Localization is very likely to be the dominant macro-economic trend, however, placing a close second and underpinning what should necessitate a significant paradigm shift in economic policy development is Japan style slow growth for at least the next decade. The days of G8 GDP growth in excess of 2% will not return within the next decade in my humble opinion. Government policy to facilitate economic development in a growth economy will not work in a slow growth economy.
The best term I have heard to describe the latter part of the industrial revolution is the “TV Industrial Complex” as coined by marketing genius Seth Godin. The TV industrial complex describes an economy driven by manufacturing with demand creation via TV as the broadcast media and fulfilment largely by retail outlets. This model reigned supreme from the 1950’s to the turn of the millennium. Growth of the TV Industrial Complex was largely fueled by the baby boomer demographic. For more details on the effect of demographics phenomenon David Cork penned The Pig and the Python. This book describes the significant impact that baby boomers have had on the economy. As the baby boomers become senior citizens they will become more of a drain on the economy than an asset to it.
Seth Godin – http://sethgodin.typepad.com/
TV Industrial Complex – http://sethgodin.typepad.com/seths_blog/2004/02/more_proof_of_t.html
The Pig and the Python
I would speculate that the majority of growth in the western economy has been linked directly to the progression of the boomers as a demographic group from babies to children to young adults. When this large demographic segment of boomers was at the base of the age pyramid (youngest on the bottom, oldest on top) it was a tremendous boom to the economy fueling growth. However, what has started to happen is now the biggest segment of demographics in the western world is quickly approaching the top of the pyramid. Without enough young people at the base of the pyramid this will cause all kinds of strain on western economies. The net result will be Japan style slow growth for at least the next decade as the US demographics lag Japan by approximately a decade. Check the picture in appendix toward the end of this post.
There is an interesting phenomenon related to the aging population in terms of a vast amount of parked relatively low risk capital looking for deal flow. Basil Peters Exit Coach and Angel Investor has a great four part series of videos that do a wonderful job of describing the implications of boomers on the investment community.
Basil Peters – http://www.basilpeters.com/
Part 1 of Video Series – http://www.exits.com/blog/why_exits_are_so_hard_to_learn_part_1/
I recently had the opportunity to see Larry Summers speak at the Chateau Laurier as part of Canada 2020 event certainly a great speaker and visionary. I would agree with 99% of what he had to say at the event and this is an entire blog post or series in itself. It is difficult to argue with the success of avoiding a total economic collapse in 2008 by the deft and timely propping up of the US Central banks. However, the one key bit that I had a divergence of opinion is on the future US economic growth prospects. Mr Summers indicated that many of the assumptions the Obama government economic policy on is a return to 2.5% plus GDP growth. Based on demographics as a primary driver of growth in my humble opinion this is a flawed premise with potentially significant consequences if used as one of the key assumptions for crafting economic policy for the next decade. There is a very good YouTube video (which is actually audio only) of Paul Krugman debating Larry Summers in Toronto at the Monk Debates on Japan style slow growth the future of North America.
Krugman versus Summers – http://www.youtube.com/watch?v=texhAmr4FC4
I am firmly of the opinion that North America will indeed face Japan style slow growth GDP of 2% or less for the next decade. For governments in the western world to base economic forecasts and revenue projections on growth rates in excess of 2% is somewhat misguided in my opinion. Economic policy in the new economy must learn to adapt to a slow growth model. Couple a slow growth economy with Localizaiton and you have a recipe for even more significant economic disruption. We live in interesting times.
Appendix Japan (RED) versus US (Blue) Demographics 1950 and 2010
- Contributing to society versus resource drain on society
- Driven by boomers moving through society
- Baby food
- Health care
Slow Growth in the Longtail Economy
- Demographics Drives
- Capital in waiting – Basil Peters
- Lots of money chasing fewer quality deals
- Risk aversion
- Strain on Health Care
- Increased Costs
- More demand
- Aging workforce
- Skills mismatch
- Remaining in the workforce longer
- Economic Drain on society vs contributor
- Capital in waiting – Basil Peters
- Larry Summers Ottawa
- Paul Krugman / Larry Summers Monk Debates