by Gary Alexander

April 21, 2020

Even before the coronavirus struck China and then the rest of the world this year, global growth was coming under severe criticism, as if it were some form of cancer that must be stopped. I suppose those anti-growth gurus now have their greatest wish coming true, as the engine of the world almost shut down in China during the first quarter (-6.8% in GDP after growing by +6% or more every quarter for several decades), and then in Europe and America. It remains to be seen whether the growth haters will embrace the results when America reports double-digit declines in GDP for this quarter and maybe next.

Here are a few examples of recent books written by some of the most reputable economists on the planet:

In “Good Economics for Hard Times,” Nobel Prize winning economists Abhijit Banerjee and Ester Duflo write: “Nothing in either our theory or the data proves the highest GDP per capita is generally desirable.”

In “Deaths of Despair and the Future of Capitalism,” another husband-wife Nobel-Prize-winning team, Angus Deaton and Anne Case, say that the 600,000 extra deaths (above demographic projections) from 1999 to 2017 for Americans age 45 to 54, due largely to opioid or alcohol addictions and suicides, and a lower life expectancy among white Americans, is due to pain and despair, even if financially better off.

The only precedent for these unexpectedly high death rates, they write, happened “a century ago, from 1915 through 1918 during the First World War and the influenza epidemic that followed it.”

In “Fully Grown: Why a Stagnant Economy is a Sign of Success,” Dietrich Vollrath, an economist at the University of Houston, seems to imply that we’re now fully grown and don’t need to grow any further.

Doomsday Drumbeat Book Covers Image

The doomsday drumbeat goes on…and on… in bookstores – or in a delivery van straight to your door:

In “Growth: From Microgranisms to Megacities,” Vaclav Smil, a Czech-Canadian environmental economist, complains about the “physically impossible narratives of continuing growth.”

In “Degrowth,” Giorgos Kallis, an ecological economist from Barcelona, Spain, writes, “If humanity is not to destroy the planet’s life support systems, the global economy should slow down.”

In “Prosperity Without Growth,” Tim Jackson, a professor of sustainable development at England’s University of Surrey, revives the “small is beautiful” mantra against “endlessly accumulating more stuff.” He advocates going back a century or so to careers of making handicrafts and providing local services.

In “Slowdown” (just out, April 14, 2020), Danny Dorling, Professor of Geography at Oxford, argues that the slowdown in GDP per person (as well as invention, life expectancy, and progress) can be a good thing.

Economic Slowdown Book Covers Image

Many of these books were reviewed by John Cassidy in the February 10, 2020 edition of The New Yorker, printed about a month before the coronavirus scare created a national paranoia and crippled the economic growth in America and Europe. But this isn’t the first time I’ve read these anti-growth arguments.

When I first began writing about global economics in 1970, the best-seller “Greening of America” told of widespread dissatisfaction with capitalism. Author Charles Reich wrote, “The vast majority of adults in this country hate their work” and “that goes beyond a mere question of wages.” Similar best-sellers came out in 1972 with the wildly popular, and wildly inaccurate, “Limits to Growth” (30 million copies sold in 30 languages) and Joseph Schumpeter’s paean to downsized economies, “Small is Beautiful” (1973).

Greening of America Book Covers Image

Ironically, these books came out at the start of a decade of “Stagflation” (stagnation plus inflation), so their doctrine of slow growth and “small is beautiful” lost some luster by the time Ronald Reagan and Margaret Thatcher replaced the malaise created or sustained by Jimmy Carter and Britain’s Labor Party.

Goldilocks says “Slow & Smart Growth is Good – Too Hot or Cold is Bad”

I can partly agree with some of the apostles of slower growth in that our service-based economy can’t grow as fast as a manufacturing-based economy. In 1950, manufacturing accounted for 60% of the U.S. economy. Now we’re 30% manufacturing and 70% services. A service can’t grow in productivity as fast as a manufacturer can, and services are usually more environmentally friendly than a manufacturer is.

Slow growth is also par for the course for our much larger economy, as defined by the “law of large numbers.” It’s much easier for a $1 trillion economy to grow 5% a year (as Reagan’s America did in 1983-87) than for a $20 trillion economy to grow 5% today – as Trump promised and can’t deliver – but a 2% growth rate in a $20 trillion economy yields $400 billion growth vs. only $50 billion in added output for Reagan’s 5% growth in 1984. The volume of growth is 8-fold greater, though the pace seems slower.

U.S. GDP has risen in 39 of the last 42 quarters with no consecutive negative quarters, the longest recovery ever, but it has been a “slow and sure” sort of growth with only a short 5%+ bump in 2014:

United States Economic Growth Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

At the same time, we can also expect smaller, poorer economies to generate 5% or greater growth as they emerge from poverty. The greatest miracle of the last 50 years is the escape of billions of people in China and other once-poor nations from absolute poverty into the relative comfort of lower-middle class.

Vollrath’s book (“Fully Grown”), far from calling for no growth, says, “Slow growth, it turns out, is the optimal response to massive economic success.” This balanced view gave birth to the term “Goldilocks economy” in the 1990s, giving definition to the longer, slower recoveries that tend to last a full decade (1990-2000, 2001-08, and 2009-2019) rather than the previous average of half that long. The key is a new ability to sustain lower rates of growth for a long time rather than super-high growth rates for a short time.

This distinction frees us up to view “growth” in terms of specific stocks and sectors. We welcome 10% to 20% growth in stock profits, with the realization that the days of 5% or faster GDP growth are in the past.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Crude Oil at $18 Highlights Global Deflationary Threat

Income Mail by Bryan Perry
Reality Check for the Stock Market

Growth Mail by Gary Alexander
“Growth” is Suddenly a Dirty Word

Global Mail by Ivan Martchev
One for the Record Books

Sector Spotlight by Jason Bodner
Tuning Out the Noise in Favor of the Data

View Full Archive
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About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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