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Thursday, December 22, 2016

When the Horse is Dead, the Whip Won't Help! It's Time to Dismount & Acknowledge Growth is Dead

What is Economic Growth?  Investopedia says..."Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another.  Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP)."

Ok, but what about the capacity to consume?  Somehow, modern economics, the Federal Reserve, Wall Street nor the typical CFP has considered the worlds capacity to consume.  Namely, note the total population but more importantly focus on the change in the population over time (for this exercise, we exclude Africa because sadly they don't matter economically...explained HERE).

Right, first off...using the UN population data, how many babies are born and the change over time.  The chart below shows total births per five year periods (excluding Africa).  The number of global births peaked almost 30 years ago...about 1988In the most recent five year period, 2010-->2015, births have declined by 71 million (about 14 million fewer annually) since that peak.  In 2008, the front edge of that declining number of children coming of age as 20 year olds, entering the global economy seems to have had an impact on consumption.  However, the battle being waged now by the Fed (& central banks globally), federal governments, and select parties is not to allow this declining capacity to consume to impact the capacity to produce more?!?  Cognitive dissonance writ large at the highest levels.

On a change per 5 year basis, the chart below shows the change in births excluding Africa (blue/red columns) vs. the change in births in Africa (green line).  The remainder of the charts show the UN's (overly optimistic) medium population estimates.  What has become a consistent decline across the world in births is estimated to be entirely offset by African births (a decline of <77> million ex-Africa is offset by +90 million births in Africa, 2015-->2050).  However, economically, these people represent radically lower levels of consumption. 

Alright, what about the 0-45 year old global population (excluding Africa).  As one would expect, a declining number of total births is translating into slowing growth of the general population and an imminent turn to outright depopulation.  The 0-45 year old population is so important for so many reasons...only they are capable to create babies, form households, and generally drive economic growth as the buyer of the assets the elderly need to divest of in retirement.

And if we look at the change per five year period (below), the 90% deceleration in the 0-45 year old population growth since the '85-->'90 peak is really hard to miss.  This is an annual difference of 58 million new consumers that were entering the global economy during the peak vs. about 5.5 million entering now, in the '15-->'20 period.  That is a decline of about 53 million fewer new consumers entering the economy annually now than during the peak!!!  How that "rounding error" negatively impacting the global economies ability to grow at previous levels isn't mentioned by Fed chair Yellen is shocking (ok, not really).  None of the pre-scripted questions Janet takes at her "press conferences" ever mentions that one?

Perspective is so important, so here is the 0-45 year old total population and five year changes charted below.  There is nothing transitory about the slowing growth or slowing demand.  There is nothing short term about this that would deem this a case for greater debt or lower interest rates.  Any "green shoots" gleaned from lower rates and higher debt is the transitory feature.
The under and over 45 year old total populations, charted below.  Essentially, all "growth" from here is the old living longer than previous generations.
Finally, the under 45 vs. over 45 year old five year change in populations, charted below.
So we have a general depopulation under way masked by a one time surge in elderly living longer vs. a collapse in low skill, low wage jobs being replaced by automation and innovation.  Net-net, there will be fewer people and fewer people needed to continue producing...but producing more for fewer people with fewer jobs?  Just one question, how will fewer people with fewer jobs contiue to consume more?

My father-in-law sent me the following...and I thought it economically apropos to close with.  The horse called growth had a good run but it is dead...let's stop the beatings.

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