US President-elect Joe Biden may have promised a “return to normalcy,” but the truth is that there is no going back. The world is changing in fundamental ways, and the actions the world takes in the next few years will be critical to lay the groundwork for a sustainable, secure, and prosperous future.
For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world’s foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.
But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.
As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.
By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.
MILAN – Much economic commentary nowadays focuses on “divergence”: while broad equity-market indices are at or near all-time highs, much of the wider economy struggles to recover from one of the most severe downturns ever. Whereas the Russell 2000 is still down 5.4% year to date, the S&P 500 and the Russell 3000 have fully recovered to their pre-pandemic levels, and the Nasdaq, which tilts toward digital and technology companies, is up some 26%.
Many have concluded that the market is unmoored from economic reality. But, viewed another way, today’s equity markets may be partly reflecting powerful underlying trends amplified by the “pandemic economy.” Equity prices and market indices are measures of value creation for the owners of capital, which is not the same thing as value creation in the economy more broadly, where labor and tangible and intangible capital all play a role.
Moreover, markets reflect the future expected real returns to capital. When it comes to measuring the present value of labor income, there simply is no comparable forward-looking index. In principle, then, if there is a significant anticipated economic rebound, the outlooks for capital and labor income could be similar, but only capital’s expected future would be reflected in the present.
We hope you're enjoying Project Syndicate.
To continue reading, subscribe now.
Subscribe
orRegister for FREE to access two premium articles per month.
Register
Already have an account? Log in