Posts Tagged ‘global economy’

Outlook 2020: The Economy

Monday, December 21st, 2009

This is the second in a series of blogs on the likely events of the next 10 years.

If we’re lucky, 2010 could be a lousy year. If we’re unlucky, 2010 could be a disastrous year, worse than 2008, because there are potential nasty surprises lurking out there. Such surprises could precipitate another, even worse financial crisis, and dump us into a global depression, instead of the recession from which we are now emerging. I’m going to deal with the issue of the nasty surprises in a later blog, so just for the moment, I’m going to assume that none of them will happen, and the economic future will unfold about as it looks now. And, although I’m looking out to the year 2020, I’m going to start by looking at 2010 on its own before moving beyond there.

The Prospects for 2010

America is out of its recession, but I would hesitate to call what we have now a recovery. It’s true, U.S. GDP grew by a reported 3.5% in the third quarter of 2009, but that was, in many ways, misleading. In the first place, it was heavily influenced by government stimulus, especially the “cash for clunkers” program. Since government stimulus will be tapering off in 2010, and the car incentives are finished, this source of economic strength will be missing. But even more revealing, barely was the ink dry on the reports of 3.5% GDP growth when they were revised downwards to 2.8% – an unusually large and rapid downward revision.

To see what’s ahead for the U.S. economy, let’s start with public sentiment. One of my favorite indicators of economic strength is the frequency with which the word “recession” appears in the mainstream media (“MSM”). This indicator has been known and used for decades, but before the Internet, you had to be in the MSM to have the ability to perform this count. In 1995, I realized that I could do it myself using Googles’ news website, and since September of 1995, I’ve done just that every week, and then graphed the results. Here’s how this graph looks today (the X-axis has been inverted since “recession” is inherently a negative idea):


Recession indicator

© Copyright, Richard Worzel, December 2009.

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Where the economy goes from here

Friday, August 14th, 2009

Have we hit bottom? Are we starting up? Yes, and no. Yes, we’ve probably hit bottom. No, we’re not starting up – at least the United States isn’t, and most of the developed world will see feeble growth at best. Yet, the global economy is growing, and we are seeing the biggest disparity ever between the developed and developing countries in terms of growth. Recent reports indicate that the rich countries (the “developed” ones) will show a decline in real GDP of about -3.5% for 2009, while the developing countries, led by China and India, will see growth of about +5% – a difference of 8.5%. How can this be? And what happens next?

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Free trade doesn’t work for the ignorant

Wednesday, June 24th, 2009

by futurist Richard Worzel, C.F.A.

I’ve been a free trader all my adult life. I studied international trade in university, watched it develop with the collapse of the Bretton Woods Agreement in the early 1970s, and have seen the amazing consequences of globalization, which has lifted hundreds of millions of people out of desolate poverty. Moreover, it makes sense: free trade is merely an extension of occupational specialization, so that just as it makes sense for the cobbler to make shoes and sell them to the farmer in exchange for food, it makes sense for countries to do what they do best, and trade with each other.

Of course, freer trade (because we don’t really have free trade) has a downside. It creates winners and losers. Some folks do very well out of free trade, including consumers who get cheaper goods, plus those who are capable of competing and finding new markets. Some folks lose their jobs, as those jobs migrate to other places where the wages are lower, or there’s a natural advantage. I remember hearing one labor leader, who represented workers at GM when those workers were on strike, saying in a radio interview that “We’re not going to let workers in other countries take our jobs just because they’re willing to work for lower wages.” I thought to myself: here’s somebody who’s really out of touch with reality: why should you be able to keep a job if there’s someone else who can do it as well, but for less money? Of course, if you have the job and are losing it, you will naturally object that it’s unfair. But I can’t see as you can make a reasonable case to anyone not related to you that you are entitled to that job.

But my purpose here is not to defend free trade, but, perversely, to warn about one of its unintended consequences. The fundamental (and correct) premise of free trade is that it destroys older jobs, and creates new jobs that offer better pay and working conditions. But it does that only if workers have the ability to fill more demanding jobs that require more thought and higher levels of education. Otherwise, workers wind up competing by cutting their wages or taking poorer, less rewarding service jobs. (more…)

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WILD CARD WARNING: Is America too big to fail?

Wednesday, June 3rd, 2009

A wild card is a low probability event, which, if it occurs, has dramatic consequences. I believe we now face such a wild card. The idea occurred to me just last week, as I was riding a plane from A to B. Sometimes ideas coalesce for no apparent reason, and as I was reading about the pretty useless cap-and-trade emission system that the U.S. government seems about to pass, a number of different pieces came together to create a sudden insight: that the U.S. government is going to fail, possibly even go bankrupt. This is heresy for someone who studied the financial markets all his adult life: U.S. T-bills have been the world’s primary “risk-free investment.” For this not to be the case implies a financial earthquake of massive proportions.

This is a wild card, instead of a dead certainty, for the same reason that a flu pandemic is a wild card: that there will be a pandemic is an absolute certainty, but nobody knows whether it will start this afternoon, three years from now, or three decades from now. Likewise, the U.S. federal government, unless it makes a Herculean effort to change direction, will fail. What isn’t known is whether it will be this month, or five years hence. It cannot be a long way off, but the precise timing of this biggest-of-all-bankruptcies will come to pass if present trends are unchanged. I really don’t want this to happen, but am very much afraid it will, which is the reason for this warning.

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