by Barkley Rosser (re-posted from Econospeak)
Yes, at midnight on December 31, we shall be at the midpoint of this decade, going from the early twenty-teens to the late twenty-teens. While celebrating half decades is not something done particularly, indeed for some decades we do not distinguish their halves. Thus the late 90s was an economic boom period, the early 90s were not. The late 60s became dominated by hippies and anti-war movement that split the Dems, while the early 60s was about New Frontier and Great Society, which split the Dems a different way as the South did not like civil rights legislation. But people wore suits and thin ties rather than tie dye shirts. The early 40s was WW II while the late 40s were postwar. But few bother making a big deal about the early 80s versus the late 80s, even if I can argue that there were important differences between them after the fact now.
A century ago, the middle of the decade brought to an end “the long 19th century” as WW I broke up the order that was established a century earlier in the mid-eighteen-teens at the Congress of Vienna after Napoleon was finally defeated at Waterloo. This may not be the end of a “long 20th century,” but who knows? Maybe it is. In any case, I shall do a little looking forward, hopefully bringing in some larger movements.
Many observers seem to be pessimistic about economic prospects, both in the near term and the longer time horizon. Many speak of secular stagnation, whether due to demographic, technological, or sociological reasons. One of the secular stagnationists,Tyler Cowen, is also pessimistic about the coming year, except for the US and India. Paul Krugman in his interview with Ezra Klein actually talks about the next five years, but only in terms of income inequality, which he does not seem optimistic will be overcome. While I think Krugman is probably right about that, I may be not quite as pessimistic as Cowen or some of these others, despite not having a ready explanation for how to overcome the drags from falling birth rates, a lack of obvious growth-enhancing new technologies, or the heavy weight of severe income inequality. Nevertheless, I think many are too gloomy about the next half decade, even if Cowen proves right that this coming year is full of dangers and several nations fall into recessions (some almost certainly will, e.g. Russia).
So, the past half decade has been dominated by the hangover from the Great Recession, which most Americans say is still going on, even if it technically stopped early in the half decade. We know this is due to stagnant real wages and slow job growth, even in the more rapidly growing US. However, indeed it does seem that the US is growing more solidly now. Will it offset the negative trends in other major countries, including China and much of Europe? I do not know, but I suspect that over the next half decade, we shall come out of the Great Recession’s hangover, even if what goes on does not turn into an outright boom, at least globally. Let me look at some trends around the world.
The most depressing scenarios seem to be for Europe and Japan, both of them dragged down by demography. Abenomics seems to be stalling out, and the reappearance of crisis in Greece seems to threaten a revival of the recessionary euro crisis. It may well be that neither of these are going to join in any serious growth scenario, but I think chances are good that neither will drag the world back into global recession. Japan has been stagnant for a quarter of a century now, but it has not actually declined in any serious way. There is no reason why it may not continue as it has, stable in its pleasant stagnation (life is mostly pretty good in Japan), not contributing to major world growth, but also not dragging it down. Likewise in Europe, we may not see much growth, although maybe Eastern Europe will return to growth after falling behind Western Europe during the Great Recession. But the many who have forecast a blowup and end to the euro have so far proven wrong. The euro politicians are really committed to keeping it going and will cut deals to make it do so. It may look now like Greece will blow things up, but while it triggered a crisis four years ago, it failed to end the euro, and I do not see it doing so again. Even if Greece exits the euro, I do not see why that should necessarily spread to others in the eurozone. It might just be the best solution.
Anyway, the sources of growth would seem to need to come from elsewhere. Pessimists talk of a “middle income trap,” and see the BRICS and some others falling into that. But, I do not see what the mechanism of such a trap is. Why cannot these nations follow the East Asian tigers who have grown to very high real per capita income levels? That many are stalled out right now does not mean that they have to remain stalled out.
While Cowen forecasts stagnation for next year for Brazil and Mexico, I do not see a necessary reason why either of them, or Latin America more broadly, should remain stalled out. Deceleration of growth in China has been pointed to as a source of this stalling out, but if the US can continue to grow, it may be able to provide that engine to get them going, and they may be able to stimulate each other and grow together.
Another area where we may see acceleration of growth is Africa. Much of Africa is growing rapidly right now, including some unexpected nations such as Mozambique. Clearly Africa has many problems, from tribalism, religious war, corrupt Big Men leaders, and epidemics. But while some areas will probably remain mired in these over the next half decade, with the uber poverty-stricken Sahel zone of Niger, Chad, Central African Republic, and South Sudan, presenting an especially severe challenge. But, with rising populations and hopefully rising inter-African trade, we may see more and more nations coming to resemble Mozambique and embark on sustained growth. There are good chances that Africa will increasingly become a growth engine of the world economy.
I am not going to make any overly specific forecast for China. For both demographic and Gerschenkronian catchup reasons, I think it is likely that China’s growth will continue to decelerate. But it may well maintain fairly high growth rates despite some slowing down, at least for the next half decade. Certainly the development of the balance between the US and China will be an enormously dominating theme for this period, whatever is going on in other parts of the world (and I shall stay away from forecasting about Middle Eastern religious war or what will happen with Russia and the rest of the world, much of which will be strongly influenced by the difficult-to-forecast price of oil)..
In the US, I am thinking that a major change may be less broadly demographic and more to do with generations. The Greatest Generation will not totally die out, but effectively they are done for, with the retirement of the last WW II vet from Congress, John Dingell, who served there longer than anybody ever, symbolic. He and G.H.W. Bush and Bob Dole may still be alive five years from now, but they and their cohort will be exercising essentially zero influence by then. Their numbers are rapidly dwindling, and they are all going to be very old, over 85 and more. To the extent that this milestone coming up marks the end of a long 20th century, it may be in the final passing of any influence of this generation.
Also, while few speak of them, the Silent Generation will pretty much be retired by then, although still around in numbers. They often get ignored as the more numerous ones surrounding them have dominated the picture, but they have been a curiously stabilizing force in US society probably underappreciated. But they will turn into retired geezers, if not ready for the nursing homes like the remnant of the Greatest Generation.
The noisy and pompous baby boomers will, of course, be retiring in droves, although the highwater mark of that wave of retirements will only be hitting at the end of the half decade, after the peak cohort born in 1957 hits 62 in 2019 and into the next half decade. The majority of baby boomers will still be working at the end of the half decade, but most of the front end crowd will be retired, if inevitably likely to still be as noisy and attention-demanding as they are now, even if they find others less willing to grant them the attention they think they so richly deserve.
The Gen-Xers are already pretty much all into middle age, although many of them still under 40 may be denying it. By the end of the half decade, they will no longer be able to deny it. They will become our dominant middle aged group, and given what we know about age and happiness, they will be probably be so miserable they will not be able even to be ironic anymore.
Which brings us to the rising millennials, those children of the baby boomers whom they both resemble and resent. I find it funny when I read of people in Washington who are 36 or 37 claiming to be millennials. Are they? I kind of think they are just late stage Gen-Xers who are in denial and trying to be in with the cooler young millennial crowd. Of course, this brings out that these generation boundaries are somewhat fuzzy, but I guess that certainly people in their early 30s are millennials, and clearly they are going to become an increasingly important and influential group over the next half decade, for better or worse. On the better side, it may well be that their large numbers and rising skills will be the driving force that will overcome the stagnation that so many are prophesying, whether it is due to coming up with those growth-generating technical innovations or just through sheer energy and enthusiasm.
Which brings me up to a question and point almost nobody is talking about: who is the next generation? I have seen these datings of generations, and some have the millennials petering out in terms of birth years around 18 years ago or so. By some measures, this year’s freshmen in colleges are not millennials, but the next generation. Are they Gen-Z, if the millennials are Gen-Y? Are they the post-millennials? We do not have a name for them yet, and they do not yet seem to be forming an identity for themselves either. But I am reasonably certain that current undergrads are probably the last round of the millennials. If current freshmen are not the front end of the next generation, those in high school are, and those in middle school and elementary school will certainly be fully part of it.
So, I forecast that a major development during the next half decade is that the successor generation to the millennials will emerge and begin to stake out their own identity, whatever that is, and I shall make no effort to forecast what that will be or what they will do. But, perhaps they too will contribute to overcoming secular stagnation and keeping the world economy going.
Update: I shall add one more item to my quasi-optimistic scenario: Indonesia, world’s fourth largest nation in population, about which few comment. It had a democratic power transfer this past year to a moderately populist new president and is growing at a reasonably steady pace, which might well continue. It may help be one of those steady anchors in the world over the next half decade. I also note that it is the world’s largest Muslim nation, and its moderate political regime may yet offer a model to that part of the world eventually.
1/1/15 Update: Another decade that was sharply split in US history was the 1860s. This year will be the final year of recognizing the sesquicentennial of the US Civil War, with that decade obviously sharply split over that event..