Managing decline

Posted on July 20, 2011 by

Wherefore do the wicked live, become old, yea, wax mighty in power?

Job 21:7

Our collapsing American economy leads to despair, and also to speculation on which country will take over our economic lead. Will it be Brazil, with its ethanol riches? Will it be Russia, with its energy empire? Or will it be China or India, countries bursting with hyper-qualified, young people?

The answer, of course, is “none of the above”. That is because the entire world’s population is set to age and shrink, and there are currently few countries excluded from that phenomenon who are at a civilizational or technological state to challenge us. The West will be poorer than we are now, but most everyone else will be even poorer than us. We are looking forward to a geriatric planet, a nihilistic citizenry, with an apathetic youth crushed under a mountain of debt.

The BRIC countries’ energy surplus will flop, as economies slow and their customer base shrinks. Their population advantage is likewise limited by time. As labor is the most valuable product, their current astronomical growth was based upon the growth in their labor supply, which is swiftly coming to an end. Brazil, Russia, and China already have below-replacement fertility levels, and India is fast on its way there, as well (TFR 2.7, and falling). Far from being future economic powerhouses, the BRICs are destined to suffer the tragedy of growing old before they grow rich. China, especially, is hastening this by failing to reign in their property bubble.

From the Washington Post:

In China, as in the United States before the collapse of the subprime mortgage market in 2007, local debt is backed by collateral that is overvalued, may be hard to sell and, in some cases, doesn’t exist. More than 400 billion yuan of municipal bonds sold since 2008 — part of as much as 14.2 trillion yuan in local borrowing — show how much local officials rely on their own forecast that land prices will continue to rise. Efforts by the central government to cool the property market so far have had no impact on their bullish estimates.

Residential land sale values slumped 30 percent this year as local officials increased sales to pay back loans, according to Credit Suisse Group. “It’s a huge myth that land sales are going to be able to even support the interest payments, let alone the principal payments,” says Stephen Green, the Hong Kong-based head of Greater China research at Standard Chartered. His research team assumes that as much as 6 trillion yuan of local government loans — and possibly much more — will ultimately not be repaid by the projects, Green wrote in a June 29 report on China’s debt.

At some point, the growth-limits are reached or fertility begins to decline, and then growth inevitably slows. It is time for politicians and citizens to recognize that we are entering a time of economic decline, and that this will continue until we have adequately deleveraged and fertility recovers. Until that time comes (which might take generations), we need to scale back our consumption dramatically and learn to live off of the wealth we have already attained, rather than allowing the elderly to consolidate their wealth as they are doing, and saddle our children and grandchildren with ever-more debt.

The first step: abolish Social Security, Medicare, and any other program which discourages fertility and marriage by socializing the economic benefits of childbearing. Yes, I know that this is a horrifying prospect to many, but I also know that our current system is truly wicked, and that the old wax mighty in power.