The Macro Forces Behind Slow GDP Growth

I find this viewpoint reflective of what I call legacy thinkingamp160 If you have ever heard me speak in the last three years or read quotEntering the Shift Agequotamp160you know this termamp160 Legacy thinking is simply thinking thoughts from the past usually from the last century which are no longer valid but are held onto as they used to be trueamp160amp160Expecting robust midsingle digit increase in GDP growth and inflation postrecession goes into this category of legacy thinkingHere are the macro forces that have altered reality and made both slow growth and low inflation the new realityThe Great Recession was GlobalWhile the global economy began to take off in the 1990s it didn39t really start to become largely integrated until this centuryamp160 This means that measuring the current postrecession economic metrics with the much more national economy postrecession metrics of the last century makes little senseamp160 The United States is much more interconnected with all other national economies than ever before The old national economies could be altered and manipulated as they were much more insular than they are todayTwo GenerationsThe Baby Boom generation is largely unprepared for retirementamp160 First the tech bubble and then the real estate bubble eviscerated much of the wealth and therefore savings for the retirementamp160of this generationamp160 So as we boomers age we are dramatically cutting down on spendingamp160 Since we are a large generation this downsizing and cutting of spending influences economic metrics of growth and inflationamp160The Millennial generation has shown that it is much less materialistic than prior generationsamp160 This is due both to graduating college into a recession that has not been kind to them and to a more experiential lifestyleamp160 This generation looks at the Boomercreated Great Recession and sees that the system didn39t workamp160 They are going on a different path of frugality not buying new cars bigticket items or starter homes as had the Boomer and GenX generationsThrift is the New Cool and Less is MoreThese two trends began in the 20082011 years and have not endedamp160 I coined the phrase that the Great Recession was the quottoo much stuff recessionquot back in 2010 We all realized we had purchased clothes we had never worn books never read DVDs never watched second or third homes we didn39t really use We had too much stuffamp160 So we got rid of a lot of itamp160 The number of thrift stores in the US is up dramatically since 2008amp160 Buying used stuff is more acceptable than ever before not shopping unless stuff is on sale is expected behavioramp160 Having less stuff particularly with the abovementioned generations is what is now desirableStop and reflect on your own buying behavior and how much stuff you have versus eightamp160years agoThe Internet Has Never Been Fully Recognized as the AntiInflation Force that Itamp160Truly IsThe Internet has disintermediated many industries lowering costs by eliminating the middleman or intermediary This has been accelerated in recent years when onlineonly companies create web sites where full product categories can be comparatively shoppedamp160 Access to information and competitive pricing will obviously be antiinflationaryThe Internet has allowed consumers to cost compare products and services globally and not just be held hostage to their local marketsamp160 This drives down pricesamp160 The greatest example of this is Amazonamp160 Amazoncom is one of the most accessed sites that Americans look at when shopping in physical retail amp160Consumers findamp160something they like in a store and then see if it is cheaper on Amazonamp160 If you are a Prime member as I am the answer is simple always check out Amazon before making any purchase as shipping is free and the prices are almost always lowerThe Internet allows people who are freelancers to compete globallyamp160 A talented person living in a low cost country or location or with an immediate economic need can successfully compete with the local personSo the Internet allows for global price competition which keeps inflation in checkOn the economic growth side of the equation the Internet has had a profound effectamp160 It has made the Industrial Age metrics of GDP out of dateamp160 If I am stuck in rush hour traffic the excess gasoline I use adds to the GDPamp160 If I send a book manuscript to be published as a PDF file over the Internet that is not measuredamp160 The GDP metrics developed in the 20th century largely are based upon physical consumptionamp160All the incredible traffic and sharing of content and contracts over the Internet are not measured or if they are are not weighted relative to physical consumptionamp160 I have long used the phrasesamp160quotphysical realityquot and quotscreen realityquot as representative of the duality of our lives todayamp160 The physical reality is based upon atoms and the screen reality is based upon digitsamp160 Because the screen reality morphs more quickly than the physical reality it is where change is initiated todayamp160 Why have big box stores Borders and shopping centers gone out of business in the physical realityamp160 Because of Amazoncom in the screen realityMuch of digital content is free Most of physical content was notamp160 When taking an online course there of course is the cost of the course and the materials that go with itamp160 Gone are the costs of transportation fuel and parking to get to the classroom all of which would have contributed to the GDP Costsamp160and physical contributions to the national GDP have simply gone awaySo we now live in a new world of lower costs and therefore lower inflationamp160 We live in a new world that is in fact growing economically but our old metrics no longer can accurately measure itamp160 So the quotslow growthquot may or may not be the realityamp160 Until we fully find ways to measure all the new Internet based economic realities we will continue to be subjected to the consternation and handwringing views of economists and even more so politicians whose view of reality is from the past certainly not the present let alone the futureThe one area where we seem to have a clear direction of new values and worth is in the market cap of the major Internet based companies such as Apple Google and Facebookamp160 All are much more valuable than those large industrial age companies of the pastamp160The opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom management or associated bloggers

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The Macro Forces Behind Slow GDP Growth

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David Houle

AARP and the Ad Council Encourage People in Their “Pretirement” Years to Take Key Steps Toward Saving - Ad Council InSites

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David Houle

AARP and the Ad Council Encourage People in Their “Pretirement” Years to Take Key Steps Toward Saving - Ad Council InSites

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