Portfolio manager John Hussman warns in a detailed economic lament how the U.S. has buckled at its productive core even while maintaining a deceptive appearance of prosperity.
Describing what he calls a “Ponzi economy,” the Hussman Funds manager’s latest shareholder letter tracks a 15-year-long shift away from productive capital accumulation toward continuous debt expansion that will have to end badly unless the U.S. starts making some good decisions.
At stake in this crisis is the U.S. standard or living, which is necessarily “chained” to growth in productivity.
But real gross domestic investment has been crawling at a measly 1.4% rate since 1999, versus a real annual growth rate of 4.9% in the preceding half century, says Hussman. While our capital base has been thinning, the other key to productivity — the active labor force — has been cratering.
“During the same 15-year period, the U.S. labor force participation rate has collapsed from a record high to the lowest level since the 1970s,” he writes, adding that “wages and salaries have plunged to a record low share of GDP, and real median household income has contracted by a cumulative 9%.”
Hussman suggests that “conditions feel better” than these alarming statistics imply because of an accumulation of debt and money printing that have coincided with and masked this fundamental erosion in the economy.
“The U.S. has gone from the largest creditor nation in the world to its largest debtor by shifting from accumulation to dissaving,” he writes.
This debt accumulation, including “deficit-financed government assistance and unemployment compensation,” have made up the shortfall in productivity and allowed continued high rates of consumption “and by extension, corporate revenues and profits, to be sustained.”
But Hussman warns the problem goes deeper than merely flipping between assets and liabilities on the national balance sheet. That is because assets are flowing “up the food chain toward a few dominant players” in what he dubs “winner-take-all” markets.
He cites Friday’s Alibaba IPO — the largest in history — as just the most recent example of these dynamics, with too-big-to-fail banks, an “all eyes on the Fed” financial system, a growing gap between the haves and the have-nots and hollowing out of the middle class as other notable features of today’s economy.