We vote both cyclical and structural.
When it rains, it pours. The COVID and Ukraine shock has ripped the veil from the “Wizard of Oz” economy. Follow the crypto brick road.
Americans are beginning to experience what a world feels like as its moves toward autarky. You know, “let’s re-shore the supply chain” and the notion that erecting trade barriers will protect some American workers from foreign competition but punish all with higher inflation. Almost all structural disinflationary forces that have powered the global economy for the past 25 years are reversing.
The West Has A Demographic Problem
The following chart illustrates the shrinking share of the U.S. population of prime-age workers — 25 to 54 year-olds — and the spiking senior population.
We never really internalized the demographic-deflation argument, and we believe just the opposite.
Fewer productive workers shift the long-term aggregate supply left, which causes higher inflation and slower potential economic growth.
Japan’s Pensioners Wiped Out After Bubble Burst
We believe Japan is a terrible example, as the savings and pensions of their aging population were obliterated after the country’s asset bubble burst on New Year’s Eve 1989,
[More than] thirty years on from its all-time high, the Nikkei Stock Average is still languishing about 40% below the peak of 38,915 scaled on Dec. 29, 1989. The Japanese stock market’s uphill climb to regain lost ground is the longest in the history of any major economy.
The bursting of Japan’s wild asset-price bubble left a nation of disillusioned and embittered individual investors. – Nikkei Asia
The Nikkei index still sits 33 percent below its peak of over 32 years ago.
Imagine the demand destruction of a generation of American retirees if the S&P500 was trading at the Nikkei equivalent of 2785 in 2054. Simply unfathomable!
We are still working on our labor market piece, which we hope to post on Memorial Day, and are not quite ready to submit the above to a peer-reviewed economic journal. Not yet.
Brilliant. A paradigm shift of Thomas Kuhn magnitude.
Thanks, KD. Agree.
One day the effects of climate change on Earth’s atmosphere will reach an equilibrium with human population and economic growth. If done haphazardly the process may well destroy the planet’s atmphere and everything and everyone on it. I give you Mars. But it does not have to happen that way. One thing we know for sure is the industral canbon output we are on today is unsustainable. Seems to me the quest then is to 1) facilitate the economic intigration of population and climate health, in a way that most aleviates human suffering, and 2) empowers the transformation of the planet and her people into a wholistic global community best allingned with our natural environment.
Thanks, BD7. Have you read Kenneth Boulding’s literature on “The Spaceship Economy” vs. “The Cowboy Economy?”
And this, “The Economics of the Coming Spaceship Earth”
Click to access BOULDING.pdf