Too Many Obligations, Too Few Resources

Within the OECD nations, at all levels of society - from the household, to business, to government - obligations have been piling up for years: debts, pensions, social programmes - to name a few. Clearly, these obligations can only be met with continual economic growth. But what happens when anticipated growth fails to materialise?

This question is hardly academic. Virtually everyone and every institution is struggling with the fact of a less than expected actual income slamming into financial obligations. The general consensus is that this is a crisis, a mere interruption of the norm of perpetual growth. Once the crisis is passed, like a fever, economic health (a.k.a. growth) will return.

Our opinion departs from the general consensus. We expect growth to become the interruption in the general economic routine. It will become even more difficult for individuals or enterprises to amass wealth. The present uncertainty of employment and profit will continue and be normal.

In such an environment the notion of taking on any obligations is questionable. There will be an enormous cultural lag for the realisation of this however. Expect to see a lot of bad decisions to be made over the coming years: investments made with the expectation of a return to a prosperity that never comes.

Economic actors - everyone, that is - need to learn the new rules of economic life in a world turned upside down. We don't know them - no one does - but we could hazard a few guesses: you must live on half (or less) of your income; much of what comes in is not true income but a windfall and must be treated as such; never borrow money; investments must be recovered from cash flow in a very short time frame - perhaps three or four years for low-risk endeavours, perhaps one or two years for risky ones; all investments are riskier than they used to be.

At present, society is following a set of economic rules completely at variance with our guesses of the new rules. The transition to new rules will nevertheless be made, no matter how impossible it seems at the moment.