The Impact of Economic Slowdown: A Closer Look at Current Trends and Future Potential

For years, the global economy has struggled with slow growth, particularly since 2009. While there was a brief period of higher growth from 2017 to 2018, the overall trend has continued to be sluggish. This article explores the reasons behind this economic slowdown and whether it is as critical as it may initially appear.

Reasons for Slow Economic Growth

The Harvard economist Larry Summers, a proponent of the concept of secular stagnation, posits that the advanced world is facing a structural decrease in growth potential. He argues that the natural rate of interest, the rate at which the demand for savings equals the supply, has permanently fallen below what central banks can achieve, typically significantly below zero. As a result, central banks are limited in their ability to stimulate the economy through monetary policy.

This decrease in growth can be attributed to several trends:

The rise in inequality has led to a higher savings rate among the rich. The aging population is saving more and consuming less. The new economy is less capital-intensive and requires less investment.

Is Slow Growth Really a Problem?

Despite the gloomy outlook, it’s important to consider the magnitude of the issue. Low growth does not necessarily equate to a lack of progress. In fact, the world is still getting richer and progress is being made. Moreover, the characteristics of the modern economy make traditional GDP measurements inadequate.

Measuring Real Growth in the Modern Economy

GDP is a gross indicator designed for a steel-and-wheat economy. Today’s economy, driven by data and information sectors, is far more complex. New products, while costly to develop, can be distributed at minimal or even zero cost. As a result, these developments contribute very little to output but significantly improve living standards.

For example, access to libraries of movies and music, previously confined to physical spaces, is now available at the touch of a button. Similarly, demonetization of certain services like news, information, long-distance calls, and cooking classes, means that these are now accessible for free. These advancements highlight the inadequacy of GDP in capturing true progress.

Technological Advancements: A Potentially High-Impact Future

The rapid pace of technological development could also explain the seemingly low growth rates. High-IQ individuals now have access to vast amounts of information, potentially leading to unprecedented progress. While this may not show up in traditional economic indicators, it could result in a rate of progress never seen before.

In conclusion, while low growth may concern many, it doesn’t necessarily mean that real progress has stalled. The idea of the American Dream may be in decline, but the potential for future technological advancements suggests that we may not have hit a permanent slowdown. Instead, we might be in a transitional phase, just waiting to unlock the full potential of our current innovations.

Final Thoughts

While low growth may be a cause for concern, it is not necessarily the dire situation that it appears to be. The world is still getting richer, and progress is being made. Moreover, the high growth now may not be as crucial as it was in the past due to the diminishing marginal utility of wealth. Therefore, we should focus on other aspects of life that contribute to a happy and meaningful existence, rather than solely on economic indicators.

Thank you for reading.