El-Erian. The book has just won the Goldman Sachs Business Book of the Year for 2008.

It analyses the causes of the current global economic turmoil. The thesis of the book is in the title. It argues that the economic crisis is caused by the ideas, institutions and markets of today colliding with those of
tomorrow. We are too slow to understand this because of our natural resistance to recognising ‘regime change’ (unfortunate phrase perhaps) in the global economy.

El-Erian points to how the regime of tomorrow will be different and works backwards to explaining the impact on today. The nub of this is the ‘global hand off’ where the economic power of the US is in structural decline and emerging economies surging ahead. This might be a bit at odds with the consumption slow down been experienced in Asian economies at the moment. However in the long run it is clear that this is, indeed, a regime change which will change the world. The centre of economic gravity is shifting.

How Ireland will respond to this is the decisive challenge we will face. This poses a sobering conclusion. There is the unspoken belief that we are living in a state of global turmoil that will end at some point. What if this change is going to be permanent?