It's Not Just Mortality that is Destiny, It is the Demography that Your Born Into.
Posted: Saturday, September 17, 2011
by Christofer French
Rain Dancer Associates, LLC
A Professor was having trouble explaining the meaning of Demography to his students. He knew he needed an example that was at once easy to grasp and powerful in its impact. He reached for a quote about the population of certain countries in certain areas of the world.
After that he said: Japan, if birth rates continue as they are right now, may go out of existence in a couple hundred years.
The History Channel recently declared on one of their programs that the Dark Ages in Europe after punishing punitive wars and the black death, along with the post Roman era roads crumbling, that the people were completely cut off from each other. Now put in birth rates that were absolutely defeating, early death from violence, hardship, starvation and disease and you did not have much of an economy. The entire economy became subsistence farming. You worked day and night during the harvest time and drank all day and tried to stay warm in the winter. People didn’t know how to complain like they complained in the height of Roman Wealth, now they complained like the lamentation of Poverty does. Demography in the Dark Ages made the equations all simple and easy to understand. Now after a whole lot of history, we are being forced to confront complex factors, but they are all turning in a similar dark direction as the raw simplicities of the Dark Ages in Europe.
Demography is Destiny for us now too, and the phrase “Declining Marginal Utility” has new implications for all kinds of economic activity. Declining Marginal Utility is a psychological generalization that the perceived value or satisfaction gained from, a good to a consumer declines with each additional unit acquired or consumed.
Even the most delicious food for example, will appeal less and less to its consumer when he or she has had enough, and if consumption continues, sickness (disutility) will result.
The old demography could be “worked with” if old people got too numerous, and too diseased. Old people have always been a drag on an economy. Migrating tribes left them behind. Eskimos put them out on the ice. Old people generally bowed to their fate with good grace. In times of famine, for example, they stopped eating so the young might live. This is a difficult topic to even bring up, but the story, though more complex, has the same kind of dark tone to it now.
It’s Not Just Mortality that Is Destiny; but Democracy, Energy and Financial Quackery are Destiny too.
Pure and simple Mortality – the fact that we are not immortal, but rather we are “DIE-ERS” which is what “Mortal” literally means - has doomed the stock market. Wiggins and Bonner, financial authors quoting a report are predicting that Investors are unlikely to see their stocks return to 2010 levels until 2027. And this assumes that US companies will continue to grow profits as they did since 1954. Not very likely. Because democracy, energy, and financial quackery are destiny too. Jointly and severally, they are responsible for the biggest financial debacle in history. This kind of article asks that political rancor become more quiet, though that is exactly the reason it will not. Being in a state of “accusatory blame” for every issue that arises keeps people from clearly seeing the issues that this article deals with.
Demography sent Irish Prisoners to Australia
It’s so much easier to call people names, exact punishments for indebtedness, make fun of their accents and classify them as “social problems” than it is to deal with them.
Let’s not talk about America all the time, and revisit our same old themes. Let’s go to the population spreading due to the way England handled the Irish. (story too long to deal with in this article) and show the Irish ended up on the streets of London. They became imprisoned basically for petty theft, indebtedness because they were poor. Becoming a gigantic social problem, and a vast unsettled Australia sitting a world away, the formula became easy. “Send the damned Irish to Australia”. This is just one story. There are scores of others that have to do with demography. The Vikings coming down, the movements of lots of “tribes” in the 600’s had to do with demography and its many nuances. So what happens when a large part of the population gets grey?
This week, Deutsche Bank came out with a report of its own. It, too, is confident that the “Golden Age” — 1982-2007 — is over. In its place is a “Grey Age.” Instead of the nominal 12.8% gains of the Golden Age, investors have gotten returns of — 2.8% per annum for the last 4 years. Deutsche Bank expects stock market investors to lose about 10% of their money — in real terms — over the next 10 years, while the economy goes through 3 recessions!”
The Basic Prosperity Formula for the Last 3 to 4 Hundred Years
But what would you expect? Think actually AND metaphorically. Everything droops. It’s hard to cast your eyes over 300 to 400 years, but try. For the last 3 or 4 centuries the winning formula for developed economies and their governments has been simple: More energy. More output. More people. More credit. More promises. This formula has been so effective for so long people began to think it was destiny itself. It’s not. Instead, it is SLAVE to destiny not its master. Talk to people on the street and anywhere. This formula is implicit in our way of understanding economic challenges.
By 2007, the slave was put in his place. The business cycle turned sour. Native populations in Europe and Japan are falling. Energy use per person in the developed world has leveled off. Private sector credit is shrinking. So is real private sector output.
The feds responded to this challenge as they had to every post-WWII slowdown. They added more — more money, more credit. The government itself spent more money and used more energy. But the economy did not react in the old manner.
As we all sit in bemusement over the state of financial affairs, sometimes it’s good to get points of view that are more economic than political. Since I am also an amateur historian, I enjoy reading writers and commentators that take big long looks at what people typically squint at and go cross-eyed over. I have been reading Bill Bonner and Addison Wiggins for years, and now I must share some concepts that I have gained from them. Those who might disagree with their “takes”, of course are free to, but their takes are well-founded and researched, no matter how disturbing they might feel.
A Simple Reason Why Stock Returns Might Go Down
Because stockholders get old and don’t live forever, and spend at the end of their lives, instead of saving, The San Francisco Federal Reserve bank came out with a gloomy forecast last month. Its analysts said that stocks were likely to earn paltry returns over the next 10 years.
“The cold hand of the grave is on the shoulders of the Boomers and actually on the whole economy. The boomers are retiring at the rate of 10,000 per day over the next 18 years. They will sell stocks to finance their remaining years.
‘Demography is destiny,’ said Auguste Comte. ‘It works the other way around too,’ he might have added. If they thought they were going to live longer, America’s most ubiquitous age cohort — the baby boomers — might continue to buy stocks.
“Declining Marginal Utility” – Things, Processes and Trends are all “Getting Greyer”, not Just People
But there’s more to this new Grey Age than demography. People too are subject to the law of declining marginal utility. They wear out. The most enduring and impressive economic trends ALSO wear out! Bonner and Wiggins comment: “An obvious reason: people are no longer as young and “without a care” as they used to be. A young man’s eye may be drawn to fast German cars or slick Italian suits. But an old man can barely see at all. The baby boomers no longer roll their joints; they rub them. And they are no longer the source of an economic boom; now, they are the proximate cause of the bust.”
In 1500, there were only 450 Million People on the Planet
There were only 450 million people on the planet in 1500. It took 99,000 years to reach that level. Then, over the next 5 centuries — the population soared 10 times. Today, it is hard to find a parking place in any major city. How was such a big jump in population possible? Destiny was demography. With ready, cheap energy at hand, man could grow more food. And then he could ship it all around the world. And he could put his talents to work making more and better machines...which would vastly increase his output and his standard of living, and thus populations grew.
Europe cut down every tree, and then when the last wood was cut for energy, and then without a generational hesitation, they discovered a thing called Coal. Everyone knows what happened next.
But look - even the Machine Age ages too. The first tractors appeared more than 100 years ago. They may have increased production 10...20...100 times. Since then, improvements have been only incremental. There are no new revolutionary tractors around. We have bigger, faster, better tractors — but guess what? They use more energy than ever.
What You Get from $5 Gas Does not Pay Off Like Before
Meanwhile, energy itself came to be more expensive. When the price of energy rose in the ’70s, the “30 glorious years” that followed WWII were soon over. You can go and look at “Hourly wage rates”. They stopped increasing and have not gone up since.
Yes, there is plenty of energy around. But it is net output that you get from energy that counts, not the raw output. If a gallon of gasoline costs $5...it must produce more than $5 in additional output or the economy gets poorer. As the price rises fewer and fewer new energy apps pay off.
Likewise, credit is subject to the law of declining marginal utility too.
In 1950, an additional dollar of credit added about 70 cents to GDP. By 2007, the US economy was adding more than $5 of debt to produce a single new dollar’s worth of GDP. Now, the feds’ new credit inputs produce negative real returns.
The jig is up. It may be hard to assimilate this after a first reading, so go back and cogitate and then record this in your head as an easy-to-recall concept, that you can bounce continuously like a Tennis Ball Mantra absorbing the various grievances that we harbor. “ More no longer works as our answer to our complex problems.”
The “hard math of demography,” is what Bill Bonner and Addison Wiggin, addressed at some length in their groundbreaking book, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century.
People are going to have to exert more creativity and adapt more. The old answers will simply not work all by themselves anymore.
2010-2011 Agora Financial, LLC. dr@dailyreckoning.com/
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Top-level comments on this article: (3 total)I find this a fascinating topic, Christofer. There are many historical precedents, and even current-day parallels that give us clues as to what's right around the corner for the U.S.
After watching the evening news last night and seeing more stories of college graduates unable to find employment, I spent the evening wondering how far we can go until riots break out. It's obvious there are not enough jobs to go around, they've gone overseas. This isn't necessarily a bad thing, but it certainly can be. And I don't hear any of our Nation's leaders even talking about this issue.
I will check out Bonner & Wiggins' book.Yes, all of your concerns are mine. Wiggins and Bonner are saying that we are at the end of a big 500 year cycle, and a 30 year cycle; and more than that a "philosophy" of going forward through trying to extract MORE of everything to bring prosperity. This is what you see and hear on TV every night.
If I were comparing it with an analogy, it would be the end of the Roman Empire. More didn't work any more: Pressing coin, gathering armies, crushing enemies and extracting taxes. Their whole style ran out of things, stuff, resources, people to exploit.
I haven't read the book, but as you can see by the title, they are going to talk about a "soft depression". In other words, its not like we are going to hell, but we are going to have to change expectations and life styles and economies, Thanks for your comment.
True, it's the end of a boom, but as you can see from my comment to Bruce, sometimes history puts you at the end of several cycles. A 500 year boom, a 30 year boom.
Yes, the titular reference is about how lots of males lying around is a bad thing in general. At the end of the Viking Age, all the guys who had sores started working with the Knights and herding the peasants, raping women and showing up at the King's door with stolen crops.
Thus began the Age of Feudalism. This is why Demographics is such a fascinating way both to study history and to look at current problems. In the Arab world you have the same kind of demographics of the title. The "Arab Spring" this year has much to do with high unemployment and ambitious young people wanting a new way. Thanks for your comment!
I used to wonder sometimes how such a small isolated country like England, in the 15th and 16th centuries, had any people left- all the dying in wars- and from the plague, not to speak of disease and women and babies dying at birth....does make one wonder how many people they had at any given time...just a thought- A thought-provoking-erudite and scholarly write Chris- Thanks- Always EllaNo kidding. Women had kids non stop. 5 or 6 would be delivered, 2 or 3 would make it past 6. It was bleak. You just hunkered down, tried to survive, hoped not to get robbed or raped. This is why military power became everything. Lords ran the whole thing, until systems, inventions, the growth of the "yeoman" class slowly changed things. Robin Hood is a class statement because after the Crusades, these people without work, but with much experience could exert new influence over their own lives and leverage local lords. Hate to be tedious, but you can see how demographics leads the way when it comes to change. Thanks so much for your comments.
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