Fundamental Economic Growth

Here’s the working stiff’s explanation of why our economic recovery is in slow mode, and why we’d be better off to get used to it. My theory is that the days of 4 and 5% annual growth in Western nations are gone, for, probably, at least a generation or more, if not forever.

The following rabbit trail of rumination began when I read, yesterday, the article in last week’s The Economist magazine entitled Where did everyone go?

In that article, Mr(s)?. Free Exchange–whoever that person or entity is–starts the column with Milton Friedman’s comparison of the business cycle to a musical string that is stretched and then is plucked to produce a sound:

“How far the string is plucked determines how much it springs back; similarly, the depth of a recession decides the strength of recovery.”

This analogy resonated with me, because I spent years and years of my life exploring the musical possibilities of plucked strings on guitars, fiddles and pianos. But even more productive, economically speaking, than those vibrato years of musical exploration were my twenty-five or so years of what seemed like high-multiplier growth-generating employment: building houses for people (. . .although those first three years of building stuff, back in the early ’80s, were spent constructing an S-shaped bridge around Grandfather Mountain, on the Blue Ridge parkway.)

Anyway, back to The Economist, which is a very thought-provoking analytically opinionated publication that my son introduced me to several years ago, about the same time that I bounced out of construction work and into more age-appropriate pursuits such as maintaining apartments and writing novels.

The aforementioned article, Where did everyone go, said this:

“The plucking (a string) model presumes that, after a recession, the economy returns to an underlying trend of growth. . .”

That presumption may have been sufficient for statistical analyses of past phases of expansive American economy. But not any more. The long tails of  20th-century bell curves  now morph into new bell-jar graphs, representing 21st-century demographics and new value-added activities, if you catch my graphical drift.  And here’s why: the fundamentals are changing.

Back at the plucked-string analogy, a “fundamental” in music is the “underlying” vibration that defines all other modes of string activity. Let us say, for instance, that a stretched string on a piano, of a specific length/diameter will, when plucked, produce a vibration of 440 cycles per second; it is thereby named an “A” note, which is the fundamental sound  heard when the string is plucked.

Economic activity in the developed world is now morphing from an “A” to a “C,” which stands for “Could be trouble ahead.”

As for The Economist‘s analogy based on uncle Miltie’s plucked string. . . the fundamentals, or underlying trend, of economic growth are determined  by:

“the supply of workers, capital, and technology.”

Well, in my presumptive working-stiff naivete, I am going to identify here a fourth component of growth. It is an underlying element–the constancy of which the economists unwittingly assume–  because it has always “been there”: natural resources.

Here is what is changing, big time, during our age: Every conceivable expense for gathering natural resources from the earth is going up, up, up.

I remind us of this simple oversight because of this: our basic level of natural resources extraction, and use of the earth itself, is the most fundamental change of all that is happening during the present age of human development. Retrieval of planetary resources will go down, down, down, as extraction difficulties and costs go up, up, up.

We are at planetary peak oil production. This is, of course, debatable, but I happen to believe that we are at planetary peak oil production. For more about that, go to http://www.peakprosperity.com/discussion/81169/peak-oil-science-and-evidence-please-help.

Here’s another factor that will slow our growth: disappearing topsoil.  We have depleted it, and it will take a long time to nurture our earth back into organic productivity.

Another problem is: minerals. We’re having to go deeper and farther afield for every mineral we pull out of ole mother earth, especially the you-know-what one, the one we put in the car-tank every once a week or so. Tar-sands, rapacious open-pit mining and deepwater drilling– all those intensifying recovery processes required to recover shale-oil or other minerals–they just add more labor and capital expenses. Getting oil out of the ground will never ever again get easier or cheaper.

Another thing is: lumber.

Wood. Here’s the one resource about which I have some sweat-equity credentialed expertise.

During the 20+ years that I spent building houses, here is what I noticed, project after project, day after day, week after week, year after year:

The miners pull minerals out of the ground.

The manufacturers form the minerals into concrete block, insulation, plastic pipes, metal appliances, shingles, etc.

The masons lay up the concrete  blocks into a foundation.

The carpenters nail wood onto the foundation to construct a house.

Where does all the wood and minerals for this process come from? The earth itself.

But the earth itself is depleted by past abusively extractive processes that generate, albeit along with useful products and projects, millions of pounds of industrial and consumer waste and climate-altering emissions. And processes for gathering these natural resources are injuriously invasive at a more-and-more precious cost, both economically and environmentally.  There are multiple issues associated with these extractions that will inflict sore points of contention among political groups for many generations to come. Bottom line: they are another impediment to growth, and will result in slow development of diminishing resources, which translates to slower growth. Witness the XL pipeline controversy. This kind of thing between Greens and Chamber of Commerce types is not going away, but here to stay. Part of the territory.

Finally, the elephant in the room is wage inflation in developed nations, a major factor in the “workers” component of growth determinants listed by the Economist. The long and short of wage inflation is this: American and European workers have priced themselves out of the now-worldwide labor market. Hence. . . slower growth for us, if any growth at all is possible on a yearly basis, while developing nations do most everything cheaper, and using emergent technologies.

So, hey America! Good luck with all that. Better get used to it. Time for slow-growth innovations–work better and smarter. The days of 5 and 6% growth in developed nations are over–gone with the horse and buggy, the icebox, the VCR, cassette tapes, maybe even the desktop computer.

I know I’m all over the map with this essay, but so is the brave new world: all over the map.

And tha’s what I’m talkin about.

Glass Chimera

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