They call it the "new normal," and what they mean is the western world had better get used to slow and less reliable growth rates. Economists who got used to gross domestic product expanding at a rate of three or four per cent over the past 25 years are now looking back over a longer period of history, and guess what? That growth rate was extremely unusual. In the United States, the long-run average is 1.9 per cent.
How did we get to three or four? Some think it's productivity, which may have helped. But the most recent spurt in output was largely fuelled by debt. Now that debt is a four-letter word and asset prices, notably for homes, have collapsed, the trend is toward saving (including paying down debt).
That may be good news for households but it's not good for economies, and for more than one reason. First, consumption accounts for a lot of GDP (70 per cent in the United States, less here). But more importantly, governments have built enormous infrastructure, both physical and social, based on the tax receipts of the past couple of decades.
Government spending, as we're seeing in Europe, is hard to cut. It's easy to spend someone else's money to buy votes, and politicians of all stripes are great at that. But once voters get used to their entitlements, no matter how unaffordable, they just don't want to give them up.
They want to keep the full pension at 60 years, the 36-hour work week, the stat holidays, the health care, the great roads and so on.
Now, however, western governments really can't afford it. They are all still sustaining the infrastructure and social programs, incurring growing and alarming debts to do so, but eventually the belt will be tightened, and the longer it takes for that to happen, the harder they'll yank on it.
So what does that mean for us ordinary folk? A few obvious things. Expect to work harder and longer and get less in return, especially if you're young. Expect high or higher taxes. Expect to pay more for university and whatnot. Expect to wait longer for a doctor and to pay more for the bus. Don't expect your potholes to be filled or your garbage to be carted away as often. And so on and so forth.
More important, choose your career carefully. It's always prestigious and lucrative to be a doctor. It's not a career that seems as attractive these days, especially if it's prestige and money you want. Health care is a big budget item and one of the fastest-growing. It will be cut. It has to be.
Teacher? I wouldn't be surprised to see the two-month summer holiday reduced to one at some point. Teachers' unions are going to have a tough time of it and job security is coming down.
Working for government directly? Bureaucracies have an amazing knack for growing, but I think it's the end of the line. There have been layoffs, and there will be more -- likely a lot more. I also think the generous perks government workers get are going to be scaled back. No more "flex" days and shortened workweeks.
In short, you really don't want your income to rely on government spending, because it will drop once there's no justifiable way to keep spending in the face of deficits. The politicians already know they have to cut. They just haven't worked up the courage to do much of it yet. But they will at some point.
It sounds scary, but it isn't. Just about everybody has the ability to do something others will pay for. I think we're entering a new age of austerity, which means a new age of entrepreneurship. Find a need and fill it.
Fabrice Taylor is an award-winning financial journalist and analyst and author of the President's Club Investment Letter. Email him at: