My general objective is to try to understand the major
shifts occurring in the world, the “deep currents” that will shape the future
for perhaps the next century or so. This is exceedingly hard, not only because
of the distracting “noise” of all the relatively minor near-term effects that
consume the media (COVID, the 2020 election, Brexit, Middle East wars, etc),
but because there are so many moving parts in the major effects (demographics,
climate change, technological advances, cultural shifts, etc), and they all
interact in such complex ways with one another.
Most recently I have been focusing on demographics, and in
particular the likely consequences of nations depopulating themselves, as so many
are doing. (Good sources for demographic data are here, or Peter Zeihan’s nice
demographic charts here.)
It occurs to me that the major political “isms” of the 19th
and 20th century – capitalism, socialism, fascism, communism – all assume,
either explicitly or tacitly, a growing pie. The fundamental argument among
them is simply how best to divide the growing pie. But what if the pie is no longer growing, and in
fact is shrinking? None of these potential political systems is prepared for
that.
In our Western world, much is based on the assumption of nonstop
growth. Both government and business debt is justified fundamentally on the
assumption that rising revenues (taxes from a growing tax base or profits from
expanded markets) will pay off the debt eventually. Social safety nets are
based on the assumption of ever more workers contributing to the pool. Indeed,
businesses in our capitalist system seem to feel that they are failing if they
are not growing their volume and/or market share, and certainly their investors
judge them on that basis.
In the short term, as several economists have pointed out, the
U.S. is in relatively good shape. Because we have so many ‘Baby Boomers” in the
highly-productive 50-65 year age bracket who are spending less and saving more
for retirement, and because there is so much capital flight into the country at
the moment, capital is cheap (ie – interest rates are low). But this is about
to change in the next few years, as all those people move into retirement and
begin drawing down their savings rather than increasing them.
So, for example, the federal government is currently paying
about 2.5% on federal debt, so that interest on the debt consumes just under 9%
of the federal budget (just under $600 billion in 2019, or about what we spend
on the military). But if the interest rate tripled, as might well happen in a
few years when capital gets harder to raise, this will have a profound impact
on the federal budget. And there won’t be a growing tax base from a growing
cohort of workers to provide more government revenues to pay the interest. All
because of demographics.
Or consider the social safety net. Look at Social Security.
When it was started in 1945 there were 42 workers contributing into the fund
for every retiree it was supporting. The assumption (reasonable at the time)
was that even as the pool of retirees grew, the pool of workers contributing
would grow at least as fast, if not faster. But in fact now there are about 2.5
workers contributing for each retiree being supported, and soon there will be
only about 2 workers supporting each retiree, and the system will be in big
trouble*. Demographics again.
Or consider technology. As our work force decreases we will
have to do what the Japanese are doing to cope with their falling work force –
automate. Great idea, especially since robots don’t need bathroom and coffee
breaks, days off or sick days, or benefits. And they don’t join unions! BUT
they also don’t pay taxes (yet), so heavy automation decreases the tax base
(85% of U.S. federal revenues come from taxes on workers), and governments will
have to figure out other ways to get revenue. Demographic effect again.
These are just a very few of the more obvious potential
demographics effects just in the U.S. There are no doubt thousands more
worldwide, some quite unexpected. And thus far almost no one outside of a few
academic experts are paying much attention yet.
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* Actually, it is already in big trouble. In theory the
Social Security Trust Fund currently has just under $3 trillion in reserves.
The problem is that there isn’t really $3 trillion in dollars or investments there,
just $3 trillion in Treasury Bonds, which in effect are just paper IOUs from
the federal government. When Social Security needs this money and cashes in the
Treasury Bonds, the federal government will have to go out and borrow the same
amount from someone else to pay off the Social Security Funds bonds. So really
the whole “Trust Fund Reserve” idea is just an accounting trick and political
fiction. Social Security is already out of money.)
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