Ken Moelis is an investment banker and gave the Ayn Rand Lecture this year. The following is my refutation of his main case:.
Ken Moelis is right but for the wrong reason. It is not because “thanks to capitalism, things are getting better and cheaper” but because central banks are becoming redundant. Because consumers are now steadily spending more on medical and educational services, the simple use of interest rates as guides to future productivity and associated risks doesn’t apply at central bank level. Central banks and their interest rates were tied directly into the consumerist economy for most of their existence. Increasingly, this is no longer so. Central banks are perturbers of the economy, not a constructive part of it.
What Moelis is obviously unaware of is that there are no more uniquely new status goods in the pipeline of the manufacturing majors. Also, he doesn’t realise that the world economy. being a physical system, is subject to the same laws of physics as all other physical systems are. For thermodynamic reasons, at any one level of energy inputs, it automatically winds down towards maximum energy dispersion — or entropy. This can be arrested, or even reversed, by significantly increasing energy inputs — such as occurred between 1780 and 1980. There seems to be no inclination for this to be continuing in the last seven years or so, so we may. in fact, be getting close to the inevitable point of stabilisation. I would be very surprised if Janet Yellen doesn’t have bring the Fed rate down to zero within six months for all the additional havoc it will have been making.