March 2016

March 2016

Can Real Estate Survive Economic Stagnation? BOOK REVIEW

By Octavio Nuiry, Managing Editor

population issues, demographic issues, environmental issues, resources issues and other looming challenges. He argues that, for governments, the game is about extending and pretending and assuming these problems don’t exist. The official policy is “extend and pretend,” whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road. The heart of Das’ book is the response to what he calls the “Global Financial Crisis.” Das claims that when the 2008 recession struck, governments chose not to attack the central cause of the financial collapse, but instead the initial response to the 2008 financial crisis was massive government spending, lower interest rates and pumping money into the stock market, which resulted in even more debt. But the stimulus policies have failed, he writes. Das argues that the economic model is completely broken and we have now entered into uncharted waters, where traditional economic logic is no longer useful. “A confluence of influences is behind the ignominious end of the era of unprecedented economic expansion,” writes Das, the “Das Capital” columnist for the British newspaper The Independent. “Since the early 1980s, economic activity and growth have been increasingly drivenby financialization—the replacement of industrial activity with financial trading, and increased levels of borrowing to finance consumption and investment. Debt levels had risen beyond the repayment capacity of borrowers, triggering the 2008 Global Financial Crisis (GFC) and the Great Recession that followed. But the world shows little sign of shaking off its addiction to borrowing. Ever-increasing amounts of debt act as a brake on growth.” The heart of Das’s thesis is not entirely new. The libertarian economist Tyler Cowen made a similar argument in 2011 with his monograph, The Great Stagnation, which argued that the age of rapidly advancing productivity is over.

For the real estate, industry sales growth is the lifeblood of success. But what if we are entering a new “age of stagnation,” where high growth is behind us. Indeed, since the end of World War II much of the world has come to believe in — and even expect — limitless economic growth year after

year. Particularly in the developed West, the world came to believe in boundless growth and the possibility of perpetual improvement. But that era of economic expansion is rapidly coming to an end, according to Satyajit Das, author of the new book “The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril” (Prometheus, 2016). The message, as the title suggests, is deeply pessimistic. Instead of growth, contends Satyajit, the global economy is entering a new era of prolonged stagnation. “The world is entering a period of stagnation, the new mediocre,” writes Das, an Australian former banker turned consultant in the introduction. “The end of growth and fragile economic conditions are now the sometimes silent background to all social and political debates. For individuals, this is about the destruction of human hopes and dreams.”

Extend and Pretend

Das claims that governments have not responded to key issues adequately, ignoring or downplaying debt issues,

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