Apr 23 2011

State of the Wave — Current Prospects for Prosperity and the New Space Age

Princeton economist Alan Blinder (Wall Street Journal, 3/31/11) recently compared the current U.S. recovery to an injured athlete.

If you’re searching for a metaphor for the U.S. economy right now, think of an athlete who is recovering from serious injury and must navigate a difficult obstacle course. She’s getting into better shape but there are hazards along the way…

In a similar vein, J.P. Morgan recently downgraded their GDP growth forecast for 2011 to only 1.4%, and Macroeconomic Advisors likewise slashed their previous forecast (of 4%) for 2011 to 1.7%.

Stanford economist John B. Taylor believes this simple chart holds the secret to future prosperity.
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Former Secretary of Labor under Bill Clinton, Robert Reich (RobertReich.org; 8/17/10) recognizes the value of economic growth and its long wave influences, including the “Great Prosperity” which culminated in the 1960s Apollo Maslow Window.

Faster growth greases the way toward more equal oportunity and a wider distribution of gains. The wealthy more easily accept a smaller share … the middle class more willingly pays taxes to support public improvements like a cleaner environment and stronger safety nets. It’s a virtuous cycle. We had one during the Great Prosperity that lasted from 1947 to the early 1970s.

On the other hand,

Slower growth had the reverse effect … It’s a vicious cycle. We’ve been in one most of the last thirty years.

See also: Prosperity: A Technological and a Moral Imperative.”

Our recovery from decades of slower economic growth to another “Great Prosperity” — expected to begin near 2015 — is essential to the new international Space Age. The Great Boom of 2015 is expected to trigger widespread JFK-style ebullience that will drive the new Apollo-style golden age of human expansion into the cosmos.

See also: “State of the Wave — 10 Space Trends for 2011”

Here’s Blinder’s prioriitized (low to high concern) list of “the four biggest obstacles to recovery”:
1) The Japanese disaster, 2) The European debt crisis, 3) The U.S. budget deficit, and 4) The oil market.

Although Japan’s nuclear situation has recently been compared to Chernobyl, Blinder believes that in “well-ordered economies” like Japan, the effects will be “short-term.” And while the EU members have “bickered, dithered, and delayed,” a financial collapse in Europe is “unlikely.”
Although gold closed at a record high above $ 1500 per ounce this week — indicating a general lack of confidence in governments — Blinder amazingly sees only a 5% chance that the deficit will remain a serious problem for the recovery.

Blinder is most concerned about oil price shocks (such as in summer, 2008) to the U.S. economy; e.g., economists surveyed by the Wall Street Journal in February said oil would have to exceed $ 125 a barrel “to threaten the U.S. economy.” Today oil is $ 112 and rising.

Blinder estimates a 40% probability that any of these events will become a serious obstacle to the recovery — which he confesses leaves him “uneasy.”

In the midst of these economic and political fireworks, Stanford economist John B. Taylor proposes a “fact-based” debate on the economy (WSJ, 4/22/11). His chart (see above) shows annual government spending as a percent of GDP over the last decade (since 2000) and projected through the next (to 2021). The top two curves are the White House budget plans of February 14 and April 13, and the House (Ryan) plan of April 5.

According to Taylor,

When I show people this chart they ask why Washington is even having the debate. They say: If government agencies and programs functioned with 19% to 20% of GDP in 2007, why is it so hard for them to function with that percentage in 2021, when GDP will be substantially higher and with many opportunities for reforms and increased efficiencies? And if GDP and employment grow more quickly, as they would if private investment increased as a result of lower government spending and debt, then that 19% to 20% share of GDP could provide much more in the way of public goods.

Taylor’s chart highlights the political choice the American people are faced with: The Obama plan with higher government spending (~22% of GDP) requiring “substantial tax increases.” or the House vision with faster economic growth, spending near 2007 levels, and no increase in taxes.

This political situation is eerily reminiscent of the Great 1890s Recession that followed the financial Panic of 1893, and the challenges of President Grover Cleveland. As they always have over the last 200+ years, during an approach to a Maslow Window and recovery from a great recession, the people a century ago voted for prosperity.

Even ~5 years out from the next anticipated Kennedy-style Boom, prosperity is an easy political call to make. What’s hard is identifying which party — Republicans or Democrats — will be most effective in packaging it.

That’s because over the last 200+ years, no Maslow Window has ever been delayed or diminished in any observable way by any economic downturn or military conflict.

Human nature and the laws of economics — which drive economic and political cycles and the Maslow hierarchy — have proven to be very formidible in limiting modern human society to only 2 transformative decades per century. This is because they’ve been ignored by policy-makers and the electorate for so long.

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