When the crisis is over, we must understand a ‘new normal’

Markets are bubbling in response to signs of “green shoots” in the global economy. An increasing number of investors see a strong rebound coming, first in China, then in the United States, and then in Europe and the rest of the world. Even the horrible growth numbers of the last couple quarters don’t seem to discourage this optimistic thinking. The deeper the plunge, the stronger the rebound, some analysts say.

Perhaps these optimists are right. But how strong an expansion can one reasonably expect when the worst is finally over? Is the “new normal” going to be the same as the “old normal” of the boom years from 2002 to 2007?

I have trouble seeing how the US and China, the main engines of global growth for two decades, can avoid settling on a notably lower average growth rate than they enjoyed before the crisis.