Beware talk of the ‘paradigm shift’
For those who say “this time is different” in regard to the commodities boom, NZIER chief economist Shamubeel Eaqub has a simple warning: it probably isn’t.
Wednesday, May 9th 2012, 6:40AM
by Niko Kloeten
Eaqub will be speaking at the upcoming Perfecting Investment Portfolios conference in Auckland, where he will discuss some of the key themes affecting the economy both in New Zealand and internationally.
One of the themes is commodity prices and what history says about the so-called “paradigm shift” towards permanently higher prices for commodities, including New Zealand’s key export, milk, as a result of the rapid industrialisation of China.
“There is a lot of the ‘if every Chinaman drank a glass of milk’ sort of thing,” he said. “But if you look through history food prices have trended down over time through technological innovation and productivity improvements.”
As part of his presentation Eaqub will look at the price history of wool, a key commodity for New Zealand, which has been through “great booms and great busts” in the past century.
“It’s not so much that I have a lot of answers as to where commodity prices are going, but I want to use the historical context to show the risks of thinking that this time is different,” he said.
“In Japan when property prices peaked, that was when people talked about there being a paradigm shift.”
Another theme Eaqub will examine is one he thinks has been overlooked recently as a result of the global financial crisis: the rapidly ageing population and its potential effect on financial markets.
“What’s really interesting is the whole issue of demographics. We’ve kind of lost sight of this massive demographic shift that’s happening in the background. It’s very much a rich world problem but it will also be a problem in places like China.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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