Regression, not recession

Screenshot anime Hyouka

“The world is going to hell pretty quick…” says this Japanese animation. Economists used to talk about Japan’s lost decade, but now it is around two decades and the economy is still stagnant. Yet now the Japanese have grown used to it, and several other rich nations seem to have started their own lost decade or two.

As I’ve mentioned, for the last few years my friends in Europe and America have experienced something very like a recession. Unemployment stays high, wages stay low, some savings have been wiped out, there is uncertainty and a feeling that the middle class is slipping and slowly sinking toward poverty. People worry what the future will bring as the economy stagnates or shrinks. Even when the economy is growing a bit, as it is in the USA, it is powered by a large and rapidly growing government debt. How long can it last before this too fails and a new Great Depression sweeps the nation?

But if we look at the developing world, the picture is quite different. As a whole, the developing world is growing by 5% a year. Not as much as the first years of the century, but a respectable pace. And the “as a whole” includes a few countries that are still in the grip of war, civil war or dictatorship, and are not doing well at all. But most are doing well, quite well, although from a rather dismal starting point.

There has been a tendency in this direction for a while now. Many people are locked in the picture from the 1950es when a few rich countries stood out while most of the world was mired in abject poverty. People still say without thinking that 20% of the people have 80% of the wealth while 80% have 20%. But obviously this cannot continue to be just as true as it was, if the developing world is growing at a brisk clip while much of the rich world is stagnating at best.

One name for this process is “regression to the mean” (where mean is read as something similar to average, not “nasty”). It is globalization in practice. Perhaps we were just looking for cheap workers to do the things we felt too important to do anymore, but things tend to take on a life of their own. The poor never promised to stay poor, we just felt secure that they would, them being inferior to us and all. We were born to rule, we were created in God’s image and then we evolved. We had no competitors, but we gracefully allowed these strangely colored people in faraway places to serve us, as is good and proper. Well, things seem to have gotten a bit out of hand.

The poor, once they are no longer starving, have started looking ahead and improving their own lot. Their kids have gone to school and learned to read and write, and before we knew it they began to become technicians and engineers. Instead of taking just the jobs we did not want, they are now just as qualified as we and still doing the job much cheaper. So more and more work is done in developing countries, even work that we would not mind keeping here in the north-western world.

But this is not a process that goes on forever. China, for instance, used to be a low-cost country, but that is no longer the case. Well, there is still a reserve of rural poor, but it is no longer enough to supply all the cheap labor China needs. So China has outsourced cheap jobs to other, less prosperous, developing countries. Those of us who have lived a while remember when Japan caught up to our labor costs, and later Korea.

I used the expression “regression to the mean”, as in the rich nations becoming poorer and the poor nations becoming richer. But at the same time, the whole global economy is still growing. Even though some countries face shrinking incomes, others are standing still (which is not really a bad deal – zero economic growth does not mean zero money, it means no more money than last year.) And the mean, the middle, is still steadily rising. That is to say that even if we should eventually end up with the same income for workers in America and Namibia, that income will probably be closer to that of America than of Namibia, compared with before this process started.

Things could still go horribly wrong, of course. There are at least two big black swans. The one is a new major war. The Middle East could explode anytime, with Israel being wiped off the map and most Arab capitals reduced to glow-in-the-dark glass and radioactive rubble. China is likely – almost certain – to try to invade Taiwan (which most mainland Chinese does not think of as a different country but a small rebellious province). If they ever trust America to have a sane leader who is not willing to wipe out everything bigger than cockroaches rather than let a tiny island reunite with its parent country, that is. Right now, there is no such guarantee. So they bide their time. After all, for each year, China grows stronger compared to the rest of the world.

The other black swan, beyond war, is natural disaster. Global climate change is a glacially slow process – literally, because the world’s great glaciers play a key role in regulating the climate. So it will still be many years before the sea starts to flood the streets of London and New York every high tide. But other things could go horribly wrong. The supervolcano below Yellowstone could explode, as such hotspots do every few hundred thousand years. An earlier supervolcano eruption in south-east Asia almost put an end to Homo Sapiens – we were down to a few thousand at most. When Yellowstone goes off – and it is overdue – it will kill most humans in the USA in a matter of days at most and plunge the world into a temporary deep freeze. That is bound to depress the global economy for a while (and probably end the current civilization). But it could also be a thousand years from now – it has waited this long, after all.

Just as we cannot really know when the black swans will land, there are also “white swans”. We might discover safe fusion, finally (it has been 20 years in the future since I was a child). This would make energy trivially cheap for thousands of years at the very least. We could put an end to aging, possibly (although unlikely). That would certainly have some interesting effects, although we would still be mortal. We could develop technology to settle under the sea and colonize the three quarters of Earth’s surface that are covered by salt water.

So we don’t really know the future. We can only make guesses, and not very far ahead. But the current trend is one of convergence: One world, no longer first world or second world or third world. And I for one welcome our new global citizens.

2 thoughts on “Regression, not recession

    • If you mean in the sense that “past behavior is the best predictor of future behavior”, yes. I believe I have referred to this occasionally. But humans are not entirely “hardwired”. There is neuroplasticity – we can actually change the wiring of our brain through the way we think, as shown by brain scans of long-time meditators.

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