Tag Archives: jeremy grantham

Is America on the road to zero growth?

Summary: Experts have a wide range of forecasts for America’s economy. Rapid growth, leading to the singularity. Slow growth, the muddle-through economy. An no growth. Each of these poses different challenges for America. All of these look plausible. Here we look at the darkest of three these scenarios, sketched out by Jeremy Grantham.  At the end are links to more information.

Excerpt from “On the Road to Zero Growth

By Jeremy Grantham
GMO Quarterly Letter, November 2012

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Summary of the forecast

The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet most business people (and the Fed) assume that economic growth will recover to its old rates.

Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%.

Population growth that peaked in the U.S. at over 1.5% a year in the 1970s will bob along at less than half a percent. This is pretty much baked into the demographic pie. After adjusting for fewer hours worked per person, man-hours worked annually are likely to be growing at only 0.2% a year.

Productivity in manufacturing has been high and is expected to stay high, but manufacturing is now only 9% of the U.S. economy, down from 24% in 1900 and 15% in 1990. It is on its way to only 5% by 2040 or so. There is a limit as to how much this small segment can add to total productivity.

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The coming big inequality. Was Marx just early?

Summary: Slowly more people see, slowly emerging, one of the great challenge for developed nations’ societies: increased productivity creates wealth unimaginable to earlier generations, but its benefits go to those who own the machines. Inequality of wealth creates inequality of income.   Marx might have just been right, but early. Today we have a note from Jeremy Grantham describing this future.  At the end see links to other posts about this engine of inequality.

Excerpt from “On the Road to Zero Growth

By Jeremy Grantham
GMO Quarterly Letter, November 2012
Red emphasis added.

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… as economies mature and jobs move toward services, productivity per man-hour becomes harder to achieve. This headwind will continue into the indefinite future until one day, perhaps, we will reach what has been called a singularity. The last handful of humans engaged in manufacturing – all engineers and designers – are supervising intelligent robots making and designing yet another generation of even more productive and intelligent robots.

… This deepening of capital and technology almost guarantees that productivity will continue to be high in manufacturing even as the percentage of the total workforce employed there dwindles away toward zero. As the rest of us do each other’s art appraisals and investment management we can fantasize about productivity, but it will mainly represent hard to measure qualitative improvements.

On a hypothetical island where services are outlawed and only manufacturing exists, the final position is that automation, and thereby capital, produces everything while all of the mere mortals sit on the beach. And starve? The worthless unemployed who are obviously not carrying their weight?

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