A is for Ambiguity

Financial Events


US recessions May12.pngToday the blog ends its review of the VUCA world with A for Ambiguity.

The global economy often seemed to be on auto-pilot during the 25 years of the economic Supercycle between 1982-2007. The chart above shows US GDP since 1929 (when records began), with the pink columns showing the official dates for recession:

• Between 1929-82, the US was in recession for 23% of the time
• There were 11 recessions in total over the 54 years

• Between 1982-2007, it was in recession for just 5% of the time
• There were 2 minor downturns lasting 16 months over the 25 years

Policymakers claimed that this was because they had learned to ‘manage’ the economy. And they argued that the creation of more independent central banks was the key to success. This allowed the experts to manage things without political interference.

This argument may be correct. But we cannot turn back the clock and run a spreadsheet-like ‘What If’ analysis to test it. So we do not know what would have happened had central banks remained as they were.

This is a key example of the Ambiguity around today’s key policy areas.

The blog, in the ‘Boom, Gloom and the New Normal’ eBook, puts forward an alternative argument, that ‘Demographics drives Demand’. It suggests instead that the arrival of the Western BabyBoomers (those born between 1946-70) into the Wealth Creating 25 – 54 age group, was the key stabilising effect.

It argues that the Boomers are the richest and largest generation in the history of the world. And as they reached their Wealth Creator period, when people typically settle down and have children, they inevitably stabilised demand patterns.

The world got used to the concept of ‘pent-up demand’. If central banks raised interest rates for a year or two, the children still kept on growing, and new Boomers kept joining the Wealth Creator cohort. So demand jumped, as soon as interest rates fell again.

But since 2000, the Boomers have been joining the New Old 55+ generation, when people typically save more and spend less. And the Boomers have to save more, as they also have the longest life expectancy in history. It is therefore no surprise that growth has slowed.

Most economists and central bankers, with the exception of the Bank of Japan, ignore this analysis. They refuse to accept that demographics has anything to do with demand. And, of course, they may be right.

But the debate matters enormously. If the blog is right, then the $trillions of stimulus and quantitative easing since 2001 simply gave the economy a ‘sugar-high’. Demand jumped temporarily, but then fell back when the stimulus ended. Whilst debt levels rose still further.

Masaaki Shirakawa, the Governor of the Bank of Japan, supports the demographic argument. He has argued for some time that Japan’s “low growth was mainly attributable to demographics, or more specifically, a rapid aging of the population”. And he noted recently that:

“The implications of population aging and decline are also very profound, as they contribute to a decline in growth potential, a deterioration in the fiscal balance, and a fall in housing prices. Given that other developed countries will face the same problems despite some differences in timing and magnitude, the economic effects of demographics deserve further study.”

This exactly summarises our view, and is one of the major factors behind the decision to publish ‘Boom, Gloom and the New Normal’. It would clearly be nice to believe that making central banks independent meant recessions became a thing of the past.

But it may also be wishful thinking. Today’s financial crisis seems never-ending. And it may well be that central bankers are unwittingly making the situation far worse, by their refusal to consider alternative viewpoints.

Equally, in Unilever’s view, today’s VUCA world is not going to go away.

Companies therefore need to develop their own VUCA if they are going to prosper in the transition to the New Normal. Vision, Understanding, Clarity and Agility will be their keys to success.


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