Sunday, February 23, 2020

30. Pandemic + Financial Collapse = Chaos (Demographic Doom Podcast)

This is the script for my Demographic Doom podcast episode (#30) released on 23 February 2020. It may differ slightly from the final broadcast. The final episode is available on major platforms, including PodbeanApple Podcasts and a video version on YouTube. See the description on the YouTube version for possible notes, links and corrections. You can also comment on this episode there. (If you leave comments on this blog post, I might not see them.) The main website for this project is

I’m Glenn Campbell. I call myself a demographic philosopher. I’m looking at life and trying to predict the future through the lens of demography, or the study of human populations.

Today, I’m trying to comprehend the great worldwide social and financial crisis that’s bearing down on us, triggered by the coronavirus out of China, and the bottom line is that I can’t. It’s just too big for anyone to get their head around. It’s like someone in 1939 trying to predict what World War Two will be like. It seems evident that a lot of bad things are coming down, but it’s impossible to predict how they will unfold.

I’m talking to you from a motel room in Laramie, Wyoming, in the early morning hours of Sunday, February 23, 2020. The epidemic in China has been known for about a month and a half. January 10 is when the first official death was reported. As of today, most of America seems to be in denial. I haven’t been outside the US during this period, so I don’t know what the rest of the world is thinking, but here in my own country it’s business as usual. No one seems to be altering their plans or taking any precautions for the coming epidemic.

I know you may be listening to this episode a long time after I record it, so let me summarize this moment in history. Until a week or two ago, the coronavirus seemed like a Chinese problem, but over the past few days, it has become increasingly clear that this is a pandemic involving the entire world. There are now uncontrolled cases in South Korea and Iran and probably North Korea, Italy and a dozen poorer countries that don’t really have the means to test for it. The virus now seems unstoppable. The majority of the world population is probably going to get it. At this point, it is only slow-downable, meaning that with good hygiene and a cooperative population, some countries might be able to slow its spread.

This is important, because survival rates depend on what kind of medical care people can get.
At this early stage, it’s hard to come up with good numbers on the fatality and complication rate, but it’s clearly huge compared to routine bugs like influenza. The best information suggests that at least 80% of the population will have only mild, non-life-threatening. This is good in the sense that most people are going to survive with minimal physical effects. It’s bad, however, in that most people who get the virus probably won’t seek medical attention or take appropriate actions to protect others. It appears that some people can even spread the virus asymptomatically, meaning that can get the disease and spread it to others without even knowing it.

The real danger lies in those other 20%. A significant proportion of people who get the virus will suffer serious complications requiring hospitalization, and some of them are going to die. We have only ballpark numbers now. Maybe 10-20% will suffer serious complications and 1-2% will die. Deaths seem to be weighted toward the old and sick, but 1-2% is still a big thing. It means that someone you know will die—possibly you—and millions will die worldwide. Millions more will require hospitalization or will be struggling to try to get it. This isn't the common cold. This is something no one can ignore.

The1-2% figure depends on people getting good medical attention. If they don't, many of those in the "serious complications" category are going to die. That's why it's really important to slow the infection down, so medical systems have time to respond.

North Korea might become a perfect test case, along with other poor countries. Although officially North Korea has no cases, it is clear that it can't keep the virus out from neighboring China. Here you have a malnourished population with an incompetent government and virtually no medical care. In North Korea, the epidemic will progress in its purest form, much as it might have done in the Middle Ages. In this case, the fatality rate might begin to approach the complication rate of 10-20%.

But the epidemic itself is only one aspect of the worldwide crisis. The other side of it is the coming financial crisis that's certain to result. I want to emphasize that there is no major financial crisis as I record this. In fact, a couple of days ago, the NASDAQ and S & P reached all time highs. This indicates that most investors in the U.S. are in denial. They don't comprehend how bad things are going to get. I don't think anyone can truly comprehend it right now. Even me. I know a lot of bad things are going to happen, but I can't get my head around how those bad things are going to be experienced by myself and others. Humans tend to focus on minutia. They have a lot of trouble grasping the Big Picture. This is understandable, because there are so many threads involved.

Today, we generally understand how World War II or the Great Depression unfolded, but it's hard to see things clearly when you right in the middle of it. It's like you're strapped into a roller coaster, in the dark, and you just have to go where it takes you. There have been no safety inspections on this roller coaster. You don't know how long it's going to last or how bad it will get. You just have to ride it out, doing whatever you need to do to survive.

As I record this, I think the business world and general public outside of China are right on the cusp of recognizing they're in big trouble. I predict the coming week will be a busy one, with lots of news on both the medical and financial fronts. In the past few weeks, the coronavirus has hardly made the front page of American newspapers. The main story has always been Donald Trump and the Democrats trying to unseat him. In fact, the main story has been Donald Trump for four years now, all the way back to 2016. It will take a powerful worldwide crisis to displace him, and so far the coronavirus hasn't managed to do it. Maybe it could happen this week: coronavirus becomes that main story in the American news.

Right now I feel like an ant in an underground colony at a construction site. I know the bulldozers are coming, but I'm too small to understand how things will unfold. I'm pretty sure a lot of people are going to lose their jobs and lose a lot of money in failed investments. I'm also pretty sure that within the next few weeks we'll all be living in deadly fear of a domestic epidemic. The chance of it not taking off in the US and Europe are increasingly slim. I know a great social and financial collapse is coming, but I don't know how it will unfold or how people will adapt. You can't predict it. You can only live it.

The best I can do is point out all the bad factors that are ganging up on us. The world economy is at the peak of an Everything Bubble. The coronavirus didn't create the bubble. It's just the thing that's going to pop it. For many months, I and an number of more reputable experts have been predicting a major economic collapse. To call it a "recession" would be an understatement. The basic problem is that after the Global Financial Crisis in 2008, central banks lowered interest rates, which resulted in all sorts of unsustainable dysfunctions in the economy. Assets like stocks and real estate have exploded in value, while wealth inequality has increased and the lives of average people in developed countries have gotten relatively worse.

It is particularly telling that stock markets have continued to boom even as the news out of China has gotten worse. Even if the virus never leaves China, supply chains are going to be disrupted, and traditionally stock markets are supposed to fall on such bad news. These days, stock markets seem to RALLY on bad news. The reason appears to be that investors expect the central banks and big governments to intervene. They will supposedly lower interest rates and pump more money into the economy to save the stock market. Unfortunately, there's a limit to how much the central banks and big governments can do. Since interest rates are already low, even negative in some cases, they can't lower them much further, and governments can't keep spending themselves into debt without some eventual consequences.

For months, I and the reputable experts have been saying, "This has to end badly," but it was never clear exactly WHEN it would end badly. The saying goes, "Markets can stay irrational longer than you can stay solvent." For months, most investors and economists have said, "There's a recession coming," but the timeframe has been elastic. The most common advice you hear on the business TV shows is that a recession is coming, for sure, but not right away; maybe next year.

Well the coronavirus is guaranteeing that "next year" is actually going to be this year, 2020. This is the year the whole house of cards starts collapsing. There's no way to stop the march of coronavirus around the world. At the very least, the whole Eurasian continent is going to get it, and it takes only one uncontrolled case to bring it to America. Based on countless epidemics in the past, we have a pretty good idea of how they unfold. They happen fast. Just look at how fast the virus spread in China, in spite of all their Draconian measures to stop it. In less Draconian countries, it could spread even faster.

This podcast is supposed to be about demography, and it turns out that the spread of epidemics is a demographic problem. Demography isn't just concerned with counting people and measuring their reproduction rates. It can also be applied to any living thing—like a virus. An infection rate is a lot like a fertility rate. A fertility rate is the number of babies an average woman gives birth to in a given community. If each woman, on average, has more than two children, and all those children survive, then the population will grow. If each woman has less than two children, the population will fall.

It's pretty much the same with a virus. Instead of a fertility rate, a virus has something called an "R-naught", which is the number of new people that each person with the disease infects. In this case, since there are no "males" in the virus community, the cutoff point is one instead of two.  If each person with the disease infects more than one other person, on average, the epidemic will expand. If they infect less than one other person, the epidemic will eventually fizzle out.

In the case of the coronavirus, the R-naught is very high. It's not yet clear what that number is, but it could be anywhere from 2 to 6. There are some people who infect many more than that, like so-called "super spreaders" who infect many. One woman in South Korea infected at least 40 members of her church, which means her personal R-naught is 40. With the high numbers we've been seeing, the infection is certain to expand fast. It's like a ooor country in Africa having fertility rate of 6 babies per woman: You know that over time the local population will explode. It just does it slowly, over years, because it takes nine months to make a baby and about 15 years for that baby to reach reproductive age. In the case of a virus, the "pregnancy" of the virus is only a few days, and it's ready to reproduce immediately.

So what you have with a virus is a real population explosion. The only thing that stops it is running out of victims. Pretty soon, everyone in the community gets the disease. Either they die or they gain immunity, at least to the current form of the virus. That's when the R-naught falls below 1 and the disease fades out.

You can try to erect a wall around your community, but there's a limit to how effective it can be. You can try to build a wall around China to keep the virus from spreading, which is what other countries have tried to do, but if there's the smallest breach in the wall—just a single case—a new community is infected, and the virus will start expanding exponentially there.

I can imagine there will be some island communities that will hold the virus at bay for a lot longer than a connected continent would. New Zealand comes to mind. It's surrounded by water, so it can control its borders better than, say, France or Italy can. New Zealand already has some stringent border controls in place to prevent the introduction of pests and new invasive species, and I'm sure they're putting into effect some serious controls on visitors from China. If need be, New Zealand could suspend all international flights, which might be necessary if people from outside China are spreading the disease asymptomatically. So far, New Zealand has had no reported coronavirus cases, and it is within their power to keep it that way—but at what cost? What is the life-blood of the New Zealand economy? It is tourism. If you cut off international flights, you cut off the country's economic sustenance. There's going to be a massive recession. People in the tourist industry are going to lose their jobs. Everyone will suffer, even if the virus never gets in.

And it might not even be necessary to suspend flights. Foreign tourists may decide, on their own, not to come to New Zealand. Even if all the firewalls hold and the disease doesn't spread beyond its current locations, 2020 is certain to become a truly horrible year for tourism. Tourism is discretionary. No one has to do it, and if people feel that their lives are at risk, they won't. Think of the passengers on the Diamond Princess cruise ship. They found themselves trapped on the ship and subjected to a potentially deadly disease. Given how well it was publicized, who in their right mind would book a cruise right now, anywhere in the world?

New Zealand's dilemma is a microcosm of America's. America could be seen as a sort of island state, at least compared to the countries of Europe or Asia. It can close its borders relatively easily, but at what cost? America's life blood, like New Zealand's, depends on international trade. In particular, it has outsourced most of its industry to China. Even if the virus never gains a foothold in Amerca, where are we going to get all the products we need? America is pretty much self-sufficient on food and services, but it seems like everything else is Made in China. Furthermore, America needs China to sell its own products to. If America had to live without China, it might eventually adapt, but in the meantime, the losses are devastating. You can't close factories in China and prevent people there from buying things without huge disruptions across the ocean in America and Europe.

All of this ought to trigger a huge stock market correction. It ought to lead to layoffs and defaults everywhere in the world. So far these things haven't happened yet, but they will. There's no avoiding it.

Things will only get worse if the virus starts spreading within the US. As of this moment, all US cases—officially less than 100—seem to be controlled, but that can change in a minute. Once the virus is known to be spreading domestically, everyone is going to start taking defensive measures. They're going to hunker down. They're going to leave their homes as little as possible, and they'll stop spending money. The greatest vulnerability of the American economy is that very few of the products and services we buy are truly necessary. No one really needs a new car, a new home or meals in fancy restaurants. Once people lose confidence and stop spending, the whole economy starts collapsing in on itself. The collapse becomes a self-sustaining feedback loop when lower spending means more layoffs, which leads to even fewer people spending money.

In the background of all of this is absolutely astounding worldwide debt. Whether you look at governments or corporations or individuals, there's more debt out there than ever before in history. When the economy takes a dive, a significant portion of the debt becomes unpayable. Debtors will default, and the people and institutions who lent the money are going to lose their investments.

As I say, I don't know how it's all going to go down. I only know that it will go down. You can't put the virus genie back into the bottle, and you can't restore a healthy economy if it was unsustainable to begin with. I don't even know how to prepare for this myself. What should I do apart from buying hand sanatizer? My impulse is the same as everyone else: Just hunker down, conserve my resources and wait for the storm to pass.

Unfortunately, hunkering down is the worse thing possible for the economy. For the past few years we've been high on drugs—the drugs of low interest rates and irrational exhuberance. Now we have to experience the downside of those drugs, which is the terrible withdrawl symptoms when you take them away.