Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

Secular stagnation and change triggers

Some time ago, the FT reported that the US growth rate is still far behind its long term average (see: link 1link 2link 3). European growth rates – if any – are a fraction of the US rate. To explain rich countries’ poor growth, some economists (most notably Larry Summers, a former American Treasury secretary), suggest that they are stuck in “secular stagnation”. Secular stagnation is a condition of negligible or no economic growth in a market-based economy.

Secular-stagnation theory originated with Alvin Hansen, a Keynesian economist, in the 1930s. Countries suffering from the stagnation bug are burdened with too much saving and too little investment. Hansen reckoned the slumping economies of the 1930s were doomed to stagnation by poor growth prospects, a product of slowing innovation and ageing populations. Mr Summers’s diagnosis is not all that different. (Source: The Economist)

In general, many countries face the following issues:

– governments facing massive debts and agreed-upon austerity;

– consumers facing unemployment, reduced spending and increased savings (buffers);

– companies introducing robotics and replacing human labour;

– a population still expanding but with low birth rates and an increased ageing (mushroom);

– natural resources are depleting and thus prices increasing (scarcity);

– technological developments seem to accelerate leading to a 3 era Technological Revolution;

– climate changes may cause new migration patterns for companies and people;

– money, its lack (debts) or abundance (cash), may cause a shift in the Rise and Fall of Nations

In the absence of government spending (high debt, agreed-upon austerity) and/or consumer spending (lack of income, increasing unemployment), secular stagnation is likely to stay around for years. The impact of robotics on future employment could cause continued secular stagnation (or worse). Balancing future expenditure to future income – for governments and consumers – would imply a decrease in our standards of living. Our current standards of living are based on borrowed money (i.e., government and consumer debt) that needs to be repaid. In this scenario my children’s future will look very different than my parents (or even mine).

The above scenario assumes a ceteris paribus condition which is not realistic. The above scenario could be changed by two major events, being a huge scientific breakthrough or total chaos (e.g., natural disaster, war). A natural disaster would include climate changes (e.g., draught, flooding), or an earthquake, meteorite, volcano eruption. Both major events do not seem farfetched though.

Yet, my bet is on an immense scientific breakthrough considering the incredible acceleration of the Technological Revolution (1800 – present) since personal computers (1977) were introduced. I still have my Commodore 64 which is a baby toy compared to my recently acquired iPad Air.

In my view, an immense scientific breakthrough could well relate to our natural resources and quite possibly the replacement of fossil energy by a new power source (e.g., nuclear fusion). The most illustrative example of nuclear fusion is our Sun which generates its energy by nuclear fusion of hydrogen nuclei into helium. Such an immense scientific breakthrough would focus the world for decades on its useful applications.

It is always wise to look ahead, but difficult to look further than you can see (Winston Churchill).

The best thing about the future is that it comes one day at a time (Abraham Lincoln). 


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