Think of Grandpa’s boring old power utility shares, which generated a comfortable dividend (thanks to strong cash flow), but the value of the underlying assets (and the share price) didn’t change much. Put into stock terms... as growth approaches zero, the global economy will shift from being a growth stock to a cash-flow and dividend story. That’s a difficult – and if you’re a shareholder, costly – process... A pyramid scheme that aims to make more money for some by adding more people through population growth [higher fertility and immigration]. The underlying strategy of Ponzi demography is straightforward: privatize profits and socialize costs incurred from increased population growth. Go-go growth stocks post booming increases in revenues and (sometimes) earnings. Think of Amazon (AMZN) in its earlier days... when the company doubled (or more) in size every year. As an investor, you buy a growth stock because its share price – if everything goes according to plan – will triple, quintuple, and more as the underlying business keeps growing. In contrast, dividend stocks have steady cash flows – and they earn a solid profit – but they don’t grow much... Think of Grandpa’s boring
well... In the U.S., annual economic output grew by 4.7% in the 1960s... slid to 1.9% in the ‘00s... and nudged up to 2.3% in the ‘10s. Globally, it’s been a similar trajectory. And despite the slight recovery over the past decade, the long-term direction is clear. And it’s time to recalibrate our expectations. As fund manager and economist Ruchir Sharma wrote in his 2020 book, The 10 Rules of Successful Nations... Every class of countries needs to reset its economic ambitions at a lower, more realistic level. The benchmark definition of rapid growth should come down from 3 percent to between 1 and 2 percent for developed countries; from 5 percent to between 3 and 4 percent for middle- income countries such as China; and from 7 to 5 percent for emerging countries such as India. That’s just a start. Given trends in productivity and demographics, zero growth is an inevitability. TIME FOR A NEWMODEL The old model, where growth is God, is slowly grinding to a halt. And it’s just as well. Nobel laureate – and former U.S. secretary of energy – Steven Chu has described the global economy as a “pyramid scheme” in which more and more younger workers are required to pay the steadily escalating costs of retirees. Demographer Joseph Chamie, writing in The Hill, has described pressure for population growth as “Ponzi demography” that is...
American Consequences
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