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Noted Investor: U.S. on the Road to ‘Zero Growth’

Nov. 26, 2012 12:48pm Becket Adams

Noted investor and GMO co-founder Jeremy Grantham in his quarterly letter to clients claims that the U.S. Gross Domestic Product (GDP) growth rate we’ve become accustomed to (rates in excess of three percent) is “gone forever.”

Instead, he argues, real U.S. GDP growth will trend at about 0.9 percent through 2030, eventually falling to 0.4 percent from 2030 to 2050.

“Someday, when the debt is repaid and housing is normal and Europe has settled down, most business people seem to expect a recovery back to America’s old 3.4% a year growth trend, or at least something close,” Grantham writes. “They should not hold their breath.”

“A declining growth trend is inevitable and permanent and is caused by some pretty basic forces,” he adds.

Among said “basic forces” are changing demographics. For instance, annual working age population growth has fallen:

GMO

Average hours worked per year has declined:

GMO

And the positive effects of women entering the workforce has plateaued:

GMO

“This added about 0.25% a year to work input up until 2000 when the trend ended. The demographic inputs peaked around 1970 at nearly 2% a year growth (there are many ways to do these calculations, each yielding slightly different results),” the famed investor explains.

“They fell to about 1% average growth for the last 30 years and demographic effects are now down to about 0.2% a year increase in man-hours where they are likely to remain until 2050, with possibly a very slight downward bias,” he adds.

Another major problem identified in Grantham’s letter is declining productivity. Annual growth in Real GDP, for example, is down. Way down:

GMO

“It shows that productivity gains were negligible for centuries (as was population growth, for the record). We can see how growth slowly picked up first in the British Agricultural Revolution and then in the Industrial Revolution, rising to a then dizzying 1% growth rate around 1900,” he writes.

“With the surge of innovations – steam engines, electricity, telephones, autos, and the full use of the stored energy of coal, oil, and gas – the rate soared to a peak of 2.5% at mid-century. And then it started to decline, with the estimated trend reaching 1.8% in the year 2000,” he adds.

Capital spending is down:

Jeremy Granthams Quarterly Letter to GMO Clients Is Pretty Dismal

GMO

Manufacturing as a share of the U.S. economy has declined:

GMO

And there has been a decline in services productivity:

GMO

Grantham goes on to argue that restraints on resources brought on by consumption, rising commodity prices, and weather events will further hinder economic growth. Also, via Northwestern University economics professor Robert Gordon, Grantham argues that declining education, income inequality, globalization, and debt overhang will also help to retard growth.

Now some may look at Grantham’s predictions and wonder why he should be trusted. Well, considering the fact that he accurately predicted bubbles in Japanese stocks in 1989 and U.S. stocks in 2000, and risk assets in 2007, we’d say that his advice is definitely worth considering.

Click here to read Grantham’s full letter.

Follow Becket Adams (@BecketAdams) on Twitter

(H/T: Business Insider)

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Comments (36)

Ironeagle
Posted on November 27, 2012 at 11:46am
And the market goes rolling along….

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chalkdust
Posted on November 26, 2012 at 4:10pm
Pumped and dumped. That is what happened. Meaning it’s come to pass. The masses just haven’t realized it yet. And quite frankly, it had nothing to do with Obama. These are consequences for policies from years ago. Obama is just taking advantage of this situation to institute his and others long dreams of a utopian society. A mixture of all the ‘ism’s.

As I write this they are feverishly trying to start another bubble. Not certain they can. With our debt load, reversing this course will be very difficult and will not be accomplished by moving away from freedom.

One big mistake Government is making right now is believing it can create equality. In doing so, they will most assuredly make things more unequal. We need the best and brightest, whomever that may be.

So, if you’re thinking this is all Obama’s fault, you couldn’t be more wrong and in doing so have the potential to make things worse. We wont be able to reverse the course Obama has set us on in 4 years nor reverse the economic situation that has been in the making for 40 years.

Bottom line, our course is pretty much set for the next 20-30 years. Think long term.

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- Silvertruth
  Posted on November 26, 2012 at 5:26pm
  The course isn’t set for the next 5 years, let alone 30. Any number of variables can align to create growth in far larger numbers than this article would lead us to believe. Read the disclaimer on the bottom of the charts and you see that it is implied that these are only projections if things stay as they are.
  
  Work hours can increase if more of the population returns to work. Productivity can increase if we stop looking for easy street, roll up our sleeves and work harder AND smarter. It’s a cultural mechanism.
  
  You are right that Obama is not to blame here. He is a symptom of the falling values and common sense that brought us to pre-eminance and prosperity. As those have fallen, so have we. Bring them back up, and the numbers will go back up. Personal excellence is always what drives cultural and economic excellence.
  
  Report this comment
- chalkdust
  Posted on November 26, 2012 at 11:57pm
  Wasn’t really referring to this article only, except that it outlines the trend we’ve been on. The political movement to the left will take some time to reverse and will probably do so naturally. This country is like a really big ship, it doesn’t turn on a dime.
  
  I have been around for a few of these cycles and can tell you years from now we will probably recognize 2008 as the year the biggest economic bubble ever, popped. Maybe they will succeed in restarting it but is that what you really want?
  
  Short term upward or downward trends don’t mean much when you are looking at long term economic outlooks. Systemic problems like trade deficit, debt load public and private, long term currency devaluation, lack of innovation. We have lots of technology with no real, GOOD use. We have not made a major scientific discovery in 60 years. We toss words like sustainability and green energy around as though the laws of thermal dynamics do not exist.
  
  We have plenty of untapped fossil fuels and we mistakenly assume all we have to do is turn on the spigot and industry will appear because of energy. Of course it’s availability is helpful as it is an industry but it cannot sustain us alone.
  
  Computer technology alone will just enslave us. Coupled with integrity it could drive us to places we can’t fathom now. The tech field needs something to do and right now it’s focus is us, humans. I could go on and on.
  
  Report this comment
girlnurse
Posted on November 26, 2012 at 4:08pm
http://www.youtube.com/watch?v=5b_7y4KmlA0&feature=player_detailpage

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The-Monk
Posted on November 26, 2012 at 3:25pm
I think he got it wrong.

We are on the way to “negative growth”…..

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CWPrequired
Posted on November 26, 2012 at 3:19pm
“income inequality” ????? Another BS liberal term to justify taking money from someone else.

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Centralsville
Posted on November 26, 2012 at 3:13pm
There are other factors not mentioned above. Because of feminism our best and brightest women had no children. Our only growth is from third world immigrants living in poverty. We are approaching half of all children being bastards born out of wedlock living in poverty. America is a doomed country. When America sold out to modern feminism the writing was already on the wall, it only took 1 generation of modern feminism to destroy what was the greatest nation the world had ever seen.

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Mr Sanders
Posted on November 26, 2012 at 2:52pm
Wow…. look at the CSFS Graph … that’s deeper than immy Carter’s Admin.!

Either we’re shipping our manufacturing to China, we are becoming more efficient with less labor, OR we’re just producing less and less labor is being employed?

The last graph has me wow’d – the definition of “manufacturing” perhaps means any product that must be assembled by hands [labor] or machine? The one thing I want to know is IF its ANY product that action is taken upon, either by an employee or machine, do they ‘The Counters’ realize that at the rate were going at chasing away capital investment and sending jobs overseas in this country that they can have such a graph for the future of the US economy? That blows my mind!!

The Man is getting what he wants, 52% of american voting public wanted him back, debts on debt and all, and the left can feel good about this – then let them eat cake and continue their circus.

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Suchiazski
Posted on November 26, 2012 at 2:41pm
And China is in a panic crisis about 7.4% growth…

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doomytram
Posted on November 26, 2012 at 2:08pm
It’s Ozero growth with Obozo shill’s controlling the system. In non government book cooking it’s less than Ozero growth thanks to Obozo’s non leadership and polices.

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RightUnite
Posted on November 26, 2012 at 2:04pm
Good! This is exactly what we need…. I just hope the idiots who voted this idiot back into office get burned the most…..

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- G-WHIZ
  Posted on November 27, 2012 at 10:46am
  It is THESE WHO VOTED FOR HIM-THEJESUS-KING who will necessarily will under HIS buss be thrown! Esspecially cause HE DONNA NEED YOUR VOTES ANYMORE!!
  
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ArmedAndReallyPissed
Posted on November 26, 2012 at 1:54pm
I need a strong rope and a rickety old three legged chair.

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RANGER1965
Posted on November 26, 2012 at 1:35pm
His projections show a slow and steady decline, but history tells us that’s not what happens…ever.

There is a steady decline until a tipping point is reached. What that point is, and what triggers it might not be predictable, but when it occurs the gentle slope on the graph turns into a nightmarish plunge.

Once this occurs all bets are off, and it often results in an “every man for himself attitude.” Once this happens all the pretty words, and declarations in the world won’t make a bit of difference. They become as irrelevant as politicians that speak them.

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- naughtycal
  Posted on November 26, 2012 at 1:51pm
  The tipping point will be when we shut down D.C. as long as a partisan centralized agency is palacing regulations to social engineer the private sector we continue to rot away. Until total collapse and a revolution…I’m hoping a good olde fashion tax revolt and state wide votes to remove legislation that was placed with congressional approval will be enough…….But ya never know
  What we have now is failure to communicate
  
  Report this comment
- Mr Sanders
  Posted on November 26, 2012 at 2:27pm
  @Naughtycal
  When DC is doing good and construction cranes are everywhere….. that’s bad for US economy…. and US.
  
  @Ranger1965
  That could be a fair assessment of future happenings. No one has been on the other side of this doorframe – ever. Its not if anymore…. its when…. and 2013 could be it.
  
  Report this comment
- naughtycal
  Posted on November 26, 2012 at 3:38pm
  It’s not the job of D.C. to build,there only job is centralize resorces in defense of our country. And when those “construction cranes” as you call them are building other nation,or bad investments like solyndra,or more infrastructure to further build our already over burdening unconstitutional police state ……IT’S NOT HELPING IT’S DESTROYING AMERICA FROM THE INSIDE.
  Our Country was never meant to be a CENTRALIZED FEDERAL GOVERNMENT. The only reason taxation was granted in thye Constitution was to fund a military to protect our nation……….Not to create agencies,regulate citizens,to fund ideological beliefs,or the pay foriegn countries.
  If the only way to save LIBERTY is by creating a tyrannical government regulating,taxing and removing all aspects of it then we as a nation are doomed ……….
  
  Report this comment
FalseFactBob
Posted on November 26, 2012 at 1:29pm
Fun Fact: People suffering with Giantism would love to have 0% growth

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Cavallo
Posted on November 26, 2012 at 1:25pm
Please remember that GDP includes government spending.

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- ghemminger
  Posted on November 26, 2012 at 1:32pm
  pls also remember that government spending is a transfer payment from one to another. also, if the transfer payment received is not invested in GDP accretive endeavors, it is wasted and a negative impact on GDP….investing in projects that do not return their investment or merely giving cash away are not supportive of GDP growth….
  
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- ghemminger
  Posted on November 26, 2012 at 1:36pm
  also, recall that Obama’s mouthpieces told us that transfer payments, such as food stamps and other subsidizing transactions, are stimulative in nature….I suppose if you don’t study economics, you could be dull enough to believe that
  
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- Cavallo
  Posted on November 26, 2012 at 2:57pm
  Not to mention all the waste from the spending, and Solyndra type BS that went down the tubes. Is graff and payoffs considered economic activity now?
  
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- ghemminger
  Posted on November 26, 2012 at 3:45pm
  don’t know if graff and waste are accretive to GDP, but I did read about an ad agency that said that all of that mud slinging from the campaigns was good for the economy….
  
  to read about all of the +$1mm state dinners that Obama has chaired…I often wonder how much of that inflated price is a paid “contribution” to those service providers who, in turn, return the favor – in essence, having tax payer funded contributions….I’m sure it’s been going on for awhile – however, Obama and his troupe certainly appear to have abused the expense account and travel budgets….
  
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- Rothbardian_in_the_Cleve
  Posted on November 26, 2012 at 5:37pm
  GDP is a bogus measure of economic prosperity. The C+i+g+x(n) is a rube goldberg mechanism that overstates the role of “consumption” and minimizes the role of capacity. Unfortunately, it is the Krugman nut jobs and UN types trying to pioneer alternatives like Happiness Indexes and income equality metrics and whatnot. Make no mistake GDP will be replaced by something far worse in due time.
  
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JohnQTaxpayer
Posted on November 26, 2012 at 1:20pm
It will be written in the history books

America committed suicide in the name of helping those people whom contributed the least to the advancement of society

In the process the American government martyred; prosperity, intellect, indivualism, greatness and morals to the poor

America chose bankruptcy and anarchy over responsibility

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KeithOlberdink
Posted on November 26, 2012 at 1:15pm
Forward!!!

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banjarmon
Posted on November 26, 2012 at 1:14pm
We have BHO and the STUPID people that voted for him to THANK for this!!!!

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- The-Monk
  Posted on November 26, 2012 at 1:27pm
  Tick tock, tick tock…. EtchySketchy
  
  Your 5 pm deadline is approaching….
  
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Shasta
Posted on November 26, 2012 at 1:10pm
President zero brings us zero growth. Something for him to be proud of.

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Chromo200
Posted on November 26, 2012 at 1:09pm
Don’t worry, the rich will be paying you for everything, Phones now, Expanded EBT Cards next year, Student Loan forgiveness by mid 2013 (to keep the youth happy), forgiveness of home loans if you are unemployed by next congressional election (Santa Clause to elect Democrats). Mandatory a minimum 4 week vacation if you are lucky to have a job .. instituted by end of 2013. By 2014 tax deductions for parents who have their children living at home or if you can prove you are paying their rent.. Since Christmas will no longer be PC, we will have Santa (Obama) year round.

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- The_Jerk
  Posted on November 26, 2012 at 1:12pm
  Kwanzaa.
  
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Detroit paperboy
Posted on November 26, 2012 at 1:08pm
Socialists want just enough capitalism to pay for their social programs, because socialism cannot ever pay for itself………….

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- Micmac
  Posted on November 26, 2012 at 1:37pm
  My thoughts exactly. Capitalism is the ingredient that this great experiment in socialism is introducing into the formula. Socialism + Corporatism + Capitalism.
  
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E.Souchak
Posted on November 26, 2012 at 1:00pm
Wake up America.

Patrick Fitzgerald and the Kabuki Dance of the Valerie Plame Thing

http://illinoispaytoplay.com/

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jackact
Posted on November 26, 2012 at 12:59pm
…On the road?
We already achieved zero growth the last 4 years.
Now we will achieve a negative zero growth during the next four years.

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