Jeremy Grantham Looks At The Future Of America: "On The Road To Zero Growth"

Tyler Durden's picture

Jeremy Grantham's latest quarterly letter is out, in which he discusses, as the title suggests, the road to zero US growth. From the punchline:

With a little luck, U.S. GDP growth (even after an increasing squeeze from rising resource costs and environmental damage) should remain modestly positive, even out to 2030 and 2050, in the range of 1% at the high down to a few basis points at worst. Increasingly, the growth will be qualitative. Qualitatively, growth is likely to be limited to services as manufactured goods will bear the brunt of the rising input costs. It would certainly help a lot if considerable changes were made in how GDP is measured. It needs to be closer to what we all apparently think it is already: a reasonable measure of the utility of useful goods and services. The key issue will be how much unnecessary pain we inflict on ourselves by defending the status quo, mainly by denying the unpleasant parts of the puzzle and moving very slowly to address real problems. This, unfortunately, is our current mode. We need to move aggressively with capital – while we still have it – and brain power to completely re-tool energy, farming, and resource efficiency. We need to do all of this to buy time for our global population to gracefully decline. It can certainly be done.


  • The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet most business people (and the Fed) assume that economic growth will recover to its old rates.
  • Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%.
  • Population growth that peaked in the U.S. at over 1.5% a year in the 1970s will bob along at less than half a percent. This is pretty much baked into the demographic pie. After adjusting for fewer hours worked per  person, man-hours worked annually are likely to be growing at only 0.2% a year.
  • Productivity in manufacturing has been high and is expected to stay high, but manufacturing is now only 9% of the U.S. economy, down from 24% in 1900 and 15% in 1990. It is on its way to only 5% by 2040 or so. There is a limit as to how much this small segment can add to total productivity.
  • Growth in service productivity in contrast is low and declining. Total productivity is calculated to be just 1.3% through 2030, if we use current accounting methods.
  • However, current accounting cannot accurately handle rising resource costs. Spending $150-$200 a barrel in offshore Brazil in the future to deliver the same barrel of oil that cost the Saudis $10 will result perversely in a huge increase in (Brazilian) GDP. In reality, rising resource costs should be counted as a squeeze on the balance of the economy, as they lower our total utility.
  • Measuring the non-resource balance of the economy produces the correct effect. The share of resource costs rose by an astonishing 4% of total GDP between 2002 and today. It thus reduced the growth of the non-resource part of GDP by fully 0.4% a year.
  • Resource costs have been rising, conservatively, at 7% a year since 2000. If this is maintained in a world growing at under 4% and a developed world at under 1.5% it is easy to see how the squeeze will intensify.
  • The price rise might even accelerate as cheap resources diminish. If resources increase their costs at 9% a year, the U.S. will reach a point where all of the growth generated by the economy is used up in simply obtaining enough resources to run the system. It would take just 11 years before the economic system would be in reverse! If, on the other hand, our resource productivity increases, or demand slows, cost increases may decelerate to 5% a year, giving us 31 years to get our act together. Of course, with extraordinary, innovative breakthroughs we might do even better, but we certainly shouldn’t count on that. (Bear in mind that we don’t even know precisely why the prices started to rise so sharply in 2000.) Excessive optimism and doing little could be extremely dangerous.
  • For a few years fracking will add helpfully to growth: my guess is that the benefit will peak at about 0.5% within fi ve years, but be modest over longer periods. The key concept here for understanding growth is to know when the maximum upward push will occur. (See Appendix A.)
  • Increasing climate damage, reflected mainly in food prices and flood damage, is going to increase. With any luck this will not be severe before 2030 (we allow for a 0.1% setback) but it is very likely to accelerate between 2030 and 2050. A great deal will depend on our responses.
  • The bottom line for U.S. real growth, according to our forecast, is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050 (see table on Page 16). This is all done presuming no unexpected disasters, but also no heroics, just normal “muddling through.”
  • GDP measures must be improved so that they begin to measure output of real usefulness or utility. The current mish-mash of costs and of “goods” and “bads” produces poor and even damaging incentives.
  • Accurate measurements of growth must eventually include the full costs of running down our natural assets. True income (said Hicks) is meant to allow for sustained productive capacity, which our current measures clearly do not. If they had done so the developed countries might well have been in reverse for the last 20 years.
  • Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal. Remember, it is led by a guy who couldn’t see a 1-in-1200-year housing bubble! Keeping rates down until productivity surges above its last 30-year average or until American fertility rates leap upwards could be a very long wait!
  • Some of the investment implications of this low growth outlook and the Bernanke optimism will be addressed next time (with luck!).

* * *

Full letter (pdf):


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GernB's picture

Technology changes how fininte a resource is.

Radical Marijuana's picture

Yes, one of the most important points surely is that:

Technology changes how fininte a resource is.

However, the basic parameters of those systems are what are the most surreal in human societies. Human societies are dominated by their biggest bullies, spouting bullshit, which they back up with coercion. All technologies were developed, or not allowed to develop, by those overall considerations. The biggest questions are HOW do we eventually come to some dynamic equilibria, given that endless exponential growth is ABSOLUTELY IMPOSSIBLE! By definition, it is the death controls which limit growth. Sooner or later, those return to being unavoidable, as they have evolved throughout history, to create the society we live in NOW, that was able to grow exponentially during almost that entire history, because we kept on developing new technologies, in the context of a fresh planet that could be strip-mined with those new technologies!

In the end, (and always, to some degree) the murder system is the MOST important technology, which governs all of the rest, through the money system, and therefore, the decisions regarding what gets done, and what does not. The paradoxes there have resulted in us doing almost everything as BACKWARDS as possible, in light of the FACT THAT ENDLESS EXPONENTIAL GROWTH IS ABSOLUTELY IMPOSSIBLE. Therefore, we are probably going to overshoot, by running off a cliff. The USA is primarily being deliberately destroyed, by people who have a global agenda, which includes insane things like that, as parts of its global goals! The failure of the USA to quantitatively grow SHOULD be seen as a good thing, because there should be better qualitative changes made to happen instead. All of that is theoretically possible. However, insane eruptions of mass murder, and collapse into chaos, are way more probable instead, since saner discussions about human ecology, which is still at the center of the emerging industrial ecology, are deliberately denied and suppressed, and practially non-starters within the currently established systems, which are based on triumphant FRAUDS, BACKED BY FORCE.

It is practically impossible to sanely discuss alternative technologies, without the alternative life styles that must go with them, and the central feature to those must be alternative death controls. Since those are almost totally suppressed taboo topics, we rush towards doing way, way too much of the same old things, which will end with more destruction than ever happened before in human history.

MEANWHILE, there will also be more creativity than ever before, happening at the same time, and somewhere in that there may well be something that MIGHT become a game changer beyond our ability to imagine now. There MIGHT be some astronishing new basic science breakthroughs ... However, that would never allow us to escape from the final imperative that there MUST be some murder system, as the central feature of everything we ever do.

q99x2's picture

Build a wall around Washington DC and don't any of the traitors into the country. Stop importing anything and everything. Require total self-sufficientcy for the US and watch what happens with GDP. This is America. Throw the traitors out.

Flakmeister's picture

Hey Jeremy, I will repeat what I said earlier today:

Well, what do you expect if you pull forward demand through financialization and then fail to increase the oil supply to pay for it all??

falak pema's picture

hey Flak, you're not buying the current jargon of: "USA, USA! We'll be auto sufficient in 2020 and exporting to China in 2030!

Thanks to frack gas Marcellus and Bakken gone viral, in CA and San Antonio! USA top producer of oil in 2030!"

What's the prob Flak? 

USA has no supply problem !

Eat your heart out Chavez! 

This guy Grantham is a loser; USA now in super cycle commodites! 

What say u to this song of "yes we can!"...

Something tells me you know how to count between the lines.


Flakmeister's picture

Preaching to the choir...

but many here should check out

Peak, What Peak?

by none other than the chairman of the Department of Petroleum & Geosystems Engineering at The University of Texas at Austin...

Poetic injustice's picture

0% growth is optimistic scenario, discounting accounting gimmicks it is unreachable.

The good doctor's picture

 New slogans for the  Obama Administration:      Obama,  Managing our national decline since 2008.       Or:  The Obama Administration, where making Jimmy Carter look competent is what we do.



Missiondweller's picture

The major problem with measuring growth in GDP is that it doesn't recognize the difference between the productive economy (which creates wealth) and the govornment's portion (which is a use of wealth). Thus:


GDP = private consumption + gross investment + government spending + (exports ? imports), or

GDP = C + I + G + (X-M)

Is a terrible measure of our wealth and productivuty. A more accurate measure would exclude the G, as this is the true tax base.

akak's picture

Missiondweller, that is an excellent point that cannot be made often enough.

GDP is truly a spurious and all-but-meaningless measure of a nation's gross PRODUCTIVE economic activity.

peekcrackers's picture

Plus 1 Missiondweller

GDP Is the filling in the twinky .. sweet from artificial ingredients.



falak pema's picture

you have hit a good philosophical point : is society econocentric or homocentric. Are we putting man first or the economy first, aka the rule of the more productive, as what society is about...

Since the days of Greece and Jesus, man came first...but both Pericles and his hegemony as Caesar and his dictatorship questioned that. The powerful decide to whom Lex Romana practice we are not equal before the law.

As the Enlightment said "in theory"...Justice precedes the Republic, aka the power equation.

In fact, Power has always preceded justice, whence the eternal conundrum. We act differently to what we affirm as our value systems.  

Man is a contradiction. 

To come back to GDP, the government investment is in intangible/qualitative aspects of societal growth that are not immediately productive, like education, health care, infrastructure; but are as ciment of society. Try putting a price tab on that!

WHere is the trade off between short term market index investment and longer term societal index investment? 

GernB's picture

I would take it as a given that a measure of useful productivity is a measure or the prosperity of the people. If the members of a society can produce 10x as many goods and services tomorrow using the same resources as they used today, then all other things being equal, indivuiduals should be able to afford 10x as many goods and services tomorrow as they did today. Thus they are more prosperous.

This equation holds true as long as the goods and services are things people want, regardless of whether they are eduation, health care, or infrastructure. I don't see any rational basis for thinking these things are somehow special, other than historic precedent. In theory, if people need education, health care, or infrastructure, then they don't need government to provide them, they only need some organizing force to provide them at a price they can afford. The more prosperous they are the more education, health care, or infrastructure they can afford.

The more competitive pressure there is on the producers of education, health care, or infrastructure, the more pressure there is one workers and providers to find ways to be more productive. In being more productive they make more services available to all at a better cost. In relegating health care, education, and infrastrucure to being government functions you are removing the pressure to be competitive and ensureing less prosperioty, which translates directly into higher costs and lower quality for everyone.

falak pema's picture

So do you consider that education and infrastructure are a PREREQUISITE to being quantatively and qualitatively productive, or NOT?

Also that quantitative evaluation of value creation can be a mirage per se, as new technology is qualitatively better initially and becomes quantitatively better if there is an environment to encourage direction change. Like starting the race to the moon or seeding Internet. 

Its education and governement fed research projects that often create these openings. Its the short term market reflex that often resists this change as oligarchy structure is for status quo. Enlightenment comes from education in the broader sense. And that has no price tag to it. Its the very essence of civilization. 

The oligarchy market never creates a Galileo, its resistance to status quo that creates a Galileo. 

Chupacabra-322's picture

No more imports.  Destroy the Federal Reserve.  Arrest The Criminal Executive, Criminal Legislative, Criminal Judicial Branches  and Criminal Agencies.  Problem solved. 

geewhiz190's picture

JG owns a hugh percentage of "growth stocks" in his fund, added to things like ESRX and MCD plus a boatload of HPQ in the 3rd quarter.  no wonder he's" down" on growth

Being Free's picture

"We need to move aggressively with capital – while we still have it – and brain power to completely re-tool energy, farming, and resource efficiency. We need to do all of this to buy time for our global population to gracefully decline. It can certainly be done."

Reads like the script to a central planners wet dream.  "We need...while we.  We need...for our..."

What "We" need to do is get "our" fucking hands out of "our" neighbors pocket and stop trying to centrally control every last detail of peoples lives.  "We" need to stop manipulating the economy and in the process destroy "our" wealth, because "we" think "we" know all the fucking problems and answers.  "We" don't.

Be Free. 

enoch_root's picture

Bingo, we have a winner ... whenever someone says "we need to ... " run a mile, no, leave the country. It belies a deep-seated delusion that there is a "we" and they could actually do anything right on behalf of everybody else ...

Pasted from mother of another ....

"We are now entering the long drawn, out years of the Great Stagnantion it will go down in history as an example of folly only achievable by centrally-planned banking and economic hubris equalling the insanity of the emperors of Rome and the arrogance of the Kremlin of USSR.

I'm expecting the Great Stagnation to last until 2030, possibly until 2040 ... central banks have massive resources at their disposal (literally the wealth of nations) but that is not to say that they are capable of directing that wealth efficiently or even for the betterment of humanity. They know enough to be dangerous, in that they can get things right just often enough to remain somewhat credible and maintain power (violent revolution is probably not going to occur). But they cannot, by definition, have the complete knowledge needed to wisely allocate capital, let bankrupt institutions fail, burst bubbles, etc in a manner as effective as a distributed, free market capital system.

So the mistakes will go on, economies will stagnate indefinitely under the grey, stultifying hand of the massive central bank "liquidity for losers" programs. Uneconomic, corrupt entities will be rewarded with great riches, and squander it, while honest, hard-working entrepreneurial activities will never get off the ground, or face destitution under onerous taxation regimes.

The Great Stagnation has arrived.

What's your strategy?"

GernB's picture

My reaction exactly. If by "we" the author means consumers driving industry then I agree, and the market will take care of it as the cost of these things increases and the pressure to re-tool makes it cost effective for consumers (who will ultimately have to pay the price of the re-tooling).

All central planning of a new energy or farming infrastructure will do is make it more costly for everyone as planners misallocate capital in ways consumer would not support and arrive at less effective centrally planned solutions before the market is perpared to pay for them.

What central planners can't  seem to get through thier thick heads is that there is no more efficient machine at solving problems when they need to be solved and in a cost effective way than truely free markets. Because free markets lets individual consumers decide what they want and when they want it.

Aurora Ex Machina's picture


Given that GMO have spent some of their hard-earned money to advertise on ZH, and the rare fact that they're an outfit in the wilds of America that acknowledge climate change [hint: If you deny Climate Change, no-one gives a fuck, the entire security apparatus of the USA has already worked it into the plan, costed it, and is planning for the worst], then I'm willing to give some free serious analysis. Because, to be honest, ZH needs a kick in the ass when it comes to Climate Change (hint: there's no-one who cares where it's coming from, it's coming. Deal with it).


So, a skim read hooked me, I'll put my-money-where-my-mouth-is and actually analyse this report. [15 mins hit, high density]


A) First error: Average working hours between 1970 and 2012 have risen FOR SALARIED WORKERS. Not fallen, not even close. The USA is #1 in hours worked / week / employee, and has been for some time. (Newsflash: Greece is like #5 on the global list). Author got confused about the charts he was referencing. Hint: greater un-employment -> less average / populace hours worked. Doesn't mean your average worker worked less hours and this isn't even getting to the fine tuning of subsidary / temporary workforce and under hours low-level retail scams. (i.e. Never hit 40 hrs work because benefits, which Wallmart and so on exploit to the max).

B) Oil: Brazil over the Sauds? Canada is hitting 2,149 (thousand) imported barrels / day, Brazil is 259. That's less than Angola, you muppet. Yeah, sure it has risen by +1892%, but that's not hard from the pitiful basis point. The USA ain't never paying $150-200 for a Brazillian barrel of oil.

C) Resource costs are based on futures. Guess who has a) the largest subsidies on basic resources and b) the largest market in futures on said resources? Hint: It ain't fucking Angola.

D) Claiming that food prices and flooding damage "won't increase until 2030" is like WUT? Try using Google, mother-fucker. Food prices are slated to rise ~16.7% alone by January in non-protected markets, and I'm looking at $50billion in flooding costs in NW America as we speak. Did you miss the huge fucking drought in the US alone this year? Monsoon miss in Asia?


Ugh. This is like trawling through a schizophrenic's brain. He's correct on the fallacy of "Clean" coal, then wanders off into insanity about fracking ~ the industry isn't anything like he imagines.


And then I was done, as my free 15 minute analysis window ran out, as it was far higher $ cost than the sum paid to ZH for this shit. Don't run Friday night humour early just 'cause of Black Friday. Yes: me looking though this tripe should have cost ZH more than it was paid, but hey ~ that's Pirate Capital for you.

[edit: I apologise for the profanity, but I went into reading the actual report in good faith expecting some kind of decent analysis. My points A-D hit within the first two pages of guff, at which point I was irked. Garbage]





Two men write insane paper and expect investors. Muppets beware.

Grin Bagel's picture

SmallGovtnow = obvious troll

Grin Bagel's picture

SmallGovtnow = obvious troll