2010-06-07 09:31

Professor says low growth, rising prices could herald repeat of the 1970s malaise in the economy

BEIJING - Professor Mei Jianping is worried the eventual outcome of the economic crisis could be a return to the "stagflation" of the 1970s.

Mei Jianping, professor of fi nance at Cheung Kong Graduate School of Business, said the global economy was stabilizing but it was now developing another big hole. [ADRIAN MOSER / BLOOMBERG]

He said the scenario of low growth and rising prices could result from the emergency measures taken around the world to avert an economic Armageddon.

Mei, 50, who was speaking in the ground floor cafe of the Beijing Hotel in Wangfujing, is perhaps one of China's most internationally well-known academics.

He is an expert in asset valuation and is one half of the Mei Moses partnership that gave birth to the fine art index that is used across the world to assess the value of some of the world's greatest paintings.

"I think down the line, in a couple of years, we may see stagflation, a replay of the 1970s. The policy-makers now have a huge dilemma of how to balance their rescue measures without the risk of the inflation animal running wild," he said.

"Once that beast gets out of its cage it is very difficult to put back."

Mei, who dresses more like a contemporary art dealer than a fusty academic, does not advocate the sharp shock of high interest rates as deployed in the 1980s by his former New York University colleague Paul Volcker when he was chairman of the Federal Reserve during Ronald Reagan's US presidency.

"He put interest rates up to 15 percent. To do that would destroy the property market and that is the risk down the line," he said.

Mei, who is professor of finance at Cheung Kong Graduate School of Business, fears the European debt crisis might delay the global recovery that, before the tribulations affecting Greece, seemed to be on track earlier this year.

"The global economy was stabilizing but it is now developing another big hole. It is not just Greece but the whole of the PIGS (Portugal, Italy, Greece and Spain) nations. This is going to slow things down by a year or so. It is really going to dampen things," he said.

"I was hoping things could change by the middle of the year but now unfortunately the European crisis seems to be delaying things."

It is 10 years since Mei met Professor Michael Moses and while their association might not quite be in the same league as that of Messrs. Rolls and Royce, it has certainly had an impact on the art market.

The meeting was at a business lunch at New York University, where both professors were teaching.

Moses had collected data on art prices to convince his "rich and beautiful young" wife his art purchases were financially worthwhile.

"His wife asked him that if it was for investment could he beat the S&P 500. He discovered what other people had done on this and nobody had carried out any really dramatic research," he said.

"By the time of our meeting he had collected a huge data base but he was looking for someone to build an index. In order to calculate returns he needed a finance professor and that is where I came in. It was a stroke of luck he was sitting right next to me," he said.