Wednesday, March 18, 2020

35. Comprehending the Crisis (Demographic Doom Podcast)

This is the script for my Demographic Doom podcast episode (#35) released on 18 March 2020. It may differ slightly from the final broadcast. This episode is available on major podcast platforms, including PodbeanApple Podcasts and a video version on YouTube. See the description on the YouTube version for annotations, 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 is Wednesday, March 18, 2020, and in this episode I want to try to describe what's happening in the world from the widest possible perspective. A wide perspective is why I got into demography. It's looking at whole human populations, not individuals. Individuals are certainly important. Under the right circumstance, one person can change the course of history, but individuals are unpredictable. Whole populations can a bit more predictable. Given a few basic assumptions about human nature, you can sometimes predict what a whole group will do, even if you don't know the individual players or the exact course of history.

So today I want to talk about the coronavirus crisis from the highest possible altitude, like aliens approaching from outer space. What do they see?

I think that right now the aliens would see a planet in shock. Something big is happening, and some 8 billion people are trying to figure out what is going on and how they should react. Everyone is walking around in a daze. They don't know what to make of current events, and they are responding in typical human fashion. They are focusing on trivial things, like being absolutely sure they have enough toilet paper, and most people aren't really grasping the big picture. So in this episode I'm trying to give you that big picture.

The biggest event coming down on us is not a viral epidemic. That's something we can all adapt to pretty quickly. The big event starting to unfold is a worldwide economic collapse on the scale of the Great Depression or World War II in Europe. Everyone's life is going to be turned upside down.

The COVID-19 virus triggered the collapse, but it didn't cause it. An economic bubble has been building up ever since the Global Financial Crisis of 2008 and maybe long before that, and the virus simply pricked the bubble. The bubble was destined to pop sooner or later, and if a virus didn't do it, something else would have.

The cause of the bubble is relatively easy to understand. In response to the Global Financial Crisis, the US Federal Reserve and other central banks dramatically lowered interest rates. It was supposed to be a temporary fix, but the absurdly low interest rates have remained with us to this day. The "cheap money" that the Fed sponsored fueled a massive speculative asset bubble and a host of other dysfunctions. Assets like real estate and stocks shot up in price to unsustainable levels. You experienced this if you owned a home and saw it go way up in value or you tried to buy a home and found it unaffordable.

What has to happen in this crisis is that all those asset values must come back down to earth. We are beginning to see this now in the stock markets, which have dropped about 30% from their February peak, and we will soon see it most other assets, including housing prices. Real estate prices haven't crashed yet, but they will. In my view, the carnage has only just begun.

In the background is an underlying demographic issue: The population in the developed world is no longer growing. This may seem like a good thing from the environmental standpoint, but from an economic standpoint it is devastating. All of our economic assumptions about the world were based on the late-20th Century environment where everything was growing, powered by the growth of the working population, mainly coming out of the post-war Baby Boom. More people mean more economic activity, and less people mean more economic activity. A growing population of working-age people means a growing economy, while a shrinking population of workers means a shrinking economy. All of our financial and social expectations are based on a growing population. The world isn't ready for a shrinking economy, and adjusting to this change is what the current crisis is all about.

A second demographic factor, apart from at soon-to-be-shrinking population, is that people from the high birth period, mainly the Baby Boom, are now getting old. Most of the Baby Boomers have already turned 60. As people age, they can still remain vibrant, but on the whole they produce less value for society and require more services like health care.

So we have this huge burden of old people bearing down on us without enough resources to sustain them. Economic growth has gone stagnant, but assets markets continued to party like it was 1999. All of that is coming to an end right now. This is the massive crash that rationalizes all the insanities of the past.

So what does this mean for you and me? Well there's plenty of reason to be afraid. Whereever you income comes from and whatever assets you think you hold, they are both at risk. There's a real possibility that you will lose your job, and there's a real possibility that the assets you thought you had will evaporate.

The first thing we're going to see is massive unemployment. This may seem hard to comprehend at the moment, because in America at least you still see help-wanted signs in almost every store and restaurant. Those signs will be going away soon as those jobs fill up and go away.

It hasn't been reported much in the media yet, but widespread unemployment is already beginning to take hold. It has been masked by the current wave of lockdowns and closings, which I talked about in my previous podcast. In response to requests by the government, employees are being sent home for two weeks or more. It is supposed to be temporary, but for many it will be permanent. Coronavirus concerns are killing a whole bunch of industries at once: tourism, sit-down restaurants, spectator sports, conferences, any kind of mass entertainment. People are being sent home from work, supposedly for a hiatus, but this hiatus could stretch out indefinitely, because, frankly, no one ever needed those industries to begin with. By the time the virus abates, the economic collapse will be in full swing and the consumer will remain in bunker mode, spending as little money as possible.

There will be no more frivolous spending, which is devastating for an economy built on frivolous spending. A major portion of the products we buy and services we use just aren't necessary and can be eliminated almost instantly in a downturn. No one needs to buy a boat right now, and they won't, which throws the leisure boating industry into the trash can. Certain industries are kind of safe. Fast food will probably thrive, because it's cheap and people still need to eat. People will still need the basics, but the basics can get very basic if you don't have much money and are struggling to make it last, which is the situation most of us are going to be in.

In short, nothing you could count on two months ago is secure anymore. You might not have a job. The assets you thought you had could evaporate. The comfortable retirement you planned might never come to fruition. Everything seemed fine in January, but now everyone's lifestyle, if not their very life, is at risk.

How are people reacting to this? They are doing it in typically human ways. They are overreacting. They are focussing on trivialities, like toilet paper. Some are denying that there is anything wrong at all. Many are hunkering down for the apocalypse, but largely they are preparing for the wrong apocalypse. They are stockpiling supplies they don't need and are declining to prepare for the risks that might really get them.

Surprisingly, I am fairly optimistic about the virus itself, that it's not going to infect or kill as many people as the early scenarios suggest, at least in the developed world. This is because I think people are taking hygeine and social distancing very seriously. This isn't based on any empirical data, just on my observations that people are very focused on this and are truly changing their behavior. The are careful about how they touch door handles; they're avoiding crowds. Social distancing comes naturally to Americans, because we are a very socially distant people.

I think the internet and social media are a great asset to humanity overall, because they allow the rapid dissemination of information. Much of this information is crap, but I think most of it is helpful. Even without the government telling them, people seem to know what to do. They are acting like their life depends on their own hygeine plan, which it does.

If anything, people are overreacting to the virus, which is par for the course. A virus is a passive object. It can hang in the air for a few minutes or sit on a surface for up to three days, but it can't jump long distances, pass through walls or stalk you through the streets, yet people are acting as though it can.

For example, older people seem to be upset that college students are still enjoying Spring Break down in Florida. There are shots on the news of young people filling the beaches. "How outrageous!" the old folks say. They're out enjoying themselves when they should be hunkered down inside. Well, I can't think of a safer place to be than a beach. There's plenty of air circulation. Even on a crowded beach, nobody touches anyone else, and there are no doorknobs or common surfaces that everyone is touching. I thinking the old people are mainly upset by the image of people relaxing and having fun. This is a national crisis, and you're supposed to be miserable.

Humans, on the whole, prefer rituals over substance, and right now the main ritual is lockdowns. You're supposed to go inside, hunker down and not interact in person with anyone else, which doesn't make a lot of epidemiological sense. You don't have to be inside to be safe. If you take a hike in the woods, you are 100% safe. If you meet someone in the street, and you don't shake hands, I think it is completely fine to hold a long conversation with them, just as you normally. The very simple behavior change here is: Don't shake hands. Don't hug or kiss in a social setting. Be careful of the objects you touch in common. These are simple things to learn, and they don't distrupt your life much at all.

So right now, we're in a period of over-compensation. People are going overboard in their virus protection strategies, which is better than not responding at all. Over time, people will separate out useful strategies from the ridiculous ones, but it's a long process. It's just like how people in the US reacted to 9-11. Initially, everyone overreacted to the terrorism threat. They saw terrorists everywhere, in places they couldn't possibly be, but over time, society settled into some fairly reasonable precautions without distrupting their lives. That's where things are heading with the coronavirus. People are paranoid and overreacting right now, but eventually sensible precautions will set in, and the virus itself will fade into the background.

As I said in my previous podcast, I think the massive wave of lockdowns and closings we're now seeing is counterproductive, but it does give people time to regroup. Effectively, Europe and North America are beginning a two-week forced vacation when they and their governments have a chance to process things, and I think they'll come out with a fairly sane set of strategies, at least regarding the virus itself. No one will be shaking hands any more. Big, tight crowds will be a thing of the past, but most of our previous activities will be allowed to resume.

Overall, I'm pretty optimistic about the public response to the virus. People will look after their own survival with a personal hygiene plan that is reasonably effective, and this will limit the infection rate. I am not optimistic about the financial crisis however. This is a massive, world-changing event that won't be quickly assimilated. I don't know what's going to happen next. All I know is that debts are unsustainable in all sectors of the economy, and one way or another, these debts must collapse.

When people lose their jobs, they stop paying their debts. They stop paying their student loans, their credit cards, their mortgages, because they need to reserve their money for food and other basics. When this happens on a massive scale, it means the creditors are going to fail. That means banks failing, pension funds failing. Lots of institutions are going to fail. It will be like bombs destroying German industry in World War II, except none of the offices or factories will be destroyed. What is being destroyed is the financial juice that makes them run.

Everyone is going to expect a bailout from the government, and the government will probably comply. Right now, the Trump administration is proposing that a $1000 check be sent to every taxpayer, and that's just beginning. Every affected industry is going to want a bailout—airlines, banking, tourism—and the government will try to do it, because the alternative is to see these industries collapse.

The trouble is, the government doesn't have any money. For years, it has been spending more money than it makes in taxes, and it's going to get much, much worse. A 1 trillion deficit is going to turn into a 2 or 3 trillion deficit. Before the crisis, the US government was borrowing roughly 25% of it's annual budget, and that percentage is going to explode.

The only way the government can fund all these bailouts is by printing more money. The way it works is that the government issues bonds, then the Federal Reserve buys those bonds and creates new money. It's a Ponzi scheme, pure and simple, and eventually it's going to collapse. I can't tell you exactly when and how it will collapse, but it will collapse.

So the virus is manageable. It's going to be brought under control. I don't think the lockdowns will help, but the hygiene plans of individuals probably will. In a few months, the virus will just seem a routine part of life. It will become normalized.

We are a long way from normalization on the financial front. The 30% collapse of stock markets over the past couple of weeks is just the beginning. There's a lot of even worse financial news yet to come. I don't want to predict exactly how the bad news will unfold, but it is coming. In the long run, governments, corporations and individuals can't pay their huge debts, while much of the wealth we thought we had will evaporate. Things will be bad in financial markets, but they will also be bad on the ground, because people will lose their jobs and sooner or later the government well will run dry.

Even I have trouble getting my head around this. I know what the end result will be: a massive debt default in which most debts are disabled, most assets are devalued, and the economy has to be restarted almost from scratch. I just don't know how we're going to get there.


For annotations, links and corrections, see the description on the video version of this podcast. You can also leave comments there.