A few years ago, Vanguard's global chief economist Joe Davis was asked if the world was getting better by a very important person—his 13-year-old daughter. He admits he struggled.
Why? The general consensus has been pessimistic, and many economists have decried that the entire world has been afflicted with secular stagnation for two decades.
The primary culprit, Davis told attendees at the 13th annual Inside ETFs conference in Fort Lauderdale, Fla., has been the fall of global productivity growth. "It's been down ever since the late 1990s," Davis said. "It's been way down."
If productivity continues at its present anemic pace, the implications are downright frightening. "If it doesn't pick up, it will take the average American family three decades to achieve the American dream," he warned.
The American dream, of course, is a world where one's children enjoy a better life and living standard than their parents. For most of this nation's history that was taken as a given.
What can turn this around? Something Davis called "the idea multiplier." How many additional ideas are needed to generate a really big idea?
About 18 months ago, Davis and six or seven economists at Vanguard started studying the impact of trade tensions and globalization on the idea multiplier. "Innovation and services" are the most important components of the global economy.
He pointed to the Wright brothers, who spent five or six years trying to build an airplane prototype that could get off the ground. They had to locate 15 different ideas from Pittsburgh (Alcoa), Europe, Egypt and other places before research in France prompted them to change the aerodynamics of their wings. Suddenly, their plane got off the ground for 13 seconds and the modern world changed.
Technologies, Davis said, need to merge together like the internet.
"Knowledge is accelerating, but innovation takes time," he said.