The first session in Davos is traditionally the economic update. Here, far too many people wanted to cram into the room, but those who made it were treated to a bit of a dust up between economists (if you have a taste for that sort of thing).
Morgan Stanley’s Stephen Roach, with the not too subtle encouragement of moderator Martin Wolf, raged against Gail Fosler from The Conference Board and Jacob Frenkel, from Merrill Lynch (but better known as the long-serving head of the Israeli central bank).
All agreed that the story of the world economy is the story of the US economy. There is no alternative engine. But Roach reckons the US is heading for a double-dip recession. Personal and corporate debt are too high, the current account deficit is at historic levels. Fosler and Frenkel, however, judge the “fundamentals” to be fine, and are optimistic about a US recovery this year.
I side with the Roach view, but Frenkel definitely tells the better story. Explaining why fundamentals are important, he told this story. A man is driving his car around the Arc de Triomphe, looking for a parking space. Although an atheist, he prays to God for a space, declaring he will believe and be observant if only he can find a space. As soon as he finishes his prayer, lo and behold, a space opens up. “God!” the man exclaims. “I’ve got one, don’t worry about it.” As Frenkel said, “He didn’t understand the model.”