Over the post-GFC period, I’ve made many references to a new, structurally lower rate of growth in the US and in the other highly developed countries. Prompted by an interview last week with ETF.com, a tweet by @reformedbroker, and the Fed’s growing recognition of the phenomenon, I took a sec to boil it down to three paras. Because popular expectations are still being calibrated on the old reality, the message, IMO, can’t be stressed enough.
Why has the rebound from the great financial crisis been so tepid, so modest? In short, there are demographic, technological and globalization trends below the surface that we papered over for a long time with global credit boom. Median income hasn’t been good for a long time in the U.S., but we didn’t notice it because we had access to progressively more credit. Our growth numbers seemed faster as a result, and we felt richer. But the underlying growth rate was deteriorating.
Under the surface several things were evolving. The baby boomers were getting older and less productive. The US labor force was barely growing. The effect of women coming into the labor force had maxed out. At the same time, China joined the WTO, and fresh flowers that once had to be locally sourced, could now, thanks to supply chain technology, be brought in from Ecuador overnight. Technology and globalization worked together to create, effectively, a huge supply shock to the US labor market, dampening our growth rate and wages. As a result, the lion’s share of US growth accrued to those who controlled capital.
This—not the Fed, not Bush, not Clinton, not Obama—is the hidden reality the GFC laid bare. The global character of the phenomenon is why it’s basically been the hidden reality in Europe and Japan too. Hard to pin it on your favorite US political target when the phenomenon is global. Worse, unless you want to try to roll back technology, there’s not really all that much policy can do about it.