The End of Growth

December 3, 2012 • United States, Daily Email Recap

The End of Growth
Robert Walker

When environmentalists ring alarm bells about what we are doing to the Earth, most Americans hit the snooze button, but when one of the world’s most respected financial analysts says that climate change and resource scarcity are imperiling economic growth, maybe it’s time to wake up.

This past week Jeremy Grantham, the co-founder and chief investment strategist of Grantham Mayo Van Otterloo (GMO), released his latest quarterly letter. Titled “On the Road to Zero Growth,” it has been labeled by business analysts as a “dose of glum” and “the most depressing forecast you will ever see.”

Not known for pulling his punches, Grantham starts off his letter saying, “The U.S. GDP growth rate that we have become accustomed to for over a hundred years — in excess of 3 percent a year — is not just hiding behind temporary setbacks. It is gone forever.” The picture that Grantham paints is not so much an economic cliff, as it is a slippery slope. He concludes that, “The bottom line for U.S. real growth, according to our forecast, is 0.9 percent a year through 2030, decreasing to 0.4 percent from 2030 to 2050.” And that’s “… presuming no unexpected disasters, but also no heroics,” just “muddling through.”

In coming up with his economic growth forecast, Grantham cites a number of long-range trends that mitigate against the 3 percent annual growth rate that we have come to expect. They include a continued decline in the relative size of the manufacturing sector, reduced capital spending, and a shrinking workforce, but they also include environmental impacts and, most importantly, the impact of rising commodity prices for metals, minerals, and fuels.

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