Global Economic Growth Slowing. What a Surprise.

Though it seems that nearly everyone lately is alarmed by a global economic slowdown – especially in China, no reader of Five Short Blasts or this blog should be surprised.  You may recall that, late last year when I published my annual predictions for 2015, I warned of a faltering economy and, specifically, a slow-down in growth in China from 7.5% to less than 6%.  Last week, China’s growth rate fell to 6.7%, a story that sent global stock markets into a tail-spin.  At the time of my predictions, coming off of a strong 3rd quarter in 2014, virtually everyone was bullish on the prospects for accelerating growth.  Now, everyone is wondering, “What the hell happened?”

What happened is delusional economic growth theory running smack into the  economic reality of the inverse relationship between population density and per capita consumption.  On the news this morning I heard that only three countries account for 80% of the world’s economic growth – China, India and the U.S.  Since growth in the U.S. is practically negligible, that leaves China and India – the two most populous nations on earth.  Let’s focus on China.

To be sure, economic growth in China for the past two decades has been phenomenal.  Twenty years ago, China was among the poorer nations on earth.  It was a nation with a population four times that of the United States, but one that consumed virtually nothing.  Corporations drooled over the seemingly limitless growth potential.  Just imagine turning every Chinese citizen into a western-style consumer!  So they rushed in to build factories and infrastructure to make it happen – more development in two decades than the U.S. saw in two centuries.

Now their economy has gone as far as it can go on exports.  China’s continued growth now depends on domestic consumption, and it just isn’t there.  China’s consumers consume more products than ever before – far more – but nowhere near the level that was projected.  What economists have been unable to see is that China’s severe over-crowding caps its economic potential at a much lower level than they thought – at a level that it is very close to reaching, if it’s not already there.  In fact, it may have already over-shot its economic potential, with the export-driven economic momentum propelling it beyond that point.

This is actually good news.  Anything that exposes economic growth theory as the fraudulent pyramid scheme that it is hastens the day when economic stability and sustainability reign, a day when corporate lust for population-driven sales growth takes a back seat to the common good and an optimum quality of life.  But there’s a hell of a long way to go.

 

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