economy

What’s Wrong With the Global Economy?

The problem goes much deeper than Trump or tariffs.

Global markets were seized by fear last week that trade wars were slowing growth in Germany, China and the United States. But the story here is bigger than President Trump and his tariffs.

The postwar miracle is over. Since the financial crisis of 2008, the world economy has been struggling against four headwinds:

deglobalization of trade,

depopulation as labor forces shrink,

declining productivity and a

debt burden as high now as it was right before the crisis.

No major economy is growing as fast as it was before 2008. Not one is growing faster than 10 percent, the rate experienced by the Asian “miracle economies” before the crisis. In almost every country, the national discussion focuses on what must be done to revive growth and ignores the fact that the slowdown is driven by forces beyond any one government’s control. Instead of dooming ourselves to serial disappointment and fruitless stimulus campaigns, we need to redefine economic success and failure.

Germany is one of at least five major economies on the verge of a recession, which is typically defined as two consecutive quarters of negative growth. But the real issue is whether that definition still makes sense in a country with a shrinking labor force like Germany’s.

Its working population has been declining for years and is expected to fall to 47 million from 54 million by 2039. And it’s not alone in this. Forty-six countries around the world — including major powers like Japan, Russia and China — now have shrinking populations.

Demographics are usually the main driver of economic growth, so it is basically inevitable that these countries will now grow at a much slower pace. And we are not talking about minor population declines. Projections for 2040 show China’s working-age population falling by 114 million, Japan’s by 14 million. With a shrinking labor force, these economies will inevitably slow and, at times, contract. To keep calling two negative quarters in a row a “recession” implies that this outcome is somehow abnormal or unhealthy. That will no longer be the case.

To avoid overreacting, the discussion about economic health needs to shift to measures that better capture satisfaction and contentment, like per capita income growth. In countries with shrinking populations, per capita incomes can continue to grow so long as the economy is shrinking less rapidly than the population. This helps explain why, for example, Japan isn’t facing more social unrest. Its economy has grown much more slowly than that of the United States in this decade, but because the population is shrinking its per capita income has grown just as fast as America’s — around 1.5 percent per year.

Shrinking populations also help explain why unemployment is at or near multi-decade lows, even in countries with serious growth worries, like Germany and Japan. Gainfully employed Germans and Japanese won’t really feel as if their countries are in a slump until per capita G.D.P. growth turns negative — which may prove to be a more useful way to think about recessions in this new era.

The definition of success also needs to change. Many emerging countries still aspire to the double-digit growth rates experienced by what were known as the “Asian miracle economies” from the mid-1960s to the early 1990s, when populations and trade were booming. But no economy had grown so fast before then, and as population and trade surges recede, it’s unlikely any country can repeat those feats.

As growth downshifts, even little miracles are disappearing. Before the 2010s, it was common for one in every five economies to be growing at 7 percent or more annually. Now, among the world’s 200 economies, just eight, or one in 25, are on track to grow 7 percentthis year. Most of those are small economies in Africa.

When the news emerged that China’s economy had slowed to just 6 percent, a new low, many investors and analysts rang the alarm bells. But the reality is that economies rarely grow as fast as 6 percent if the population is not booming too. Not only did China’s working-age population growth turn negative in 2016, but it is one of the countries hardest hit by slumping trade, declining productivity and heavy debts. If the Chinese economy really were growing at 6 percent in this environment, it would be cause for celebration, not alarm.

The benchmark for rapid growth should come down to 5 percent for emerging countries, to between and 3 and 4 percent for middle-income countries like China, and to between 1 and 2 percent for developed economies like the United States, Germany and Japan. And that should just be the start to how economists and investors redefine economic success.

This rethink is overdue. The number of countries with shrinking populations is expected to rise to 67 from 46 by 2040, and the decline in productivity growth is in many ways reinforced by heavy debt burdens and rising trade barriers. Redefining the standard of economic success could help cure many countries of irrational anxieties about “slow” growth, and make the world a calmer place.

Mark Blyth – Why People Vote for Those Who Work Against Their Best Interests

Mark Blyth’s best seller Austerity: The History of a Dangerous Idea https://amzn.to/2Lcw556 Mark Blyth is a British political scientist from Scotland and a professor of international political economy at Brown University.

.. Apple sits on the largest pile

of cash of any corporate in the world

they think it’s about a quarter of a

billion at the quarter of a trillion

dollars rather than using that they

borrowed money because it was so cheap

issued their own bonds which earns them

a premium on top of that took the cash

from that and then bought their own

shares but to boost the value of the

stock so they could reward themselves

even more money and we booked that as

investment so they don’t pay any taxes

does anyone else want to call that book

37:43

here’s a story when they did the Podesta

email Hawks when they got the Democrats

emails somebody took the data from

WikiLeaks and decided it was called geo

locate the data in other words what were

the place names that the leading

Democrats who are the last part of her

mentor represent all of us remember

right not the elite Republicans what

were the police names that he talked

about and their private communications

and their selection what was the number

one most frequently named place in their

communications can you guess have a

guess Martha Martha’s Vineyard yeah

number two Eastern Southampton then New

York then San Francisco then I think it

was Ellie in DC and the rest of the

country two standard deviations out so

what’s the imaginary of a party this

seeks to represent all if that’s all the

places did they talk about because

that’s where the money is and it’s not

just to castigate the Democrats the

British Labour Party was like this under

blare of the German SPD under shorter

it’s done that’s the left is

systematically failed the people that it

supposedly represents so why should we

be in the least surprised that they

defect and then go to any one at all

that actually says here I know that

everyone’s ignored you for 25 years I at

least hear the fact that you’re crying

and I understand why people’s everyday

experience is very different from a

national average walking out and telling

people that the price of iPods has

fallen which means that really they’ve

got more money than they think at a time

when they can’t afford to send their

kids to college or their kids would be

insane to take on that much debt because

it’s like having a house with no ASSA

it’s just parts on izing and the example

of immigration occupied to that one it’s

very different depending on where you

live

immigration to me is another person from

another interesting country who has a

phd but that’s what it means where I

live right but that’s because I’m in the

top 20% if you’re living in public

housing in France right and those

resources are been finite and those

resources are being cut and you’re the

ones are confronted with incredibly

different cultures coming and not

integrating with you taking the

resources from you at least as you

perceive it and that’s what’s been

narrated by the National Front don’t

expect them not to make end roads

because it gels with everybody’s common

sense regardless of whether we can say

well on average and migrants benefit the

economy no one lives in an average now

the problem here now close with us is

.. prompted the following response I think

the election of Trump has been good for

climate change because it stops the rest

of the world waiting around for America

to solve the problem

so if the gentleman’s and the Chinese

now get together and do technolog

greentech bring it to scale China for

example has installed more solar in the

past few years in the United States has

right if they end up doing that we’re

the suckers because we should have been

leading the investment we’ll be buying

it from them

but in a way if that forces them to do

that and that’s good in a global sense

go for it so does that mean Trump was a

good leader in that regard well that’s a

different question right but it can have

a positive effect so the mark like let’s

not summit all up to you know the one

leader the genius the charisma whatever

the doesn’t that’s not good we are

thinking about it they can’t make a

difference but the key thing is when

they’ve actually got the trust of

everybody who’s who wants them to lead

that’s when societies work better but

when you have leaders who are divisive

who pet people against each other I

never walk so for anybody that’s the

type of populism you want to avoid all

The bond market is screaming

An old line about war says that amateurs talk about tactics, but professionals study logistics. A similar line about the economy would be that amateurs talk about stocks, but professionals study the bond market. And lately the bond market is telling a tale of profound pessimism.

Why does the bond market reflect economic expectations? If investors expect a boom, they also expect the Fed to try to rein in the boom by raising short-term interest rates (which it more or less directly controls), to head off potential inflation. The prospect of higher short-term rates then leads to higher long-term rates, because nobody wants to lock money in at a low yield if returns are going up. Conversely, if investors expect a slump, they expect the Fed to cut rates, and pile into long-term bonds to lock in returns while they can.

So the slump in long-term yields since last fall, from a peak of 3.2 percent to just 1.63 percent this morning, says that investors have grown drastically less sanguine about the economy. Long-term rates are now notably lower than short-term rates — and this kind of “yield curve inversion” has in the past consistently been the precursor to recession:

Ominous yieldsFederal Reserve of St. Louis

Bond investors could, of course, be wrong — there are some people out there claiming that we’re in a bond bubble. And so far the real economy, as measured by G.D.P., job growth, and all that, is still chugging along. But as I said, there’s clearly a wave of pessimism sweeping the market. What’s it about?

One answer is that last fall many investors were looking at a couple of quarters of high growth, and thinking that this might be the start of an extended boom. Serious economists warned that this growth was a temporary lift — a “sugar high” — driven by the shift from fiscal austerity to what-me-worry deficit finance. But at least some people bought into the Trumpist line that tax cuts were going to produce an enduring rise in the growth rate.

Since then, however, it has become clear that the tax-cut boost was indeed a one-time thing. In particular, there has been no sign of the promised surge in business investment.

At the same time, Trump’s trade war may be starting to take a toll. In particular, the uncertainty may be deterring business spending. Whether new tariffs would hurt or help your business, it now makes sense to hold off on plans to expand, until you see what he actually does.

Finally, economic troubles in the rest of the world — several major European economies are quite possibly in recession — are filtering back to the U.S.

Now, most economists aren’t predicting a recession here, for good reason. The truth is that nobody is very good at calling turning points in the economy, and calling a recession before it’s really obvious in the data is much more likely to get you declared a Chicken Little than hailed as a prophet. (Believe me, I know all about it.) But the bond market, which doesn’t worry about such things, is looking remarkably grim. I leave the possible political implications as an exercise for all of you.

Are Americans benefiting from the strong economy — aside from the rich? A Fed report raises questions.

Amid what is likely to become the longest period of sustained economic growth on record, a new report shows that millions of middle-class and low-income Americans still aren’t on solid enough ground to weather a sustained downturn.

Since the Federal Reserve’s annual report on household well-being began in 2013, the survey (most recently of more than 11,000 Americans) has become a key measure of whether the benefits of the recovery have reached beyond the upper end of the socioeconomic spectrum.

Although this year’s report painted a positive picture overall, officials said, it identified underlying fragility and exposed pockets of distress. In line after line, the report lays out the everyday concerns that plague U.S. households.

Almost four in 10 people (39 percent) said they wouldn’t be able to scrape together the cash to meet a $400 emergency expense. Even without any sudden expense, about 17 percent of adults said they would miss a payment on at least one bill during the month surveyed.

.. More than 6 in 10 said losing their job would mean they couldn’t cover three months of expenses, even if they took out loans, sold assets or borrowed from friends and relatives.

.. Only 36 percent said their retirement savings are on track.

.. Almost a quarter of Americans skipped some form of medical care in the past year because they couldn’t afford it. Separately, 1 in 5 faced major, unexpected medical bills. About 4 in 10 of those folks were still carrying debt related to those bills.

.. The survey covers 2018, when the unemployment rate averaged 3.9 percent, the lowest since 1969, and the economy grew 2.9 percent, matching its post-Great Recession high. Average hourly earnings grew 3 percent, easily the fastest rate since the recession’s end. But those figures are broad national averages — if gains are going disproportionately to the wealthy few, trends among the majority of U.S. workers could be missed.

.. Moore has been a mechanic for 40 years. He said these days, customers often have to leave their cars with him until payday rolls around, or until they can scrape together the money.

“I had three jobs this week that I lost because it’s too much money,” Moore said. “They hauled the cars off. They’re not going to fix them.”

“There’s not any extra money laying around for a lot of people,” Moore said. “I get sticker shock adding up tickets sometimes,” he added later. “Everything’s gone up.”

In fact, when his son had to go to the emergency room last year, Moore himself couldn’t cover the $2,000 bill up front. He’s still sending the hospital $100 a month to pay off the bill, he said.

“Another year of economic expansion and the low national unemployment rates did little to narrow the persistent economic disparities by race, education, and geography,” the report’s authors wrote.

In particular, measures of economic distress continue to spotlight black workers and, to a lesser extent, Hispanics. Only 47 percent of black adults rated their local economy as good or excellent in 2018, compared with 68 percent of whites.

Black Americans are less likely to be working and less likely to be satisfied with how many hours they’re getting on the job.

The disparities are sharp even among Americans who attended college. About 28 percent of black people are behind on their student loans, as are 15 percent of Hispanics.

The number for white people is just 7 percent. The gap may be related to access to education — black Americans were more than five times as likely than whites to have attended a for-profit university.