The Great Stagnation, by Tyler Cowen purports “the ‘low-hanging fruit’ of economic growth: free land, technological breakthroughs, and smart kids waiting to be educated” is over. (Bloomberg Businessweek, The Autistic, Encyclopedic, Economic, Electronic, Idea Engine, May 26, 2011, by Brendan Greeley)
IS GROWTH OVER FOR THE USA?
Tyler Cowen, brilliant Harvard educated economist implies that we have:
- Educated the farm kids
- Filled homes with several cars
- Recently created new and fun technologies which entertain more than promote economic growth
Due to these recent economic developments, maybe demand is stagnating. A scary possibility is that recent economic growth was based on the faulty platform of easy credit without major innovation. In fact, some of the recent technologies have slowed growth. Why go to a movie and pay $9.00 per ticket when you can have film, entertainment, and miscellaneous programming streaming on your television for $7.00 per month. My recent garage sale was publicized for free throught Craigslist. Who lost out? The newspapers who charge $10.00-$20.00 for an advertisement.
WHO CARES?
If these theories are correct, consider how your salary will be affected with slowing growth-stagnating wages. In fact, check your own recent pay stubs. Who has received raises greater than 3% (proxy for rate of inflation) in recent years? And don’t forget about recent job growth - dismal.
INVESTMENTS AND RETIREMENT ACCOUNTS
If companies do not increase profitability at a decent clip, their stock prices will falter. Anyone with shares of stock will experience slowing growth in their investment portfolios leading to lower eventual wealth.
BARB’S TAKE
There are several economic growth scenarios to consider; no growth, slowing growth, normal growth, and rapid growth.
As a student of economics and investing, I realize that new, small companies have the potential to grow rapidly. If a company realizes 3 million dollars in revenue per year, it’s easy to double or even triple that amount for several years. Large and established behemonths with billions of dollars in sales cannot double their sales rapidly.
Following that logic, older, large, developed economies will grow more slowly than newly emerging economies.
It’s only common sense that USA growth will slow as it’s economy grows larger.
I believe the answer regarding future economic growth lies somewhere between stagnation and rapid growth.
The likelihood of future innovation and development is present. Think about alternative energy or clean energy automobile innovations. When my parents were children, the internet, VCR’s, and space travel were unheard of.
Certainly, there will be inventions in the future that we cannot fathom today. Be wary of dire predictions. After all, wasn’t the world supposed to end on May 21st? Stick to a well thought out and balanced spending and investing plan and look to boost your income when possible.
What are your thoughts on the future economic growth in devloping countries?
image credit; btjones
In this global economy, we are important as a consuming nation. I think it will be very important that we are known for more than that. Innovation particularly high tech in the past has been one of our strengths. Rising manufacturing costs overseas may allow some manufacturing to return to the U.S. I think we will start to grow at a reasonable rate sometime in the second half of 2012.
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I’m also optimistic and I think we’ll have better growth again soon. It would be great if the US and other developing countries can grow together. China for example has a much bigger middle class now and they can afford to buy many more luxury goods.
retirebyforty recently posted..If I had a million dollars
@Krantcents-We are certainly great consumers, and that offers optimism for the future. Consumption is bound to rebound!
@Retire-Yes, let’s route for the BRIC (Brazil, Russia, India, China)to grow their middle classes and up their buying from us!!!
In terms of stocks, an easy way to help protect your portfolio from the US slow growth is to also invest in an emerging markets index fund. Of course, this comes with a lot of risk, and extra fees, but it’s something to consider.
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Hi Kellen, I advocate diversifying into both developed and emerging international asset classes. With index funds and/or etfs, the expenses are rather low. Just make sure to invest only long term funds as with all investing there are ups and downs in the value.
I’m no economist, but my opinion is slow but steady growth in the future. Possibly around 2-3% of GDP for the next couple of decades. And, consumption will drop as a percentage of the total GDP.
I think America’s real opportunity is that we are still the greatest innovators in the world and I don’t see anyone stepping up to take that mantle away from us. Despite the great education and work eithic of countries like China and India, they are busy copying our lead. A case in point is Apple. Look who creates the iMacs and iPads and who builds them. They remind me a lot of Japan in the 80s.
Barb, I completely agree with you about alternative energy. Everyone thinks it’s a joke, but it’s the biggest opportunity of the next 30-50 years. I predict a lot of people driving EVs and leaving the grid. The people who are monopolizing and manipulating the energy are going to be bypassed by technology. A lot of people are going to get rich and others are going to take a hit.
Bret @ Hope to Prosper recently posted..Happiness is Doing it Yourself
Hi Bret, Wonderful synopsis of your thoughts on the growing economy. I agree with your prognosis. Short term is totally unpredictable, but long term growth of 2-3% seems plausible. Thank you.
Like Krant says, I’ve seen mfg coming back stateside because places like china have had so much inflation, that they aren’t as cheap anymore. That doubled with the fuel costs it takes to move stuff back and forth and long lead times, it’s a no brainer for some companies to bring things back home. Plus, most people will pay a small premium for the convenience of shorter lead times and being able to work with someone in the same time zone and no language barrier.
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@First Gen-All really good points. Although economic trends seem to shift, most of the time, there is a rebound to the “center” (or happy medium). Even if mfg. doesn’t rebound completely, it is likely to increase somewhat.
I guess I’m a bit more pessimistic and think that the Great Constriction isn’t ending any time soon. On the corporate side you’ve got outsourcing and increasing automation plus a complete loss of loyalty to employees. On the consumer end I think that the economic travails of the middle class have been masked for decades – first by women entering the work force and making the two-income household a necessity and then by more than a decade of using home equity loans and refinancing as a bank account. The bank’s closed and there aren’t enough jobs to go around. It doesn’t look pretty.
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