To The Moon

Welcome to the new normal.

Photo by Jason Pofahl on Unsplash

A friend of mine recently said that if we re-termed “recession” as “fiscal cooling” people would panic a whole lot less. I think it’s time for that rebranding, then, because recessions are coming. Yes, plural. And they’ll be with us for a while.

There are a lot of large, societal items that are going to make living in the next 100 years significantly different than the experience of the last 100. Changes to climate, changes to the labor force, changes to societal norms, etc. My bet? Increased or near-constant recessions will be a part of that, at least if we continue to define them the way we do now.

But to my friend’s point, does it even matter? We’ve (in the U.S.) had recessionary environments for about four of the last 22 years — meaning we’ve been in some form of economic “growth” cycle for about 82% of that time. During that period of constant “growth,” inflation-adjusted wages barely moved. In fact,they peaked back in the early 1970s and have never seen those levels again (though we’ve stayed within about 15% of that.)

In fact, wages grew during a few of the recessions in the last half-century. So, should we be fearful of what’s coming in the next several decades, or ambivalent? Are we due for longer, mild recessions, or increasingly sharp ones? Let’s take a look.

The growth assumption

Our economy is built on a somewhat flimsy notion of never-ending growth. Growth in consumption of goods and services, growth of population, etc. I’m sure this all sounded more than plausible centuries ago, but now that we’ve seen the results, I’m much less certain.

Population growth is a very shaky foundation. While upskilling or technological progress can temporarily boost or sustain growth in the face of a stagnant, aging population, that can only continue for so long. Essentially, it’s the “a rising tide lifts all boats” theory, with population being the tide and national economies and industries being the boats. But to see its impact on actual citizens, it becomes a bit more complicated.

Photo bydavide ragusaonUnsplash

In theory (and this is a very loose and expedient version here) continued population growth results in a need for more goods and services. Existing companies scale up to meet that demand and new ones incorporate; a traditional economic lifecycle. This expansion and creation then require labor or talent, creating jobs, which arm the populace with income. That income is then cycled back into the economy as consumer spending and drives more growth.

So rather than a rising tide lifting all boats, it’s more like:

“Elevated sea levels raise all tides. Those various tides then lift some cruise ships, the wake of which might happen to temporarily increase the altitude of some smaller boats relative to their typical level.”

Much more convoluted; not nearly as catchy. I’ll have to work on that.

Even that is an oversimplification, though. If you’re in say, Vietnam— where exports are 93% of GDP — you really rely on the growth of other populations. The end users of your products and services. The worst thing that could happen to Vietnam’s economy is a decline in U.S. and Chinese consumption. In this sense, we’re all tied together now in a global economy. I’m not even going to start on how that growth is distributed inside individual countries — I’ve done that one before.

So when population growth isn’t enough to sustain the economic growth we’re accustomed to, everyone starts to suffer. Considering the aging populations of many developed nations and thefact that deaths have already exceeded births in some months this decade, we’re due for some tough economic times.

Even slowing population growth can grind our system to a halt. Declining population? Unthinkable. Yet China, India, and the United States are all set to begin trending downover the next few decades. Together, they represent 42% of the world economy. Add in Japan — whose population has been decreasing for almost 13 years now — and Germany (also in stagnation) and you have more than half of the world economy set to decline.

Preparation and reaction

How we prepare for this “new” economy and how we react when the inevitable belt-tightening reaches us will determine what the next half-century of our lives look like, if not longer. Given that I and most of my loved ones will not be around in half a century, it’s tempting to just hope we don’t have to deal with it. But that’s the type of self-centered thinking that gets us into these binds to begin with. Maybe we start trying to pay it forward, instead.

Photo byBrett ZeckonUnsplash

We mentioned Japan’s declining population above, and they give us one example to look toward. While not necessarily in the “technical” definition of a recession since then, most agree that Japan has essentially been in a 30-year economic slump. Population stagnation began in earnest around the same time a real estate and bond crisis broke out in the early 1990s, and the inopportune timing set things in motion. Due to the demographic challenges (and a host of other issues), the economy hasn’t had a particularly strong year ever since.

Yet they haven’t really fallen apart. Some of their companies have continued to lead in innovation and new technological developments, while others have just continued producing domestic goods for a perpetually smaller market. It’s not all doom and gloom.

If the population decline is matching an overall workforce decline, unemployment shouldn’t rise — say, each year, 250,000 people enter the workforce. 300,000 leave naturally due to age. While the workforce size is contracting by 50,000, it’s not leaving anyone unemployed. The economy can theoretically contract and not leave anyone worse off.

Theoretically. But this requires neatly-aligned demographics and on-time retirements and all sorts of other things that the United States and many other developed nations don’t have. Japan has alsonearly doubled its exports on a GDP basis, an option that might not be available to others if the entire world’s population is in decline. Since the growth rate in theUS,Canada, andmost developed nationsis also slowing, we can’t look inward for more production either.

So what we should be expecting, then, are long periods of economic stagnation, briefly broken apart by 18-month recessions here and 12-month slow-growth cycles there. Optimistically. If populations really tank all at once, it might just be recession after recession.

Even if the world population continues growing at a decent clip, that growth might not be concentrated in areas that need anything the developed world is selling. In other words, global GDP may continue to rise or stay roughly the same, but the developed world’s share of it may decline. For those used to completely luxurious lifestyles that they term “middle-class,” this is a distinction without a difference. Either situation is a threat.

Photo bySigmundonUnsplash

How we react to this — soberly or in a futile rage — will be important. No one of us (no matter how many kids you’re planning to have) can single-handedly shift the demographic trends of the world. Our natural process seems to be to age, then spend our accumulated power and wealth trying in vain to restore things to the way they “were” when we were young.

Just as it doesn’t work now, it won’t work in the future. We need to rightsize our economy and our expectations while also saving in the good times to prepare for the bad ones.

Right-sizing

I’ve been harping on this a lot lately because I believe it is really critical for us as a people. We have to make do with less. By all means, save all you can for now, and make as much money as possible, whatever makes you feel more comfortable. But the trend of the future — particularly for outsized spenders like America — is less.

These demographic changes are unstoppable. The progress of AI and automation seems to be as well. Taken in combination, that could put a lot of stress on our economy. Getting by with less will be essential for many, optional for few.

We have to get better structurally at making sure everyone can participate in our economy, as well. We can’t afford the disparities we currently have in wealth and income as the economy begins to shrink. Opulent lifestyles will look even more distasteful if large swaths of the population are going hungry, after all. But how we go about that is another issue and one rife with that deadly topic — politics — at that.

On a more personal level, we can assess our actual needs. What an acceptable housing situation looks like. What method and mode of transportation are needed. Where we will get our entertainment and knowledge, and how much it will cost. Given that, with a computer and internet connection, we have more knowledge and entertainment at our fingertips than the rest of mankind has ever had, it’s amazing we still need so muchjunk.

And there’s no sense panicking over that “recession” term anymore, either. That’s just business-as-usual.

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