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An Interview with Jeremy Grantham on Natural Resources, Global Growth and Society

Listen to this brilliant interview (by Peter Day of BBC) with thinker/investor Jeremy Grantham (GMO)

Global Growth is Overestimated

Fertility rates in the developed world have dropped like a stone. Why does everybody keep their growth rate the same when the populations has dropped in man hours from 1.5 % to 0.2 %? This implies you should drop your growth rates with 1.3%. Because future working populations are known and people like Bernanke, the IMF and the World Bank keep their expected growth rates at the same level they are expecting a productivity increase of 1.3%. Why? Productivity has come down historically, because the service sector is becoming a bigger piece of the pie and the service sector is declining in productivity offsetting productivity gains in manufacturing.

Forecasting ‘Real’ GDP Growth

Contrary to the general 2.5%-3% GDP expectations, Grantham expects a 1.5% GDP growth but subtracts a component of 0.6%. 0.1% for the costs of more dangerous and expensive wheather (hurting crops, causing floods etc.) and 0.5% is for the increase in cost of resources.

The Error in GDP Calculations

GDP is more a description of costs than of utility of output. Grantham mentions easy Saudi Arabian Oil vs. Brazil’s deep sea deep salt layer oil. The cost to society of the latter one is much higher per barrel of oil (utility). Brazil’s GDP will rise, but how is this a win for World GDP?

Also the price of natural resources are counted in GDP. Between ’02 and ’08 natural resources tripled which was counted as a surge GDP growth. So Grantham and his team at GMO see GDP calculations as an inaccurate way to calculate economic gain, as it includes costs, which are obviously no virtue or gain.

The Fascinating Turnaround of Natural Resources

Natural resources declined for 100 yrs up to 2002. In 2002 we saw an incredible spike in prices, greater than in WWII. Up to 2002 natural resources had declined with 70% in real terms and all of a sudden natural resources are making up all their losses. Grantham thinks this is the effect of the compounded growth of China and India (10% p.a.) and their increase in demand for resources per capita adding up.

If China currently gobbles up about 50% of resources and it doubles again in 10yrs you’ll have to find another 45% in resources to keep prices at similar levels. The lack of new resources is going to break the bank. Especially oil price hikes will push everything up as it is half the costs of any other natural resource. One of the inevitable price pressures is the increasing cost of winning oil. Frecking perhaps will increase the availablity of oil, however the cost price is so high, oil prices aren’t expected to come down. 

The Quest for GDP Growth of Politicians is a Major Psychological Problem…

  • Decline in population is our last hope, not an economic crisis
  • Look at Japan: a perfectly functional society with an output per hour slightly higher than the US (since ’89) and 5% unemployment
  • Old people have to contribute to the economy and have to continue to work

Grantham: “In the long run you can not have physical growth in a finite world”

Also listen to this great interview for Grantham’s original views on capitalism, renewable energy and society.


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