Thoughts from the Frontline
An Excerpt from Endgame
February 4, 2011
The Burden of Lower Growth and More Frequent Recessions
Three Structural Changes
Lower Trend Growth
Thailand, Phoenix, and Japan
"My best guess is that we’ll have a continued recovery, but it won’t feel terrific. Even though technically we’ll be in recovery and the economy will be growing, unemployment will still be high for a while and that means that a lot of people will be under financial stress."
— Benjamin Bernanke, Chairman of the Federal Reserve in a Q&A at the Woodrow Wilson International Center for Scholars
Tonight (Thursday) I am flying to Thailand and will “lose” my normal Friday writing day, so I am going to give you a preview of my new book, Endgame, out and in the bookstores next month. This is the beginning of chapter four, and it stands alone quite nicely. It will print out a little longer than normal, as there are a lot of graphs. My co-author Jonathan Tepper and I deal with why there will be slower growth, more volatility, and more frequent recessions in our future.
And I want to ask a favor of my 1 million closest friends. It’s a long story, but if you pre-order at Amazon or other online stores, there is a high probability that the sale does not count in the NYT bestseller list sales. Besides the small amount of ego involved, making the list will drive sales and major media invitations. I have written the book to try and help foment the various national conversations that must be had around the world about getting our fiscal houses (and sanity) in order. The more people who read this book, the better the chances that something will get done. Or at least that is my hope. So, wait until I tell you it is time to order the book online if you can, or tell your local bookstore to go ahead and get you a copy. That you can do now. Thanks.
Quick note: I will be speaking in Phoenix at the Phoenix Investment Conference & Silver Summit February 18-19, 2011, at the Renaissance Glendale Hotel and Spa. Attendance is free. You can register at http://www.cambridgehouse.com. The conference focuses on metals and mining, and if that is among your interests, check it out.
And now, let’s look at the first half of chapter four of my book Endgame.
The Burden of Lower Growth and More Frequent Recessions
We’re optimists by nature. The natural order of the world is growth. Trees tend to grow, and economies do, too. Real economic growth solves most problems and is the best antidote to high deficits, but the problems that we have now won’t be solved by growth. They’re simply too big. Unless we have another Industrial Revolution or another profound technological revolution like electrification in the 1920s or the IT revolution in the 1990s,...
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Comments
Alex Sinclair
Feb. 6, 2011, 3:54 p.m.
An interesting aside—-debt has provided all of the growth in United States GDP since the mid 1990’s. From 2001-2007 it was provided mostly by spending from Home Equity withdrawal (Greenspan had the Fed pull these numbers). Recently it has been 100% from the Federal Government—-We are approaching a trillion $ increase in GDP above the low of the recession (mid 2009) and this has been purchased with well over a trillion $ of increased Federal debt. Earlier debt growth was mostly from the consumer and now it has been replaced by government. It is not sustainable for either. Growth will slow as deficits must be cut and consumers will be cautious. It fits in with your theory above that we are going to have slower growth and more volatility.
Paul Killinger
Feb. 6, 2011, 12:56 p.m.
I understand your thesis. I’ve heard it before (I’m 64) and for much of my adult life. In fact, the term “muddling through” was coined much earlier (and probably whenever times got hard throughout American history) by Russell Baker, a noted columnist for the NY Times. Mr. Baker said this to me himself in Washington, DC in 1974. He didn’t mean it to be demeaning, just as his view of the condition of the American Experiment. The idea became popular during the Carter administration, when the president would remark that, “We’d reached the era of limits.” Ronald Reagan didn’t concur, of course, and liked to say it was, “Morning in America.” He went on to prove himself (and us!) right. In my view, therefore, we simply need the leadership and personal resolve to achieve new heights again.
Trudy Weibel
Feb. 5, 2011, 3:58 p.m.
Hi John and readers,
I thought you might like to be aware of that the “frog story” is actually a mistaken myth. Here is a place where you can red up on what is actually known:
http://www.abc.net.au/science/articles/2010/12/07/3085614.htm
Cheers,—trudy
Mike McIntyre
Feb. 5, 2011, 2:01 p.m.
John. I respect your thoughts and writings. The Charts are fun to look at and sometimes objective in true nature. Although I haven’t read Endgame yet, this small example seems to bring out the crux of the problems with which economies as a whole operate and the system, be it local on global, perpetuates towards the constant Boom and Bust swings. Global population has expanded and thus demand has expanded and thus commodities cost more and thus less population locally and globally has more and more have less. It’s not a fair system and certainly needs to be fixed. Why should Baby Boomers such as myself, have to “stress out” about retirement, health and the cost of doing business which in this present economy is just treading water. In other words, I’m hoping that when I buy and read the book, the real Outside the Box answers show up because we as a species, homo sapiens, sure do require something soon. IMHO. Thanks, Mike
mark gardner
Feb. 5, 2011, 11:40 a.m.
Pablum.
Jim Herbert
Feb. 5, 2011, 10:55 a.m.
Nice and thought-provoking article. But figure 4.12 mentionede was not included. jim herbert
Charles Breese
Feb. 5, 2011, 1:54 a.m.
This is a view from the UK - I am the editor of www.lcfresearch.com, a site which focuses on companies which improve the productivity of their direct and indirect customers - set out below is why I believe this will be a resilient investment strategy for the next few years.
Re your comments about the need for another Industrial Revolution, I view the worldwide economy as being in the early stages of the second industrial revolution – the first industrial revolution was initiated by steam power enabling huge increases in productivity across all spheres of society eg mechanisation enabling mass production leading to significant reductions in unit costs – the second industrial revolution is based on combinations of various engineering disciplines and science (eg mechanical engineering, electronics, software, physics, digital communication etc) to enable significant increases in productivity to be achieved eg through disintermediation, machine vision, personalised medecine etc. Disintermediation is going to be a key theme which enables individuals to maintain their living standards whilst earning lower average real incomes.
The global economic backdrop and the transfer of power from the developed economies to the major emerging economies is very favourable for productivity enhancing companies – the populations of the developed countries need to find ways of enhancing productivity to lower the cost of living and – the populations of developing countries want access to knowhow which accelerates the development of their standard of living.
In the UK, we have a huge store of potential wealth, namely underutilised and/or available time - this arises from a combination of a) unemployment, b) people doing jobs which add no value (particularly in the public sector), and c) people needing to spend an increasing proportion of their lives in employment rather than having long retirements. In my opinion, Western governments key focus needs to be on creating economic backdrops which are favourable to job creation and ensuring that exports at least match imports - then leave the markets to implement the solutions to these two strategic objectives.