Economic Trendline Reversion Does Not Happen Evenly

If we could point to one aspect that makes the modern era different from centuries past, the premier candidate for that distinction is how the centuries-established exponential, accelerating trend of technological progress manifests in economics, and the fact that the trendline is now in a steep upward trajectory.  These are all worldwide metrics, and have to be.  But if one examines the components, the variance contained therein is immense.

One table that I use relatively often is the one that depicts relative GDP gain by country, and have in the past used it to describe how the 2008-09 crisis led to the rebound happening elsewhere.  Google has just updated its economic data engine for 2017, enabling a full decade to be included from the start of the prior crisis.   This enables us to see what happens when the global economy experiences a major dislocation.  The Great Depression (1929-39) was one such dislocaton, and while the trendline is too steep today for a downturn of similar duration to manifest in the global economy, the more recent dislocation was almost as dramatic in terms of how it reoriented the tectonic plates of the global economy.  

From the table, we see that the World Economy grew by 40% in Nominal GDP.  We do not adjust for inflation in these metrics for reasons detailed in the ATOM publication, and we take the US$ metric as universal.  

The US, remarkably, did not grow at a much slower rate than the world average, and hence has not yet experienced a substantial proportional shrinkage.  By contrast, the rest of the advanced world has scarcely grown at all, while European economies have outright shrunk.  An advanced country, of course, does not have the same set of factors to contend with as an emerging economy that is at a stage where high growth is easier, hence this is really two tables in one.  India's underperformance relative to China is just as substandard as the UK's underperformance relative to the US.  

China has effectively dominated the entire world's growth.  China has grown at an astounding 245%, partly due to a structural strengthening of its currency, which itself is partly due to their more advanced understanding of technological deflation and the monetization of such through their central bank (as per the ATOM concepts).  India has not experienced any such strengthening of its currency (quite the opposite, in fact), which is why India's economy has grown at a far slower rate despite starting from a very low base.  

Consider this other chart, of GDP distribution by country (as per the current borders) from the year 1 until 2017.  The growth of China (and to a lesser extent, India) appears to be a reversion to a status quo that existed from the dawn of civilization all the way until the early 19th century.  If this factor is combined with the exponential trend of world growth, then China's current outperformance seems less like an aberration.  

This begs the question of what the next decade will look like.  There is almost no chance that China can outperform the RoW by the same magnitude from this point onwards, simply due to the RoW no longer being large enough to manage the same intake of Chinese exports relative to China's size as before.  But will the convergence take the form of China slowing down or the RoW speeding up?  Will India experience the same convergence to pre-19th century proportional size, or is India a lost cause?

Under the ATOM program, it could certainly be the latter, since the advanced economies already have enough technological deflation that they can monetize it through central bank monetary creation.  China, by contrast, will not be technologically dense enough for it until 2024 or so.  The US could rise to 5-6%/year Real GDP growth by 2025.  

The current mindset in the Economics profession is vastly outdated, and there is little to no curiosity about accelerating economic growth rates, or about the relationship between technological deflation and central bank monetary action.  If China can no longer be an outlet to accommodate the entirety of the trendline reversion force that is seeking to work around these obstructions, then explosive growth combined with chaotic disruption will happen somewhere else.  

 

Related ATOM Chapters :

2.  The Exponential Trendline of Economic Growth

 

 

Comments

[HB]

And to understand how "far sighted" the rest of the world is, read today how the highest human recognition in economics, the Nobel Prize, was given to two economists who have modeled the economy, the climate, and human advancement -- to a time past the singularity!-- and have warned of dire consequences. In their view, a post singularity world that is two degrees Celsius warmer will represent a calamitous future. A hardship that no singularity can undo. Of course, hordes of already marginalized and disenfranchised lackeys who resent technology and fear economic freedom, subsidy feeders, and cronies, are all rushing to applaud.

I can't wait to get to the singularity, if anything to be able to look back and ridicule all these once untouchable erudites and the, once again, gullible masses. Once upon a time, the smartest people became alchemists.

PS. Actually, I think that the masses do perceive that something is amiss, but they funnel their frustration into alternative movements, like Trumpism, which though better than the current alternatives risk creating new ideological and economic distortions. But perhaps there is a silver lining. Perhaps the masses are intuitively (though not rationally) sensing that intelligent erudites with central planning ideas are the ones who have brought humanity the most grief.

[HB]

...Seems like most of this inherently defeatist eco-ideology springs up amongst the one percenters. By that I don't mean the top one percent in prosperity but rather the once prosperous countries who are currently on a one percent growth trendline -- an arithmetically deterministic path to decline.

Seems like one of the hardest things to explain to the evolutionaly analog human minds is the dramatically upending result of exponents. If your country is growing at one percent, and the world as a whole is growing four times faster, then you are in rapid decline as we speak. There is no buts or ifs. In two to four decades your country will be a middle income country, no matter how high it is today in worldwide prosperity rankings. Indeed, economic reversion trendline does not happen evenly. But the overall steamroller of exponential growth cannot be stopped.

[Geoman]

The wisdom of crowds is a well studied and provable phenomena. It appears that we as humans are able to assemble a powerful virtual computers to resolve many thorny issues.

However, that computer only works properly when you have skin in the game, if your own money and livelihood at risk.

I would love to limit carbon dioxide emissions, if it cost me absolutely nothing I'd say, heck, why not? Once I realized the expense, and that the severe impacts from climate change would not occur for decades, I lost interest - decades ago we thought horse manure would drown the cities, and there would be nor more forest because it had all gone to firewood. Such and outcome is very speculative. Any prediction post 2040 is highly speculative.

And alas, yes. A loss of 1% growth is a long-term disaster for any country. compounding interest can make us all millionaires.

[waestrel]

Saw this today

https://www.zerohedge.com/news/2018-10-10/vix-spikes-above-20-highest-6-months-term-structure-inverts

Kartik, I know you look at the VIX a lot, and have mentioned it in the context of THE ATOM, is the economic downturn you predicted still a valid prediction?

[Kartik Gada]

Waestrel,

That is part of it. While every other economic stat has improved over 2018, the ^vix index still has not hit the 2017 lows, which indicates a rising unease.

It is still possible that the downturn started in 2017, but it appears to be a very gentle decline if not an outright plateau. Plus, remember that the downtown is contingent on insufficient money-printing, whereas China just announced another $175B injection (above and beyond their monthly printing) just this week.

https://www.nytimes.com/2018/10/07/business/china-lending-trade-war.html

Plus, the US stock market is having trouble staying above the January 2018 highs.

We may yet not know for a while whether the downturn began then or not.

[Kartik Gada]

HB,

Seems like one of the hardest things to explain to the evolutionaly analog human minds is the dramatically upending result of exponents. If your country is growing at one percent, and the world as a whole is growing four times faster, then you are in rapid decline as we speak.

Oh, South Korea and Taiwan had the same poverty level as India in 1950. By merely beginning their economic growth three decades sooner, the difference between the two seems astronomically large.

China was poorer than India until 1993. By merely growing 1-2% points/year higher, it is a much larger economy today (despite India's still-fast-but-slower-than-China growth).