Summary:
- Should investors expect growth to return to some normal pace? That will depend on the decisions made and actions taken by myriad individuals.
- Two threats to growth that have gotten some prominence lately but that I don’t worry too much about are natural resource depletion and demographics.
- Rapid growth over the past century—especially the past 50 years—have led to many innovations, and because inventors and innovators today are looking for solutions to our problems, I think we’ll most likely overcome them.
Forces are at play that will likely slow economic activity in the fourth quarter of 2012 and perhaps in the first and second quarter of 2013, depending on what—if anything—happens with the fiscal cliff. Although the Bureau of Economic Analysis’ second estimate of GDP shows that real gross domestic product (GDP) advanced from the second quarter to the third quarter of 2012 to 2.7% (seasonally adjusted and annualized)—and this number is significantly higher than the 2.0% reported in the advance estimate—the number indicates that the economy is still weak. Longer-term, should investors expect growth to return to some normal pace? That’s impossible to say with certainty. History should teach us that few outcomes are inevitable, and almost every one of them is contingent on the decisions made and actions taken by myriad individuals.
Some major threats make me fear for the future (for example, violence between countries) and some little things also (for example, people who don’t know the difference between reply and reply all when they send emails and people who insist on backing into parking stalls, holding up other people who are trying to park, to give just two examples). But I don’t worry too much about other issues. Two that have gotten some prominence lately have been natural resource depletion and demographics.
Are we going to run out of natural resources?
The pace of growth over the past century, I think, can be traced back to the property rights and liberty revolution in 1688 that were part of the Glorious Revolution in England. My armchair-historian reading of history leads me to conclude that this revolution led to the Industrial Revolution from 1820 on and was followed by a demographic boom from 1870 to 1920. Enforcement of property rights and respect for individual liberties created an environment where creativity could be rewarded. As a result, there were many innovations—some good and some bad. In general, because lots of people worried about whether there would be enough food to feed a growing population, inventors and innovators were rewarded for finding new ways to grow and process food.
When people ask me about whether I think we’re at a point now where we’re going to run out of natural resources, I tell them that because other people are worried about it and are looking for solutions, we’ll most likely overcome the problem—provided that the people working on it are rewarded for their pursuit. It’s not guaranteed, but it seems likely. To paraphrase a former Saudi oil minister, the Stone Age didn’t end because they ran out of stones.
The decline in gainfully employed people of working age need not continue
Part of the rapid growth over the past 50 years has been due to some favorable demographic trends: Civil rights movements in the U.S. brought many women and minorities into the workforce, and the growing population referred to as the Baby Boom also provided a benefit to the workplace. The dividends from these trends can only last so long, and the past few years have seen a decline in the percentage of the working-age population that is gainfully employed. But this trend need not continue. Part of it could be reversed by people in retirement age choosing to come back into the workforce. Because our Social Security, Medicare, and tax system dulls the pecuniary rewards of working beyond the normal retirement age, we probably don’t now have more elderly people with productive abilities creating valuable goods and services. Similarly, some of the income support and welfare programs in the U.S. make it such that benefit recipients face effective marginal tax rates (if you include taxes paid and benefits received in the calculation of the marginal effective tax rate) that are even higher than marginal tax rates faced by high income earners. These systems need to change and will hopefully change.
Resource usage and demographic trends aren’t necessarily dooming the world to low growth. While growth isn’t inevitable, I think some fears—while not baseless—aren’t worth losing sleep over. Change happens.
Leave a comment
Your questions and comments really matter to us! We're glad you want to join the conversation and connect with other AdvantageVoice readers. All we ask is that you keep some simple guidelines in mind:
Please Note
By posting content on this Blog, you expressly grant Wells Fargo (and its affiliates) the right to use or distribute the posted content in any form, worldwide, and in perpetuity. You also agree to indemnify and hold Wells Fargo harmless against all liabilities, losses, claims and expenses arising from your posting of materials on this Blog (this includes any claim that Wells Fargo's use of the content of images infringes on someone else's intellectual property rights). Please read our Community Guidelines for more information.
If you have immediate service needs or require a follow-up, please contact your bank representative or relationship manager. If you submit your email address, we will use it only if we need additional information about your comment, or if we need to contact you to resolve service issues mentioned in your comment.
Because this is a moderated site, your comments may not appear immediately. Thanks for your patience!