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Musings Report 2019-36 9-7-19 The Demographics of Economic Depression
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The Demographics of Economic Depression
Demographers are careful not to say "demography is destiny," as they are professionally bound to avoid drawing overly dramatic conclusions about demographic trends: births, deaths, immigration, etc.
That said, a great many economic trends can be inferred from birth and death rates, as the number of people getting older is predictable, and the size of the work force 20 years hence is defined by the number of recent births.
Immigration is a wild card, of course, but demographics impacts immigration as well: as Mexico's birthrate has fallen along with other developed and developing nations, the future pool of potential immigrants from Mexico will shrink. The pool of potential immigrants is largest in nations with high birth rates (mostly African and Mid-Eastern) which historically make up a modest percentage of immigrants to North America.
What few analysts have dared to project is the impact of aging / declining populations on the global economy. This recent book review addresses the potential for profound change--the end of growth-based capitalism:
The Population Bust: Demographic Decline and the End of Capitalism as We Know It
The basic idea is simple: the large-scale industrial-financial-consumerist capitalism we know arose in parallel with three unprecedented expansions:
1) the human population expansion in the 1700s
2) the vast expansion of hydrocarbon energy sources (coal, oil and natural gas)
3) the monumental expansion of fiat currencies (i.e. currencies unbacked by gold or other tangible assets) and fractional reserve banking (where $5 in cash enables a $100 loan, $95 of which is created out of thin air).
The current version of capitalism optimizes growth: extracting more resources, adding more workers, paying higher wages, collecting more taxes, issuing more loans to more people and so on.
The tricky part of a contracting working-age population is capitalism's credit machine only functions if there is more income in the future to pay the principal and interest on today's fast-rising debt ($250 trillion globally and climbing-- 12X the entire U.S. GDP of $20 trillion).
As the work force and population shrink and automation replaces human labor, income will also stagnate or decline. This leaves less money to pay the ever-higher costs of interest and principal.
The status quo trick to fix this problem is zero or negative interest rates: if the interest rate is zero, interest payments are also zero, and so the borrower only has to pay the principal.
The problem is this fix is temporary: if income declines and debts soar, even the principal payments become a crushing burden.
The status quo fix to this problem is for central states and banks to create massive sums of new currency (via either "printing" or borrowing it into existence) and distribute it to households as Universal Basic Income (UBI) or state-funded make-work projects (Modern Monetary Theory--MMT).
In other words, if household income is declining for whatever reason, the government will create more money and distribute it so households can still service their student loans, auto loans, mortgages, etc.
But this presumes these enormous (and ongoing) injections of newly issued currency will never cause inflation. (In the 21st century, all the inflationary impact of new money issuance has manifested in asset bubbles, and in under-reported real-world cost increases).
If only modest sums of new money were created and distributed, the effects would likely remain muted. But human nature and politics being what they are, humans are incapable of restraining the impulse to print more "free money." If a little extra free money is good, a tsunami of free money will be even better.
Once the "free money" is created and distributed, the political demands for more become insatiable: no matter how many trillions of dollars are created out of thin air, the demands for more will only increase.
Eventually this massive asymmetry between the money supply (rising rapidly) and the real economy of goods and services (stagnant or declining) is priced into the purchasing power of the currency, and the quantity of real-world stuff the new "free money" can buy plummets.
Given human nature and politics, the status quo reaction is predictable: conjure up and distribute even more to make up for the ground lost to currency devaluation, a.k.a. inflation.
This establishes a self-reinforcing feedback of higher inflation and greater issuance of new money, which then pushes inflation higher, which causes the government to issue more new money and so on.
Advanced economies are presumed to be immune to this hyper-inflationary feedback loop, but then a decade ago everyone reckoned Venezuela was immune to such craziness. Everyone was wrong, and everyone who is supremely confident that governments can print however much new money they want and there will be zero consequences will also be wrong--catastrophically wrong.
Demographics and an economic system that requires massive expansions of debt and consumption to stay afloat have created a binary choice: either let all the debt default, destroying hundreds of trillions of dollars of "wealth," or hyper-inflate away the purchasing power of fiat currencies, destroying hundreds of trillions of dollars of "wealth." Either way, an unprecedented economic Depression looms.
Demographics and ballooning debts are destiny.
Best Thing That Happened To Me This Week
Finished my next book and shipped it to my editor. Whew.
Musings on the Economy: the Jobs Report and the Impact of Full Employment
The most insightful demographics-economic analyst in the alternative media today is Chris Hamilton. Many of you may have read his essays on Zero Hedge, for example: Employment In America - The Raw Numbers: With minimal working age population growth, full employment, no further female labor force slack; there is little further potential for labor force growth or resultant economic growth.
In this essay, Chris provides evidence that the U.S. has essentially full employment. Much of the recent expansion of employment is the result of retirement-age people continuing to work into their late 60s and 70s.
This pool of workers will decline with age, and as they retire the work force will shrink. As Chris notes, there is no way for an economy to grow organically (i.e. absent "free money" distributed in lieu of income) if the work force shrinks.
Some may argue that the percentage of young people with jobs could rise, but if the longest boom in recent U.S. history hasn't pulled them into the work force, then what will?
From Left Field
Anand Giridharadas on elite do-gooding: 'Many of my friends are drunk on dangerous BS'
His recent book, Winners Take All: The Elite Charade of Changing the World, torches the privileged circles he has moved in much of his adult life, and is rooted in insider knowledge.
The Money Masters - Full Documentary (3:28 hrs) (via U.Doran)
The Dream of a Managed Society
You Might Not Actually Be Struggling With Depression But you may be dealing with depression’s lesser known evil twin Acedia (pronounced ah-SEED-e-uh)
The Companies Behind the Burning of the Amazon--BlackRock et al.
Bernie Sanders and Elizabeth Warren Aren’t Playing the Same Game--and this matters...
Trump has the right strategy on Beijing. As a Chinese dissident, I’d know. -- surprised to see this in WaPo....
Debunking The "Lower Oil Supply Will Raise Prices" Narrative--demographics plays into this dynamic, too....
A living artifact from the Dutch Golden Age: Yale’s 367-year-old water bond still pays interest (via John F.)
Why We Should Teach About the FBI’s War on the Civil Rights Movement-- wait, aren't the FBI, CIA and NSA all wunnerful agencies that never abuse their power?
Do statins really work? Who benefits? Who has the power to cover up the side effects? -- worth a very careful read. Short answers: No. No one. Big Pharma and its lackeys.
Renew Old Brains...With Radiation? Sounds crazy. Hormesis often does. The principal of modest stress to maintain strength and health is important.
"Exercise is King, nutrition is Queen, put them together and you've got a kingdom." Jack LaLanne
Thanks for reading--
charles |
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