A Sleepwalking Economy

What’s wrong with the economy?

Photo: Arielle Jay. Source: Morguefile

Economic growth seems to have stalled. Since the last recession, GDP has grown at a measly 2% real rate. To put that into context, economic growth after a significant downturn usually booms, as it did after the recessions in the ‘60s, ‘70s and ‘80s. In the four years following those recessions, the economy average 5% growth. But in the ‘90s and early ‘00s, we only grew 3%. And this recovery has been anemic.

Some blame our poor economic performance on outsourcing, Congressional gridlock, and the Fed–a favorite “whipping boy.” But the entire economic engine seems to have slowed.

Source: Bloomberg

During the immediate post-World War II period, the economy averaged a 4% real growth rate. But something happened in the ‘70s. Following the 1972 downturn, we only averaged 3% growth, up until 2000. Since then, we’ve only averaged 2% growth. And this has been a global phenomenon. You can’t blame Congress or the Fed or fluoridated water.

I would suggest that this change in economic structure has to do with technology and the nature of our infrastructure. During the postwar period we had an industrial economy. Productivity was enhanced by infrastructure that helped us move stuff more efficiently: highways, ports, rails. Starting in the ‘70s, we developed an information economy. Technology improvements focused on helping us understand and manage data—mainframes, PCs, databases, spreadsheets, email, and graphics.

Since the year 2000, mobile computing and personal technology has facilitated what I would call an entertainment economy. Productivity enhancements have gotten ever-more personal. Whether or not you like ESPN and Amazon, March Madness betting pools and buying barbeque sauce on our smart-phones doesn’t help us get more work done.

These changes have been gradual, but they’ve been like continental drift: you don’t notice them until the entire landscape has shifted. So don’t expect too much from politicians or policy. Until the economy changes to help us do more, I think we really are stuck in a new normal.

Douglas R. Tengdin, CFA

Chief Investment Officer

By |2017-07-17T12:22:39+00:00August 27th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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