Escaping the New Normal: A Review of The Only Game in Town by Mohamed A. El-Erian

9780812997620Not to discredit the higher-learning institutes of the UK (and higher-priced higher-learning meccas of the US), but Mohamed A. El-Erian’s The Only Game in Town might be just as valuable as a college course on 21st-century economics. Intended as an exploration of our dangerous dependence on central banks in the wake of the 2008 financial crisis, the book reaches far beyond the Fed and paints a thorough picture of the state of the world as viewed through the lens of global finance.

Essentially, El-Erian tells us, in the last few years, the world has come to depend on the central banks – rather exclusively – as the only policymakers who can effect change. This is a treacherous precedent to set; as the author explains, central-bank intervention is a bridge to a stronger economy, and more and more, investors, markets, and governments are treating it like the destination. The Only Game in Town makes a clear case for why this cannot continue, illustrates the dangers of deferring to central banks (including the possibility of a global inflation crisis), and, most importantly, provides a road map for how to take the exit off this doomed path: it is not too late, El-Erian stresses, for policymakers to avoid a lasting cycle of quantitative easing that yields nothing but slow growth. The central banks can no longer be the “only game in town”. El-Erian details the 10 major pressures that will derail global growth if the current environment persists, and straightforwardly states that a broader set of economic participants – financiers, senators, CEOs – need to address what’s wrong with the economy, and not simply what ails the market.

Proactivity, it seems, is his plea.

It’s worth mentioning that El-Erian’s is a voice to be heeded: chair of President Barack Obama’s Global Development Council and chief economic advisor of Allianz, his last book, When Markets Collide, has been lauded as one of the 10 best business books of all time. Most financial writers have probably unwittingly quoted him more than once – it was he, for instance, who coined the term “the new normal”.

Only Game looks at this new world not just from a fiscal perspective, but from a political and more human one as well. A particularly ominous and illustrative chapter speaks of the epidemic of youth unemployment and the fear, and real possibility, that these jobless people at the beginning of their adult lives will ultimately become unemployable, having missed out, through no fault of their own, on the formative years of climbing the first rungs of the career ladder. In Greece alone, youth unemployment hovers around a staggering 50%. The country also serves as a poignant example of another phenomenon of the worrying macroeconomic environment: the election of anti-establishment parties and candidates by populations that demand visible change (which El-Erian spoke about recently). The election of Greece’s Syriza party in 2015 showed an impatience with austerity; the real possibility of Donald Trump, a businessman with no background in politics, becoming the next US president, can only hint at a discombobulated public psyche.

There are personal touches in the book as well. The panic of the 2008 credit crisis is driven home when one of the world’s leading economists admits to calling his wife and telling her to withdraw the maximum amount allowed from the ATM, as he feared America’s banks would be shuttered the next day. The author’s personality comes through in the pages too, and his character is marked by humility and grace. While the book launches a profound critique of the world we live in, El-Erian makes sure to note that the central banks really did act in the public’s best interest — though of course, the thesis of the tome is that the mass dependence on them is a system that cannot be sustained. He speaks respectfully of his colleagues and allows his audience to form their own opinions. And he presents the facts plainly: Only Game is accessible, digestible, and offers genuine solutions. We’re approaching a “T-junction”, El-Erian says, and it’s not too late to take the more favourable of those forks in the road.

The Only Game in Town is available from 8 March.