Philip Kotler: Predicting the American Economy Is a Self-Fulfilling Prophesy

The following is a guest post by Philip Kotler, author of CONFRONTING CAPITALISM, on how economic forecasters affect the economy.

Over the course of my long business career, I’ve watched how economic forecasters try to predict the future. These forecasters fall into two distinct camps: optimists and pessimists. Now that we are entering the process of presidential candidate vetting, what’s at stake is more than just “perception.”

Since my training is in economics and marketing, I strongly believe that the optimistic forecasters are the better predictors. What’s behind the optimistic forecasters? A leading optimist is Peter H. Diamandis, founder of the X prize. The X prize is given when some individual or team develops a powerful solution to a major problem. No one has yet figured out how to drive a car 100 miles on a gallon of gas, but if someone figures it out, the prize will be $10 million dollars. Recently, an X prize was announced to go to a group that could double the speed at which an oil spill can be cleaned up. Thirty groups undertook researching this, and the winner found a way to improve the clean-up rate at six times the old speed. They won that X prize of $10 million dollars.

Besides X prizes, Peter helped found the new Singularity University in the San Francisco Bay area. Its list of advisors and supporters is striking: gifted individuals such as Larry Page (Google), Elon Musk (Tesla Motors and SpaceX), and Ray Kurzweil (all around genius), for example. According to Bloomberg TV, Singularity University is “where the world’s brightest minds convene to attack the world’s toughest challenges.” The concept of Singularity itself is that it is that time in history when a machine learns to think, now estimated by Ray Kurzweil as the year 2034.

It is no wonder that Peter and his peers see a bright future made possible by new technology and software and sensors. Peter and coauthor Steven Kotler published the book Abundance: The Future Is Better Than You Think, which outlines how the world’s standard of living will inevitably improve. They argue that the planet can grow enough food and desalinize enough water for the world’s expanding population. “We will soon be able to meet and exceed the basic needs of every man, woman and child on the planet. Abundance for all is within our grasp.”

Now to the pessimists. Larry Summers, former president of Harvard and advisor to President Obama, recently said: “I think growth probably is going to be slower in terms of aggregate GDP over the next 50 years than it has been over the last 50 years.” He thinks that we are not going to get as much quantitative improvement to the labor force, let alone qualitative improvement until education gets better. He expects diminishing returns to innovation and a diminishing level of business investment.

Professor Robert Solow, the Nobel Prize winner and my former professor who recognized the growing role of technology in driving economic growth, distinguishes between technology that ends up producing physical products like refrigerators and stoves and technology that produces information but far fewer jobs. He worries that companies will continue to hoard cash or buy back stock. He thinks that interest rates will have to remain toward zero to motivate enough large businesses to invest.

The arch pessimist is Professor Robert J. Gordon, my colleague in Northwestern University’s economics department. His paper, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds” is described by one writer as the most depressing economic idea of 2012. Gordon believes that the big gains in productivity that supported an expanding middle class and the modern welfare state won’t be repeated in the future. He sees technology continuing to grow but not being likely to bring about new breakthroughs on the scale of the steam engine, the internal combustion engine, indoor plumbing, electricity, the railroad, automobiles, airplanes, computers, and the Internet. Each of these created spin-offs, such as highways, air-conditioning, and efficient factories that kept the economy growing for several decades. Gordon admits that the Internet and the digital revolution still has plenty of growth potential left, but he doesn’t expect it to have an impact on the scale of previous major innovations.

Gordon sees six forces in the economy that are likely to dampen U.S. growth:

• our aging population,
• our faltering education system,
• growing income inequality,
• rising foreign competition,
• the inevitable impact of global warming, and
• the need to eventually pay down our debt.

From 1891 to 2007, the nation achieved a robust 2 percent annual growth rate of output per person. Gordon estimates that these six forces will cut down half of the annual GDP income per capita to a 1 percent growth. And he thinks innovation will be less than that which produced our annual growth in the past. Putting these factors together, he thinks that our economy will grow at best by 0.5 percent per year for the next few decades. He sees these forces combining to lead to economic stagnation and a decline in living standards. Moreover, he suggests that the rapid growth achieved in the past 250 years could well turn out to be a unique episode in human history.

It is my belief that each type of forecast, whether optimistic or pessimistic, leads to a self-fulfilling outcome. If most of us are optimists, we will do things to bring about more economic growth. If most of us are pessimists, we will refrain from doing things to produce strong economic growth. Let’s side with Peter Diamandis and his team and give economic growth a chance. And let’s keep this in mind when choosing our presidential candidates. Our future depends upon it.

Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. Although best known as a marketing guru, Kotler trained as an economist. He received his Master’s in Economics at the University of Chicago under famed Nobel laureate and free-market evangelist Milton Friedman before pursuing his Ph.D. at MIT under Paul Samuelson and Robert Solow, two Nobel Prize–winning Keynesian economists. He is the author of more than 50 books, including CONFRONTING CAPITALISM: Real Solutions for a Troubled Economic System.

Books for National Stress Awareness Day

April 16th is National Stress Awareness Day. In honor of the holiday, we’re showcasing quotes from our books about handling stress.

**Originally posted April 16, 2015 — and updated to include When the Pressure’s On (AMACOM May 2016)!**

When the Pressure’s On: The Secret to Winning When You Can’t Afford to Lose by Louis S. Csoka

Staying prepared is all about maintaining the balance between stress and recovery. Address stress by ensuring that extended periods of high-performance demands are balanced out with appropriate recovery. Recover counter-balances daily stressors before they accumulate and become a significant impediment to performance. When you know an especially stress-filled period is approaching, plan and schedule recovery activities much like your work activity. Mark the recovery activities on the calendar, increasing the probability that you will engaged in them. (pages 110-111).

 

Stress Less. Achieve More.: Simple Ways to Turn Pressure into a Positive Force in Your Life by Aimee Bernstein

       Western culture dangles the idea that not only can we have more, but we are also entitled to it. Keeping up the pace of the “good life” can be just as stressful as recognizing that we don’t have all we were told we should have.

As modern life demands that we attend to more things in less time, we believe we must move faster to accomplish all that life requires. As we do, the pressure builds. Yet, moving faster isn’t the answer. Multi-tasking, neuroscience tells us, compromises our effectiveness. Yet, we race ahead, and before we know it, we have moved away from our center, the place I call “home” 0r “here.” The more we distance our attention from ourselves, the more drained, pressured, and disheartened we feel. Our decisions may become flawed and our relationships stressful. In this state, even when things go our way, life seems hard (page 59).

Success Under Stress: Powerful Tools for Staying Calm, Confident, and Productive When the Pressure’s On by Sharon Melnick

When Brianna’s thoughts about “I’m not good enough” get activated, she feels bad about herself; she thinks she needs to protect herself from being taken advantage of. That’s why she feels deflated and “loses it.” When Brianna learned this insight, she was blown away. “I am shocked at why I reacted. But I can see that’s definitely true,” she told me. In short, the real reason she snapped was that her husband’s question activated her own doubt (page 166).

And here are some of our titles to help reduce the stress of parenthood: 

Stress-Free Discipline: Simple Strategies for Handling Common Behavior Problems by Sara Au and Peter L. Stavinoha

       As parents, you will have Absolutes—behaviors you absolutely expect from family members. They reflect your values and thus are different for every family. There are no right or wrong items for you and your spouse to put on this list.

Here’s what an Absolute means: You will absolutely not tolerate a behavior and will stop what you’re doing to address that issue immediately, taking decisive action and brooking no explanations. These are the lines in the sand that, when crossed, provoke a reaction that conveys to your child that he has gone too far. Absolute consistent: Every time this behavior happens, you are resolute and take action in response. Coordinate and predetermine your response with any other adult who helps to parent your child.

Keep your family’s list of Absolutes very short. These are things you’re going to go to the mat for, and if you choose too many, you’ll be on the mat too often. You won’t be able to effectively parent with such rigid parameters. For example, in many families, hitting is never tolerated. If you and your spouse determine that will be one of your Absolutes, then every time you see your child hit someone, you always need to react with consequence. Many families use a swift Time-Out in these cases (pages 35-36).

Stress-Free Potty Training: A Commonsense Guide to Finding the Right Approach for Your Child by Sara Au and Peter L. Stavinoha

Praise is not only healthier, but there is an inexhaustible, free supply. We always have some with us. It also gives us parents the chance to specifically target what we really want to reinforce—our kid’s effort, willingness, and interest. Based on our feedback, our children will begin to value the same traits we are reinforcing—persistence, tolerance, overcoming frustration, patience, bravery commitment to a goal, and so on. Reinforcing all of that can be done quickly and efficiently in a statement of admiration or even a quick burst of applause. There is no time like early childhood to start working on the development of an internal achievement-orientation (pages 40-41)!

Want to sample other AMACOM books? Check out our Random Quotes from New Books series.

Random Quotes from New Books This April

Confronting Capitalism: Real Solutions for a Troubles Economic System by Philip Kotler

       If job creation remains low, what can be done to assist the unemployed? We already know that certain groups are particularly unable to find jobs. The unemployment rate is high for young African Americans. College students are graduating with accumulated student debt of over $1 trillion. And many seniors who lose their jobs are finding it hard to be rehired or find work at the wages they formerly received. How are these people to be supported? 

       Sadly, the cost of supporting the unemployed exceeds the cost of creating a job for them. This suggests that the great needs of the society for better education, health, and infrastructure ought to be met by the government supplying these jobs in the absence of the private sector creating them. The private sector’s interest lies in reducing its payroll expenses, not creating new jobs. As the government’s role increases in supplying work for the unemployed, it must fund the programs (much like the Works Progress Administration and the Civilian Conservation Corps in the 1930s) through either higher taxes or printing more money. The former becomes harder because of citizen resistance to higher taxes in an economy with more poor people. The alternative, printing money, has the potential of producing runaway inflation (pages 90 & 91).

Be Your Customer’s Hero: Real-World Tips & Techniques for the Service Front Lines by Adam Toporek

        When you allow difficult customers to rent space in your head, they tend to take up space that could be used for more empowering customers—and worse, they tend to attract their own kind. It’s a version of what’s known in psychology as confirmation bias. The more negative customers you allow in, the more tend to show up, because they confirm the underlying belief that allowed them to make camp in your mind in the first place. 

       The decision to let negative or difficult customers rent space in your head is yours and yours alone. You can choose to simply let it go. Let your attitude toward customers be shaped by the majority of wonderful people who need your help, not by the few who throw your day off track. 

       Of one thing I’m certain: Once you kick these negative tenants out you’ll find that you like who comes to live in your head a lot better (page 23). 

Business Strategy from The Brian Tracy Success Library by Brian Tracy

       Here’s a risky strategy that can lead to great rewards: creating a new market. The best way to create a new market is to find the problem first. There are problems for which there are no solutions. Your solution is the new market. Minivans fill our roads today, but it wasn’t so long ago that the market for minivans didn’t exist. Chrysler, recognizing that its gas-guzzling full-size vans were becoming less popular, saw the need for a scaled-down version of vans. A new and very profitable market was born (page 83).

Leading with Cultural Intelligence: The Real Secret to Success, 2nd Edition by David Livermore

       Unlike during most Western business dinners, business itself is usually the least talked about topic during a Chinese business dinner. If anything, it’s saved for a sliver of time at the end of dinner, although at that point, most of the people involved are so drunk that no real business decisions can come out of it. But don’t think this means it’s a wast of time. The point of the dinner is to solidify relationships. It’s a big part of determining whether you’re trustworthy and to see how you behave when you aren’t sober enough to filter what you say. Expect personal questions and don’t be afraid to talk about your personal life. And if you keep drinking, it will be seen as a symbol of friendship. The more you drink, the more pleased your cohorts will be, because it shows you’re willing to get drunk with them, just like you would with your friends. The Chinese believe that drinking together deepens and strengthens friendships because it loosens people up and helps relieve misunderstanding, no matter how tense the situation might be. Granted, there are certainly times when excessive drinking will be used to wear you down. But the primary orientation behind this practice is social (page 77).

Stress-Free Discipline: Simple Strategies for Handling Common Behavior Problems by Sara Au and Peter L. Stavinoha

       As parents, you will have Absolutes—behaviors you absolutely expect from family members. They reflect your values and thus are different for every family. There are no right or wrong items for you and your spouse to put on this list. 

       Here’s what an Absolute means: You will absolutely not tolerate a behavior and will stop what you’re doing to address that issue immediately, taking decisive action and brooking no explanations. These are the lines in the sand that, when crossed, provoke a reaction that conveys to your child that he has gone too far. Absolute consistent: Every time this behavior happens, you are resolute and take action in response. Coordinate and predetermine your response with any other adult who helps to parent your child. 

       Keep your family’s list of Absolutes very short. These are things you’re going to go to the mat for, and if you choose too many, you’ll be on the mat too often. You won’t be able to effectively parent with such rigid parameters. For example, in many families, hitting is never tolerated. If you and your spouse determine that will be one of your Absolutes, then every time you see your child hit someone, you always need to react with consequence. Many families use a swift Time-Out in these cases (pages 35 & 36). 

Want to sample other AMACOM books? Check out our Random Quotes from New Books series.

Philip Kotler on Capitalism and Jobs in a Future Marked by Growing Automation

The following is a guest post from Philip Kotler, author of Confronting Capitalism: Real Solutions for a Troubled Economic System. 

Can Capitalism Create Enough Jobs for People in a Future Marked by Growing Automation?

In industry after industry—music, publishing, retail, manufacturing—technology has proven a formidable job killer. Skilled artisans are in jeopardy of being replaced by 3-D printing. Accounting, education, healthcare, and legal professionals may soon lose out to intelligent machines. Within the next two decades, estimates an Oxford University study, 47 percent of today’s jobs could be automated.

However, capitalism may hold the power to avert this massive technology-driven unemployment crisis, but only if the following changes are made:

• Set up better job retraining for the current workforce, focusing on the types of jobs—mostly in the science, technology, engineering, and mathematics (STEM) fields—that will be in chronic short supply. There are, ironically, many skilled and middle-class jobs that can’t find workers.

• Do a better job of training U.S. students in math and science at the elementary and high school level. Based on standardized test scores, less than 10 percent of American students can perform at the highest math level. This will require improving the salaries and status of teachers in our society to the level found in the most educationally competitive countries.

• Educate high school students to better understand the job market so that they can make wiser career choices. Bring together educators, businesses, and government groups, at the local level, to develop a shared vision of how to improve their job pipeline.

• Encourage entrepreneurship focused on new technologies—mobile Internet, advanced robotics, next-generation genomics, and more—with promising futures. Although none of these may singly produce the next great innovation, cumulatively their future impact can be great.

• Lower the U.S. corporate tax rate from its current 35 percent to the average, about 20 percent, in other countries. If this tax rate could be lowered, money would pour into the U.S. to build needed factories and infrastructure, which would greatly boost employment. The new GDP generated would well make up for the lost tax revenue resulting from the lower tax rate. Plus, manufacturing jobs might start coming back to the United States.

• Undertake a vigorous program to rebuild our deteriorating infrastructure—bridges, ports, airports, water and sewage systems—and build solar and windfarms and better electrical grids. This labor-intense commitment would naturally require workers and create jobs.

• To increase the number of jobs, provide incentives to attract more foreign companies to locate their factories and offices in the United States. At the same time, commit to helping American companies increase their exports from their U.S.-based businesses.

Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. Although best known as a marketing guru, Kotler is a classically trained economist who did his Master’s studies at the University of Chicago under Milton Friedman, the famed Nobel laureate and free-market evangelist, before moving to MIT to pursue a Ph.D. under Paul Samuelson and Robert Solow, two Nobel Prize-winning Keynesian economists.

 

Confronting Capitalism Now Available on NetGalley

Capitalism, the economic system that dominates the industrialized Western world, is faltering. Confronting Capitalism: Real Solutions for a Troubled Economic System by Philip Kotler addresses the shortcomings of capitalism  by looking at all of the forces stressing the U.S. capitalist model and, in an engaging manner, puts forth realistic solutions for each problem. Journalists, booksellers, book reviewers, librarians, and media professionals interested in the strategic benefits of looking forward are invited to request Confronting Capitalism for review.

A sweeping analysis of capitalism’s challenges—and a bold new direction for the future. 

With the fall of the Berlin Wall, one economic model emerged triumphant. Capitalism—spanning a spectrum from laissez faire to authoritarian—shapes the market economies of all the wealthiest and fastest-growing nations.

But trouble is cracking its shiny veneer. In the U.S., Europe, and Japan, economic growth has slowed down. Wealth is concentrated in the hands of a few; natural resources are exploited for short-term profit; and good jobs are hard to find.

With piercing clarity, Philip Kotler explains 14 major problems undermining capitalism, including persistent poverty, job creation in the face of automation, high debt burdens, the disproportionate influence of the wealthy on public policy, steep environmental costs, boom-bust economic cycles, and more.

Amidst its dire assessment of what’s ailing us, Confronting Capitalism delivers a heartening message: We can turn things around. Movements toward shared prosperity and a higher purpose are reinvigorating companies large and small, while proposals abound on government policies that offer protections without stagnation. Kotler identifies the best ideas, linking private and public initiatives into a force for positive change.

Combining economic history, expert insight, business lessons, and recent data, this landmark book elucidates today’s critical dilemmas and suggests solutions for returning to a healthier, more sustainable Capitalism—that works for all.

Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. Although best known as a marketing guru, Kotler is a classically trained economist who did his Master’s studies at the University of Chicago under Milton Friedman, the famed Nobel laureate and free-market evangelist, before moving to MIT to pursue a Ph.D. under Paul Samuelson and Robert Solow, two Nobel Prize-winning Keynesian economists.

 

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