Davos 2011: The World's Future Is Either a Boom or a Disaster

01/30/2011 09:11 pm ET | Updated May 25, 2011

During the run-up to the recent meeting in Davos, Bloomberg ran a story called "Super-Cycle Leaves No Economy Behind as Davos Shifts to Growth" predicting global economic growth is about to explode, lifting all economic boats and propelling the world to a golden age.

Quoting Stephen King, HSBC Holdings Plc's chief global economist, reporter Simon Kennedy says, " 2050, global output will have trebled and average annual growth will accelerate toward 3 percent from 2 percent in the last decade, with emerging markets contributing twice as much to the expansion as the developed world."

Read that again, and you'll realize this piece was filed by our old friend, Rosy Scenario. What it really says is that in the future emerging economies will be okay; but an economy like the United States? You ain't goin' nowhere.

And in fact, later in the same piece, Standard Chartered Bank's chief economist, Gerard Lyons, predicts average growth in the US of about 2.5 percent through 2030 -- about what it is today.

Since the US economy needs to grow by 5 percent for years to soak up the millions of Americans out of work today and over 2 percent a year just to absorb population growth, what that prediction says is that we can expect another 20 years of high unemployment in this country, with no practical policies in place -- or even on the table -- to deal with the sort of structural unemployment that's led to the recent turmoil in Egypt and Tunisia.

So it doesn't take much to see that most people in this country will be displeased if these predictions are anywhere close to the mark -- that what those of us not living in Kuala Lumpur or Shanghai are looking at is something close to long-term, slow-moving misery.

That sounds a little alarming, but what it really means is that we may be able to dodge a worst-case scenario if we face up to reality and produce practical public policies that jettison ideology and, at a minimum, find work for the armies of the unemployed that politicians are so studiously ignoring.

This will probably not be a "market-based solution": After all; if the market could solve this problem, it would have already been solved. A new WPA comes to mind.

But whether America's politicians can come out of their trenches and serve the people's interests is another matter: Frankly, they display no appetite for anything that gets in the way of posturing for the 2012 elections.

If you'll bear with me, here's a translation of what that global growth scenario really means. The reality is pretty close to the surface, if you apply a little common sense to the fairy dust usually found in your average investment bank scenario.

1. If emerging market growth will really be a strong as it's predicted -- and, by the way, that outlook is widely accepted -- then investment capital won't go to US markets, because emerging markets will offer superior yields;

2. As a result, US jobs growth will remain anemic, because investors will be putting their money into new plants, equipment, and businesses in Manila, not Indianapolis;

3. What business and jobs growth in the the US that does occur will be in consumer-based businesses; 70% of the US economy is still consumer-driven.

4. But if unemployment and under-employment remain high, profits won't be much to brag about in the consumer sector; people hanging on by their teeth don't go on shopping sprees;

5 And the number of people who are unemployed or under-employed is higher in the US than most people think. According to the Bureau of Labor Statistics, real unemployment is 16.7 percent, not the 10.9 percent most recently published in the national press. The American workforce totals about 150 million people; so that means about 25 million people are, at best, marginally employed. That's about the same number of people who were out of work in 1933.

6. Employers hire people to meet demand. So if consumer sales stay low, unemployment will stay high.


1. Starting with incomes, life will improve in the emerging markets. This includes life expectancy, population, and consumer consumption;

2. More people, living longer, better lives, means demand for commodities will rise, driving up commodity prices, including prices for food and water;

3. So the cost of living will rise -- globally;

4. But since investment capital is flowing out of the US and keeping a lid on jobs growth, income growth will be slow-to-flat, while prices will rise -- creating de facto income cuts;

5. What income and business growth will occur, will occur in FIRE businesses (finance, insurance, and real estate), advertising, marketing etc., and mainly at the upper management levels. Everybody else will stay on the treadmill;


1. Globally, the increased population nurtured by improving conditions in emerging economies will likely accelerate global warming and other environmental problems, because people will buy cars, farmers will use more phosphate-based fertilizers and pesticides, etc ., and, over all, people will use more plastics and fossil fuels;

2. Said shortages will probably lead to contested resources. This is why China and India are locking up so many of them right now.


1. The stagnant US economy will suffer from high and persistent unemployment that will probably minimize recovery and challenge political stability;

2. Since more people will have to adjust their lives to living on less, there'll be an even more pronounced shift of household wealth away from the middle class;

3. If people are making less, they pay less in taxes, so tax revenues decline, worsened by deficit-related pressures; the alternative will be borrowing.

4. The poor will be left to their own devices, if only because the tax revenues just won't be there to help them;

5. Government will shrink the menu of services it delivers, and new businesses will appear to provide them -- to people who can afford to pay. This will provide some jobs stimulus; but many of these jobs will be low-paying call center-type jobs; aside from everything else, employee turnover in call center jobs is typically high -- above 90 percent.

6. That last does little to stimulate wide-spread personal wealth, so that most people will have little or nothing to retire on in a world with little-to-no Social Security/Medicare benefits.

7. Completing the circle, consumer demand is anemic, at best, so you've got long-term economic stagnation. So the cycle becomes semi-permanent.

If you think that's a cheery outlook, consider the fact that you're probably going to help make it happen. That's right -- I mean you. Not because you're evil: Because you're a responsible adult who can act in your own interests.

People can't retire on Social Security and have to do what they can to support themselves for the 20 or more years they can look forward to after they've left the workforce. So the last thing they'll be doing is putting any money in low-yielding investments.

That means you'll have to make the emerging economies play or lose money. It's not your job to solve the long-term, structural economic crisis on the home field -- your job is to survive. And those choices are limited now, even if matters are veering disturbingly close to Lenin's dictum -- that when the time came, capitalists would sell him the rope to hang them.

The good news: Americans can still vote. We have the power to elect people who can actually try to solve these problems without communicating first with the Mothership.

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