Five years after the financial crisis, the global economy remains unbalanced and many of the advanced countries are still struggling to return to robust, sustainable growth. Taking a historical perspective, I argue that this predicament reflects a failure to adjust to profound changes in the economic landscape, which have given rise to the (re-)emergence of major financial booms and busts. The economic developments that really matter now take much longer to unfold – economic time has slowed down relative to calendar time – and yet the planning horizons of economic agents have shortened. The key problems arise from the cumulative effects of past decisions on stocks, and yet these effects are treated as short-term flow issues. The risk is that instability will become entrenched in the system. Policy needs to adjust.
