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.
Good point about the ‘Boomers’ not wanting more stuff and neither do many of the younger folk. Inflation is the last monetary policy needed in this economic environment. We do have a bit of incrementalism regarding electronics and it should be encouraged. Investments in infrastructure and housing will stimulate the economy as will investments in human capital. Hillary is talking about free tuition for college. Social investments in people will pay off in growth.
I agree with social investment but I cringe when I read about what that seems to mean to politicians. Christy anted up $10M for drug overdosing. Like that means anything. We have to ante up for education but not education-as-usual. More kids and more teachers in more classrooms is NOT innovative.
I dunno……I am no genius but I would try to teach more-while-doing. I would try more ‘experiential’ and ‘experimental’ teaching. Keep reading, writing and ‘rithmetic but, after that, take ’em to the woods, teach them to build a house, run a business, film a movie, sail a boat, fix a car and all the stuff we really actually HAVE to do when we are adults. Call me crazy.
It’s interesting that you mention more hands on education. Here abouts an outdoor school runs year around in a forest in a yurt. Lots of physical activities, stories, honouring nature and academics in context. Play is integral to the school curriculum and parents are heavily involved. It is hard to find the right staff and the funding for such an intensive educational experience.
Where is it? What’s the name? Can I Google it? Sounds perfect.
The Economist had a similar arguement about Japan’s aging population and its stubborn 20 year battle with zero growth, dismal economy, negative interest rates, etc.etc.etc.
The jist of the article was an aging population doesnt spend money. They save like nut storing squirrels.
Our only saving grace in Canada and the US seems to be our immigration policies that are allowing enough people into the country(s) to create a bit of growth and (somewhat) boost our economy’s to chug along on a few wheezy cylinders.
But, as you have observed we may have just delayed the inevitable.
Canada’s economy is in a slump. Our personal debt levels in Canada(170% of our income?!?!????? The highest levels of personal debt in our history), interest rates that are so low …. for so long they fail to inspire anyone to purchase anything…
.And all this while our intellectually challenged Federal and Provincial leaders that seem to dither and jostle for podium position next to any megaproject announcement or dignitary that will keep their face in the publics eye for that nanosecond of free publicity.
No long term strategy, just more vapid promises to soothe the gullible voting mobs insatiable desire for more politically correct pablum.
Perhaps we can open a sign factory to paint New “pc correct” signage for washrooms nation wide. The backlog of orders would make a Henry Ford weep in frustration.
And this is what keeps the average , navel gazing voter busy..
I think BIG projects should be set aside, frankly. Time to renew and refresh what we have. I also think we have to invest in small and local. Make communities human again. Too many folks feel alone and isolated even though they live so tight and densely.
But that’s a small town perspective. You almost have to live with to see things that way. I think….
Coincidently, this is a great summery of the research I have found on demography and economics. The aging baby boom and longer life expectancy. Pig in the python, they say. The declining birth rates, with much to do with centralized urban settings. And the immigration to offset economic issues, but creates political and religious divides. Only takes a short time for a majority culture to dwindle and be surpassed by the minority. 30 years from now, give or take, the world will be Muslim.
Very serious outcomes, and demographic trends are a road map to the future. Invest in off grid systems, protect your health, position yourself to be a spectator of the consumer players….
Also, after rereading your excellent post, the paragraph discussing the next generations stagnation, couples well with the leaps of the worlds past innovations. The worlds history of the ‘standard of living’ remained unchanged for many, many generations, until steam power and the industrial revolution. Next, I believe what followed was electricity and the advance of communication, morse code. From there, or mixed in there, was agriculture and medicine…..
All these were life changing advances that the whole world (western) could take and drive up the economy.
There have been no great ground breaking alternatives found lately. Only advances on existing tech. Morse code becomes Internet, but it is still only communication.
Where is the time travel? Light speed capsules?
Robotics, on the other hand, probably take more than they would give.
It’s a clearer view from a seniors otg cabin, I think. It may be wrong but it’s clear. I would not go back to the city. Not even if they leapt forward by some great change. Bt great leaps are infrequent anyway and I think modern life has to get even MORE stale and unpleasant before any great progress is to be made. City life will be more of the same just increasingly less tolerable….
We are due for some improvement but we are not overdue and I think it is overdue frustration that catalyzes big change. Either that or the Zombie apocalypse.
At various times in history some countries have experienced periods of prosperity, optimism, and stability but these three virtues have not always been accompanied by rapid growth in the economy. The conflicting issues appears to be how to have a society with less inequality, greater sustainability, that is fair, equitable and civil but is not driven mostly fossil fuel resource extraction in the long term. On the having a sense of meaning and purpose side in one’s life, some currently have satisfying foundational anchors while others have lost focus by expecting that there will some day be something external to them that will fill the ‘big empty’ within. That leads some people down the ‘if only path’. Dear Readers there is no need to list the must ‘haves’ which in these aspirations of some will shape society to its perfect transcendent union. One need not speculate too deeply to discover who will make the cut and who will be judged to be beyond the pale in the exceptionalist’s view of our society. Thomas Hobbes, who presented the state of nature…[in society]… as a “war of all against all.” How is that working?