Below is a transcript for my Demographic Doom podcast episode #22 released on 13 December 2019. This transcript was prepared on 5 January 2021, more than a year after the original broadcast. I transcribed it because it is one of my key episodes, recorded just before Covid-19 become known. This transcript was derived from the automatically generated YouTube transcript, with only minor editing for clarity.
This episode is available on major podcast platforms, including Podbean, Apple 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. The main website for this project is DemographicDoom.com.
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 want to talk about the 2020s, the coming decade. I'm talking to you now in 2019. It's December 9th 2019. The calendar is going to change in a few days. This is going to be the 2020s, and I'm predicting this is going to be a very difficult decade. It is the decade when everything falls apart. Economies fall apart. Maybe national governments fall apart. Maybe currencies fall apart. This is the time when all the problems of the past come home to roost.
It's going to be an era of massive street protests. If you live in the United States, you may not be aware that there are huge street protests going on all over the world: Chile and Hong Kong and France and many other hotspots, everywhere in the world except the United States, but I predict in the 2020s, even the United States will be taken over by street protests. And that's because everybody is going to be very unhappy.
So why is this so? Why will there be so much unhappiness in the 2020s? And in simplest terms, the problem is that there's not enough pie to go around. Everyone wants pie, but there's not enough of it, and governments and economic systems have promised more pie than can possibly be produced.
So what do I mean by pie? Pie is the real economy. The stuff that the world really produces. The crops that a farmer really grows and the other economic activity that actually contributes something to the world. That's the pie. That's the pie that everyone's eating.
Then you have the fake economy, the economy that only promises pie. And the fact is, a lot more pie has been promised then the world can possibly produce. And this pie takes the form of debt and elevated asset values: All of these things that people pass around as assets, as proof of their worth, they aren't actually worth what people think they are, and that is the pie that is promised versus the pie that can actually be delivered.
So in this episode, I want to expand on that and look at the historical reasons that we have not enough pie and too many promises.
So imagine that a farmer produces a certain amount of produce in the course of a season. Maybe he grows corn or wheat or something and he produces X amount of corn or wheat every year. Now, he can borrow against that production, so knowing that he's going to have a bumper harvest of corn, he can go to a bank and borrow a certain amount of money based on that income that he knows he's getting. He knows he's going to have a payday at the end of the season, where he makes, like, $10,000, so he can go to a bank and borrow $10,000, with both he and the bank knowing that he can pay it back as soon as the harvest comes in.
But what happens if that farmer goes to several different banks and borrows $10,000 from each of those banks based on the same harvest. So he's got three loans from three different banks for $10,000. And those banks, they think that they have something they can sell to other banks and to investors. Here is this loan for $10,000. It's a liability to the farmer, but to the person who owns the loan, it's an asset and it's part of his wealth.
The only trouble is, the farmer has pledged more than he can produce. He has gone into more debt than his actual real production can pay for. And this is the state of the world right now. All over the world there is more debt, and there are more assets based on debt, than can possibly be fulfilled with real production.
In the simplest case, we can talk about government. The US government has about 22 trillion dollars in debt, [while its] income from taxes is about 3 trillion. So even over the course of many decades, the government can't possibly pay back that debt.
In fact, the government has much more debt than that 22 trillion. The government also has something called "unfunded liabilities"—that is, obligations that it knows it will have in the future, that it will eventually have to pay for even though it's not on the books right now. And by some accounts, the US government has total debt including unfunded obligations of a hundred trillion dollars.
So imagine you had that kind of debt, which is about 30 times what you're actually making in salary. There's no way you can pay it off, especially if you're spending more money every year than you're taking in—which is also the case with the US government. The US government is taking in 3 trillion dollars in taxes every year, and it is spending 4 trillion dollars every year, so we have another trillion being added every year to that 100 trillion that the government already owes.
So in terms of pie, the government is producing one pie every year but it's eating more than one pie every year, and its debt is about thirty or forty pies, and all that imaginary pie is held by investors. Investors can own something like US government bonds, which is a promise to pay pie in the future, but if the government just isn't producing enough pie to make good on all those pie promises, then something has to break sooner or later. Sooner or later, some investors are not going to get the full value of their promised pie in the end.
And this is not just a problem of governments. It's a problem of debt all over the economy. It's a problem of corporations going into debt and individuals going into debt, so that there's far more debt than the real economy can support. And I contend that the 2020s are the decade when all those problems come to a head. This is the decade when we realize that all these promises, all these promises of future pie will be proven false.
And when this happens, asset values are going to crash. Government bonds will crash. Stocks will crash. Everything will crash all at once. And it means the whole world is going to be much poorer than it seems to be right now, because our relative prosperity right now is built on these promises. If you think that you're very wealthy, if you think you have a million dollars in assets, you don't really have a million dollars in assets, the 2020s will prove that you only have a fraction of that. So a ton of imaginary wealth is going to vanish in the 2020s, and this will have trickle-down effects for the entire economy. Everybody will be in dire straits.
So how does this lead to street protests? Well, let me give you an example: Last night, I saw a news report on massive riots right now in France—the largest riots in a generation. And to bring this all home, let me play you a little clip from a BBC news report I heard last night:
[BBC Newsreader] Let's move straight to France, because there's paralysis across large parts of that country today, with the biggest public sector strikes in decades. Millions of people taking to the streets… and there you see another volley of tear gas being fired. So many people out there on the streets, and they are protesting because of planned proposed changes to pension laws that Emmanuel Macron and his government want to bring in. And paralyzed France, with schools, with hospitals, with transport, rail, air flights, all being affected today.
It's a very big crowd which has brought out the heavy battalions of the big unions: the metro and rail workers unions. They're very angry because they are the first to be affected by these changes. They have what many would call a privileged pension system, which is under threat in this reform plan.
[Reporter] We still don't know precisely what the content of the government's pension plan is going to be.
Making the point that all manner of protesters, environmental protesters, all sorts of issues [are] now becoming wrapped up in these protests. These demonstrations that we're seeing, they’re principally, of course, about pensions, but now taking in all sorts of other things.
Well, these are the scenes live in Paris.
So what are the issues here in France. Let's look at it first in the narrowest sense: We have pension issues. Workers in the public sector have been promised certain pension benefits, and now the government wants to cut those benefits back. So it's a very selfish motivation. It's not like you're fighting for human rights. You're just fighting to keep whatever goodie bag you thought you were going to get.
So why are they taking to the streets? Well, their theory is that if we cause maximum disruption, the government is going to back down. It's kind of like holding a gun to the government's head. And in the past, governments have backed down. The Chirac government backed down a few decades ago, and now the question is, will Macron back down in the face of these huge protests?
So seeing things from a slightly broader perspective, why is it that we have a pension crisis at all? I say it all traces back to the Baby Boom of 1946 through 1964. In other words, the reason people are protesting in the streets of Paris today is because so many babies were born back during the Baby Boom.
Nearly all of the countries of the Western world had a big boom in babies following World War Two, and this was costly at first because all these children had to be educated. You had to dump huge funds into the educational system. Children don't become productive for 20 years or so. In those 20 years, they're just a burden to society, so the years following the baby boom, the 1960s and 1970s, were not particularly prosperous because we had this huge burden of all those children. After that, life got a whole lot better, because all of those children moved into their working years.
Suddenly, they are powering the economy of France and all the other countries because you have this huge number of workers and huge number of active consumers who are buying things like cars and houses. It was a very glorious time for the economies of the West. And this is the period when governments made these big pension promises, because at the time they could afford it. They had a huge number of workers, a huge number of taxpayers and relatively few old people.
The old people during this period were born during World War Two and before World War Two, and, frankly, a lot of them were killed during World War Two, so they weren't around to retire. What the governments had at the time is a huge tax base and relatively low pension costs, so at the time it seemed okay to make big pension promises, like low retirement ages and lots of benefits, and this got encoded into law and encoded into policy and people came to think that this was what they were due. They figured, “Well, I've paid into this pension system all of my career. I expect to get the same thing out of it as all my predecessors did.”
But now what has changed is all those Baby Boomers have now moved into retirement age, and they're retiring en mass, and this essentially reverses the ratios of before. Now there are relatively few workers paying taxes and a ton of old people collecting on pensions, so naturally this results in a economic crisis
If the French government is going to balance its books, it's got to cut its pension costs and this means disappointing a lot of people and making a lot of people really mad. And most of these people that you're disappointing really don't have much political power on their own, so they take to the streets, and they do whatever huge crowds are capable of doing, which is causing a lot of disruption.
So why are these protests happening in France and not happening in, say, the United States. Well, the French government is in a different position, a different economic position than the United States. I mean the demographics are roughly the same but the accountability, let's say, is different in France. France essentially has to balance its budget every year. This is a mandate from the European Union: you're only allowed a deficit of a certain amount, so you actually have to pay for whatever you promise to people.
So France can look ahead a few years, five years ahead, ten years ahead, and say, “If we are going to balance our budget, we have to reduce our pension costs,” and this is hard. This is going to be tough on people, but this is something we have to do if we want to remain a member of the EU and keep our economics relatively sane.
So it's a showdown here. It's a showdown between fiscally responsible government and people who don't want their benefits taken away. The government has certain tools at their disposal, and the people, really their only tools are massive street protests and going to the ballot box and trying to vote out the people who are trying to take away their benefits.
So these two things that the people have, they're actually pretty powerful. I mean, you can paralyze Paris for a week, and maybe the government will give in, and you could also go to the ballot box and vote for anybody who simply promises not to take your pensions away. Unfortunately, this doesn't necessarily bring in the best politicians. This brings in populist politicians without any fiscal responsibility who simply promise to spend unlimited amounts of money to support whatever the voters want them to support.
So why isn't this process happening in the United States? Why aren't there massive street protests in the United States, because we essentially have the same pension issues. We have this huge cohort of Baby Boomers who started retiring in 2011. The pension systems are breaking down right now. There ought to be, at least in the public sector, some movement to cut expenses.
In the United States, the public sector consists of pensions for government workers and Social Security and Medicaid—the programs offered to all Americans, all elderly Americans. But the United States government isn't seriously considering cutting these programs, because politicians realize that they're fatal. If you try to cut people’s Social Security, they're going to vote you out of office, so no one is seriously attempting to cut Social Security. Instead, we're simply adding to the government debt.
France has this mandate from the EU that its deficit can't exceed a certain amount, but America has no such constraints. America rules itself so America can just keep on spending, spending, spending, adding to the national debt without any oversight, without any higher authority telling it what to do.
America also has the benefit that France does not have of issuing its own currency. America controls its own currency, which means in essence it can print money whenever it wants money. Money is printed by the Federal Reserve, and the Federal Reserve essentially pays for government programs by a process called “Quantitative Easing” where they buy government bonds.
They buy government bonds from external entities like banks and pension funds, but in essence, they're buying the bonds from the government. So the government is spending more money than it makes. To make up the shortfall, it’s issuing government bonds, and the Federal Reserve essentially buys those government bonds and gives the government cash which the government goes and spends.
So the Fed is increasing the money supply. There are more and more dollars out there and when this happens throughout the world, what this usually means is inflation. So if Venezuela or Argentina were to do the same thing—simply print money to pay the government's bills—there would be inflation, massive inflation. In America, that hasn't happened so far. There has been little-to-no inflation in America for a couple of decades now. I'm speaking to you in December 2019. I can't say that that will still be true in January 2020, but for now there has been little-to-no consumer inflation—as measured by conventional means.You can argue that the inflation measures aren't accurate, that in fact the cost of living is actually going up; it's just not reflected in consumer prices.
What is inflating dramatically our asset prices. Assets include things like stocks and real estate and bonds and gold and anything that you can own as an investment or to preserve your wealth. The cost of those things has skyrocketed, and that's where the U.S. time bomb lies. We have huge asset inflation, a huge universal asset bubble, and that bubble has to pop sooner or later. One of my predictions is that the bubble is going to pop in the 2020s.
When that bubble pops there’s going to be a whole series of events which essentially takes away a lot of money from average people. Not just pensions but standards of living are all going to collapse throughout the United States, and that's when you're going to get the people going mad and protesting in the streets and voting for radical candidates who promise to fix everything.
Of course, we've already done that in the United States and many other countries. This is December 2019. We're in the third year of the disastrous Trump administration. He's a guy who promised to fix everything. Never really had much of a plan, but he was going to fix everything. And plenty of Americans, roughly half of Americans, fell for it.
And now the USA and really the whole world are focused on the 2020 election, which is about a year away. You are a time traveler listening sometime in the future, so you obviously know more about what's going to happen than I do, but I really don't see any happy outcome from the 2020 election, or really any future election, because we have so many things stacked against us. It may be that Trump will be reelected, or it may be another candidate will replace him from the opposite party, but that doesn't resolve the underlying issues.
First of all, simply electing a Democrat doesn't really solve your populism problem, because there can be left-wing populism just like right-wing populism. Left-wing populism is where a candidate promises everything to everybody, promises free health care, free education and taxing the rich to pay for it. And that can be just as damaging and devastating as a leader who removes all regulations and gives everything to rich people.
The one thing that both left-wing and right-wing politicians in America have in common is a complete disinterest in balancing the books. They both seem to believe that the government can spend unlimited amounts of money without having to pay for things.
Now, I don't have time to debate Modern Monetary Theory, which is the current fad philosophy that governments like the United States that issue their own currency can spend more money than they make. It's a sort of perpetual motion machine that's dismissed by most economics, but that still powers both left-wing and right-wing politicians. Essentially, it says if we need more money, we can just print it.
Rather than get sucked into these debates, I want to talk about pie, and my essential belief is that over time, you can't consume more pie than you produce. If it seems right now that we're eating more pie than we're making, it's only because we have made these pie promises. We have sold stocks and bonds and promises to investors who have put their money into it without realizing that these promises are hot air and can't be fulfilled.
There's the simple case of 10-year government bonds that I don't think are really going be redeemable for the same value at the end of their term. Another example is stocks. These the price of stocks today is far removed from their fundamental value, so ultimately the price of those stocks has to fall, and this reckoning is all going to happen in the 2020s.
Now as I said, the core issue is the Baby Boomers and how they distorted the economy, how they inflated the economy in the late 20th century and how they will deflate the economy over the next couple of decades, but the effects of this boom and bust have been greatly magnified by monetary policy—that is, how central banks manage money—and by government fiscal policy—or how governments spend money.
The basic problem is that the 20th century brought us the democratization of debt and many new kinds of debt. So instead of governments and corporations and individuals paying cash for what they buy, they are paying in promises, and humanity really doesn't have the sophistication to manage these promises, to manage debt. Debt is just too big for our political structures to handle, and the basic issue is that we are shifting our problems into the future. We're kicking the can down the road when it comes to paying for things.
Instead of paying for things now out of the cash in our pocket that we have already earned, we're paying things from money that we haven't yet realized, that we haven't yet earned. These promises are paid over an extended period—five years, ten years, twenty years—so we're enjoying a prosperity right now that is paid for out of future income and future obligations that no government or individual really has the ability to manage.
For example, no politician is elected based on their promises for sound management twenty or thirty years from now. They are elected or rejected based on their success over the past couple of years and their future success over the next two years. So in other words, if you're a politician and you don't produce results in two years, you're going to be rejected in the next election. But the way our economy is set up, we really need to plan for the next 20 or 30 years, because that's where our problems have been transferred to, but voters generally can't see that far ahead, so they're going to elect the politicians based on immediate results. So basically we have an economy that has kicked all its problems down into the future, but we don't have leaders that are capable of managing for the future.
For example, there was never any doubt among demographers that the Baby Boomers were going to retire. In the 1960s, birth rates went from high to low, which means you're going to have this bulge of retirees in the early 2000s and not many workers to support them. This is a well-known fact, and pundits have been fretting about the impending social security crisis for 20 years now, but nothing has been done because there's no political constituency for fixing a problem 20 years down the line, and there's substantial political pressure against taking any action because any reduction in Social Security benefits is going to outrage some of the most powerful voters.
It is an inherent weakness of democracy that far future problems don't get addressed, and in the 2020s we're going to see the results of those decades of negligence.
But the problem I want to come back to is pie. There's not enough of it, and how this manifests itself in the modern world is elevated asset prices. The prices for promises of pie are too high given the lack of pie in the world.
So at some point the pie market collapses. At some point, it is realized that those assets are not worth what the market thinks they're worth, and then you have a market crash, when asset prices fall to something that's more realistic given the actual pie production.
So how does this great asset collapse happen? Well, it can happen in several ways. The market prices for those assets can drop. In other words, this bond that sold for $10,000 might only sell for nine thousand dollars. Another situation is you might not be able to sell your asset at all. You may have a piece of property that you think is valued at a half million dollars, but no one wants to buy that property at all, so you're not getting anything for it.
And the third way that assets can collapse is that there's rampant inflation. In other words, the way that we're valuing these assets goes all crazy and there's rapid inflation. Maybe you can still sell your $10,000 bond for ten thousand dollars, but the value of $10,000 doesn't buy as much anymore. Maybe it only buys the equivalent of what $5000 would buy now.
So you may think this is a pretty simple reckoning. At some point in the 2020s, asset prices are going to collapse, and the main people hit are the very rich. Someone who thinks he has $10 million in assets might find he has only $5 million in assets. So what's wrong with that? The trouble is all of the knock-on effects of the loss of those assets.
For example, let's go back to pensions and the riots in France. Imagine if the assets in everybody's retirement plan collapsed by 50% and suddenly you're only getting half of the pension that you thought you were getting. Well, people aren't going to take that lightly. They're going to take to the streets. They're going to protest. They're going to shut down your city. They're going to try to shut down the economy, and suddenly this simple loss of asset values turns into real social turmoil and real chaos.
Also, if a wealthy person loses some of their asset values, it may change their behavior. They may not be buying as many goods as they used to. They may not be remodeling their homes like they used to, or buying new vacation homes, and this ripples down to all the workers who provide those services.
So even though it's not a tragedy when a millionaire loses half of his assets, it is a tragedy to the whole economy that provides services to that millionaire. In this way, a fall in asset prices could be devastating for the whole economy. There are all sorts of effects for the whole economy, ending in some real political unrest.
Imagine if the US government, which is now spending $4 trillion, can't borrow that extra trillion it needs to sustain its programs. Furthermore, the tax revenues [could] drop to, say, 2 million. So you have a government that was once operating on $4 trillion a year now operating on $2 trillion a year, and that means a lot of cuts to a lot of programs and a lot of unrest in the street, not to mention a lot of real personal suffering among the citizenry.
It's entirely possible under those circumstances that the government might not even survive. It's hard to picture exactly how a government like the United States would collapse, but it's probably going to start with some extreme financial distress, and all the social unrest that is triggered by it.
It's really easy to give someone a benefit it's a lot more painful and disruptive and self-destructive to try to take that benefit away.
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. See here for all my podcast scripts on this blog.