Our Beliefs

Twenty-five years ago, former UK Prime Minister Margaret Thatcher published her memoir, The Path to Power. Among the book’s more quotable passages was one that summarized Thatcher’s economic ethos, as well as that of her deepest admirer, Ronald Reagan:

“…government should create the right framework of sound money, low taxes, light regulation and flexible markets (including labor markets) to allow prosperity and employment to grow.”

Thatcher’s memoir coincided with a burst of optimism that the great political, economic and policy struggles of the twentieth century had been decisively and forever resolved. Capitalism had triumphed over communism, epitomized a few years earlier in the collapse of the Soviet Union and the fall of the Berlin Wall. Prudent fiscal policy, inflation-targeting monetary policy, economic deregulation, the expansion of free trade and financial market liberalization promised a path to prosperity. The ‘western liberal democracy’ model appeared not just victorious, but the only way forward.

The optimism of the mid-1990s was not unfounded. A burst of innovation and productivity growth in the middle of the decade promised to fulfill the dream of economic opportunity and human empowerment for all. For billions of humans in the developing world, the Asian ‘tiger’ economies offered a beacon of middle-class living standards, if only the Reagan-Thatcher prescription were applied worldwide to economic policy management.

A quarter century later, the spirit of 1990s has evaporated for all but the top 1%, giving way to frustration, anger and even despair. Populism, nativism, civil unrest, drug addiction and strife have replaced free-market capitalism and expanding democracy as the by-words of the 21st century. The sunny optimism of Reagan and Thatcher, which inspired a generation, now seem anachronistic. The world is wrought by division and environmental degradation on a scale that threatens very human existence.

As we move into the third decade of this millennium, the mantra that society’s ills can be solved by more democracy and less government now appears naïve and unfit for purpose.

This is not to say that the European ideal of ‘social market capitalism’, Japan’s ‘social consensus’ or even Singapore’s ‘benevolently directed capitalism’ (which is widely admired and copied in China) offer compelling alternatives. The rise of extremist political movements in Europe, Japan’s lost decades of growth or China’s imbalanced and environmentally ruinous growth model are ill-equipped to address what ails the world today.

The decade since the great financial crisis has exposed fault lines that are too wide to bridge with simplified interpretations of moral philosophy. It may be that today’s challenges can be contextualized by the great works of political or economic thinkers, past and present, but in order to do so, a new understanding of the problem is required. Without this, a discussion of the solutions, as well as the ramifications for economics, politics, policy and financial markets is impossible.

In our view, the core challenge confronting society today is the achievement of sustainable growth.

Yet ‘sustainable’ these days is a misunderstood term, typically used as short-hand for limiting human impact on the environment. It should be considered in a much broader context, incorporating economics, politics, the environment and finance. So, what is sustainable growth?

To begin, we must acknowledge that all human beings strive to improve their lives, as well as the well-being of their families and communities. Accordingly, growth itself is an essential component of sustainability. Growth is intrinsic to the human condition, and to all living things. If plants and animals do not grow, humanity dies. If oceans cannot nurture life, humanity dies.

Sustainability also requires that some form of growth be enjoyed by most members of society. Unequal distribution of income and wealth, if left unchecked and at extreme levels, is not politically or socially sustainable. Moreover, the playing field needs to be relatively fair; in the last few decades, the idea that hard work and a structural meritocracy offered opportunity to anyone has been deeply undermined, and with it belief in ideals like the American Dream.

Sustainability also requires a better understanding of what normal economic growth rates look like. The majority of the world’s population has become used to their economy growing at rates unprecedented for most of history, and that may not return. As growth has slowed, unrest has increased, as have debt burdens. But the rising tide that policy makers seek to lift all boats cannot be created by money printing or ever increasing debt levels, without disastrous consequences.

Crucially, sustainable growth requires that today’s individual aspirations for a better life be pursued with consideration for both the broader world and for opportunities to be inherited by future generations. Sustainable growth must be compatible with custody of the ecosystem for those to come and with explicit recognition of, and compensation for, the impacts of our decisions on others’ well-being. The abstract warning of the tragedy of the commons that has echoed for a long time has passed its theoretical tipping point to become our reality.

Since the dawn of the enlightenment, if not earlier, worldly philosophers have understood that free societies can only survive if outcomes are sustainable. Locke, Hume, Smith, Riccardo and many others elucidated the dangers of unequal opportunity, plutocratic tendencies, excessive concentration of wealth and power, and the need to recognize the inter-connected nature of economic and political systems.

It is understandable that a quarter century ago, when the grave threats of fascism and communism were vanquished, world leaders gravitated to those parts of enlightenment thinking that suited their individual political preferences. We are now living the consequences of such cherry-picking, instead of approaching public stewardship in the broader, sustainable, manner offered by an appropriate understanding of how economics, political science and philosophy intersects.

Against this backdrop, Jackson Hole Economics has been established in the shadow of Yellowstone, one of the largest intact ecosystems on Earth, and of the Jackson Hole Federal Reserve Meeting, perhaps the world’s most important annual monetary policy meeting.

Our aim is to consider what has gone wrong over the past 25 years, to make clear the implications for economics, politics, the environment and finance, and to develop actionable ideas for how sustainable growth can be achieved before it is too late– to seek new ways to improve the human condition.