Since the Nasdaq crash US productivity growth has been very low, causing many economists to conclude that we’ve entered an era of “secular stagnation” in which a combination of tens of millions of retirees leaving the work force, and a lack of game changing technology will mean slow economic growth in the coming decades. Naturally this would also cause stock market returns to be lower than their historical norm of 9.1% CAGR since 1871.
And while I admit that there is always the risk of long periods of slow economic and earnings growth causing sub par market returns, especially with valuations as frothy as they are now, there are still plenty of reasons to think that today’s pessimists will be proven wrong, as they have for over a century.
For one thing, I reject the idea that truly game changing, productivity boosting change is a thing of the past. After all, one need just look around at today’s burgeoning field of Artificial Intelligence or AI, and the coming wave of robotic automation to see that future corporations will be FAR more productive than they currently are. In fact, a recent study by Mckinsey concludes that automation could boost global productivity by as much as 1.4% a year. To put that in perspective it could result in increased ecnomic output equivalent to an additional 2.3 billion full time workers.
And while true that many people will face job distruption, (such as truck drivers being replaced by fleets of autonomous trucks), chances are that most of these people will be able to find work elsewhere, in more productive and better paying professions, (as has historically been the case). And even if it doesn’t, as I’ll explain in a coming article there is an easy solution for that.
Meanwhile, in addition to automation and the coming AI revolution, there are two other major growth catalysts to look forward to. First is material science, including short-term benefits such as far more efficient, energy dense and cost effective batteries, which will usher in a transition to green, cheap, abundant, energy and electric vehicles.