EL-ERIAN: It's Getting Harder To Squeeze Growth Out Of The Economic Toothpaste Tube

The outlook for the economy has been decent of late. On Friday, we got a solid U.S. jobs report, and Chinese policymakers announced their re-commitment to aim for 7.5% growth in 2014.

But Mohamed El-Erian is not convinced.

In his latest op-ed on FT’s “A-List,” the outgoing PIMCO boss explains why. He compares the current situation to trying to what happens as you run out of toothpaste, and that we’ve relied too long on “experimental policy-induced growth” and not enough on a “truly sustainable variety.”

…to use a simple analogy, policy makers find themselves in a position that, I suspect, many of us may encounter as we transition through the different stages of using a tube of toothpaste.

With a relatively full tube, little thought is given to how much toothpaste is wasted. But as the tube empties, we are more likely to recognise the cost of having squandered earlier opportunities to modify behaviours consistent with longer-term benefits. And the regret is greatest when it becomes extremely difficult to squeeze any incremental bit of toothpaste out of an exhausted tube.

We are not out of growth-paste yet, El Erian says. But he warns that the recent string of good news and this unexpected focus on Ukraine have started to make us complacent. We still need “longer-term policy adjustment,” he says.

Click here to read the full column on FT.com »

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