The Long View of the US Economy

madhedgefundtrader's picture

The retirement of the baby boomers, and the reduced numbers and frugal spending patterns of Generation X, are not only bad news for the real estate market for the next 20 years, they are going to be a huge drag on the economy as a whole.

The distinguished economist, Robert J. Gordon, of Northwestern University in Chicago, argues that we are entering the slowest growth period in US history. Per capita GDP grew at a healthy 2.44% annual rate during 1928-1972, then downshifted to 1.93% from 1972 to 2007.  He expects it to fall further to 1.5% during the next two decades. By 2027, US GDP will be only 35% higher than it is today. They must be laughing in Beijing.

Past generational slowdowns like this were offset by the huge productivity increases delivered by rising education levels. That won’t bail us out this time. Distressed state and local finances are pushing the public sector into 20 years of cost cutting that is sending education spending plummeting, leading to the great “dumbing down” of America. No productivity gains here. There isn’t enough new technology being invented to take up the slack.

This is why I have been urging traders and investors to get their money the hell out of the US since the inception of this letter. Get it into emerging markets, emerging market debt, foreign currencies like the Australian and Canadian dollars, commodities, precious metals, and food. Rallies in US markets should be viewed only as trading ones which are to be sold into. Only invest here when you are compensated for the higher risk you are taking, such as in technology, energy, commodities, and solar companies, along with junk bonds. Keep your passport up to date, and better start taking those night classes in Portuguese, Russian, Hindi, and Mandarin.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

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Stuck on Zero's picture

50% of the California education budget of approximately $14,500/yr is spent on bureaucrats and administrators and 35% is spent on the bottom 20% of the students.  only 15% is spent on the best 80% of the students. 

MilleniumJane's picture

+1000!!! You hit the nail on the head!  The state of California can be interchangable with any of the other 49 states and the statement is still true.

hardcleareye's picture

Perhaps some thought needs to be given regarding the changes in the "family structure".  I believe consideration needs to be given to the fact that both parents are working, and to be successful in their jobs requires long hours.  The kids end up getting the short end of the stick.  The class sizes have gotten bigger.  Because the parents have "other" more important things to focus on, the job of parenting falls to the teacher.  There is no way a teacher can teach a large class and provide "key parenting skills" to 25 kids or more.... our education system was not designed with that in mind.

The kids that have involved, loving ( and loving doesn't mean you don't set enforceable boundaries with consequences for inappropriate behavior),  are not the "trouble makers".  In my experience, "setting boundaries" is were the "true work" of being a parent lies. 

The last two generations of parents have dropped the ball.  It is more important to bring in the bucks, to buy the things our society has told us we need, than to raise our children.  Ask yourself why this has come to pass.  And more importantly, how do we change it if we could?

Our society needs to start stressing "parental" responsibility first, setting "enforceable boundaries" on acceptable parental behavior.  We also need to explain to the next generation how expensive children are, how much time and sacrifice (career, time for yourself, etc) you will need to give to that child before you have the child.  My Momma told me you can't send them back from were they came from once they are here, think, think again and then go think some more about it before you have a child!

Very difficult social issues to address.  Parenting Rights........  Reproductive rights (some people have no business being parents, but who decides, what standards do you apply and how do you apply them...), controlling access that children have to media.... etc... etc...  We have age requirements for driving, drinking etc... do you think there should be one for parenting?

Our "social safety nets" were not designed for these circumstances and are showing the strain.  And the worst part is that the parenting skill applied to  future children are ones learned today.  This is a downward spiral of our society and I don't see it being stopped at this point.

MilleniumJane's picture

"Perhaps some thought needs to be given regarding the changes in the "family structure"."

Yes, this is true, but how does one explain that to a household that needs two incomes in order to survive?  Real wages have not kept pace with prices for years if not decades.  I would love to be able to stay home with my boy, but the truth is we cannot survive without my income.  My husband and I are two blue collar workers who have physically demanding jobs that are not union represented.  Our wages have stagnated but the cost of electricity, gas, food and other necessities keep going up.  We have been smart and do not have credit cards so we do not have the latest gadgets or take annual vacations to Disneyland like other families in our situation.  I conclude by saying that there needs to be some kind of financial incentive before people would be open to this idea, whether it be from business or government, so I don't have any faith that it's ever going to happen. 

groucho_marxist's picture

The problem is simple. It has several dimensions:

1. Teachers are underpaid for what they're expected to do.

2. The content of courses is organized like an industrial product, broken into disconnected bits that nobody ever puts together in the classroom, with the result that students know info, but don't understand it, or why they're taught it.

3. Too much emphasis on standardized tests to evaluate students, with teacher compensation based on the result; this encourages teaching to the test, and nothing else.

4. Parents are not envolved. K-12 school is basically daycare.

5. Thinking and critical engagement (debate, public speaking, rhetoric) is not taught, and instead, students are encouraged to laugh at their peers who can think.

6. Helicopter parents who bellieve their kids need special attention and good grades for showing up.

7. Most education is designed to teach subservience and following orders, neither of which produce effective, valuable workers. Only a moron wants to hire people dumber than they are.


Anybody who thinks the solution to schools cam be had by cutting money or eliminating the dept of education knows nothing about education in this country. Yes, it is broken, but the solution requires a rethink of how to teach, not a reversion to some fantasy about what "it was like when I was in school."

ElvisDog's picture

Read my post right above yours. Cutting/Reducing the Department of Education would be part of the solution to the problem of too many mandates on teachers from remote, ivory-tower "academics" who have no connection with reality and treat students as laboratory projects.

ElvisDog's picture

My wife is a 5th grade teacher. The failing of our education system is not largely due to the teachers. The problem comes from all the dumb-ass PhD's at the administration level who dictate to the teachers how and what they teach. Just last week, she had to read an 18-page document on how to present and grade a single writing assignment (I think the kids only had to write a couple of paragraphs). Every year the math curriculum changes and she has hundreds of pages of documentation and a new text book to process. Last I checked, math doesn't really change from year to year. You want to fix the education system in the U.S.? Fire 90% of the administration and school board staff and give the teachers more freedom in how and what they teach.

MilleniumJane's picture

Amen!  I recently learned that the superintendant at our small rural school district makes as much $$$ as the superintendant who runs the school system in the large urban city about an hour-and-a-half from here.  The cost of administrators is ridiculous.  The teachers get the shaft in terms of classroom budgets each and every time the yearly budget rolls around, even though they are the ones on the front lines actually teaching, but the administrators, oh no!, they can't take a pay cut, they're the top of the food chain.


It appears to be a microcosm of what's going on in America in general.  The ones at the top will get theirs while the kids and teachers are left to fend.  I think the teachers need to educate themselves that they are striking for the good of the top brass, not themselves.  The top brass just knows how to hold their guns to the heads of the teachers and threaten the removal of benefits and institute pay decreases (sound familiar?).  The administrators have hijacked the unions to get what they want.

I know as a community we are very angry about this whole thing.  We have voted in just about every school levy, but the district always has its hands out begging for more the next year.  Meanwhile, our district is at risk of losing federal funding because our kids cannot pass the standardized tests required by No Child Left Behind.  It seems we were much better off without the standardized testing and using basic textbooks and chalkboards instead of PowerPoint presentations and letting the teachers have some freedom. 



matthylland's picture

I personally can not think of a corelation of money to quality of education on any level.

It depends on the individuals drive, and that can be created without spending a dime. I know people who amounted to nothing but washing dishes with a Ivy league education, and I know people that got in-state tuition for a smaller state school getting checks with a couple commas in them. It depends on the person, their parents, their teachers...people have done great things without getting ivy league educations.

On a larger scale, I have yet to be convinced that money means better performing schools. Doesn't the city of detriot get the most federal money of any city? They consistantly have one of the worst school systems in the country.


It is not that I actually believe you are wrong that America is 'dumbing down'. Because I feel we are...but I just don't think it is due to any money being taken out of the educational system.

Yorick7's picture

Hang on, wheres the long $jpy call?   Actually I think it should be right about here.

Yorick7's picture

Hang on, wheres the long $jpy call?   Actually I think it should be right about here.

Yorick7's picture

Hang on, wheres the long $jpy call?   Actually I think it should be right about here.

TradingJoe's picture

hah, since when did we really ever had a good, affordable, education system in this country??

Grand Supercycle's picture

My long term indicators continue to warn of USD strength and EURO weakness.

Contrarian View's picture

The "dumbing down" of America is not due to decreased education spending. In fact, education spending continues to rise. The phenomenon is real, and it is due to low quality standards of the teachers' unions and a Leftist, psycho-babble approach to education fostered by eggheads in teaching colleges and the unions themselves.

I speculate whether the failure of our education system is deliberate, foisted upon our children by a conspiracy of union teachers and the Democrat party. After all, what better way to ensure votes for ever-larger, nanny-state government than to raise generations of dependent, incompetent, infantile Americans?

anony's picture

If education spending is down, why is it Pennsylvania leads the nation in teachers strikes?

They strike over having to pay an additional $25.00  a month for health insurance, raising their monthly health insurance premium  payment to a whopping, $85.00.

As long as teachers unions are in control of the democrat and republican partys, I look for education expenses to INCREASE.

badnews...buyspus's picture

You are spot on.  The unions are out for only one thing - themselves. Every vote is made for each union member's best interest - not the schools or students. Why do you think they are so against Charter schools - oh ya, because those schools can be managed without the bureaucratic union influence (they can actually fire shitty teachers and not spend years supporting claims of poor performance).

Let's privatize the poor performing government institutions and we should start with schools. As long there are rules and regs keeping money (taxes) spent per pupil similar along all areas (rich and poor) and performance targets, any private company will outperform a government run entity.

anony's picture

If education spending is down, why is it Pennsylvania leads the nation in teachers strikes?

They strike over having to pay an additional $25.00  a month for health insurance, raising their monthly health insurance premium  payment to a whopping, $85.00.

As long as teachers unions are in control of the democrat and republican partys, I look for education expenses to INCREASE.

homersimpson's picture

Give this man a prize. Nailed it right on the head.

Pondmaster's picture

Reading , Writing and Arithmetic . Alone . Throw out the sports , the 9 week mini waste of time courses . Don't need computers to teach math or history . Or to write . Teachers need to be able to get rid of the troublemakers that take away from the learning attention of others who wish to learn . Cost ?? Less than we are paying now . Need to ditch the Mega schools ( mega churches too ) and mega malls- A large fancy environ is for the parents and school board egos - just like the McMansion mindest . American thinking is all wrong on priorities . School was different 4 decades ago - need to go back to that- Cost ? Much less . 

Walter_Sobchak's picture

How about getting rid of GenEd requirements at college.  Seems like a giant waste of time and another way they take your money.  If we want to compete with emerging markets, then we have to streamline our education system too.  Bachelor's in 2 years, only study your major.

MachoMan's picture

That is not really a solution.  Yes, it may give us more "educated" people, but without jobs to utilize that knowledge, we're just going to be educating people to send them to jobs abroad or in a different state (we actually quit giving scholarships to kids from one program, paid for all college, because all our top students would leave the state after we paid for their education). 

At present, we have far too many degrees running around for the number of available jobs.  We need to keep people from college.  At present, given J6P's unwillingness/inability to normally delever, this means withdrawing credit for student loans.  We also have to figure out how to set controls/incentives on educational institutions to not become degree factories.  The normal methods haven't worked...  I suspect that drawing in credit will fix most of what ailes us, but there might be some additional work necessary.

We already have associates degrees...  all making bachelors degrees 2 years would do is increase the number of degree holders by making it more affordable to get a degree...  fine, but the solution also creates a brick wall/impediment for utilizing that degree...  you have to end the education treadmill, not change the speed. 


Jake3463's picture

Problem with the US education system is the everyone is special and gets a trophy happy thoughts attitude

Somewhere in the early 1980s the paddle was replaced with self esteem boosting.

Our kids have plenty of self esteem and not much fucking else.  Till you rework the education system to your self esteem is based on how hard you work and what you can produce the US education system is going down the drain regardless of how much money you spend.


Oh and let teachers paddle the damn holligans and throw out the bad actors.  We need some Joe Clark in the public schools.



Robslob's picture

And now...Panic!

TBT or not TBT's picture

Last time I check you can still teach calculus and physics and much else with an effing chalkboard.   That is very very cheap, so why does it cost N time more, in real terms to do now than it did forty years ago?     Buehler?


SheepDog-One's picture

Yea this line is BS that spending less than the record amounts now on 'education' will lead to 'dumbing down', of america...hell thats a mission accomplished already.

Hulk's picture

Spot on TBT. Poor education has nothing to with spending and educational quality has had an inverse ratio to money spent over the last 40 years. 

MachoMan's picture

Bingo.  But, you have to understand the basics of fund accounting.  The general rule of thumb is that if you don't spend it all this year, you won't get as much next year.

You can see this play out with nonprofit organizations also.  Look at what happens with churches.  How does the additional collection money get spent?  Does it go to additional infrastructure (bigger church, nicer church, bigger parking lot, pamphlets, missions to africa, etc.) or does it go to actually helping the poor and needy?  (obviously this is not for ALL churches, but you can see what has happened with the expansionary policies of the mega churches...  same thing with the government really).  Essentially, because of the need to spend all available money, the organizations are incentivized to increase infrastructure/fixed costs to help them maintain/hold a gun to their benefactors' head to secure the same level of funding.  This is, at the most rudimentary level, why public benefit organizations are purely academic animals (this includes the government).  On a long enough timeline, they all grow out of their legitimacy.

As a descendant of a long line of educators and someone who wasted too many years in school, I can say without a doubt that the system is broken beyond repair and nothing short of whittling the system down to a skeleton crew will have any chance to fix it.  At the very least, this is the most moral action given the inefficiencies created by the system's expansion.  It will be difficult, if not impossible, to get back the money we wasted on education, but at least we can ensure that the money that may be prospectively wasted is put to better use.

TBT or not TBT's picture

Incremental increases in "education spending" have produced worse, not better, educational outcomes, going on three or four decades now.   Given how badly the education industrial complex has performed in producing education from the huge and ever increasing resources they have taken from us, it is about time we starved them back toward their original size.    The fraction of the people left doing that kind of work after such a period of starvation might even be the ones who actually care about the results more than their sinecures and benefits and kooky ideologies.   Ditto with the type of students who would stick with it.  

mrhonkytonk1948's picture

Can you imagine what this would have cost if the government and teachers' unions had been told to create it?