Can we live without the growth treadmill?
By
Tim Price Aug 06, 2010
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We assess our personal wealth not in absolute terms, but in relative ones. All things being equal, while anyone might normally be content with a six-figure salary, as soon as they know a neighbour earns more, then too much is suddenly not enough. But all things are not equal, for countries any more than for individuals. The global economy does not share its rewards equally. As patchy evidence builds of a recession in the industrialised world, we are storing up social and psychological problems as we look at faster-growing economies with envious eyes.
It was never even much of a recovery, but such as it was, it now seems to be subsiding. Chinese manufacturing data released last Sunday point to curtailed growth. Annualised GDP figures show the US economy slowing from 3.7% to 2.4% in the second quarter. UK GDP data were a touch stronger than expected (though a 1.1% quarterly rise hardly transforms us into an Asian tiger), but consumer confidence continues to ebb.
So 'lower for longer' may refer not just to interest-rate policy, but to the rate of medium-term economic growth in the West. Concern at this apparent slide toward economic stagnation is growing in official circles. James Bullard, president of the St Louis Federal Reserve Bank, has just published a paper entitled Seven Faces of 'The Peril'. He says that "the US is closer to a Japanese-style outcome today than at any time in recent history". And Japan is not a national role model that any country would wish to emulate.
Deflation there set in during the early 1990s. The Nikkei 225 now sits 75% below the peak it reached 21 years ago – so much for stocks for the long run.
The economy has endured a real-estate and a banking bust (sound familiar?). Japan was also ahead of the rest of the world in adopting quantitative easing, which began nine years ago – to little obvious effect. Japanese consumer prices have fallen for 16 consecutive months. Ten-year Japanese government bonds yield just a shade over 1%, which may point the way for government bond yields somewhat closer to home.
For a culture that values not losing face, Japan's slide into deflationary torpor must have been difficult. In the 1950s and 1960s, the economy was growing by more than 9% per year, to the extent that by the 1970s Japan was shadowing the US for global economic primacy. Then a culture of over-saving, under-consumption and speculation did its worst, and the economy has still to recover.
The paradox for investors is that there is not even any proven linkage between economic growth and equity-market outcomes. Young and fast-growing economies do not automatically yield superior returns to those of slower, stodgier, mature markets. For FTSE investors, that may be just as well.
Here in Britain we've had time to come to terms with the slow end of empire. In Liar's Poker, Michael Lewis writes about encountering the under-powered British banker, "a portly, middle-aged figure in an ill-fitted suit, scuffed black shoes, and the sort of sagging thin black socks I came to recognize as a symbol of Britain's long economic decline". Not that the volatile rise of American banking has done much good for the global economy lately.
But if the thesis of a coordinated global slowdown does turn out to be correct, we'd be well advised to spend less time agonising over how other countries are doing, relative to us. Instead we should be worrying about how to squeeze out a few extra basis points to juice our domestic growth. For too long we've been trapped on a hedonic treadmill, encouraged to believe that economies should only ever grow, and that economic growth can come about out of endless consumption.
As Alain de Botton writes in Status Anxiety, "It is the feeling that we might be something other than what we are – a feeling transmitted by the superior achievements of those we take to be our equals – that generates anxiety and resentment... Our sense of an appropriate limit... to wealth and esteem... is never decided independently. It is decided by comparing our condition with that of a reference group, with that of people we consider to be our equals."
Yet at least one person has tried to break the cycle of obsession with perpetual growth and acquisitiveness. Bhutan's former king coined the term 'gross national happiness' in 1972 to reconcile a growing modern economy with traditional Buddhist values. But I suspect the focus on personal consumption is too deeply engrained in the Anglo-Saxon psyche to be shifted toward less obviously financial concerns. In which case, any recession is going to be a challenging psychological experience. The irony, of course, is that while more money rarely makes you happier for long (that hedonic treadmill at work again), having less of it sure does make you miserable.
• Tim Price is director of investment at PFP Wealth Management. He also writes The Price Report newsletter. For subscription details, call 020-7633 3637.
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