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The Foreign-Policy Implications of Aging

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From Bioscience Expert Patrick Cox - The Most Life-Changing Book You'll Read This Year - Click Here

March 5, 2018

Dear Reader,

As Yogi Berra famously said, “It’s tough to make predictions, especially about the future.”

I’ve been thinking about this quote because I’m doing a panel at the Strategic Investment Conference this week with el jefe John Mauldin. Also on the panel is Karen Harris, managing director of Bain & Company's Macro Trends Group.

(By the way, if you sign up for the SIC Virtual Pass, you’ll get video and audio recordings of all the presentations, including this panel. From Tuesday to Friday, you will also be able to watch the sessions in real time. Looking at the lineup of 25 exceptional speakers, I definitely think it’s worth it. Click here to sign up for your Virtual Pass at a $400 discount.)

The panel has been described as a discussion among futurists, a term I have some trepidations about. Harris, who is also in the prediction business (and a reader of this letter), told me that she’s ambivalent about the label too. We do our best to make accurate predictions, but they come with the stipulation of uncertainty, ceteris paribus (Latin for “all other things being equal”).

The folk version of this disclaimer is something like, “Lord willing and the creek don’t rise.” Both phrases express the impossibility of accounting for the unexpected.

Trend Reversal: The American “Energy Miracle”

Many professions rely on mathematical models, extending current trends into the future to help make plans. However, trends may change in entirely unexpected ways. Too often, an exogenous variable, something not accounted for in the model, will completely ruin a prediction. It could be something that on the surface appears to be trivial, such as a surprising technological improvement.

Advances in fracking, for example, embarrassed numerous forecasters who confidently predicted sky-high petroleum prices and a rapid shift to alternative energies. The impact of technological innovation is not limited to prices and products, though. It has a way of expanding far beyond obvious and easily measurable consequences.

Increased US and Canadian energy production has fundamentally changed the political dynamic between the West and the petrostates. Higher domestic production has not just reduced America’s vulnerability to foreign sources that are openly hostile to US interests—exports of North American oil and natural gas are reducing the influence of other energy-exporting nations as well.

Prior to the fracking revolution, US foreign policy had to consider the possibility that an international conflict would disrupt supply lines and increase the cost of energy imports. Energy is a component of every product’s cost, from agriculture to computers.

Critics of US foreign policy created the slogan, “No blood for oil,” to argue against US interventions meant to secure energy supplies. Certainly, the motivation for such interventions has been lessened.

You could even make the case that the US and Canada would benefit from disruptions in energy exports from Russia, Venezuela, and the Middle East. I don’t know if that encourages or discourages international conflict, but it’s an interesting point.

Nevertheless, I believe it’s important to consider that small technological changes may result in enormous geopolitical changes. This is especially true because the experts have missed so many important trends.

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Demographic Trend Changes: No One Sees Them Coming

The best example, of course, is demographic change. From the 1970s until very recently, many people in positions of authority and influence predicted an overpopulation catastrophe. Only a few real demographers dug deeper and saw that birthrates would lead to depopulation, but they were either ignored or vilified.

As a result, most developed nations failed to plan for the day when the shrinking taxpayer base would no longer provide the funds to deliver on promises made to a growing population of retired dependents. Judging from current political attitudes, that lesson still hasn’t been learned—so, like Thelma and Louise in their Thunderbird convertible, most of the developed world is headed toward a fiscal cliff.

My concern is not just about the impact a debt crisis would have on the US and Canada directly. The unpredictable foreign-policy implications of aging may be even more serious. Whether we like it or not, we live in a globalized world. Economies are interconnected, and trouble on the other side of the world can have big impacts at home.

I’ve written a lot about Japan’s struggles to deal with an aging population that has too few young people to pay the bills. Japan accounts for almost 6% of the world economy. A severe contraction there would have serious consequences for the US, which makes up about 24% of the world economy. But perhaps we should be more worried about the nearly 15% of gross world product (GWP) that is Chinese.

China’s Dangerous Miscalculation

A lot of people were fooled by the overpopulation hysteria of the 1970s. The most important may have been officials of the Chinese government, which had the political power to enforce a one-child policy (OCP) on much of its population.

Though China hasn’t admitted it was a mistake, the policy was abandoned two years ago, and the government is beginning to implement policies aimed at pushing birthrates upward.  

The biggest impact of the one-child policy, in my opinion, was the creation of a serious gender imbalance. Families favored male children and used strategies including abortion and infanticide to make their one child a boy. The result was the birth of about 117 boys for every 100 girls, which will have negative impacts on Chinese society for a generation. Societies with too many unmarried men often experience social unrest and political instability.

A recent Chinese state report acknowledged that ending the OPC has not resulted in a big enough increase in birthrates to solve the country’s economic problems. Further measures involving “taxation, child raising, education, social security and housing” are in the works.

However, those policies would be extremely expensive, and China already faces enormous economic challenges as the Chinese labor force continues to shrink. According to a 2017 report by the National Bureau of Statistics of China (NBSC), 2018 will be the eighth consecutive year that the working-age population will contract.

You can read the report here but, full disclosure, I don’t believe the NBSC’s strong economic growth statistics. I think the Chinese economy is much worse off than the official numbers show.

Nor do I believe that Chinese proposals to increase birthrates will reverse the depopulation trend or fund programs for the aged. Similar efforts by the Russian government have not stopped the country’s depopulation.

Both countries will therefore continue to struggle with demographic and economic issues. Some might argue that a poorer China and Russia would be good for the US. I’m not so sure. I worry that economic problems could increase the probability of political instability, which, in turn, could increase the risk of international conflict.

Michael West, the scientist whose pluripotent stem cell therapy is now making history in spinal cord injury trials, will be at the Strategic Investment Conference to talk about a biotechnology that could solve the aging problem. I’ll report on that at a later date.

If you want to be privy to all the details of what I’m learning at the Strategic Investment Conference, you might want to give my premium service, TransTech Alert, a try. Aside from the monthly deep analysis of a new technology/company, my team and I also provide weekly updates on our portfolio stocks, and trade alerts when a new development requires fast action.

Extending healthspans would solve the financial problems posed by demographic aging all over the world, and that will reduce domestic instability everywhere. When that will actually happen is another question, though. At this point, it’s impossible to predict with any accuracy.

Hidden inside biotech laboratories, breakthroughs are happening right now that could allow it to happen very soon. My concern is that political forces, including international conflict, will interfere with the deployment of these revolutionary biotechnologies—but that’s not a prediction.

Sincerely,
Patrick Cox
Patrick Cox
Editor, Transformational Technology Alert

Mauldin Economics

 

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