A Bear Market For The Next 15-20 Years?

[NW-Bound]

Hmmm... Lemme see. In the mid-1700's, the American Revolution, followed by the brutal French Revolution across the pond. In the mid-1800's the American Civil War. Then, in the mid-1900's the WWII.

We still have a few decades before the mid-2000's. I may or may not be alive by then.

 

[Totoro]

Penicillin was discovered prior to 1930. That really was a huge game changer but it also fits right in with Gordon's second industrial revolution.

To be a bit pedantic, penicillin was indeed discovered a long time ago and not the first antibiotic.

Practical use however, as well as commercial availability and subsequent mass production only happened from 1932 onwards.

Fleming himself couldn't reproduce it in mass to be of any use.

So I'd argue that antibiotics is a post 1930 thing (even 1940). What use are antibiotics if you can't mass produce them ..

 

[NW-Bound]

Even during WW II, penicillin was so precious that it was recycled from patients' urine when it was discovered that most of the injected penicillin was quickly filtered out by the kidney.

In 1943, even with recycling from urine, there was only enough penicillin to treat 100 patients. However, a major breakthrough came about, and by the end of WW II enough penicillin was produced, and urine recycling effort was stopped.

See: Doctors Once Recycled Penicillin Out Of Urine - KnowledgeNuts.

 

[Gone4Good]

To be a bit pedantic, penicillin was indeed discovered a long time ago and not the first antibiotic.

Practical use however, as well as commercial availability and subsequent mass production only happened from 1932 onwards.

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.

 

[MichaelB]

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.

Huh? Facebook and selfie sticks will change the world.

 

[Gone4Good]

Huh? Facebook and selfie sticks will change the world.

Ugh, they already have.

 

[marko]

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 have to disagree. We may be at the cusp, but I think the whole digital integration aspect will deliver an entirely new world.

I often consider hundreds of things I can now do so simply--things that were a lot harder to do-- and think about how this is how people must've felt when they first got electricity or a phone in their home.

 

[marko]

Huh? Facebook and selfie sticks will change the world.

C'mon. Half the people here talk about living in other countries while keeping in touch with their family via video conference, banking in the "US" from anywhere etc.

Everyone seems to sign up for SS online, monitor their hot tubs up north from their Florida home, making plane reservations from their beach chair etc.

Even my car now has collision avoidance! (already saved DW from a bad crash)

 

[DrRoy]

If I read his article correctly, am I alone in not realizing that the past 17 years have been a bear market?

A year or two ago, someone here posted this chart which I found helpful. Now I'm just confused..

View attachment 23117

This is confusing because it only shows net ups and downs. What is missing is the total perspecitve over the period. In the 2000's for example, we started with a near 50% drop, followed by a near 100% rise. The chart makes the rise look larger than the drop, but in reality the market only got back to roughly where it started. 2000-2013 was a secular bear market period.

 

[Gone4Good]

I have to disagree. We may be at the cusp, but I think the whole digital integration aspect will deliver an entirely new world.

I often consider hundreds of things I can now do so simply--things that were a lot harder to do-- and think about how this is how people must've felt when they first got electricity or a phone in their home.

Yes and no.

Whether we're on the cusp of some revolutionary new technology that will have an economic impact equal to electricity is yet to be seen. No one is denying that that possibility exists. We're all hopeful we'll see it in our lifetimes and we can all think of possibilities that seem tantalizingly close. So on this point, you, me and Robert Gordon are all in agreement.

Where we disagree is whether the computer age we've actually experienced over the past half century is as big a deal as it seems on the surface. Here the economic statistics unequivocally say no. The computer age, with all it's apparent changes and improvements, just hasn't had the impact on growth and productivity that those earlier innovations did.

 

[Hamlet]

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]

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]

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]

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]

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.


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[Hamlet]

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.


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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]

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]

... 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.

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.

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]

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.

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:

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]

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]

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:

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]

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.

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.