The “Roaring 20’s” – The Fundamental Problem Of The Bullish View

Recently, Ed Yardeni discussed his view of why another “Roaring 20’s” may lie ahead. However, while I certainly can appreciate his always “bullish optimism,” there is a significant fundamental problem with his view.

The Reasoning

We can sum Ed’s view up in the following quote:

“There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then.

World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million. Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate. Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of yesterday.

The good news is that the bad news during the previous precedent was followed by the Roaring Twenties. So far, the 2020s has started with the pandemic, but there are plenty of years left for the prosperous 1920s to become a precedent for the current decade. If so, the driver of the coming boom will be technology-enhanced productivity, as it was during the 1920s.”

While the reasoning certainly seems sound, there are vast fundamental differences between today and 1920, which will likely render the analysis moot.

The Fundamental Problem Of Technology

Let’s start with the impact of Technology. As Ed notes:

“Technological progress always confounds the pessimists by solving scarce-resource problems. It also fuels productivity and prosperity, as it did in the 1920s and could do again in the 2020s.”

He is correct that technology will continue to evolve and impact society in numerous ways. However, there is a fundamental difference between the impacts of technology in the 1920s and today.

As he notes, the rise of automation and the automobile’s development had vast implications for an economy shifting from agriculture to manufacturing. Henry Ford’s innovations changed the economy’s landscape, allowing people to produce more, expand their markets, and increase access to customers.

Technological advances led to increased demand, creating more jobs needed to produce goods and services to reach those consumers.

Conversely, the use of technology today reduces the demand for physical labor by increasing workers’ efficiencies. Since the turn of the century, technology has continued to suppress productivity, wages, and, subsequently, the rate of economic growth.