The boom was a blip: Getting used to slow growth

[Zippyjuan]

https://www.businessdayonline.com/bo...d-slow-growth/

The global recovery from the Great Recession of 2009 has just entered its eighth year and shows few signs of fading. That should be cause for celebration. But this recovery has been an underwhelming one. Throughout this period, the global economy has grown at an average annual pace of just 2.5 percent—a record low when compared with economic rebounds that took place in the decades after World War II. Rather than rejoicing, then, many experts are now anxiously searching for a way to push the world economy out of its low-growth trap. Some economists and investors have placed their hopes on populists such as U.S. President Donald Trump, figuring that if they can make their countries’ economies grow quickly again, the rest of the world might follow along.

Given how long the global economy has been in the doldrums, however, it’s worth asking whether the forces slowing growth are merely temporary. Although economists and business leaders complain that a 2.5 percent global growth rate is painfully slow, prior to the 1800s, the world’s economy never grew that fast for long; in fact, it never topped one percent for a sustained period. Even after the Industrial Revolution began in the late eighteenth century, the average global growth rate rarely exceeded 2.5 percent. It was only with the massive baby boom following World War II that the global economy grew at an average pace close to four percent for several decades.

That period was an anomaly, however—and should be recognized as such.

The causes of the current slowdown can be summed up as the Three Ds: depopulation, deleveraging, and deglobalization. Between the end of World War II and the financial crisis of 2008, the global economy was supercharged by explosive population growth, a debt boom that fueled investment and boosted productivity, and an astonishing increase in cross-border flows of goods, money, and people. Today, all three trends have begun to sharply decelerate: families are having fewer children than they did in the early postwar years, banks are not expanding their lending as they did before the global financial crisis, and countries are engaging in less cross-border trade.

In an ideal world, political leaders would recognize this new reality and dial back their ambitions accordingly. Instead, many governments are still trying to push their economies to reach unrealistic growth targets. Their desperation is understandable, for few voters have accepted the new reality either. Indeed, many recent elections have punished establishment politicians for failing to do more, and some have brought to the fore populists who promise to bring back the good times.

This growing disconnect between the political mood and the economic reality could prove dangerous. Anxious to please angry publics, a number of governments have launched radical policy experiments designed to revive economic growth and increase wages, or to at least spread the wealth more equitably—even though such plans are likely to fail, since they often rely on heavy spending that is liable to drive up deficits and spark inflation, leading to boom-and-bust swings.

The slowdown in global flows of goods, money, and people has affected more than just national politics and policymaking: it has also rearranged the international balance of economic power. Before 2008, emerging economies sought to export their way to prosperity. But that model has become less effective as the competitive edge once enjoyed by major exporters, such as South Korea and Taiwan, has begun to shift to countries that can grow by selling to their own large domestic markets, such as Indonesia or Poland.

At the same time, countries that got ahead by specializing in outsourced labor will probably see their advantage dwindle. India has seen cities such as Bangalore emerge as incubators of the country’s rising middle class, spurred by opportunities at global outsourcing firms. The same goes for the Philippines, where call centers did not exist at the turn of the millennium but have exploded into a $22 billion industry employing more than one million people. As globalization retreats, however, outsourcing is likely to decline, and Trump’s tax plans, designed to bring companies and jobs back to the United States, will accelerate this shift.

Economic advantages are also moving away from big multinationals and toward smaller, domestically focused companies that rely less on exporting goods and importing or outsourcing labor. As borders tighten and it becomes harder to fill positions with foreign employees, workers in developed economies such as the United States will gain more bargaining power. For much of the postwar era, the share of U.S. national income that went to workers declined, in large part because many companies cut labor costs by shifting jobs abroad. Meanwhile, the share of national income going to corporate profits rose steadily, to a peak of ten percent in 2012. Since then, however, the corporate share has started to drop and the workers’ share has begun inching up.

More at link.

[oyarde]

Some people call it slow growth , I think of it as stagnant waters . It is all expect until the next downturn .

[oyarde]

The govt has interfered with too large of a percentage of the economy to ever see real growth of larger percentage again .