Global economic growth may recover or it may forever remain anemic. Professor Michael Gallmeyer has arguments for both camps, and cautions investors against being easily diverted by temporary market shocks, such as last year’s election of US President Donald Trump and the UK’s Brexit vote, while long-term headwinds are still nagging.
“We’ve run out of good ideas and we’ve run out of cheap capital,” says Gallmeyer, a professor of commerce and economics from the University of Virginia.
Gallmeyer pointed to how, in past centuries, colonialism had made some countries very rich but this era was now over.
Other negative influences on growth are an ageing and un-replenished workforce across most of the developed world, too much red tape, and the widening education gap between rich and poor, which exacerbates a bifurcation of society that we’re now seeing play out politically.
While automation is frequently touted as a potential solution to the issue of ageing workforces, particularly for countries such as Japan, Gallmeyer says the reality is that no one knows how, or if, it will work.
Questions also remain over whether automation will result in higher labour productivity per worker. That’s not showing through in data, which Gallmeyer posits could be because we’re not measuring it effectively, either because it’s too early to tell or because there are other factors affecting productivity generally, including red tape.
The issue of not collating or analysing data correctly extends past studying the effects of automation and could be the reason we’re not seeing better economic advancement flowing from the impact of technology.
“We’re using economic tools that were well suited to measure 1950s-style manufacturing in the economy,” Gallmeyer says.
He points to the inability of broad economic data to detect something as significant as the “Amazon effect” on retailing or the fact we now use GPS on our phones and save time not getting lost.
“That doesn’t show up in a GDP number…It takes time to figure out how to use this stuff. We might just be asking for these economic gains too quickly. There’s more hope on the horizon.”
Managing a portfolio in this era of known unknowns becomes about diversification, he says, applying the simple ideas but doing so in a smarter, more compelling way.
“This is finance 101…but remember, many people found out in the financial crisis that they were not as well diversified as they thought they were.”
Gallmeyer argues this still applies and cites the industry push towards factor-based, or smart beta, investing, warning that while these strategies are ostensibly about providing better diversification opportunities, many simply turn out to be “sales-pitch” products.
University of Virginia professor Michael Gallmeyer will visit Australia in 2017 to deliver a keynote address at the Investment Management Consultants Association (IMCA) National Conference, happening in Melbourne on Tuesday, September 19, and in Sydney on Wednesday, September 20. For more information or to register visit the event website.