A Bear Market For The Next 15-20 Years?

[Hamlet]

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Originally Posted by Gone4Good But that's Gordon's whole point. There were really big discoveries in the late 19th and early 20th centuries. Those discoveries powered 50-100 years of economic growth. Today the exploitation of those things have mostly played out. And there's nothing comparable in recent times to rival those innovations. The computer age so far pales in comparison.

I think there are a lot of massive changes that people are forgetting about-

Do you remember having to go to the library to research basic information? The internet give me instant access to a large portion of the sum of human knowledge. I can comparison shop the world in an instant. I pull up the text of the bible and Shakespeare and search through their entirety in an instant.

I can share knowledge and discuss things like this on message boards with just about anyone in the world, rather than just the sad sacks from my hometown.

I have a device in my pocket that is a phone, a camera, a watch, a GPS, and access to the internet all in one. Its pretty hard to get lost these days. I was always terrible with giving or receiving directions. Now that is trivial.

I haven't been to my bank in ages. I can do all of my banking without making a special trip.

I can have just about any movie I can think of streamed instantly to my home for a small fee through Amazon. Heck, 30 years ago I was thrilled to be able to own a VCR and rent one of the few hundred titles my local video store had. Nothing new was never available because I was never the first one there, of course.

Think about the work people do with just Microsoft office and think about how they would have to have done it before the computer.

My company has 50k+ people working from home or remotely every day. That is a lot of commuting time, gas, and office space saved.

We have medical treatments available that are pretty amazing compared to 40 years ago. My mother would be blind if she lived even 20 years earlier. My father would probably already be dead.

I think about all the things that were so hard and time-consuming before computers when I was a kid. Carbon paper. Retyping things. Figuring out how to do a repair you've never done. etc, etc, etc.

It really is a much better world than when I was a kid.

[Gone4Good]

Quote:

Originally Posted by Hamlet I think there are a lot of massive changes that people are forgetting about-

I don't think anyone is forgetting about this stuff. I think we're saying, "hey, look at all these awesome developments. Why haven't they generated more productivity gains and economic growth?"

Perhaps part of the problem is that recent innovations have not only created new ways to be more efficient, they've also created at least as many ways to goof off.

In the "olden days," you'd need to wait until non-working hours to get your shopping done. Now there's "Cyber Monday."

[Hamlet]

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Originally Posted by Gone4Good I don't think anyone is forgetting about this stuff. I think we're saying, "hey, look at all these awesome developments. Why haven't they generated more productivity gains and economic growth?" Perhaps part of the problem is that recent innovations have not only created new ways to be more efficient, they've also created at least as many ways to goof off. In the "olden days," you'd need to wait until non-working hours to get your shopping done. Now there's "Cyber Monday."

I think there are a few things going on. It appears that there has been pretty dramatic increases in productivity in the manufacturing sector, at least until the Great Recession--

Productivity Growth by Major Sector, 1947-2014. Bar Chart

An awful lot of workers work in jobs that don't use computers a whole lot. You may use some seating software at a restaurant, for example, but at the end of the day the server needs to bring you your food and drinks the same way they always have.

A lot of the new service jobs don't lend themselves to productivity increases the way manufacturing did. Haircuts don't go quicker. Changing bedpans can't be automated. Daycare providers can't handle more kids because of computers. I think a lot of healthcare productivity could be improved with computers, but doctors are typically the last people who want to embrace new technology (go figure).

I think that we are also in an economic situation that makes productivity growth pretty useless. When you have a surplus of cheap labor, why spend much on capital improvements to enhance productivity? You can just hire another dirt cheap worker.

Another issue is that our production is substantially below capacity right now because of low demand. We have a lot of businesses that could produce a lot more with their current capacity if they had more paying customers.

Just my 2 cents.

[Gone4Good]

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Originally Posted by Hamlet It appears that there has been pretty dramatic increases in productivity in the manufacturing sector, at least until the Great Recession-- Productivity Growth by Major Sector, 1947-2014. Bar Chart

The BLS data on manufacturing productivity only goes back to 1987 so we can't compare recent productivity to earlier times. I have a hard time believing, though, that whatever happened from 1990-2007 rivals the discovery of the assembly line for increasing manufacturing productivity.

Even if it did, manufacturing is only 12% of the U.S. economy today, which gets to your other point that our current technology doesn't do much to improve the efficiency of a haircut . . . or a hamburger. But that's what we really need to do if we want to see wage growth at 1950-type levels again.

[Mulligan]

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Originally Posted by Gone4Good The BLS data on manufacturing productivity only goes back to 1987 so we can't compare recent productivity to earlier times. I have a hard time believing, though, that whatever happened from 1990-2007 rivals the discovery of the assembly line for increasing manufacturing productivity. Even if it did, manufacturing is only 12% of the U.S. economy today, which gets to your other point that our current technology doesn't do much to improve the efficiency of a haircut . . . or a hamburger. But that's what we really need to do if we want to see wage growth at 1950-type levels again.

I see your point and agree with it. But, the problem for middle class is those 50s level jobs were accessible for people with "strong backs". "Strong brains" appear to be the path to increased wages due to loss of the manufacturing economy. Computer programers can work on an assembly line, but doesn't work as easily vice versa. But, that horse has left the barn, so little reason for me to ponder about days gone by.


Sent from my iPad using Tapatalk

[Hamlet]

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Originally Posted by Mulligan I see your point and agree with it. But, the problem for middle class is those 50s level jobs were accessible for people with "strong backs". "Strong brains" appear to be the path to increased wages due to loss of the manufacturing economy. Computer programers can work on an assembly line, but doesn't work as easily vice versa. But, that horse has left the barn, so little reason for me to ponder about days gone by. Sent from my iPad using Tapatalk

Yes, I'm not optimistic that the middle class will prosper, regardless of productivity growth. We've had a lot of productivity growth in the last 30-40 years, but the median worker hasn't benefited much from it.

Honestly, at this point in time its not clear that workers wouldn't be better with lower productivity growth, because then more of them will be needed to produce what we actually have demand for. The share of the pie that labor has been getting has been dropping about as fast as the pie has been getting bigger.

I think we are seeing the blow back from that in our political process right now.

[Hamlet]

Quote:

Originally Posted by Gone4Good The BLS data on manufacturing productivity only goes back to 1987 so we can't compare recent productivity to earlier times. I have a hard time believing, though, that whatever happened from 1990-2007 rivals the discovery of the assembly line for increasing manufacturing productivity. Even if it did, manufacturing is only 12% of the U.S. economy today, which gets to your other point that our current technology doesn't do much to improve the efficiency of a haircut . . . or a hamburger. But that's what we really need to do if we want to see wage growth at 1950-type levels again.

I have no expectation that productivity increases will result in wage growth regardless. We've had 30-40 years of decent productivity growth with little movement in median wages. Workers have lost a tremendous amount of bargaining power for various reasons. Productivity growth is likely to increase corporate profits or lower prices (depending on the business). There are few businesses today where it will result in wage growth, IMO.

[NW-Bound]

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Originally Posted by Hamlet ... A lot of the new service jobs don't lend themselves to productivity increases the way manufacturing did. Haircuts don't go quicker. Changing bedpans can't be automated. Daycare providers can't handle more kids because of computers. I think a lot of healthcare productivity could be improved with computers, but doctors are typically the last people who want to embrace new technology (go figure)...

Yes. Many jobs will not or cannot be done by computers. Changing bedpans or unclogging a sewer plug-up are two examples. Some of these jobs pay well, some don't, but not too many appeal to new young workers.

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I think that we are also in an economic situation that makes productivity growth pretty useless. When you have a surplus of cheap labor, why spend much on capital improvements to enhance productivity? You can just hire another dirt cheap worker.

And be called dirty capitalists for exploitation of low-end workers? And this widens the gap between wages of smart "brainy" workers and the common unskilled workers.

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Another issue is that our production is substantially below capacity right now because of low demand. We have a lot of businesses that could produce a lot more with their current capacity if they had more paying customers...

True. Those low-wage workers do not make enough to afford the fancy stuff that industries can produce.

I do not know how we can strike the right balance. And I don't think any economist knows either.

[ejman]

Dunno, it feels like with the development of Artificial Intelligence and it's application to robotic technology we are at the threshold of a quantum jump in the way the world operates not too different from the time that steam/electricity/internal combustion engine technology was introduced. I agree that personal computers largely failed to start any major productivity increases and by themselves do not qualify as being on the same league as the steam/electricity/ice revolution.

[Gone4Good]

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Originally Posted by Mulligan the problem for middle class is those 50s level jobs were accessible for people with "strong backs". "Strong brains" appear to be the path to increased wages due to loss of the manufacturing economy. Computer programers can work on an assembly line, but doesn't work as easily vice versa. But, that horse has left the barn, so little reason for me to ponder about days gone by.

Quote:

Originally Posted by Hamlet Yes, I'm not optimistic that the middle class will prosper, regardless of productivity growth. We've had a lot of productivity growth in the last 30-40 years, but the median worker hasn't benefited much from it.

That is all indeed true.

Perhaps it is time to dust off some very old texts because that contest between Marx and Smith might not be quite as settled as we originally thought.

Even Goldman is starting to think the unthinkable.

Goldman Sachs Says It May Be Forced to Fundamentally Question How Capitalism Is Working - Bloomberg Business

[Gone4Good]

This is a pretty good review by former Treasury Secretary Larry Summers of Robert Gordon's new book The Rise and Fall of American Growth. It summarizes a bunch of the ideas discussed in this tread about how new technologies have had less an impact on growth than those of the past.

Will our children really not know economic growth? | Prospect Magazine

It's interesting throughout and difficult to summarize. I found this paragraph a potent rebuttal to Gordon's pessimistic conclusion, though:

Quote:

Economic historians like Paul David have long noted that it took surprisingly long for the benefits of electricity to show up in the economic statistics. Creative destruction takes time. Think about a canonical major innovation like the supermarket. Initially when it is first introduced all the other shops remain in business with reduced volumes. Measured productivity—defined as total sales per retail worker—go down as employment in retailing rises and total sales remain roughly constant. Only with the passage of time and the closing of traditional shops will measured retail productivity increase. If this story is playing out in many different sectors on different rhythms, overall productivity growth could be relatively slow even as there is substantial job losses in sectors further along in the adjustment process.

[Hamlet]

Quote:

Originally Posted by Gone4Good This is a pretty good review by former Treasury Secretary Larry Summers of Robert Gordon's new book The Rise and Fall of American Growth. It summarizes a bunch of the ideas discussed in this tread about how new technologies have had less an impact on growth than those of the past. Will our children really not know economic growth? | Prospect Magazine It's interesting throughout and difficult to summarize. I found this paragraph a potent rebuttal to Gordon's pessimistic conclusion, though:

One thing that I've been thinking about is that GDP is not a measure of all goods and services we produce. It is a measure of all the goods and services we produce and pay for.

A huge amount of the value of the internet to me has very little paid economic value that can be tracked. When I go on youtube and am able to find a video on how to replace my dryer belt, that actually reduces measured GDP, because I fix my own dryer rather than pay someone to do it. The only thing GDP measures is the tiny amount of ad revenue that youtube gets from my viewing.

Software is a strange thing to measure with GDP. There is little incremental cost to increasing the number of users for software. The cost is all upfront in developing it. If Microsoft charges 10 million people $40 each for software, it generates the same GDP as if they charged 40 million people $10 each. However, in the second case 30 million additional people get the use of the software.

I think a lot of the improvements in the human experience are not measured in GDP.

[Looking4Ward]

^ excellent point. Some of the historic means of measurement may no longer be as accurate as they used to be.

[Options]

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Originally Posted by nun I have no control over the stock market and can't predict where it will go. The value of stocks has something to do with history in as much as it influences the present economy and investor sentiment and of course future events are important too. But as I like to be in control rather than trusting my fortunes to past results and Monte Carlo mathematics (at least directly), I do two things that I can control. I control my spending and use a liability matching portfolio based on pensions, rental income and SS. If your income comes from these sources and maybe dividends, bond ladder and CD interest too and you never have to use principal a Bear market shouldn't be a worry.

+1

This is not new news, but very much worth repeating for retirees in this market:

Retirees can relax if they keep an eye on withdrawals - Houston Chronicle

Specifically:

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There are two big messages here. One is that slight concessions to highly visible reality can boost initial spending rates from 4 percent to 6 percent. A 50 percent increase is significant. To have the same effect on your Social Security benefits, you'd have to defer taking them by about six years. To be as productive as these rules, your portfolio manager would have to increase your investment principal by nearly 50 percent to achieve the same spending increase. Another message is more subtle. You and I, as individuals, are the most powerful agents for our retirement futures. Follow simple rules, consistently, and we leave other alternatives in the dust.

Emphasis added

[Gone4Good]

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Originally Posted by Hamlet A huge amount of the value of the internet to me has very little paid economic value that can be tracked.

That's certainly one of the arguments the optimists make against Gordon's analysis. His retort . . . it was always thus.

This is Larry Summers' take from the above linked review.

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Gordon is also more persuasive than I expected in arguing that, if anything, this understatement was greater decades ago than it has been recently. In part this is because there were more of these transformational changes that are inherently hard to assimilate in standard frameworks. In part it is because the statisticians do a much better job than they once did of taking account of quality change.

Hard to know. Gordon does put forward a huge bulk of data to back up his analysis. The other side meanwhile relies much more heavily on anecdote, conjecture, and science fiction.

[HFWR]

I "joke" about the four billion or so potential consumers, particularly in much of Asia, Africa, and South America, and the primary (IMHO) thing holding that growth back is political. Hard to have a growing, vibrant economy with no property rights, no legal system, and no infrastructure, not to mention wars between corrupt governments, and equally corrupt "rebel groups".

Certainly, mobile communications technology allows a phone/web system to be built without planting gazillions of poles and running brazillions of miles of cable, like in olden times. Other infrastructure, such as power generation, or water purification, can be made functional on a local basis with solar or other technologies, assuming the socio-political environment is stable enough. And micro loans, crowd sourcing, and other "innovative" financing techniques are enabling the entrepreneurs doing these types of things.

Still, having a working highway, rail, air, and port system, where applicable, would be necessary for more regional development, but baby steps...

I haven't studied any of this in-depth, though I have seen anecdotal evidence mentioned in various media from time to time.

[YVRRocketSurgery]

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Originally Posted by Gone4Good I sure hope so too. But I'm not sure exactly where the gains for the next 15-20 years are supposed to come from. Domestic large-cap earnings multiples are in the top quartile of their historic average. And corporate profits are right near a record high as a share of GDP. Normally one would expect stock multiples to be depressed after a "secular bear market." That allows multiple expansion to provide some extra juice to a secular profit recovery. Neither driver (either earnings growth or multiple expansion) seems very likely from where we are right now. Maybe we're on the cusp of a great technological revolution - A.I., robots, bio-engineering, nano-tech, some kind of actual pay off from big data or streaming cat videos, etc - that will cause earnings to surge ever higher for the next two decades. I surely hope so. Unfortunately historic stock charts probably don't offer any real guidance on the likelihood of those things.

[Late to the thread and reading my way thru it...]

I agree and also have concerns where the growth will come from. I've recently read articles about demographics and aging populations causing issues.

From a technological revolution perspective, I've been reading a lot of the growth of Internet of Things, the corresponding big data collected, and the corresponding analytics that will make so many things more efficient. While IoT is creeping into our lives with Internet connected home appliances, the real gains will be by businesses and machine to machine connections. We're apparently at the cusp of this "revolution" with things targeted to really getting going by the turn of the decade.

[YVRRocketSurgery]

As to the original question, I'm not totally convinced we're out of the secular bear market yet. Hope we are though because I'm still next to fully invested.
What worries me is that things (ie. Interest Rates) aren't "normal" yet and personally, a persistant feel of waiting for the next black swan event to happen vs being able to shrug off the disappointments.