海角大神

Have we told you where we think the US and other developed countries are headed? No?

Well, things won鈥檛 necessarily be so bad. In a few words: the lust for MORE will become a lust for BETTER.

Yes, the age of easy growth is over. You probably won鈥檛 make any money buying stocks. And your house will never return to the levels of 鈥�05-鈥�06. And oh yes鈥�you may not be able to get a job.

But that鈥檚 the good news. We鈥檒l deal with the bad news some other day. Today, we鈥檙e going to stick with this good news. People in the developed countries are going to stop thinking so much about GDP, which measures the gross amount of economic activity. Instead, they will be thinking about the quality of it. They鈥檒l switch from thinking about their standard of living, measured in dollars or pounds or euros, and begin worrying more about the quality of their lives. They鈥檒l stop competing to accumulate more than their neighbors; they will want better instead.

First, let鈥檚 look at what happened last week鈥�and last quarter. It was the worst quarter for stocks and commodities since 2008. Worldwide, stocks lost 17% 鈥� or about $8 trillion. The Dow took a big drop on Friday, ending the quarter just under 11,000. Commodities were hit hard too 鈥� with copper surprising the experts by dropping more than they expected. Of course, the experts are always surprised. That鈥檚 what makes them experts.

But the fall in copper is significant. Because copper is what producers use to make things. If you make a refrigerator, you need copper. Ditto a telephone. Or an automobile. Or almost anything. So, when copper goes down it sends a message: the economy is slowing down. Most likely, the whole world is slowing down. And the US will be back in recession this quarter. In the last quarter, US GDP growth was clocked at 1.3%. This quarter, it will probably be negative.

Not that it particularly matters. It is probably more accurate to say that the economy never fully came out of the recession of 鈥�07-鈥�08. But no matter from what angle you look at it, the US economy begins to resemble the economy of Japan in the 鈥�90s and 鈥�00s. On-again, off-again recession鈥�with a ZIRP (zero interest rates policy)鈥�low yields鈥�and a government that runs huge deficits in order to keep the economy from dying completely.

Yes, dear reader, the world is a lot poorer than it was in June. But back then people still thought the Bernanke team was engineering a 鈥榬ecovery.鈥� Now we know, recovery hopes were fantasies. This is not an economy that can recover. It has to die. Then, a new economy will take its place.

What will that new economy look like? Here is an article from the Wharton School that helps understand it:

Sandy used to eat lunch out five days a week, indulge in premium cable on-demand and duck regularly into Starbucks for $4 coffees. Then the recession hit, and business at the jewelry boutique she had just opened tanked. By the time she started her YesIAmCheap.com blog in January 2009 as a way to make herself more accountable for her spending, her business had failed and she was $105,665.31 in debt. Today, the 33-year-old New Yorker owes $85,605.73. She packs her lunch, limits movie nights to $1 Redbox videos and mostly opts for coffee from Dunkin鈥� Donuts 鈥� with the occasional splurge for a Starbucks pumpkin spice latte. 鈥淭hey鈥檙e small changes but they add up over time,鈥� notes Sandy, who will not divulge her last name but shares the details of her finances online.

Moreover, she says she doesn鈥檛 plan to change her spending habits when the economy improves because she has 鈥渆mbraced the cheap.鈥� Although she used to prefer the word 鈥渇rugal鈥� because she thought it sounded French, 鈥渋t鈥檚 not as negative as it [once was] to be called cheap. It鈥檚 almost a badge of honor.鈥�

After more than three years of belt-tightening, the word 鈥渃heap鈥� is losing its stigma. Experts at Wharton and elsewhere say the recession has shifted priorities for consumers, who are now more willing to trade quality for a lower price. While some argue that consumers will go back to spending freely as good times return, others say Americans have permanently embraced a cheapskate philosophy, and are unlikely to go back to their spendthrift ways anytime soon.

Many people are also getting back to basics, rethinking what matters in life, and concluding that expensive products may not be worth the cost. Wharton marketing professor Cassie Mogilner, who studies the relationship between time, money and happiness, has found that time is a more 鈥減ersonally meaningful resource鈥� than money for most people.

Our interpretation of these facts鈥�

More is dead. Long live better.

Everywhere we look in the developed world, more no longer pays.

You can鈥檛 sell more products, because population growth is slowing鈥�or actually turning negative.

You can鈥檛 build bigger houses 鈥� who鈥檚 got the money to buy them鈥�or heat them?

Bigger automobiles are out too 鈥� the price of gasoline is rising. For the first 200 years of the machine age, we had the whole world鈥檚 energy resources almost to ourselves. They were close at hand鈥�and cheap. Now, they are deep鈥�distant and difficult鈥�and we have to compete with 3 billion people in the emerging markets for them.

You can forget about using more energy to grow your economy. That was the formula for 200 years. But now we鈥檝e passed the point of diminishing returns. More energy inputs 鈥� at higher prices 鈥� don鈥檛 pay.

You can鈥檛 spend more money 鈥� because you can鈥檛 get more. You can鈥檛 borrow more either, because you have no way to pay it back.

So, the developed world shifts鈥�from more to better. You can see it clearly here in Europe. People don鈥檛 necessarily care about having more stuff. Or more energy. Or even more money. They look for ways to save what they鈥檝e got鈥�and to enjoy it more. They don鈥檛 want more house鈥�they want a better house. They don鈥檛 want more food鈥�they want better food. They don鈥檛 want more money鈥�.they want a better quality of life with lots of holidays!

Trouble is, the institutions that have developed over the last 200 years depend on more, not better.

France, for example, can give people longer retirements and more health care, but only when the economy is growing. Otherwise, they can鈥檛 afford it. Sure, it can tax the rich. But as taxes rise, the rich flee鈥�or become poor. When that juice is used up, it can tax the future. It鈥檚 easy, at first. Because babies don鈥檛 vote! But when the supply of babies falls, the government soon runs into trouble. The future runs out of money. Lenders can see what is coming. They know future generations won鈥檛 be willing or able to keep up. Then, the model no longer works.

Without growth, governments must cut spending to only what they can raise in taxes. But then, the whole bargain falls apart. Modern government depends on MORE鈥�getting more and more tax revenues鈥�increasing benefits鈥�borrowing more and more money鈥�and spending more. Voters have to believe that they will get more in 鈥渂enefits鈥� than they pay in taxes. But without growth, they will get less in benefits than they, collectively, pay in taxes. Because government is a wasteful, parasitic enterprise. It doesn鈥檛 add to GDP, it subtracts from it. And when GDP is stagnant anyway, the extra drag of a leech government may be more than people will stand.

Households, corporations, economies鈥�and governments鈥�will be forced to make the transition, from more to better. How many of today鈥檚 major developed-economy governments will survive in their present form?

None is our guess.

And which one is LEAST likely to survive? The USA.

Because the USA is the only one that still believes that MORE is the solution to every problem.

The world economy is in a slump. Europe tries austerity. America sticks with more. No serious effort has been made to trim the US government budget. US economists argue for more spending, not less. And Obama鈥檚 latest jobs program is merely another spending scam.

The US also has an over-developed confidence in its military forces. Their solution to every geo-political issue? More force鈥�more weapons鈥�more meddling.

This is where the good news ends.

Regards,