I wrote a post a couple of weeks ago in which I said
macroeconomic collapse “may happen” and a few friends asked me why. To be clear, I don’t think it’s the likely
outcome—I think we’ll find a way to address our challenges. But here is what some of the challenges are.
Most of these issues would be not so bad by themselves; the
problem is that we have all of them in aggregate.
US GDP growth in real dollars is low (and
trending down). It was -2.9% for Q1 2014 after
the second official revision . If
it’s down again for Q2, we’ll be in a recession.
about this in more detail here.)
Government debt is high. In fact, it’s quietly crossed over 100% of
GDP for the first time since post-World War II.
Debt like this is maybe ok if the economy is growing fast, but ours is
not. And given demographic headwinds,
etc., debt levels are likely to face further challenges. Here is a graph of our government debt to
Government spending is high. Here are graphs of
total government spending and federal spending as a share of GDP.  Total government spending has
risen from about 8% of GDP to above 40% of GDP.
Spending on social support programs has grown the fastest. Defense spending has been on a reasonable
decline since WWII. Personally, I think
that current levels of social support spending are ok (though maybe the spending should be distributed differently), and we should probably do
But I think we need to plan for it. In addition to thinking about new sorts of
jobs to replace lost jobs that aren’t coming back, we should probably think
about things like some version of a basic income. I'm not sure it's the optimal solution (in fact, I have a strong intuitive bias against it) but I can't come up with a better suggestion, and I think it would probably lead to less waste than current social safety net systems.
Interest rates are low—in fact, we’ve been near
zero for 5 years, and on a steady trajectory down for 30. This is historically highly unusual. In fact, with quantitative easing, rates are
really less than zero (and they are officially negative in Europe). On the positive side, but as you’d expect with
near-zero rates, US equities are at record levels.
Personal savings rates are low.
On the other hand, corporate savings rates are high. US corporations hold 2.3x as much cash as
they held 20 years ago, after adjusting for inflation. Individuals aren’t saving as much, and
companies aren’t investing as much.
As I said at the beginning, all of this interrelates. Any one data point could be fine in
isolation, but if, for example, interest rates are zero (or government spending
is high), you’d like to see growth be high because people should be borrowing
money and investing it.
I think that startups and venture capital will continue to
do well. Most investors don’t want to
hold cash, for obvious reasons, and so they’re looking for high-growth places
to invest. But I’m a little unsure how
much the startup world and the rest of the economy can decouple.
To reiterate, I think we’ll find a way through these
economic challenges. But I think it’s
important we not ignore it and pretend it will magically get better, which
seems to be the current plan.
Personally, I think that innovation and new technology is what will save
We need to get back to natural economic growth. The US has been very fortunate to have a long
history of growth—we had roughly 100 years of territory expansion and then
roughly 100 years of incredible technological innovation. I think the path from our troubles will
involve finding a way for economic growth to continue.