macro thoughts

Discussion in 'Economics' started by darkhorse, Oct 16, 2003.

  1. was thinking about long term trends recently / what's coming up for the 21st century... thought I'd throw out a few possibilities... discussion anyone?

    -dollar will eventually lose its hegemony (over extended period of time) when foreigners decide to stop financing unsustainable debt load

    -commodity bull market (even if only brief) strong possibility when USD divestment hits panic proportions

    -potential longer term commodity bull market after coming protectionism issues worked through and panic USD bounceback settles, combination of structurally lower dollar + higher demand from developing countries for metals and agricultural products as construction and discretionary income increase

    -order of magnitude shift of manufacturing away from US to developing countries- protectionism backlash will threaten global trade but eventually whimper out, manufacturing will be distributed w/ rich countries moving to high tech / white collar / high end service export centers

    -rich world strengths in exporting to developing world: software + expensive machinery + biotech + knowledge based consulting services

    -next major equity bull market more likely to show up in China / Asia / Eastern Europe etc - lower price base, more untapped growth potential, less mature industry, lower unresolved debt burden

    -mature US companies will see profits stabilize or stagnate as optimal scope and scale are reached (w/exception of those that aggressively develop globalization opportunities)

    -US small businesses will increase efficiency through technological cost savings and reach extension- services improve w/ competition keeping prices low

    -high end service/knowledge economy will eventually stabilize w/ renewed focus on providing localized services to itself

    -US equities stagnate as bulk of capital circulation shifts to smaller, non-public entities (w/ notable exceptions)- large amount of starting capital becomes less relevant to long term success as technology lowers startup barriers and improves scalability

    -Software companies morph into utility companies, providing applications on demand for defined periods of consumption, like heating oil or electricity- silicon valley gets sleepy as marketing cycle goes from explosive (move half a million units in first year to cover burn rate) to sedentary (software on demand means no need for huge upfront investment to cover marketing and sunk costs, dull and steady scale increase instead)

    -Baby boomers withdraw bulk of investments, spend on healthcare and consumer goods, equities further stagnate to wall street's extreme frustration as interesting stuff continues to happen under the radar screen and overseas

    -major clash between boomers and gen Xers as boomers push for government largesse at Xers expense

    -age / generation financial concerns become global phenomenon as rich world gets collectively older

    -rich world governments experience major revenue crisis as boomers retire and uneducated younger workers unable to fill the tax gap with their lower income jobs... america is the only rich world country not to get progressively older by 2050 due to immigration, but the new lower income jobs just don't provide enough tax base to sate the boomers... wealthy individuals targeted as last resort

    -assets flee US and other rich world countries to escape predatory taxation, developing countries with guts to stand up to G8 bullying reap the benefits, huge new debate ignites (responsibility/collectivism vs sovereignty/individualism)

    -possible envy fueled backlash against super concentrated pools of capital (i.e. the Wal-Mart family etc.)

    -80/20 becomes 95/5 as income disparity widens...lower cost of goods and services paired with lower average incomes nationwide- purchasing power maintained, envy rising as rich begin to look even richer in comparison, $4,000 cars and $400 computers don't soothe the psychological pain

    -notion of wars in national interest, and even national interest itself, eventually becomes antiquated

    -nationality becomes less and less important as rule of law becomes more prevalent

    -at some point in 21st century the world begins to shift and divide along economic lines, wealth congregating in areas like New Zealand and Costa Rica / leaving barren areas behind

    -after peaking sometime in 21st century, governments eventually shrink and devolve into primarily local entities with local structure and reach.... OR, if angry embittered populists win, unpleasant Orwell / 1984 type scenario
  2. DK_


    On the contrary, the future is brilliant, the US, UK and China will unite in the creation of the first 3-4 space elevators on earth, and 1-2 on Mars (

    The most demanding aspects of spacecraft will instantaneously change from reentry to massive centrifuges and life-support systems, allowing massive human transports between the two planets on a biweekly schedule.

    Thousands of peaceful adventurers will voluntarily move to Mars along with scientists and commercial enterprises in the largest industrial, agricultural & commercial undertaking of all time - the terra-forming and settlement of Mars.

    Scientific perspective and a whole new planet will enlighten billions, end wars, charge economies and spark cosmology education worldwide at the youngest ages.

    Here's hoping!!

  3. m22au


    Refreshing to see some longer term trends discussed on these boards. The many and significant ramifications of the collapse of the US Dollar will dwarf the other trends on your list, especially given so few expect it to be a major problem.

  4. insightful threads, such as this one, are the reason i read ET. thank you, darkhorse, as they have been becoming too few and far between....

    i highly recommend "the fourth turning" by strauss and howe for an excellent "glimpse" into the future. this book altered my perceptions of the market and economy profoundly.

    i forsee the US equity markets going totally FLAT for years, public interest vanishing, etc, etc.

    enjoy !

    surfer d. :)
  5. Cheese


    A big list of predictions, Darkhorse - all stimulating

    One though is commonplace, cliched and wrong. The dollar isn't going to lose its hegemony (over an extended period of time) because foreigners do not have a viable alternative to financing USA debt. The USA is going to remain the engine of the world economy for the foreseeable future .. and frankly all sensible Europeans and others elsewhere, principally the Japs who have their self interest tied up in a successful USA economy, know it.

    Push come to shove the USA can do without the rest of the world; a successfully world economy cannot do without the USA economy.
  6. thanks for the book recommendation surf, i added it to my amazon wish list...

    interesting to see opposing views on the US$ come out so quickly... I think reality will end up playing itself out somewhere between the two extremes (catastrophic meltdown vs govmts won't let it happen).

    the notion of America as engine of growth to the world is unsustainable from a long term perspective anyhow- all industries mature at some point, and we are already at the point where our debt to opportunity ratio is looking potentially unfavorable in comparison to opportunities elsewhere. this isn't necessarily pessimistic either- there's nothing wrong with settling into a mature, dividend producing, self-sustaining mode as opposed to always striving for growth.

    as developing countries make positive strides we may see immigration patterns change as well. for a long time America has been the main benefactor of a "brain drain" as the best and brightest from other countries came to the US in search of opportunity. as the opportunity shifts back to various homelands via the benefit of technology and rule of law, our immigration edge will be dulled. at some point in future- admittedly a long way off- America's population level is likely to stabilize.

    whether or not the powers that be want to keep the US dollar on top, eventually simple mathematics will overwhelm the situation. investment flows alone are enough to cast serious doubt on the dollar's future as kingpin. the decline may be brutal and abrupt or it may be slow and grinding, but over the long term it's guaranteed. America just won't have a way to stop it. Ironically, though, this is a positive thing: capitalism functions better when there are countries all over the globe doing well as opposed to one riding astride them all.

    the economist had an excellent piece in it's most recent issue on how third world countries are doing poorly not because they have been raped by corporations, but rather because they are literally drowning in red tape. there is a direct and undeniable correlation between a poor country's business climate and its level of senseless regulation- for example in Haiti it takes six months just to get approval for a small business. this is typical of third world government- and yet more evidence that the anti-globalization, pro-government regulation crowd are part of the problem and not the solution. and it's also yet more sign of untapped potential when the bureacracy is done away with in hundreds of disorganized economies hungry for knowledge and work.

    the biggest short term question for me (meaning next five to ten years or so, heh) is how badly the global economy is going to be hit by protectionism. there is a major backlash on the horizon and it has the potential to get ugly very quickly. the automotive industry may serve as something of a bellwether here- toyota is set to overtake chrysler soon as the #3 seller in the united states, and it's becoming more and more clear that the UAW (united auto workers' union) has essentially doomed american car manufacturers to a choice between also ran status or eventual bankruptcy. these trends are bound to accelerate and cross over into multiple industries; it's only a question of when. i'm curious to see how much damage the populists do to the system. in the long run, though, the localizing force of technology- i.e. technology as a force of decentralization and reverse economy of scale- will prove stronger and more resilient than the temporary effects of populism and protectionism. imho.

  7. Mvic


    wouldn't that be just what one would expect the economist to write.

    The research I have read suggests that when less developed countries are cut off from the global economy, not only does domestic industry and enterprise flourish but so does democracy and an acceleration of the emergence of a middle class. Latin America is replete with examples of this in the last century and there are also African cases too.

    I have also read studies that show that an increased participation in the global economy leads to and increase in domestic corruption, a lessening of democratic transparency and legitimacy and a widening gulf between the elites and the non elites in addition to inflation, and a more extreme economic cycle. And I am not just talking about the cycle of commodification that can occur when dealing with the most underdeveloped nations but rather what occurs in nations with some development and a nascent middle class.

    Don't get me wrong, I am not an anti globalization fanatic by any means as I believe that globalization offers all parties benefits in the long run (desoto's book Mystery of capital is a great work and one that in many ways supports your theory regarding red tape but with important caveats) but it has been shown through several studies that globalization that results in sustainable and beneficial growth in the less developed country occurs primarily in cases where the host government has more bargaining power than less and where there is strong involvement of organizations like the WB and established NGO's to keep things transparent and on the up and up.

    The worst cases resulting from 1st and 3rd world economic contact come when there is little to no international over sight and tangible 1st world externalities become intangible in the third world.

    If history repeats itself I would agree that the US $ is going to lose its premium as the go to currency. If China can keep up its economic growth for the next 20 years and keep its domestic political situation from getting out of hand then the Yuan will be the next global currency.
  8. how is that logical? do the studies give any explanations as to the reasoning behind their findings?

    i don't see any natural explanations as to why globalization would increase corruption, especially since countries that trade more tend to have lower corruption levels than those that trade less. doing business internationally requires more flexibility and transparency than staying at home, and inexperienced countries do well in adopting the best practices of successful ones.

    i'm also curious as to how third world countries are so easily exploited by first world countries when trade occurs. if anything developing countries are the ones hurt by protectionism in the form of government subsidies and trade barriers erected to stifle competition and protect high wage fiefdoms in the developed world.
  9. Darkhorse and Mvic I appreciate your insights in this thread. It is one of my goals to increase my knowledge of macro trends and the reading of the larger world. Thank you for challenging my mind along those lines.

    You were discussing the topic of globalization breeding corruption. I have seen this recently on a trip back to Poland, my second home of sorts. There is currently a building boom going on in Warsaw and everyone I have talked to says everyone in the government has their hand out. English language magazines have covered the topic and say things are worse than they ever have been. With many European investment banks pouring money into building projects the bureaucrats know that they are the only ones who can stand in the way of the projects. They are the noisy cogs looking for some grease. When that kind of big money is involved greed at all levels rears its head. While this type of corruption has skyrocketed the type of general graft impacting the average citizen has plummeted. Dirty cops, mafia fronts, kidnappings, etc have subsided as the rule of law has taken hold. Its a mixed bag I guess.

    Cycles are definitely more extreme in the developing world. This is the second or third building boom and bust Poland has endured. In the last bust rent rates plummeted and some of the large homes built on spec for the anticipated new rich are still unoccupied. Many American companies have arrived, pulled out, and are now back again. The boom bust cycles are totally exaggerated. With so much ground floor opportunity people are apt to over invest, overbuild, and inevitably endure the fallout when the market is not there for their product. Whether or not the average citizen benefits through all this is beyond me at this point.

    Ultimately there will be winners and losers. While Poland is thriving some of their cold war era equals have at best stagnated. Whether successes depend on government policies, worker culture, or simply name recognition amongst foreign investors is an issue that can be debated. What I do know is that even with all the pitfalls of our own system I wouldn't trade it for anything in the world. One can only hope that globalization brings the world the fairness and stability of our system while avoiding its excesses.

    Keep up the great thread. I am here to learn.
  10. Mvic


    in a society that does not have a major foreign source of capital the diverse interests within the society compete amongst each other for the limited domestic pot. It is in the interest of all participants that some level of domestic transparency be present and that widespread corruption at high levels be kept to a minimum. When the main spigot to the national economy comes from a foreign source then whoever can control that source will benefit disproportionately from that control and it will be in the interest of the various domestic factions to tow the line lest they get left out of the party. This high level corruption (which ironically actually reduces lower level corruption, as opm post seems to point out) does not promote the emergence of a middle class nor democracy as it relies on the lack of transparency that a democratically engaged middle class would obviously demand. Often this spigot of foreign capital has come in the form of loans and when the investment does not yield fruit in terms of an increase in GDP growth the result is a huge debt burden, high interest rates, eventual default and run away inflation.

    Pretty much anything by Gilpin will give a great explanation of how it all works, and why, for foreign investment to actually yield growth in the GDP of both parties, a viable and engaged middle class is almost a prerequisite. Without that middle class stringent foreign oversight of the investment is necessary for it to have a positive impact on the domestic economy.

    These are not my conclusions but rather the conclusion that the WB has come to in the last decade, helped along by academics like Gilpin. And the shift can be seen in the way the WB now operates, rather than it did previously where it tended to deal solely with the appropriate domestic ministry it now requires not only the involvement but also the support.oversight of domestic NGO's for many of its projects. It has also made transparency an knowledge exchange a commitment.

    In a nutshell, in the absence of a democratically engaged middle class (which is often the case in developing nations) for foreign investment to yield dividends the elite need some check to balance their power over the capital flow. And that check can come from empowered NGO's and domestic corporations and government agencies. Empowered by the lending institution or the multinational investor.

    It is also important to note that many so called anti globalizers are not anti globalizers at all. Rather they are against unregulated globalization with little or no oversight that allows multinationals to exempt themselves from externalities of their business model that are tangible in the first world and become intangible in the third. Essentially shift the burden of the externalities from the bottom line of the multinational to the domestic economy of the developing nation which is ill equipped and therefore inefficient in dealing with them. If long term Global growth is to be considered the goal of globalization (rising tide raises all boats theory, Keynes comp. adv) then clearly this short term shifting of externalities from a first world country that can deal with them efficiently to a third world country that can not is not productive and not in sympathy with that goal.

    The reason why many feel that globalization needs attention is that so many international deals are absolutely not transparent but rather framed behind closed doors (and I am talking here about trade regulations rather than actual corporate deals themselves, or deal that are done by quasi governmental institutions like the WB, EXIM bank, IMF etc.). For globalization to flourish and for it to reach its potential of creating sustainable global growth this transparence is a prerequisite when deal with countries that don't have a democratically engaged middle class.

    Obviously under this paradigm corporate profits in 1st world countries will not grow as fast (though they will still grow) as externalities will not be shifted off the bottom line so rapidly and cheaply and there in lies part of the stiff opposition to the needed transparency. As we all know here in the US business operates on a very short cycle and acceleration of earnings are very important.

    Anyway, Gilpin says all of the above far more cogently and with many examples. He is certainly worth a read by anyone interested in the Global Economy. In fact, interestingly Desoto came out with a new book essentially rehashing his previous work, touting globalization as a way to reduce terrorism. Now we have to remember that he is dealing with Peru that was plagued the Sendiero luminoso who were essentially Maoists vs. the religious fanaticism emanating from rich Saudi's, but when one considers that in countries like Egypt and Jordan the fanatics recruit most successfully in the poorest areas perhaps he is indeed on to something. I certainly buy his theory that globalization done right can not only create sustainable global growth but also decrease the global and domestic income disparities that are often played upon by the fanatics to incite people to follow their twisted ideas.

    BTW anyone who is interested in discussions about macro issues,both the WB knowledge development unit(especially good for aspects of globalization related to development) and the WSJ host some really intelligent discussions with contributions from some of the brightest people in the academia and in the field (corporate, Gov, and NGO). Definitely worth checking out.

    I would like to echo opm's thoughts, I too am here to learn and certainly appreciate darkhors'es thoughts (and your contributions too opm) and am grateful that he put in the time to start the discussion.
    #10     Oct 19, 2003