As 2009 and the first decade of the twenty-first century drew to a close, many analysts proclaimed it the “lost decade.” The stock market fell. So too did home values. We ended the decade with unemployment levels not seen for decades.
But to call the ’00-’09 decade a “lost decade” implies that it may just be an anomaly, and that better decades are sure to follow. It’s possible that something darker has happened. Quite possibly, this was the decade in which the U.S. (and perhaps the world) reached the economic tipping point I predicted in Five Short Blasts, beyond which further economic decline is inevitable as long as we cling to the economic theories that have held sway for centuries.
Think back to Figure 6-1 in the book, the graphic depiction of my “Theory of Population Density-Induced Decline in Per Capita Consumption.” Since you may not have the book handy, here it is again:
To summarize, this illustration predicts that, beyond some optimum population density, while the population (and thus the work force) continue to grow, total consumption of products will also continue to grow, but at a slower rate, due to declining per capita consumption. As per capita consumption declines, so too does the standard of living and quality of life as unemployment and poverty begin to climb.
The ’00-’09 decade provides ample evidence that this process has begun. First of all, while the U.S. population continued to grow throughout the decade at an average rate of about 1%, the main gauge of the U.S. macro-economy – gross domestic product, or GDP – grew at an average annual rate of 1.9%. It fell only once during the decade, in 2009 (although the data for the final quarter of 2009 has not yet been released). Growth in GDP is expected to resume in 2010.
In spite of that steady growth in the population and almost-as-steady growth in GDP, individual Americans didn’t fare so well. Although the population grew by 13.1% during the decade, employment grew by only 3.0% and only grew 0.6% over the last nine years of the decade. It actually fell by 5.3% during the last two years. Employment is now at its lowest level in six years – the longest stretch in U.S. history without growth in employment.
It should then come as no surprise that median household income actually fell for the entire decade. (The data for 2009 has not yet been released, but is expected to show further decline.) Median household income is now at its lowest level since 1997.
Another measure of the financial well-being of individual Americans is their net worth. Unfortunately, the Federal Reserve only measures this every three years, and the last survey was taken in 2007, before the massive loss of stock market and real estate values. When measured again in 2010, it will almost surely show a decline for the decade.
Finally, it should be noted that China was granted “most favored nation” status by the U.S. at the very beginning of the decade, opening the door to free trade with China. This was significant because free trade wipes out borders in economic terms, driving our “effective” population density higher or lower depending on the population density of the trading partner in question. Free trade with China sent our “effective” population density soaring, quickly pushing us to the right on the x-axis of Figure 6-1 above.
Did it push us so far to the right that we breached the “optimum” population density? If it did, my theory predicts that, in spite of continued growth in the macro-economy, the fate of individual Americans would go into decline. That’s exactly what happened for the first time in the ’00-’09 decade. Employment was stagnant. Unemployment soared. Household income and net worth both fell.
The question is whether the past decade was an economic anomaly or the beginning of a trend. I realize that I may be over-reaching here – that the deep recession of the past couple of years is just another economic blip – that the consequences of a growing population density may lie much further down the road. But I don’t think so. The stabilization of the economy that appears to have taken hold in the last few months of the decade is due solely to massive infusions of government money, an infusion that can’t be sustained indefinitely. All indications are that if that government intervention is withdrawn now, the economy will resume its decline.
It’s very possible that the past decade is the beginning of the trend that I’ve predicted and that, unless significant changes are made in trade and immigration policy, it’s likely that the coming decade has more economic pain in store for all of us.