This intriguing book is likely to be a popular read for this of us that like to ruminate over long running trends and cycles that take years to become apparent. If you prefer in-your-face, immediate action centric gossip, look away. The author’s premise is that when China joined the WTO and the Berlin Wall came down, two massive labor-cost events triggered long running cycles that result in what we see today. At least, as of 2020.
When the global supply of labor opened up at rock bottom prices, factory owners of Western nations rushed to redesign their supply chains to lower their costs. It was a management lesson 101. This drove growth and helped keep inflation down for many years. It all seemed too easy. But the residual effects, not foreseen then, are now clear.
The infamous ‘savings glut’ is part of the result, and this led to perpetually low interest rates in the west. This led to asset bubbles of significance and we know what happened there. Inflation was kept low due to lower costs.
There was a large dislocation of workers, untrained and unready for new markets and economies needed as jobs migrated to other regions. Politicians didn’t see this coming and didn’t invest in their people. Political unrest grew due to the winnowing out of the working classes.
This we all know. What we are now only just seeing is this. Most importantly, the actual demographics across the globe, once in our favor, are now moving against us. The newly minted global workforce that started the cycle, that once kept inflation and interest rates low, is now aging fast, almost everywhere.
Health costs will increase. Working-age populations are declining. The tax burden on fewer workers and increased spending on growing aged populations will drive inflation, interest rates and taxes. It’s all quite a logical argument at a macro level, and also quite alarming. And it’s alarming since the drivers, as explained by the authors very powerfully, are mostly beyond our control.
The data is effective and numerous. Charts easy to read and neatly in color (hardback read). The story compelling. I particularly found the last chapters excellent enough to stand alone: chapter 8 and the Philips curve; chapter 9 and why didn’t it happen in Japan?; chapter 11 and the debt trap: can we avoid it?
Chapter 9 is illuminating. My own research led me to conclude that we can’t use Japan’s experience to explain economic results based on long running low inflation and high public debt, coupled with demographic decline. Exactly because Japan was alone in this situation sufficiently explains it’s unique situation. Excess profits were invested overseas in markets and economies that were unlike Japan! Today all the world is getting more and more like Japan. Where will excess profits go now? The moon? It’s a very notable chapter in its own right.
The last couple of chapters explore mitigating actions politicians and policy makers might consider. Taxes is obvious but the authors do explore some innovative angles. Many are topical today but polarized arguments prevent any real debate, alas. Growth and productivity and incentives are also explored. Unfortunately the same arguments in the media today prevent any real debate on those ideas too. So while useful the ideas here remain just that. It is hoped we all can get past the current turmoil and revert back to real debate of such issues and ideas, before the window afforded us to make a difference closes.
In 2022 we see now inflation running hot. Perhaps this is an early trigger that will set in the long curve the authors are fearful off. It’s hard to see a soft landing in 2022 or 2023. Recession is almost guaranteed. As such the authors look prescient.
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Top reviews from other countries
William Jordan
hard to read (for a non-economist) but full of interest
Reviewed in the United Kingdom on January 21, 2021