Advanced economies are not actually becoming developing economies. But analysts and policy makers alike can benefit from looking more at the experience of emerging economies in assessing some of what lies ahead for the advanced world. The most important lesson to grasp now is that cyclical liquidity measures are no answer to structural impediments to growth and financial stability.
Such measures may buy the economy some time and give a short-term boost to asset prices. But this comes at mounting costs and risks, and these are not just economic and financial. With time, they are also developing deeper socio-political roots that render incremental reforms harder to enact, taking economies ever closer to cliff-like conditions involving the threat of accelerating economic and financial weakness in the absence of “big bang” reforms.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include “The Only Game in Town” and “When Markets Collide.”