Is Stephen King’s End of Western Affluence theory too pessimistic?

Philip Greenspun's Weblog 2013-10-07

A friend emailed me “When Wealth Disappears,” a nytimes op-ed by Stephen King, chief economist as HSBC and the author of When the Money Runs Out: The End of Western Affluence. The guy starts out by pointing out the obvious: old established governments such as the U.S. and its counterparts in Western Europe are spending way more than they can ever hope to take in via tax revenues. He says that profligate spending worked out okay in the past because of five factors that generate crazy amounts of GDP growth: (1) globalization of trade, (2) financial innovation, (3) social safety nets that encouraged consumers to spend rather than save, (4) women entering the labor force, (5) increasing percentage of people going to college.

Is the guy too pessimistic?

On globalization of trade, Apple was able to Fedex an iPad directly from the factory in China to my parent’s house in Bethesda, Maryland. However, for a smaller enterprise there remain substantial obstacles to working with people in India and similar foreign nations. Improved telecommunications and video conferencing systems should help here.

On financial innovation, one the one hand you’d think that that Collapse of 2008 shows that it would be nice to have our finance industry be a lot less innovative. But on the other hand, the fact that it costs us more than 8 percent of GDP (source) indicates that there is a lot of room for cost reduction here. For example, shouldn’t it be possible to match savers and borrowers in the home mortgage market for a lot less than we are currently spending?

Regarding social safety nets… if the government runs out of money and people need to work in order to pay rent, buy food, obtain health care, wouldn’t that motivate a huge number of people to go back to work? CNN says that the employment rate right now is near a 30-year low.

Women entering the labor force… that does seem as though it was a one-time event. On the other hand, if cities and states run out of cash to pay retired 50-year-old government workers their pensions there will be a lot of able-bodied middle-aged folks reentering the work force.

As far as the quality of education goes, the people most likely to celebrate the value of a college education are those who haven’t been in a classroom lately! Books such as Higher Education and Academically Adrift: Limited Learning on College Campuses show that there is a huge amount of room for improvement in what gets delivered during four expensive years.

What if Americans simply pushed themselves to be better workers, e.g., by showing up on time every day, being more organized, answering customer inquiries faster and more reliably, following up? Couldn’t we get a lot of GDP growth out of that?