The World Economic Forum in Davos has been derided before as an out of touch orgy of billionaires held in the Swiss Alps. But somehow, impossibly, this year a number of people seem to think the gathering is more divorced from reality than usual.
The conference may not actually be any more out of touch than usual. Indeed, there are panel discussions on Ebola, lots of talk about the need for cyber-security, and the screening of a movie about the plight of women in Saudi Arabia. Still, at least some of the whispers in the espresso-filled lounge of Davos’ Congress Centre, the forum’s main venue, are focused on why the global gabfest is less relevant than it has been in the past. The billionaires are only part of the problem.
Falling oil prices
The drop in the price of oil is a big part of the agenda of Davos. But much of the talk about the lower cost of a barrel of crude has to do with how the drop is destabilizing the world economy. During one panel on oil prices, an official from OPEC basically had to apologize for the drop in oil. Largely missing in Davos, which is usually a booster of developing economies, is discussion on the large economic benefit that lower oil prices will have on the average consumer. That’s true in America and around the world. So far, lower oil prices have been bad for the market, which could be why Davos, which is made up of a lot of financial types, could be sour. But at least one private equity executive argued that the average net worth of the average Davos attendee had something to do with it as well. “You just don’t care that much about how much it costs to heat your house when you have four homes,” he said.
The United States economy is actually doing well
One of the stated “thematic pillars” of Davos this year focuses on how the growth of emerging markets is transforming the leadership of the global economy. That might be accurate in the long term, but for this year, not so much.
Right now, the economy looks more like it did in the 1990s than it has in a while. The U.S. is again leading the world economy. And growth in emerging markets like Brazil, India, Russia, and China is either barely existent or slowing.
But that doesn’t really fit into the Davos ethos, where everyone and every country is a leader. So even though the fact that the U.S. is doing well has come up during a number of panel discussions at Davos, the praise for the U.S. economy has been mixed. In one session, Christine Lagarde said that panelists shouldn’t bash the U.S. so much, because without the U.S. the global economy would not be growing at all. “The fact that the U.S. is doing so well is sort of an inconvenient truth at Davos,” says S&P’s global economist Paul Sheard.
Thomas Piketty is not here
The academic who has likely had the biggest influence on the economic policy debate this year is not actually at the World Economic Forum. Thomas Piketty, whose book on inequality Capital in the 21st Century was a bestseller, says he was invited to Davos but couldn’t make it. Still, it’s not just that Piketty himself is absent, discussion of his ideas on the ways in which capitalism leads to inequality has gone missing as well. The World Economic Forum’s official focus is on inequality this year. But it’s on the inequality between rich countries and poor countries, not gap between the 1% and the 99% in the U.S. or elsewhere.
The Federal Reserve’s policies have worked
The U.S. economy grew 5% in the third quarter, and now looks like the strongest economy in the world. Certainly some of the credit should go to the Federal Reserve, which pumped $4 trillion into the economy. That hasn’t stopped the Fed bashing at Davos, though.
Hedge funder Paul Singer said the Fed was increasing inequality. And he wasn’t the only one saying the Fed’s policies are causing instability in the global economy.
All the Fed bashing at Davos comes at a rather odd time. On Thursday, the European Central Bank announced that it too will begin buying bonds, essentially admitting that the Fed’s main stimulus policy of the last few years was a good move. Shortly after the ECB news broke, which happened while Germany’s Angela Merkel was speaking at Davos, WEF founder Klaus Schwab announced the update on stage in one awkward, slow sentence, but then he jumped back to life and said, “Let’s move on.” And so Davos did.