The World Economy: Goodbye Golden Age, Hello Tough and Turbulent Times

Many people are waiting for a promised economic recovery that will never come. They remind me of Samuel Beckett’s famous play Waiting for Godot, where unfortunately Godot never arrives and there is never any explanation provided for why he fails to show up. Theatre audiences around the world have been eagerly expecting Godot for half a century, but regrettably Godot will never arrive.

So it is with fabled “Economic Recovery” so long promised by government leaders around the world. It will never come, at least not in the form expected, or within any reasonable time-line. I will try to provide you a coherent explanation for this, since I lack Beckett’s literary impulse to keep you in suspense.

My thesis is that the year 2000 marked not only the end of a century, but also the end of the Golden Age that started soon after World War Two. Before that, there had been a Catastrophic Era which spanned two world wars and a grim depression.

For the past decade, we have come back to more normal historical patterns. However, this new era seems tough and turbulent compared to the recent Golden Age.

I was born in 1946, shortly after World War Two. I did not realize that my birth timing was nearly perfect. For although we faced significant challenges in the second half of the 20th Century, in retrospect this was unmistakably the most prosperous time period recorded in human history:

• World trade increased more than 10 fold

• Technology and productivity exploded beyond our wildest imagination

• The worldwide standard of living improved immensely: to a level our grandparents could never have imagined

During most of my career, optimism was rewarded. If you bought a house, it could go up as much as 5 - 10 times in value. If you bought and held stock investments, they would equally turn to gold. If you got a good education and worked hard, success seemed highly likely. We all seemed brilliant.

But no more. These golden, easy times have shifted to a far more challenging outlook. Finding or keeping jobs is now difficult in most places around the world. Investments go up and down precipitously without any clear trend.

As best I can calculate, this sea change in the global economy occurred about the year 2000. It wasn’t the Y2K phenomena so many had feared. However in March 2000, the technology bubble burst with a disastrous crash of NASDAQ stocks that has never been reversed. A year and a half later was 9/11, the beginning of the war on terror. This lead to the war in Iraq and later to the war in Afghanistan.

By any reasonable measure, the last 10 years has been a flat decade. Personal income adjusted for tax and inflation has not grown in most countries. Stock markets in the industrialized world are mostly still in the same trading range as they were a decade ago, which is the first decade without substantial gains during my lifetime.

While emerging economies in China, India, and Brazil are faring somewhat better, they do not alter the global picture of stagnation for the past decade, nor can they provide sufficient impetus for worldwide growth ahead.

My view is by no means unique. I read recently that the legendary bond guru Bill Gross believes that investors should face up to a “new normal,” a world of feeble economic growth where returns on stocks and bonds are stubbornly low.

There are also some dire forecasts of imminent global catastrophe, whether due to financial crisis, military conflict, or environmental disaster. While such predictions can never be disproved until retrospectively, I do not share these dark fears. Rather, I see the world bumbling forward along the current general path for an extended period.

So where does this leave us? Life on easy street is gone. There are still many opportunities left however: for careers, for investments, for companies and for governments.

But those opportunities require a new calculus. Budgets and plans based on an approaching global recovery are doomed to failure.

Governments will need to reduce their spending, especially in the United States and in other formerly prosperous nations. Companies will need to avoid debt and speculative endeavours. Individuals will need to return to the frugal habits of their grandparents.

Human history has recorded previous periods of huge growth and also times of widespread war and economic catastrophe. Nevertheless, the times in between have seemed tough and turbulent to the people experiencing them.

Our ancestors adapted to new environments, whether willingly or reluctantly. We face the same necessity. If we embrace this new era optimistically, we will thrive.