At a time when gloomy assessments about the state of the world and the U.S. economy appear to be spreading, a marquis collection of leaders and experts rang some bells of optimism at Boston College, while calling attention to troubling uncertainties as well as opportunities ahead for investors, companies, and the general public.
The conversations took place at the Carroll School of Management’s 15th annual Finance Conference. Returning to its in-person format this year, the all-day event on May 6 brought together alumni and others active in the financial services industry. They heard and posed questions to a Nobel Prize-winning economist, a former U.S. secretary of defense, a former White House economic czar, a celebrated investment adviser, and a rising Carroll School scholar.
Paul Romer, recipient of the 2018 Nobel Prize in Economic Sciences
The conference began on a high note with Paul Romer, who won the 2018 Nobel Prize in Economic Sciences for documenting the ways in which ideas propel innovation and growth. He prefaced his remarks with kudos to Boston College and the Carroll School for holding an annual conference that draws on these very themes, noting that John and Linda Powers Family Dean Andy Boynton, co-author of the 2011 book The Idea Hunter, “understood the power of ideas early on.”
“Unemployment insurance is what you’d want in a pandemic. What was wrong is that we did too much...”
Commenting on the current mood in America, Romer noted that he hasn’t seen so much pessimism since his days as a graduate student in the 1970s, when inflation and oil shocks were roiling the economy, as they are now, once again. And yet, through history people have found ideas “that give us so many ways to do more with less,” he said, rattling off a list of seemingly small notions that have unexpectedly solved huge problems. These include the idea of dissolving a few inexpensive minerals and a little sugar in water, which in recent decades has saved countless lives in the developing world by rehydrating children who had life-threatening diarrhea.
Ice cap in Alaska
Commenting on the current mood in America, Romer noted that he hasn’t seen so much pessimism since his days as a graduate student in the 1970s, when inflation and oil shocks were roiling the economy, as they are now, once again. And yet, through history people have found ideas “that give us so many ways to do more with less,” he said, rattling off a list of seemingly small notions that have unexpectedly solved huge problems. These include the idea of dissolving a few inexpensive minerals and a little sugar in water, which in recent decades has saved countless lives in the developing world by rehydrating children who had life-threatening diarrhea.
He added that ideas have far-reaching effects essentially because they’re replicable—once discovered, the idea of rehydration therapy could be used to save children over and over. Romer also gave a shout-out to government, which is needed to help set the legal framework of innovation and “make sure that the ideas are shared” through required public disclosures.
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Is inflation on the way out?
One source of hand-wringing at the moment is the return of high inflation—a predicament that occupied most of a session featuring Christina Romer (no relation to Paul), who served as chair of the Council of Economic Advisers under President Barack Obama.
In a conversation with Professor Philip Strahan—two scholars, seated on a stage in the elongated Murray Room in the Yawkey Athletics Center—Romer pointed a finger at the outsized stimulus packages enacted during the pandemic that have apparently over-stimulated the economy, spurring inflation.
Christina Romer, Chair, Council of Economic Advisers (2009-2010), and Philip Strahan, Professor of Finance, Carroll School of Management
“Unemployment insurance is what you’d want in a pandemic. What was wrong is that we did too much,” Romer said of the stimulus. That, along with Americans making up for lost time with consumer purchases, deepened supply-chain woes. All that made for a classic inflationary case of too many dollars chasing too few goods, or “too much demand chasing after not enough output,” as the economist put it.Â
Now a professor at the University of California, Berkeley, Romer was confident that the Federal Reserve will be able to tame inflation as it calms down a hyperactive economy. That was welcome news for an audience of 125 professionals in the financial industry (along with academics and others), who sat at banquet tables in the Murray Room and spoke up during Q&A segments.
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Here from alumni and students who attended the 15th annual Finance Conference
At the same time, Romer said we should expect a little pain along the way. Her “best guess” is that the anti-inflation medicine dispensed by the Fed will prompt what she termed a “short, mild recession.” And yes, there might even be a transitory period of “stagflation,” Romer said in response to a question from a young woman who wouldn’t have a firsthand memory of the last time there was simultaneous inflation and stagnation (high prices and slow growth with relatively high unemployment), in the 1970s.
Or should we go looking for “pro-inflation assets”?
As a much-listened-to investment advisor, Richard Bernstein is not prepared to bet on inflation ending any time soon, partly because of the supply chain issues that he thinks will have stubborn effects on markets and the economy (limiting the goods that the dollars are chasing after). Still, appearing virtually on a big screen at the otherwise in-person conference, Bernstein, who had come down with a mild case of COVID, underscored that there are “tremendous opportunities” for investors amid macro-economic shifts.
Richard Bernstein, Chief Executive Officer/Chief Investment Officer of Richard Bernstein Advisors LLC
In particular, the CEO and founder of Richard Bernstein Advisors LLC turned the audience’s attention to what he called “pro-inflation assets.” These would include energy, commodities, junk bonds, real estate, and natural resources, among other assets with longer-term earnings potential. Bernstein singled out the energy sector, which he said has long-term growth projections almost twice that of tech, even though it’s widely considered an old “boring” stock. He said, “The time to invest in things is when people don’t talk about it anymore.”
