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A Coming Golden Age. Really.

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Perhaps the economy is a lot like the weather – if you wait long enough, it has to get better.

As we’ve noted before, income inequality is likely to improve in the US and the rest of the developed world once the postwar “Baby Boom” starts to retire.  With as much as a quarter of the population removed from the labor force, there will be more jobs to go around – perhaps even too many.  Wages are likely to rise and opportunities for employment will be everywhere.

If that doesn’t sound good enough, recent studies have suggested that inflation is likely to be low as the population ages, meaning interest rates will remain low and capital is likely to be plentiful.  It’s starting to sound like this Depression is going to end with a golden age.  Seriously.

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Credit Unions

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Fed up with banks?  You’re hardly alone.  Credit unions have grown dramatically in the last 20 years, fueled largely by high fees charged by commercial banks.  Low rates for ordinary loans are also a big draw.  But for all the growth, not much has been written about credit unions other than the occasional puffy story about how much a consumer can save by ditching their bank.  That’s not to say that the growth has gone unnoticed at all – or indeed that it isn’t creating its own problems that need to be addressed.

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Retiring Inequality

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Income inequality is one of the biggest barriers to sustained growth today.  You can’t have a consumer economy without income reasonably well distributed, and such an economy is going to have more sustained, reliable growth.  But as we’ve shown before, income inequality has grown since 1968, threatening long term growth.

Here is another way to look at that rising inequality as part of a long-term trend that defined 1968-2000 – the expansion of the workforce and subsequent collapse of that expansion that will solidify  when the Baby Boom hits retirement.  Economic changes are often demographic at heart, and we are due for some major upheaval that we need to be ready for.

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Inequality vs Sustainable Growth

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Is wealth and income inequality holding the economy back?  A recent study by the Pew Foundation shows that from 2009-2011 the wealthiest 7% of the US saw their net worth climb 24% – to an average of nearly $3.2M – while the other 93% of the population saw their wealth plummet 7%.  More than being unfair, it may also be holding back economic growth overall.  The rich may be happy with their take, but it may stop coming.

A number of studies have shown the effect over a number of countries, and the effect is undeniable.  At what point does income and/or wealth inequality slow growth?  Like an excess of debt it’s hard to say, but the two taken together lead to a compelling argument that the search for sustainable, meaningful growth is a strongly bipartisan, left and right issue – and something we should get moving on as a priority.

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The Managed Depression – Update

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I recently wrote this piece for submission to a mainstream media outlet, but it was rejected.  I’d like to present it here.

Economic health, like personal health, starts with honesty.  When something is wrong a good diagnosis is the first step towards the proper cure and a strong recovery.  Our economy is been deep in what is commonly called a “Great Recession”. That strange term is a substitute for the dreaded word that most of us know is the true condition – a depression.

That “D-word” may be feared, but it should not be.  It simply points to different and more unusual treatment than we are used to.  History will eventually come to know our present economy as what I call a “Managed Depression” – unusual among similar stages in the business cycle in that this one has been carefully managed.

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