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:

  1. deglobalization of trade,
  2. depopulation as labor forces shrink,
  3. declining productivity and a
  4. 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
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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

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.