So, I want to share two thoughts that might seem oxymoronic.
First, we're in a recession. Second, I'm very, very optimistic about the future.
How can the former be true? And if it is, how can I sustain the latter?
I'm glad you (or I, rhetorically) asked!
It's true the economy is growing. And it's true that the generally accepted definition of a recession is 'two consecutive quarters of negative economic growth'.
In which case… how can we be in recession?
The answer is that while the economy is growing, the slice of the economic pie to which we're all (theoretically) entitled is shrinking.
That is, Gross Domestic Product (GDP; essentially just 'economic output') is growing. But population is growing even faster.
So GDP per capita (latin for 'per person') is declining. And has been for a while now.
The pie is bigger, but our slices are smaller.
We are well and truly in a 'per capita recession'. Per-person GDP has been declining for ages.
Which, when you think about it, is all that really matters.
Don't believe me?
Try telling a company's workers that the total wage bill matters more than each worker's pay.
Or shareholders that total profits matter more than earnings per share.
The focus on a 'total economy' recession is useful for politicians and business, not for us.
(As an investor, by the way, the total is more important, because a larger population means more people spending in the economy, which should be good for profits.)
But that shouldn't be the only economic lens we use, even as investors.
So maybe we'll have a capital-R recession later this year (or early next year). Or maybe not. But we could still potentially have 18 or 24 months of a per-capita recession.
And for most people, that's far more important… and painful, especially given the continued inflation we seem unable to shake.
Which all sounds pretty pessimistic, right?
Not so fast.
It's negative, yes. It's more realistic than our pollies and newspapers ignoring the 'per capita' bit and pretending that only the total GDP numbers matter, for sure.
But don't think I'm being pessimistic.
See, pessimism would infer a view about the future. And I am not even slightly pessimistic about the long term future, for Australians in general and Australian investors in particular.
True, none of us should assume we have a divine right to endless economic growth or improved living standards.
And true, bad policies and decisions can make things worse, not better, if they're allowed to stand.
So, we must remain vigilant to ensure our politicians are serving the national interest, and not their own (or someone else's).
But we have the institutions and mechanisms to do just that, if we use them.
And we have the tools of (admittedly imperfect) capitalism to propel us to that future.
When it's well regulated, capitalism is a force for good. It rewards effort and risk, it makes sure capital (money) is put to the best use, and it creates jobs and products that make our lives better.
No, it's not the only option, but, as Winston Churchill said of democracy, it's the worst system except for all of the others that have been tried.
The other reason I'm optimistic? We've been here before. A while ago, sure, but we've had recessions in the past. And you know what? Each time, we come out of them, and to higher heights than ever before.
No, that's not to ignore the pain they cause. If I had a magic wand, I'd make sure governments did a lot more to alleviate the worst of the pain, and to ensure we had appropriate safety nets in place. But they're still painful. That's the downside of a system that generates far more prosperity than any other system. There's no perfect system but, as I said, capitalism is the least worst.
So, I'm very optimistic about our future. Vigilantly optimistic, to be sure, but optimistic.
At this point, I am tempted to rant about the things that are holding us back, and the poor decisions made by all levels of government, including great swathes of inaction… but I won't.
Suffice it to say that we should be very active in holding our elected officials to account for the impact of what they are – and aren't – doing, but that we shouldn't miss the forest for the trees.
Australians are smart people. We'll make mistakes, but we'll get it mostly right. And when we do, we'll create a better future, measured in dollars as well as those non-monetary things that are just as, or more, important.
We have to start by being honest – real wages have gone backwards, after inflation, and economic output per person has fallen. And then we have to get on with making things better.
On the latter, my bet – literally, my investments in Australian companies – is that we will. And that, when we do, we'll have a better country, and strong portfolio returns over the long term, to boot.
Fool on!
