Milken Institute
read bio
The orchestra needs a conductor
By: Milken Institute
May 02, 2011
Kicking off the 2011 Milken Institute Global Conference, a panel of high-powered economists and investors said the global economy is taking on a riskier, multipolar structure that lacks institutional leadership and defies conventional analysis. (See the full video.) Where U.S. leadership once produced harmony, we've now got a cacophony of musicians playing different scores at varying tempos.

"It's no longer one orchestra with a good conductor," says Ruben Vardanian, chairman and CEO of Troika Dialog. "It's a different world with different people playing different music."

These divergent strains, moreover, are growing louder within many national economies as well. Inequality is growing: Some multinational companies are recording record profits while other sectors are limping along, and some individuals are prospering, while many more are struggling.

Although the rise of emerging market nations such as China, India, Brazil and Russia is likely to continue, their ability to manage their growth - and the ability of the developed world to accommodate it -- remains an open question. At the same time, the global economy faces a plethora of near-term challenges: sluggish growth in the U.S.; the risk of default in Greece, Portugal and Ireland; high oil prices; and political instability in the Middle East.

"We like living in a world with a dominant mean and very thin tails," says PIMCO's Mohamed El-Erian. "But the global economy now has a much flatter distribution of outcomes and the tails are much fatter."

Guggenheim's Scott Minerd says that keeping the orchestra together requires retooling the Keynesian models that took shape after the Great Depression. "The Keynesian paradigm is breaking down, and we need a new model. The world is looking for a new John Maynard Keynes."

UC Berkeley's Laura Tyson, who chaired the National Economic Council under Pres. Bill Clinton, offered a more optimistic vision. The growth of emerging market economies is "a very powerful plus," taking the pressure off beleaguered U.S. consumers to act as an engine of global demand. Moreover, it suggests a possible formula for the global economy to adapt to its new structure. "I can imagine a world where the U.S. gets its savings rate up, its current account balance and the need for foreign capital down," she says. "This is the rebalancing serenade in the background."