Thursday, October 8, 2020

45. Rip van Winkle Awakens... to Insane Economics (Demographic Doom Podcast)

This is the script for my Demographic Doom podcast episode (#45) recorded on 7 October 2020 (released on 8 October 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 extensive 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. I'm trying to view humanity from a distance, as aliens would see us from space.

Today is Oct 8, 2020, and I'm back! After a 4-and-a-half-month hiatus, I'm reactivating this podcast to talk about what's been happening in the world and what the future may hold. You can think of me as Rip van Winkle, who went to sleep for four months and is just waking up now. What has changed in the world during this time? The short answer is: Not a lot. There has certainly been plenty of news, mainly revolving around the coronavirus and the incompetent U.S. president. But in another sense, little has changed in the long-term big picture. Most of the issues I raised in previous podcasts are still valid, which is what I intended. I want this to be a podcast for the ages, where these topics still have validity five or ten years from now. That's important since I don't have many listeners in the present. 

Four months have had a similar effect in my personal life. There has been plenty of news, but little has changed. When you last heard from me on May 23, I was just about to enter a very intense period of cancer therapy—called an "autologous stem cell transplant''—which occupied most of the month of June. I survived the procedure, and as of today, I'm once again in top health, which is a very fast recovery from this sort of treatment. In the three months since June, I went from barely able to walk to climbing mountains. For the second time since 2018, I am "in remission" from lymphoma cancer, which means that no cancer can be detected in my body. This kind of cancer has a high probability of coming back—maybe 50/50—but for the time being I'm healthier on the surface than I was before my cancer in 2018.

My 4-month podcast hiatus wasn't really due to cancer treatment. Cancer never prevented me from doing them, but I needed a break, a time for reassessment. The computer I use for editing crashed at the end of June, which I took as a sign that I needed to retreat from all my projects for a while. I needed to work on personal recovery and financial stabilization, and now that I'm solid again, it's time to get back to important stuff.

What I consider important is the whole state of the world, as defined by demographics and macroeconomics. 

You could say that politics also plays a role in the state of the world. We live in a very political time, which is represented in the United States by the doofus presidency of Donald Trump. It's easy to get incensed by him, but it's also easy to get distracted from the long-term issues. My position is that politics comes and goes. Demographics and macroeconomics are more lasting and have greater influence on our future. I see Trump more as a symptom of long-term demographic and economic decline, not a cause.

Back on September 26, 2019, in the 4th episode of this podcast, I predicted a massive worldwide recession, the worse that any of us have seen in our lifetimes. My grounds for making this prediction were the world's exploding debt and its deteriorating demographic condition—that is, the lack of babies and excess of old people. There is too much debt, and there's no way it can be paid, so there has to be widespread failure of that debt. The crisis was queued up and ready to go; we just needed a "Black Swan" event to set it off.

Four months later, the Black Swan took the form of the Covid-19 virus, which became known to the world around the end of January 2020. On February 3, in Podcast #27, before any deaths in America, I wondered whether this would be the Black Swan that finally brings down the world economy. Well, the virus certainly triggered lots of bad stuff, including huge job losses and the fastest economic downturn the world had ever seen, but the wholesale systemic collapse that I and others have been predicting hasn't really started yet.

On the national level, the coronavirus shutdowns have resulted in a dramatic increase in government spending even as tax revenues fall. The latest statistics I've heard are that the U.S. government in 2020 will spend more than twice as much money as it is collecting in taxes. All the rest is being borrowed and ultimately is being paid for by money printing by the Fed. You just can't keep doing this without something bad happening—or rather a whole galaxy of bad things happening. We just don't know when and how.

I stick by my predictions of a huge institutional collapse, along the lines of the Fall of Rome, but I could never have predicted the many absurdities of the current moment in history. The most remarkable of these is the dramatic rise in US stock markets following their initial fall. Between mid-February and mid-March, when it became clear that the virus would slam America, stock markets plummeted—which is entirely rational and understandable. Investors were slow to react, but they did. The virus was triggering massive job losses and dramatic falls in GDP, which could only lead to massive losses for most companies represented on stock exchanges, so it was natural for their prices to fall.

What I never would have predicted is that stocks would rebound so quickly, even without any improvement in the underlying economy. Certain markets like NASDAQ reached all-time highs in August, while the real economy was still in the toilet. So we had the worst economy in history accompanied by the best stock market in history, as least as measured from its low point in March. This was true as of my last podcast and it's still true today. We are falling into a terrible real-world recession that could last a very long time, yet stock investors are acting like we're in a boom. 

How could this be so? It has to do with mismanagement by central banks and the naïveté of investors with nowhere else to put their money. The Federal Reserve and other central banks have committed themselves to a Doomsday Strategy of printing money and holding interest rates at near-zero to try to stave off the eventual collapse, but in the long run, it's not going to work. In essence, the Fed is trying to save us from a collapsing bubble by blowing an even bigger bubble, until, at some point, that bigger bubble has to pop. We just don't know how and when. 

Instead of dwelling on current absurdities, I prefer to focus on what is concrete and knowable about the future, which is where demography comes in. Demography gives as a couple of really powerful predictive observations: One is that all human beings eventually grow old and die. This has been true since the beginning of time, and it will continue to be true for the foreseeable future. Furthermore, humans don't just suddenly die when they reach a certain age; they invariably get sick and weak first, often for years, and these illnesses are a huge burden to society. Improvements in medical science may increase the human lifespan, but only at huge cost, and ultimately dotage and death will still win.

The other demographic observation is that there can't be more adults in the future than there are children now. Combine these two principles together and you have the absolute guarantee or a shrinking workforce and a growing proportion of ailing old people, with inadequate resources to support them.

This has all been clear to me since I started studying demography four years ago, but what part of this has Covid changed? There's one very simple but devastating effect of the epidemic: an acceleration of our birth collapse. I predict that the actual deaths caused by Covid will be dwarfed in the long run by the births that don't happen because of it. Death by disease is certainly more painful in the short term than births that never happen, but the latter has a much greater effect on society in the long run. In the long term, human suffering caused directly by Covid may pale against human suffering caused by dwindling population.

The end of 2020 and beyond is certain to be a horrible period for the worldwide birth rate. By "horrible" I mean that birth rates that were already too low in 2019 will fall through the floor starting a couple of months now. Instead of a dismal fertility rate of 1.5 babies per woman—which was roughly the rate for all of Europe in 2019—it is going to fall closer to a catastrophic fertility of 1.0 or less. In other words, for every one man and one woman in your country, only one child will be produced. If you keep doing this generation after generation, pretty soon you don't have a viable country anymore.

It's like the problem with cockroaches. If they are given unlimited food and space, two cockroaches will rapidly turn into millions. The same process works in reverse: If every two cockroaches have only one baby between them, the whole cockroach population will be reduced to nothing in relatively few generations.

Why do I think birth rates collapse? It's simple. People don't want to have babies when their lives are in turmoil or the world is in crisis. If you lose your job or fear losing your job, you're probably going to put off having a baby, and putting it off effectively means fewer babies being born overall, because women eventually run out of time.

In case you weren't aware, it takes nine months to make a baby. Government statistics generally don't track pregnancies, only actual births, so it takes nine months to know for sure whether Covid has changed anyone's baby-making decisions. This is October, so a baby born this month would have been conceived in January. January was still early in the pandemic, when it seemed to affect only China, and it wouldn't have had an impact on conceptions outside of China. We can say that by early March, the whole global population outside China was in panic mode—as reflected in the drop of the stock markets. This is the time when businesses and schools started shutting down in the U.S., and stay-at-home orders were imposed. That's when couples would have started asking, "Do we really want a baby right now?"

But that's only a theory. An alternative theory is that couples would have been cooped up together in quarantine and had more sex, resulting in more babies being born nine months later—sort of like the snowstorm effect—you know, how there are supposedly more babies nine months after a snowstorm that keeps everyone inside.

I discount the second theory because I think most people in developed countries don't have babies by accident. They plan their births, and they usually take a while to deliberate on their plan. Plans to have a baby are often years in the making. When the couple is ready, they discontinue birth control with the aim of allowing a baby to happen. It may take years for a couple to decide to have a baby, but the decision to not have a baby can happen in an instant. All it takes is one member of the couple losing their job. Then all of a sudden, a baby doesn’t sound like a good idea anymore.

The Covid birth collapse is a theory for now, but by the end of the year it will be provable fact. All the babies conceived or not conceived in March are going to be reflected in worldwide birth statistics in December, and I predict those statistics are going to be terrible. We won't know how terrible until the statistics start coming in, but the basic problem is that no one with any sense wants to produce a baby during an economic crisis. Anyone with a sense of self-preservation is going to "wait and see." 

As long as vast swathes of humanity are uncertain about their future, there's going to be an immediate conception dip and a birth crisis nine months later. I predict this will get really bad going into 2021, with countries throughout the world experiencing record low births. Every country in the world with effective contraception is going to start looking like Singapore or South Korea, with barely one baby per couple. The longer the economic crisis goes on, the worse things are going to get. Remember that babies aren't a profit-making enterprise. They absorb huge resources, and no one in their right mind is going to produce one unless they themselves feel financially secure, which could be years away for most of the world's population.

This much I predicted before anyone had heard of Covid. If an economic crash is coming, it means a birth crisis is coming. Covid just made it immediate and real. How low can birth rates go? We're going to find out very quickly. Twenty years later, we'll pay the price for those low births, when those non-existent babies don't enter the workforce.

Compared to demography, which is basically just counting people, macroeconomics is less predictable. There is only one hard rule of macroeconomics: In the long run, you can't spend more money than you make. Beyond this immutable law, there's a lot of uncertainty, like the exact route the world takes to reach an inevitable collapse.

In the present, there are at least three economic effects of the Covid crisis that I couldn't have predicted when I went into my Rip van Winkle slumber. One, as I said, was the dramatic rise in the stock market in spite of the tanking economy.

Another is the strange employment paradox I see all around me. Since February, the unemployment rate has risen at the fastest pace in history, but everywhere I go in America, there are Help Wanted signs. I should know, because I drive cross-country for a living, and I see a lot of America. Every business that is open has Help Wanted signs prominently displayed. Since the pandemic began, I have never seen a fast food franchise anywhere in the country without a Help Wanted sign.

This seems to defy logic at first, just like the rising stock market. How can there be a labor shortage in the midst of a recession? You'd think that all the jobs would be snarfed up by now, but they're not. These are not high paying jobs, but low-paid service sector work, but a job's a job, and a fast food job is better than none—you would think. My best theory is that most people who have been laid off are collecting unemployment benefits, which would end if they did get a job, so you're not going to see any of those fast food jobs filled until unemployment benefits run out. It's one of the perverse incentives of the current economy: People are paid to not work, so they don't, so more small businesses must fail because they can't find the labor to operate.

The third thing I didn't predict was the sudden reversal of a long-term trend toward urbanization. Since the Industrial Revolution, people have moved from the countryside to the city in ever-greater numbers. If you drive through farming towns through out America, you find them decimated. Downtowns are boarded up and decaying because they don't have the population to support their businesses. It's not hyperbole to say that at least a third of the buildings in rural America are abandoned, vacant or underutilized, and those tenants are not coming back. Given the choice, most people want to be in urban or suburban areas were jobs and services are better. You would think that the trend would continue until there are just a few mega-cities, but Covid has proven that this process will not go on forever.

Starting in March, when workers were sent home from most knowledge-based businesses, working from home has become the norm. The technology to support telecommuting has existed for about a decade—the main advance being the improvement internet bandwidth to support video conferencing—but it took the epidemic to shift the transition into high gear. Many of those workers who are now working from home will never return to the office, because there's no need for it. In most knowledge-based industries, Covid has proven that working in an office isn't necessary. Why should companies pay for expensive office space when employees can provide their own for free?

This is going to have a devastating effect on the cities where the offices were located, especially the premium cities where rents and taxes are high. I'm thinking of the San Francisco area, New York City, Chicago and a few other top-tier cities in the U.S. I don't know how the situation is in other countries, but in the USA, our big cities are in big trouble. The commercial real estate market for offices and retail space have taken a devastating hit, but residential rents are also beginning to drop. I read that apartment rents in the San Francisco area have already dropped by 10% since the epidemic began. I predict that things will get much, much worse, at least from the standpoint of city governments.

The reason people are moving out of the top-tier cities is obvious: the huge expense of living there. Not only are rents high; so are taxes. If you live in New York City, you are not only paying astronomical rent for a very small space, you are also paying income tax to the city. That's right, if you're a New Yorker, you're paying Federal, State and City income taxes. Move out of New York City, and you lose the tax. Move far enough away, and you'll get a much bigger living space for a lot less money.

This generates a positive feedback loop because most of these big cities are in dire economic straights. They are supporting vast government programs and huge pension obligations, and like almost every other entity in the world, they're deeply in debt. To balance the books, they will need to raise taxes, but higher taxes only drive more people to move ultimately suppressing the property values that the taxes are based on.

Some mid-size cities like Columbus, Ohio may not be affected as much because their costs and taxes remain reasonable. No one is moving back to the middle of nowhere, like rural Texas, but the top-tier cities are facing an apocalypse, to the benefit of the second-tier cities. What we may end up with in the long run is that the countryside hollowed out and the densest urban cities hollowed out while everyone lives in small cities and the periphery of big ones.

A bonus paradox is that home prices in those top-tier cities seem to have not changed much since the start of the pandemic, but that's an illusion. In these big cities where no one wants to live, housing prices are destined to plunge eventually. It's like the stock market. Prices can defy gravity for a while, but eventually gravity will win.

Although the "Black Swan" struck the world economy back in February and March, it's full effects haven't yet hit. You'll know the real crisis has begun when stock markets crash, real estate prices crash and the something bad happens to the U.S. dollar. It could be hyperinflation or something else, but no government can keep printing money indefinitely, in lieu of collecting taxes, without something breaking.

The ultimate end game is the government being unable to borrow more money so its services start collapsing. By services, I mean maintaining the interstate highway system, supporting a standing army, paying for senior health care, making social security payments or any of the other things the Federal Government does that you aren't really aware of until they stop working. State and local government are also in trouble. They can't print money like the Federal Government can, so they're probably going to default first. 

What I'm looking for now is another Black Swan to convince the world to take the first Black Swan seriously. In other words, we're primed for another triggering event that will crash the stock and bond markets. When this happens, the dominos will start falling, and the world will get much, much worse.


Subscribe to this podcast for more ruminations from a demographic philosopher. There's plenty to ruminate on. Eventually my attention will focus again on long-term solutions to our demographic crisis—or at least the demographic crisis of your community. How will people ever have babies again? I have a plan, and I'll get back to it eventually.


Written, recorded and edited by Glenn Campbell. For annotations, links and corrections, see the description on the video version of this podcast. You can also leave comments there.