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The Future Is Definitely Not What It Used to Be:

How Distraction Becomes Destruction

By Shlomo Maital

 

Productivity Growth in the US has Been Abysmal Since 2008

   “Americans aren’t saving money the way they used to. U.S. households scaled back their pace of savings to the lowest level in nine years at the end of 2016. At the same time, wage growth slowed, according to updated government figures. The personal savings rate was 3.6 percent in the fourth quarter of 2016, the lowest reading since a 2.8 percent rate in the final three months of 2007, just as the U.S. was entering a recession.”

             – Bloomberg Business Week

       What a week. TrumpCare goes down to defeat. Trump’s new communications director nicknamed “Mooch” spews profanity. The White House Chief of Staff is fired.   LGBT’s are banned from the US armed forces.

         These are all distractions. None have any real relation to core issues troubling America’s society and economy.   When distractions take center stage, distraction becomes destruction.   Replace just two letters in ‘distraction’, and you get destruction!

         So what ARE the core issues?   Americans’ consumer confidence is at a 16-year high! So Americans are spending and borrowing. Saving has fallen. That leaves fewer resources for capital formation. But America needs more saving, not more spending and more personal debt.

       According to Neil Irwin, writing in the New York Times, productivity growth has fallen from a long-term average of 3% to less than 1%. (see graph). That is because wages haven’t risen, so it no longer pays to invest in labor-saving technology, which raises productivity.

       America’s infrastructure is crumbling, it has been for years, but there is no money to pay for rebuilding it. Trump’s plan is to have the private sector rebuild it. How likely is that?    

         No Administration has been this dystopic, dysfunctional, perhaps in history. And it’s a doom loop. The more dysfunctional it is, the less good capable people are willing to join it. Who wants to board a sinking ship?

         Suppose America was a company whose shares were listed on the stock exchange. Would you sell them short?   Many people would.   The major worry is not the economy. It is this — in the coming year, it is highly likely that there will be a major, unanticipated Black Swan crisis. Could be North Korea, Iran….Mideast… who knows?  

     What are the chances that the Trump Administration will handle it coolly, professionally, with good judgment and wisdom, in a way that benefits not only America but the whole world?

       Read Barbara Tuchman’s March of Folly (1985). Here is the definition of folly: “Government decisions that are against its own interests”.   Can you see folly in the distractions of the Trump administration?   Can you see destruction?   And can we interpret the boom in consumer spending as a no-confidence vote in the future?

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How (and Why) You Should Prepare for a World of Very Slow Economic Growth

By Shlomo Maital

Slow growth ahead

 It is becoming more and more clear that in the next 50 years, the world economy (and probably, the economy in which you live and work) will grow more slowly than in the past.   What was perceived as a temporary correction, due to the global financial crash of 2008, is now becoming chronic.

   Why?

   A study by McKinsey Global Research, “Global Growth: Can Productivity Save the Day in an Aging World”  (available from McKinsey’s website)  notes that “GDP growth was exceptionally brisk over the past 50 years, fueled by rapid growth in the number of workers and in their productivity.”  But now, employment growth, which averaged 1.7 per cent yearly between 1964 and 2014, is set to drop to just 0.3 per cent a year. 

   And productivity growth is slowing too.  “Even if productivity were to grow at the (rapid) 1.8 per cent annual rate of the past 50 years, GDP growth would decline by 40 per cent in the next 50 years – slower than the past five years of recovery from recession”.   But productivity growth has declined and does not look like it will recover much.  China’s economy is slowing. Europe and America grow slowly.  Japan has slow growth.  Looks like it’s chronic.

   What can be done?    “Catching up to best practice”, says McKinsey. In other words, if we all benchmarked the world and defined and captured ‘best practice’, productivity growth could nearly make up for the declining growth in workers. 

   Here are McKinsey’s 10 key “enablers of growth”.  Can each of us look at this list closely, and figure out,  what is my role?  How can I become really skilled, expert, at one or more of these enablers?  If McKinsey is right,  and if you can, you will be in great demand – and create value for the world. 

   Here is the list.  Which of thee suits you?  What must you do, in order to become a true enabler?

  • Remove barriers to competition in service sectors. 2. Focus on public and regulated sector efficiency. 3. Invest in physical and digital infrastructure. 4.       Foster R&D demand and investment. 5. Exploit data to identify transformational improvement opportunities. 6. Improve eduation and skill matching and labor market flexibility. 7. Open up economies to cross-border economic flows. 8. Boost labor force participation among women, young people, and older people. 9.       Harness the power of new actors through digital platforms and open data. 10. Craft regulatory environment, incentivizing productivity and innovation.

 

   

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2017
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