For years now, I have been listening to pundits bemoan the slow rate of the current recovery, mired around 2%.
Get used to it. It may be the new permanent state of affairs.
You can blame slowing population growth, deleveraging, and the new anti-globalization trend.
Looking at the vast expanse of history, high growth is the anomaly.
For most centuries, economic growth matched population growth, about 0.5%-1% a year.
When the Black Plague ravaged Europe in the 16th century, cutting the population by a third, economies shrank by a similar amount.
The first high growth burst came with the Industrial Revolution, when the steam engine changed everything. But that burned out after a couple of decades.
Mechanization led to a rapid growth in agricultural output, causing crop prices to crash. Many farmers, who accounted for 50% of the economy, went bankrupt.
The next explosion in growth came with the end of WWII in 1945. Call it the “Greatest Generation” dividend.
For a start, the Great Depression and the war created 15 years of deferred consumption.
As the sole remaining industrial power, demand for US goods was essentially limitless.
During this “Golden Age”, GDP growth rates of 4% were common, with little inflation.
A cavalcade of new inventions dramatically increased productivity.
You can start with the discovery of transistors in 1948, and move on to semiconductors, microprocessors, and cell phones.
The economy got a second wind with the near simultaneous creation of cheap personal computers, Windows operating software to run them, and the Internet so they could talk to each other.
That brought us another decade or 4% growth . . . and ultimately the Dotcom bust.
Looking at the numbers from this period is nothing less than eye popping.
Global debt rocketed from 100% of GDP in 1980 to 300% by 2008. Amazingly, interest rates FELLfor 30 years.
As countries opened their borders to free trade, the amount of cross border transactions soared, from 30% of global GDP to 60% over the same period.
Countries transitioned from abject poverty to middle class practically overnight.
From 2000 to the present, cheap transpacific broadband enabled one million Filipinos to land jobs in call centers, accounting for 3% of the working population.
Today, those people are avid cash rich consumers of all things American, from iPhones, to blue jeans, to movies.
The seeds of the current decline can be found as early as the 1980s.
As women entered the workforce around the world, birth rates collapsed. In Mexico, families went from seven children to two in one generation.
And if consumers aren’t being born, they aren’t going to buy anything 20 to 30 years later.
As a result, the growth of the global workforce plunged from 2% in 1980 to 1% by 2016.
In the US the decline was even sharper, from 1.2% in 1900 to only 0.3% today, the lowest since records have been kept.
The global debt boom was brought to a screeching halt with the Great Recession in 2008.
The harsh lending rules and capitalization requirements that followed have stunted any recovery there.
The third cause of permanently slower growth rates was delivered to us by the 2016 US presidential election.
If Donald Trump’s “American First” policies take hold, the impact on global trade will be devastating.
What was Trump’s first move in office?
Withdrawal of the United States from the Transpacific Partnership (TPP), a plan to bring 12 countries in Asia within American free trading rules.
In fact, global trade has started to fall for the first time in 70 years, as countries start to divert trade away from the US to avoid surprises down the road.
A rising international tide of nationalism and populism will exacerbate this trend.
Russia’s Vladimir Putin was the first. Since the oil crash accelerated three years ago, Russian per capita incomes have cratered from $15,000 to $9,000 a year.
Putin has used aggressive international moves to distract voters’ attention from the economic crisis that followed by annexing Crimea, launching an insurrection in the Ukraine, and increasing military support for Syria.
Turkey’s Recep Tayyip Erdogan has followed suit, launching a de facto coup d’état to cover up an economy hobbled by a massive influx of refugees from the Middle East.
There will be winners and losers from a wind down of globalization, slowing population growth, and nationalism.
The losers will be any country that benefited mightily from the post war boom, like the Philippines mentioned above, as well as China and India.
The winner will be the country with the world’s largest domestic economy, and that would be the US.
But we will be only a winner in a relative sense. America is best positioned to keep a larger share of a shrinking pie.
Another problem is that we haven’t invented anything important lately.
Sure, Facebook, Uber, Airbnb and Snapchat are all cool. But are they really improving the output economy?
Not really, and certainly not to the extent of the windfall Wintel brought us.
All of this makes complete nonsense of Trump’s promises to deliver “4%, 5%, and even 6% growth”. We’ll be lucky to hang on to the 2% that we already have.
It’s hardly a screaming argument to rush out there and buy stocks.
How does all this end?
The growth rate of the global population will continue to decline until 2050. That’s a done deal
However, deregulation will free up some new lending capacity by the banks.
Hyper accelerating technology will be the main savior, as new products and services improve productivity which will enable growth to reaccelerate.
In years to come, we WILL get some really great new inventions.
For example, what is a cure for cancer worth?
About $2 trillion according to some estimates, and it will come from here in the San Francisco Bay Area, American made.
And you wonder why the entire world is pouring money into technology and biotech stocks?
But that is more of a 2020’s story.
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