Monday, October 21, 2013

Western Springtime

On the gloom and doom front, the causes of failure are usually thought to be drastic.  A banking collapse that has people fighting over baby formula in a matter of minutes, a pandemic that magically works its ways to the farthest corners of the globe with a killing force never seen in such a diverse population, or a bunch of zombies that can somehow manage to bite enough people quick enough to have rampaging hordes spawning in no time. You also have the dreaded EMP, which seems to be mostly based on some quick talking and some burglar alarms in Hawaii going off. The (fortunately) very rare mega-volcano, mega-solar storm, and mega-meteors are more dramatic, but peak oil and global warming also have their fans.
But only rarely do you get collapse by demographics.  Albert Brooks and David Brin both had books about older Americans impoverishing youthful Americans through electoral might, but both also brought in global warming as a factor as well.
The sad reality is that even if none of these factors plays out, we still are likely to be having problems"

Why Growth is Getting Harder
Brink Lindsey, Cato Institute, 8 October 2013 (hat tip: MR)
Consider the four constituent elements of economic growth tracked by conventional growth accounting: (1) growth in labor participation, or annual hours worked per capita; (2) growth in labor quality, or the skill level of the workforce; (3) growth in capital deepening, or the amount of physical capital invested per worker; and (4) growth in so-called total factor productivity, or output per unit of quality-adjusted labor and capital. Over the course of the 20th century, these various components fluctuated in their contributions to overall growth. The fluctuations, however, tended to offset each other, so that weakness in one element was compensated for by strength in another. In the 21st century, this pattern of offsetting fluctuations has come to a halt as all growth components have fallen off simultaneously.
The simultaneous weakening of all the components of economic growth does not mean that slow growth is inevitable from here on out. The trends for one or more of them could reverse direction tomorrow. Nevertheless, it is difficult to resist the conclusion that the conditions for growth are less favorable than they used to be. In other words, growth is getting harder.
Interestingly enough, Stephen D. King, (the economist, not the horror writer) has a new book out that also covers the coming  decline in the Western economies.

When the Money Runs Out: The End of Affluence in the Western Economies
Stephen D. King, Yale University Press, 2013, p 151
Quoting Frenchman Alexis de Tocqueville (1805-1859) in his comments on the comparison of the young United States and the French Old Regime and French Revolution public prosperity began to develop with unexampled strides. This is shown by all sorts of evidence. Population increased rapidly; wealth more rapidly still. The American war [of Independence] did not check the movement: it complemented the embarrassment of the state, but did not impede private enterprise: individuals grew more industrious, more inventive, richer than ever.  
...measurably, with the increase in prosperity in France, men's minds grow more restless and uneasy; public discontent is embittered; the hatred of the old institutions increases, the nation visibly tends toward revolution.
Note, that the "wealth" was at the upper end of the spectrum.  It is fairly normal in population driven inflationary times to have some at the upper end of the spectrum do well as the cost of labor collapses.
Disappointment drove the Arab Spring.  That "Springtime" doesn't seem to be doing well.  The two arguments above, combined together, argue for the possibility of the West having its own Springtime soon.

1 comment:

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