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’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.37:43here’s a story when they did the Podestaemail Hawks when they got the Democratsemails somebody took the data fromWikiLeaks and decided it was called geolocate the data in other words what werethe place names that the leadingDemocrats who are the last part of hermentor represent all of us rememberright not the elite Republicans whatwere the police names that he talkedabout and their private communicationsand their selection what was the numberone most frequently named place in theircommunications can you guess have aguess Martha Martha’s Vineyard yeahnumber two Eastern Southampton then NewYork then San Francisco then I think itwas Ellie in DC and the rest of thecountry two standard deviations out sowhat’s the imaginary of a party thisseeks to represent all if that’s all theplaces did they talk about becausethat’s where the money is and it’s notjust to castigate the Democrats theBritish Labour Party was like this underblare of the German SPD under shorterit’s done that’s the left issystematically failed the people that itsupposedly represents so why should webe in the least surprised that theydefect and then go to any one at allthat actually says here I know thateveryone’s ignored you for 25 years I atleast hear the fact that you’re cryingand I understand why people’s everydayexperience is very different from anational average walking out and tellingpeople that the price of iPods hasfallen which means that really they’vegot more money than they think at a timewhen they can’t afford to send theirkids to college or their kids would beinsane to take on that much debt becauseit’s like having a house with no ASSAit’s just parts on izing and the exampleof immigration occupied to that one it’svery different depending on where youliveimmigration to me is another person fromanother interesting country who has aphd but that’s what it means where Ilive right but that’s because I’m in thetop 20% if you’re living in publichousing in France right and thoseresources are been finite and thoseresources are being cut and you’re theones are confronted with incrediblydifferent cultures coming and notintegrating with you taking theresources from you at least as youperceive it and that’s what’s beennarrated by the National Front don’texpect them not to make end roadsbecause it gels with everybody’s commonsense regardless of whether we can saywell on average and migrants benefit theeconomy no one lives in an average nowthe problem here now close with us is.. prompted the following response I thinkthe election of Trump has been good forclimate change because it stops the restof the world waiting around for Americato solve the problemso if the gentleman’s and the Chinesenow get together and do technologgreentech bring it to scale China forexample has installed more solar in thepast few years in the United States hasright if they end up doing that we’rethe suckers because we should have beenleading the investment we’ll be buyingit from thembut in a way if that forces them to dothat and that’s good in a global sensego for it so does that mean Trump was agood leader in that regard well that’s adifferent question right but it can havea positive effect so the mark like let’snot summit all up to you know the oneleader the genius the charisma whateverthe doesn’t that’s not good we arethinking about it they can’t make adifference but the key thing is whenthey’ve actually got the trust ofeverybody who’s who wants them to leadthat’s when societies work better butwhen you have leaders who are divisivewho pet people against each other Inever walk so for anybody that’s thetype of populism you want to avoid all
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.
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.
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.