Ed West, the journalist with the biggest balls in Europe at this moment, left this piece of wisdom in a recent article of his: The life of a man can be broken up in three stages: Worrying about sex, worrying about money, and worrying about health. It's really a brilliant way of putting it. Well it happens that I just got into the second stage, so I've been thinking.
I am no economist, although I have a fair knowledge of economic theory and the various schools. I don't really know whether Uncle Bernanke will produce hyperinflation, (I think he doesn't even know himself), nor do I know if NGDP targeting is sound or not; as I said I'm no economist. I don't really understand all the graphs and concepts and mechanisms that people talk about in Bloomberg et al., but beyond that I can see a pattern. I'm good at that.
Now we're in the middle of a global recession, with ungodly amounts of debt to be serviced. All economist agree that we need 'growth' to pay for the debt. The disagreements seem to be about how to achieve that 'growth', whether to make structural reforms that allow for more productivity, or to just inflate the currency and pay the debt with the resulting nominal 'growth'. There are merits to both positions. There is also a huge problem to both.
Growth is dead. Everybody knows the Ehrlich-Simon wager, where the smug Ehrlich said that population growth was outstripping available resources, and Julian Simon the humanist hero said: No! You forgot the Ultimate Resource: human ingenuity. Simon was right, as we indeed did find better ways to dig and use resources. But Simon was wrong in one point: the Ultimate Resource is by no means infinite. In fact it's not human ingenuity, in abstract, that drives progress. It's particular smart humans. And those are decreasing in number.
See, people in the US get freaked out because in 20 years or so they will be less than 50% of the population. Well that's happening all over. The population of whites and NE Asians is decreasing all over the world. And those are the ones who develop new technologies and management techniques. Of course reforming government and reducing the 'crud' that Quod Libeta wrote about in a recent post would help to grow the economy, but the inherent dynamics of democratic government means that nobody will close down entire government departments, simplify the tax code, eliminate quotas, etc. It can't happen.
So we're left with getting by with the existing political framework, and for that we need more smart people to invent new and better stuff. See how all countries can't shut up about attracting imaginary "skilled immigrants" to fill a very real skill shortage. We can suck up all the high IQ engineers of China and India, but that's a zero-sum game. You can't be expecting China to grow, yet at the same time bring all Chinese talent abroad. And anyway the supply of high IQ Chinese and Indians is also decreasing; the college educated are having less kids than their respective proles: we are in a world of dysgenics. Read this article on the Weekly Standard about how Singapore, THE efficient state, was utterly unable to raise the fertility rate of college graduates.
So somebody tell me where are we going to get that growth again? Well we might suddenly develop working Fusion energy, which would solve a lot of problems. But the demographic reality shows that growth is increasingly unlikely. I remember reading about how the stock market has no future, because the Boomers will retire soon, and once they retire they'll take their money from the stock market and actually spend it. Well that makes sense. And once the Boomers die? Well then the economy will have to shrink. As it is shrinking in Japan. So there's no growth to be expected. Which means the debt can't be paid.
Now, the modern economy is addicted to growth because, besides having a Social Security Ponzi scheme working in every country, the ruling class happens to be the Financial Establishment. They are investors, and investors need yield, yield that comes mostly from GDP growth. And old style landed aristocracy didn't care much for economic growth; they didn't like having peasants starve, but it didn't affect their lifestyles much. But we have what we have, a gigantic pile of debt in every economy on the planet, and a ruling class that needs good investments. While they go desperate opening up the last medieval countries they find, the only way they can sustain the system is by inflation. Inflation has the advantage of being asymmetrical, and they'll make sure to get the dough first. But we'll have decades of high inflation and there's nothing anyone can do about it.