The word is out that thrift is in.
The new normal, once the global recession is over, will be more limited economic growth than in previous years. This is according to Kenneth Rogoff, economics professor at Harvard University. That means slower growth in standards of livings and, perhaps, a break for the hard-pressed environment.
Some economists are even predicting a no-growth scenario; they say the boom times were fuelled by artificial factors and that without cheap credit and lower levels of debt we can expect the economy to flat-line.
Death of Globalization
Economist Jeff Rubin sees dramatic changes coming. In his 2009 book, “Why your World is about to Get a Whole Lot Smaller,” he says that globalization, fuelled by cheap oil, is over. In the future, writes Rubin, economies will become more local and we’ll all be a lot better for it.
Canada relies heavily on exports but as they shrink Mr. Rubin believes that local manufacturing will be revived: high transportation costs, will balance Asia’s low labour costs making it more economical to produce goods closer to home.
In reviewing Rubin’s book (Globe and Mail, June 3, 2009) another economist, Todd Hirsch, says his thinking is on the right course. He agrees some big changes are coming, “in the way we eat, the way we travel, and the way we take for granted the ever-increasing abundance of inexpensive consumer goods.”
The No Growth Recovery
Many economists don’t see much cause for optimism. The worst may be over but only in the sense “that the pace of global decline has peaked,” according to The Economist (April 23, 2009). “Thanks to massive – and unsustainable – fiscal and monetary transfusions, output will eventually stabilize. But in many ways, darker days lie ahead…Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling.”
The magazine’s leader goes on to say that national economies will be dependent on government stimulus for years. It predicts double-digit unemployment, possible deflation as prices and wages continue to drop, weak investment, and soaring public debt.
Consumers are Not in a Spending Mood
Consumers know they are in for a rough ride and are bracing themselves for it. Time Magazine reported on April 15, 2009 on the work of pollsters and reporters. They found that most people in the U.S. think the effects of The Great Recession will be permanent; only 12 percent expected economic recovery to start within six months. Half thought it would last another year or two, and 14 percent thought a long-term decline was only beginning.
The article suggests that consumers have learned they were mistaken in their belief “that debt would never need to be repaid, that values only rise, that bubbles never burst. When the markets collapsed, that fever broke.”
But, although nearly half of Americans say they’re worse off financially than they were a year earlier, 56 percent were optimistic that better, if more prudent, times lay ahead. Almost two-thirds said they thought they would continue to spend less even when the economy picks up.
Return to Older Values
“We’re channelling our grandparents,” wrote Time, “who were taught, like a mantra, to use it up, wear it out, make it do, do without. Now, if you can make it, you don’t have to buy it: just replace the lawn with a vegetable garden, eat your fill and then store whatever is left.”
So, people are using tap water instead of buying bottled water and going more often to libraries rather than book stores. They’re buying used cars and clothing, and looking for bargains at retailers.
Weak Recovery Without U.S. Consumers
Another Globe and Mail report (July 6, 2009) referred to improving times as a joyless recovery with economic growth but wary consumers, particularly in the U.S. which represents about 15 percent of the global economy. “The American consumer is the single most important driver of global economic growth,” writes Glen Hodgson in his article “Battered Consumers will Rip the Joy from this Recovery.”
“Until last year, the average American was spending every cent (or more) of every paycheque, relying on easy credit and rising prices for their house and other assets. But that spending spree by American consumers has come to a crashing halt…and the recovery in U.S. consumption will be weak.”
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