Outside the Box

The Blip

July 30, 2013

This week's Outside the Box does not make me feel good, but author Benjamin Wallace-Wells does explain Robert Gordon’s views better than anyone I have seen. (And of course the whole point of Outside the Box is to yank us out of our comfort zones from time to time.)

Dr. Robert Gordon is a professor of economics who has held a named chair at Northwestern University for decades; but as the author of this piece says, "[T]he scope of his bleakness has given him, over the past year, a newfound public profile." Gordon offers us two key predictions, both discomfiting. The first pertains to the near future, when, he says, our economy will grow at less than half its average rate over the last century because of a whole raft of structural headwinds.

His second prediction is even more unsettling. He thinks the forces that drove the second industrial revolution (beginning in 1870 and created largely in the US) were so powerful and so unique that they cannot be repeated.

(A corollary view of Gordon's, mentioned only indirectly in this article, is that computers and the internet and robotics and nanotech and biotech are no great shakes, compared to the electric grid and internal combustion engine, as forces for economic change. Which is where he and I part company.)

He thinks, in short, that we do not understood how lucky we have been, nor do we comprehend how desperately difficult our future is going to be. If nothing else, Gordon has provoked some serious reaction from leading figures who are not quite ready to throw in the towel. “Very impressive,” former Treasury Secretary (and leading Fed Chairman candidate) Larry Summers texted Gordon last August, the day after he published a working paper titled “Is U.S. Economic Growth Over?” Ben Bernanke delivered a commencement address this spring considering the paper’s implications. And of course the techno-optimists have been buzzing around Gordon like angry hornets. (An interesting TED-talk anecdote along these lines is related herein.)

Gordon makes me very uncomfortable, too, but he's got me thinking not only about how we find growth but also about how we do a better job of managing our affairs, nationally and globally. I think Gordon's totally bleak view misses more than half the story, but it's up to all of us who still believe in the future of this country and this planet (and its increasingly dominant if not altogether wise species) to reject naysaying attitudes and stand right up on our hind legs and envision and create that future.

And it is quite possible that we will find ourselves with two very different parallel futures for the world. In one, the haves may see their lives get dramatically better, while in the other those less fortunate may suffer an even greater economic and political disparity. That is not a formula for a workable future.

I’m in New York City this afternoon, working on too many projects. But I am going to take off in a few hours and make my way down to Bobby Van’s at the close of the markets to meet with the Friends of Fermentation and my great friend Art Cashin. I wanted to see him yesterday, but he had a doctor’s appointment. Then this morning I read in his daily letter:

Missing Mauldin – My good friend John Mauldin is on one of his New York "drive-bys" on his way to the annual fishing visit to Leen's Lodge in Maine with another friend, David Kotok, and an economic brain trust.  Since he was in town, he thought he might drop in on the Friends of Fermentation nightly conclave, as our mutual friend Dennis Gartman had done so notably last week.

Unfortunately, I had a late day doctor's appointment that would most likely mean I might miss the FoF seminar myself.  So, I gave John the wave-off until another time.

That's when the roof fell in.  You would have thought I had canceled Christmas.  On learning of the wave-off, the FoF offered me sackcloth and ashes.  How could I dare cancel a rare opportunity to have John join the session?  Even Bob Pisani was not happy.

Ironically, the doctor's office was empty and the test results were all good.  (Obviously, none had to with my mental state or acuity.)

When I slinked into the FoF at mid-session, I was the proverbial skunk at the picnic.  Since I had deprived them of access to John's wit and wisdom (leaving them with only me), I was told the bill was on me.  I left with a much thinner wallet amid barely suppressed hissing.  I'll never wave-off Mauldin again, even if there are riots in the streets.  Next time, John!

Next time indeed. I can’t leave a friend out in the cold.

Have a great week! My son Trey joins me tomorrow, and then we fly on to Maine Thursday morning. This is one of those weeks that I look forward to all year. So many friends. I think this may be the 7 th or 8th year Trey has gone. He has grown up with these guys, and it is a special bonding time for both of us. And who knows, maybe this year I’ll finally catch more fish than he does! All bear markets have to end someday, don’t they?

You’re getting ready to slow down analyst,

John Mauldin, Editor
Outside the Box

Stay Ahead of the Latest Tech News and Investing Trends...

Click here to sign up for Patrick Cox’s free daily tech news digest.

Each day, you get the three tech news stories with the biggest potential impact.


The Blip

By Benjamin Wallace-Wells

New York magazine, July 21, 2013

What if everything we've come to think of as American is predicated on a freak coincidence of economic history? And what if that coincidence has run its course?

Picture this, arranged along a time line.

For all of measurable human history up until the year 1750, nothing happened that mattered. This isn't to say history was stagnant,…

Discuss This

22 comments

We welcome your comments. Please comply with our Community Rules.

Comments

Page 1 of 3  1 2 3 > 

harry.moser@comcast.net

Aug. 4, 2013, 4:54 p.m.

Great article. 
Several points that are missed or understated:
1.  Most of the economic drag of the last 20 years has been due to globalization.  If Chinese wages continue their rapid rise, reshoring will accelerate and manufacturing will grow more rapidly providing a basis for overall growth
2.  The author sees fewer university graduates as a symptom of decline.  I see the current excess of non-technical university graduates and the severe shortage of skilled technical “professionals” such as tool makers as a cause of decline.

Stephen Kish

Aug. 4, 2013, 11:12 a.m.

Two more “Blips” for your consideration:

http://www.mnforsustain.org/oil_duncan_r_olduvai_theory.htm

http://www.resilience.org/stories/2013-04-26/the-wave-pulse-of-human-history

robert.shapiro@comcast.net

Aug. 4, 2013, 9:34 a.m.

The Blip sounds like a preparation for zero growth mentality rather than an explanation, and that scares me. Once we clear the forces creating economic stagnation (socialists in and out of government) out of our way, a third,etc industrial revolution is inevitable.

First, we need to recognize what drives progress: thinking, savings, energy, opportunity, and the like.

Thinking: There are more humans on the earth, which also gives more possibility for ideas (big and small) to improve the quality of life for all. Even with a Zero Population Growth world, there is a lot of thinking time available (on the job and off).

More ideas give even more thinking time. So for example, how much more thinking time will be created if an automated/computerized medical diagnostic system is created? Instead of visiting a doctor, you log in and answer a series of context sensitive questions, and your treatment, based on the diagnosis, gets a huge jump-start.

Or, truly distance learning, where college is held live online. Availability goes way up while costs come way down.

Savings: Thinking already done is sitting in a queue waiting for funding. The more we save, the more these ideas can benefit mankind. The trouble (currently) is that governments worldwide, and certainly here in the US, have been destroying our inheritance on a massive scale. Not only is saving discouraged, but past saving is being spent.

Do-gooders, and other socialists, look at the disparity between those who drive Mercedes vs beat up used cars, rather than considering that today only a tiny percent of Americans don’t have cars, while 100 years ago only a tiny percent of Americans did have cars. Yes, there’s inequality in life - get over it. Leave people alone (stop taxing them to death) and their personal quality of life goes up over time. Let’s get our government out of the way of progress.

Energy: Thinking and savings, if left alone to work, will provide energy. Fracking is not new, but it required the right cost structure to make it profitable. Work is proceeding on Thorium reactors. Earth orbiting solar farms already have been imagineered. All that’s needed for these, and likely for many other possibilities, is economic need with a chance at profitability.

But recently, a lunatic fringe of eco-terrorists has taken control of Washington. They advance all sorts of unproven, and un-provable, nonsense in an effort to prevent energy creation. They want equality, even though their equality is for all to be poor and in the dark. Europe is starting to regain sanity, and the US can’t be far behind. Hopefully, the CAGW Alarmists will be pushed aside before another Little Ice Age emerges.

Opportunity: This was the true miracle which started in England and migrated to the US. Humans had the opportunity to become rich by inventing ways for all humanity to benefit. Instead of being insulted as profiteers, they simply were left alone. Tom Swift and his Incredible Bread Machine worked wonders during the 1st and 2nd Industrial Revolutions, and will return once political conditions are right.

Gordon, Ehrlich, and the Club of Rome, look at recent trends in the numbers but refuse to see the cause - and the remedy. If people are hungry, it doesn’t help to redistribute the food there is. You need to make more food. If Thinking, Savings, Energy, and Opportunity (etc) are in short supply, more interference doesn’t help. All that’s needed is to get the socialists of all stripes, in the media, in both parties, in economics, in academia, etc, out of the way.

F ALLEN MORGAN

Aug. 2, 2013, 2:29 p.m.

I know this is going to sound crazy, but one thing that immediately came to mind when reading the blip, was that we are ignoring the intersolar exploration and colonization as a growth stimulus.  This is the inflection point for moving in that direction.  I mean in order to grow we have to get to the other planets, beginning with the moon and then probably Mars.  Many of the stated concerns about the slow down in growth are environmental or population limits.  Every one seems to ignore the obvious, we have to expand to other planets…its inevitable.  Even if you don’t agree this is the moment, surely you see it will one day be needed. Don’t you?  Couldn’t it be, the colonization of the America’s was instrumental to the thesis stated ...that that was the “one time” event?

One of the defining moments of President Kenedy’s administration was his call to reach for the Moon.  Do you remember that?  He leaped over the every day concerns and shallow jealousy’s between nations and made every one amazed at his challenge…but it captured the imagination and a nation that didn’t know what to do with its technological richness suddenly had an objective…a very important “once in a lifetime” objective.  We not only, did it for ourselves we did it for the world.  And now, the time has come to continue to the next logical step, because until now we didn’t have or understand the reason for the next step…now we do.

I think many of the elite will scoff at this, but it certainly captures my imagination.  What is our future?  One, where we worry about sorting the green glass and the clear glass into the proper refuse container and putting in flow restricters in our shower heads, or one where we begin the search and conquer of new worlds!  I know the former is what the current crop of politicians talk, but the later is what I grew up believing in….and if I had the choice for my children I want them to be explorer’s.

fruby@bajb.com

Aug. 2, 2013, 10:05 a.m.

Fascinating article but it does not mention one of the most revolutionary things of all to happen in human history: a philosophical shift from statist beliefs (king or church dictates the law and human behavior)to the concept of individual rights and free will.  Reason magazine’s slogan “Free Minds and Free Markets” is a nice reminder of how the concept of individual rights, and all ideas that flow from that concept, allowed humans to make giant strides in improving their lives.  Just think how revolutionary it is to go from a society where the state/king/church takes everything you make-and may or may not give you something in return-to a society where you can keep your work product and do with it as you please-sell, trade, or give away.  No surprise the latter will result in a better, wealthier, happier society.  It is a society wherein just about anyone can improve their life.
I would say the current problems stem from society tripping towards a more statist philosophy.  Governments should not and cannot interfere with business and free markets.  Our current problems can easily be traced to a philosophy beginning in the 1930s where society’s “good” started to become the standard by which action was judged instead of individual good.  Our current political fiascoes are a result of such statist thinking and micromanagement.
I am an optimist.  Humans are by nature thinkers and doers.  That bodes well for any society where they are allowed to follow their nature and be protected by the rule of law.  Think about it-the real role of government is to let you pursue your happiness.  From those pursuits, great civilizations are built.  Here in Texas, we are a little freer than most and this state is the number one job creator in the U.S. not to mention a great place to be an entrepreneur.  And you know what-we have fun doing it!

Kelly Jones

Aug. 1, 2013, 7:52 p.m.

What a great and thought-provoking article!  Thanks for putting it out, John.  There are also so many great comments in response to it.  dz1@hawaii.rr.com is right on the money, and I agree with Nick Jacobs that we need wealth inequality to incentivize people - but way, way less of it than we have now.  And so many more good thoughts.

The current public narrative of global society is flat out, over the top, off its rocker in so many respects.  The human frailties of wistful thinking have intertwined with deep corruption in the political and financial world now, as the banking system locks arms with governments to adamantly and absurdly deny the foundational flaws of each realm:  neither infinite exponential growth nor infinite deficit spending can continue for long once they go vertical in the real world, the one we actually live in that has finite natural and human resources and an aging population.  Robots, AI, Facebook, and face creams aren’t going to fix these problems.  They’re a major challenge to human civilization that, as dz1 says, are going to take all the civility, humanity, truth-telling and creativity we can muster to deal with in a good way.  Clearly, there will be no end of bad ways to deal with the problems, as we’ve already seen for many years so far.

Tom Paslay

Aug. 1, 2013, 9:31 a.m.

The vast opportunity for growth still exists in the USA.  The Interstate Highway System is an example of the greatest successful public works program that is still yielding and supporting growth throughout our country.  More opportunities exist..for example….floods in the Midwest occur every spring.  Billions of gallons of water could be diverted through a Federal system of viaducts, tunnels, etc to arid parts of the country for storage to support people and agriculture…such as the California Aqueduct System that keeps the Los Angeles basin watered.  Thousands of Smartphone apps are transforming society and business.  The medical world will experience tremendous efficiency and cost reduction with the implementation of apps that will allow you to download your entire medical records to any provider to enhance the speed and accuracy of medical care.  One universal form with a common language understood by all will be with us sooner than later.  Perhaps the resurrection of mass transit systems (i.e. railroads) between major metro areas and intercontinental high speed routes will stimulate growth.  The states of Arizona, Nevada and Hawaii are leading in the installation and usage of photo-voltaic electricity generation.  Others will follow as the price curve falls.  Sun and wind generation will grow.  All these current and future systems will require infrastructure, engineering and manufacturing activities…that is growth.  What is needed to make all this happen…Leadership…the vision is there now and private enterprise will need to keep it all in focus.

JOSEPH HAGEDORN

July 31, 2013, 3:07 p.m.

We borrowed from future growth and prosperity since 1986, especially since 2000. It may take a long time to grow out of this debt, and growth may take a back seat.

Predictions about the future are often unreliable.  Great events may occur that we have no concept of now.

The medical sector appears to be way behind in using the efficiency of computers until recently.  Although computers were used for billing, many doctors offices relied on mostly paper for patients records, which was very wasteful in the use of time.  Hospitals seemed to be the same.  Whenever I asked for my hospital record of treatment, I was always referred to a records room to manually look through my file(s) and order copies.  No computer records were available about my treatment.  Recently, I received computer records of these matters online and at these places (funded and required by OBAMA-CARE?), but they lack sufficient detail.  Often these offices do not communicate by computer with each other, even if they are a member of the same medical network.  As an example, I recently received a diagnosis of a problem from my family physician, and was referred to a hospital in his network for an ultrasound. When I did not receive results after several days, I called my physicians office and was informed results of the ultrasound had not been received and they will inform the hospital of this.  I then called the hospital and was informed the results of the ultrasound was entered into the hospital computer system, my physician has not joined the system and cannot communicate with it, but he has to eventually join (dragging his feet?).  The hospital would not furnish results directly to me and promised to mail a copy to my doctor.

I did not find out about the results until two weeks after I had the ultrasound which found nothing wrong, which was very unnerving as I am being told to stop taking some drugs and seek other treatment elsewhere for what is wrong with me as I searched the internet and found three possibilities not mentioned by my doctor.

How many other industries are inefficient like this?  Not using computers properly.

Robert de Marcellus

July 31, 2013, 10:34 a.m.

A more immediate and critical cause for shrinking economic growth is the low birthrates in all the industrialized nations ,as well as in a great many “emerging economies” that are now below replacement level.  The economic effect is the reverse of the great post World War II baby boom in the U.S. that generated enormous economic growth.  The future birth rate in the U.S. will be further dragged down by fewer working age people trying to support a large retired population of elders. One has to look no further than Japan to read the economic future of Europe and North America.  This is a vicious circle that may be unstoppable. Many historians have concluded that the Roman Empire withered away for the same reason.

dz1@hawaii.rr.com

July 31, 2013, 6:10 a.m.

Gordon points out something real but the solution is not to be found in economics. Too many people are under the illusion that their own self interest and self enrichment is ultimately best for the general public to the point that corporate enrichment has become kind of a religion. We are losing our humanity and whatever culture we have left is quickly dissipating. Here is an article that puts a simple perspective on this point http://www.businessinsider.com/business-and-the-economy-2013-7
“Capitalism” is not the answer to anything- it is simply a tool that can be put to good use or not.  Currently it is generally used as a tool to exploit humanity for the sake of enrichment of a few. What everyone needs to understand is that this is a very bad sign of where we are headed and thinking that there is some economic or technological solution is like using Newtonian thinking to try and figure out Einstein’s theories.  In this case your entire human capacity is needed-  ultimately compassion and love, in addition to thinking, joined with all human beings, to make this world livable.

Page 1 of 3  1 2 3 >