Disclaimer: I know nothing. Not even as much as Sgt. Schultz did.
The world’s economy is flat. Slow-to-non existent growth. Inflation around 1%. Interest rates (at government levels) practically zero. Many countries employing or considering negative interest rates. And forecasters see nothing but more of the same for the near future.
Woe is us.
“US, kemo sabe?”
Not me. Not my friends. Your average wage earner has been fighting uphill against inflation, stagnating wages and decreasing government investment for decades. ‘US’ welcomes flat. No one getting an increase in wages ever wants the prices they have to pay to rise to erase that increase. ‘Leave it stagnate, for Gawd’s sake! I may have a chance to catch up.’
So, what’s the problem? For the average Joe, there is no problem except that wage increases are also just as unlikely so the stagnation is happening BEFORE they had a chance to catch up.
But that is NOT the economic problem being discussed today – not by the economists and governments and institutions and, maybe even the corporations. Those groups have the foundation of their financial projections firmly affixed to SOME level of inflation. Decades ago, an acquaintance of mine was the president of a major insurance company and he told me, “Everything is based on a 5% inflation. Our investments, our payouts, our premiums our everything…5%. We need 5% inflation just to continue in business.”
So, they are not happy. And that is why the governments have been still pumping in the cash (quantitative easing). They WANT inflation. The idea is to have so much money floating around, we all borrow cheaply and buy like crazy thus heating up the economy and creating the feedback cycle of inflation.
It’s not working.
So now these very same ‘experts’ are wondering why….. “Geez, why ain’t this working? I went to Harvard. I worked at Goldman’s. I know the economy. THIS should work. But….it isn’t?”
Our Harvard/Goldman geniuses know spreadsheets and Friedman and Derivatives. They know M1, M2, M3 and all the other sexy ‘M’s. They even know how to short credit default swaps and currency futures. These guys are smart cookies!
But they don’t seem to know people. Not real people. And ordinary people, for the most part, are THE essential part of economics. In fact, economics is really just psychology-in-numbers-of-people-in-numbers.
In other words; most economists – focusing on just their numbers – are dickheads.
Well, not completely…..they have identified the increase in savings and the decrease in borrowing but they don’t know why. They have identified the unpredictable China influence but they don’t quite know what it is. They have acknowledged wealth disparity but haven’t made the connection that it inhibits the losers from buying – and creates MORE losers all the time. They are smelling the smells but haven’t quite identified what’s cooking.
And they are missing a really big elephant in the room.
Baby boomers drove the economy for the last three decades and they are entering the non-accumulation stage of life. They are downsizing. They buy less. They don’t buy real estate unless they sold one worth more and bought something worth less. They do NOT lust after big fins on shiny cars anymore. And the old TV works just fine. And, really, do they need a new I-phone 10 when their I-phone 4 works just fine? Don’t forget, the first tranche of boomers is even going to bed a lot earlier.
Hard to pump up the local bar and restaurant when you are horizontal and curled up with a good book.
Exacerbating the increasingly slow spenders on slow food and slow cars is the poor, impoverished generation following dolefully (both sense of the word, ‘dole’ as in welfare) behind unable to even afford to rent. This hapless group has been dubbed the sharing generation and part of that is not idealistic but forced. They ride bikes because it is cheaper. And healthier. But cheaper comes first.
In other words, two whole, huge segments of the first world’s population simply are not in spending mode. And they won’t be until Generation Boom dies off and leaves Generation Share their inheritance.
And there is more. It goes back to Adam Smith’s basic principle of supply and demand. If there are only ten phones and one thousand people want them, the price goes up. But, if there are a thousand phones (thank you, China) and there are only ten customers, the price goes down. Simple, basic economics, right?
Not quite. Phones are not like loaves of bread. We need bread every day. One phone will likely do you for a long time. Especially if you are old and still use the phone to just make phone calls. So, innovators innovate and offer up I-phone Mark ll. Mark lll comes next.
But, in a dynamic society where the next generation was integrated early into the BIG game, light-blasting, molecular transporters would come next, NOT I-phone Mark XX. In other words, by losing generation ‘share’, the world has stagnated in innovation, too. Those kids living in your basement are NOT experimenting and taking risks except, perhaps, with drugs and video games. They are NOT the new Edisons, Fords or even Musks.
Plus, the products are just NOT as sexy. The customers-with-money are old and so are the products on the shelf. Seen one big screen TV, seen ’em all. The problem with the planned obsolescence economy is that the cycle gets faster and faster as the market gets older and slower.
Ironically, in the age of technology, it is innovation that is missing in the market place.
One more crazy point: Real estate. Real estate has been a major driver in the economy since boomers hit their reproductive years. And it will continue to be a force because the population of the world hasn’t dropped. But the big global bubble is over. Maybe NOT for some places because Chinese money and Russian money is fleeing and looking for a haven and because more and more places are becoming unlivable but, for the most part, the big, initial, post-war baby boom demand is done. The only reason it is still a bit of a factor is that mortgage rates are so low.
But that is like blowing on the embers of a dying fire.
So, what’s in store? I dunno….I am not an economist. But I know me. I am a very typical, ordinary guy. I am so average that Stats Canada once wanted me to pose on a brochure as the average Canadian. So, the way I am feeling is the way a lot of boomers are feeling. And I recently told a real estate hustler (in Panama) that I wouldn’t buy real estate ever again. I won’t live long enough. Like George Burns once famously said, “I do not even buy green bananas. I even have to pay for a three-minute egg in advance at my local coffee shop!”
Ol’ Dave is just NOT a major consumer anymore (exception: one Yamaha outboard sometime, someday, maybe).
We MAY invest in what keeps us alive longer (pills and healthcare) but even that has limitations. At a certain point, you don’t care enough to take your pills. And, when that happens, it will herald a new economic time. When we boomers go, things will start up again – missing, sadly, a lost generation to the basement suite – but it will start up again.
One possible exception to that forecast as I see it: if the planet gets any more toxic, the world will ‘innovate’ as fast as they can to survive. That may work. It may not.