An Economic Forecast

I know nothing of economics, and have never presumed to make any such forecasts before. But then again, why not? The experts are always wrong anyway.

Let's see how well I do...

The price of housing in Canada, and no doubt also in the US, must go down. If things cannot go on forever, they won’t. If housing costs so much that people cannot afford it, they stop buying houses, and the price must go down. Currently, the ratio of housing cost to average income is at a historic high.

A mere fall in housing prices response to higher interest rates is not going to change this by itself, because the mortgage costs remain the same, and so the housing is no more affordable. But pushing housing prices down will have a snowball effect.

That costs have gone so much higher in proportion to income suggests that there is a lot of speculation in the market. Why not mortgage to the max, if mortgages are cheap, while housing prices keep climbing? The instant it becomes clear that housing prices will not inevitably rise, and mortgages are not such a great deal, there should be an exodus of much speculative money from the market, forcing prices further down. And each drop has a snowballing effect on speculation.

A lesser and sadder factor is that some people will no longer be able to afford the houses they are in. The rise in mortgage rates is liable to hurt here. In Canada, even fixed rate mortgages last only five years. Some proportion will find they can no longer cover it. Granted that they still will need a place to live, and will still be in the market for some kind of housing, there will be a lot of distress sales, when people cannot afford to hold out for the best price. 

Canadian, and American, demographics is tilting older. That means proportionately fewer new buyers, and more retirees looking to downsize, or dying and leaving their houses empty and up for sale.

Perhaps we are not building enough new houses; CMHC says so. But this is an odd problem, and can only be due to government overregulation. Canada obviously has no shortage of land on which to build. It of all countries has no shortage of building materials. The actions of government are sadly unpredictable, but there is a 50/50 chance things will get better here instead of worse.

So I say home prices in Canada generally should go down for the next few years. And the fall should be rather dramatic.

In other economic news, Kevin O’Leary notes that the figures were are seeing are unprecedented: inflation coupled with recession, coupled with low unemployment figures. These are three things that are not supposed to happen together.

The obvious explanation is that we are in a highly artificial situation, caused by the pandemic and the lockdowns. There seems a good chance things will snap back once these distortions are removed.

Albeit governments, notably the Canadian government, actually seem to be doing their best to prevent a return to normal.

 

Why Germany Started World War Two

 

Useful and I think accurate background for why Hitler started World War Two. I suspect the situation for China today is similar.

Darwinian Economics

An old joke describes a camper who awoke to see his friend frantically putting on his running shoes as an angry bear approached their campsite. “Why bother?” he asked. “Don’t you know there’s no way you’ll be able to outrun that bear?” “I don’t have to outrun him”, the friend responded, “I just need to outrun you.”

Economist Robert Frank offers a useful corrective to pure free market economics. The pure free market theory is based on the notion that, if everyone simply pursues their self-interest, the result, by Smith's “invisible hand,” will be good for everyone. Looking instead at Darwin's theory of evolution, Frank pointss out that this is usually, but not always, so. Sometimes what works for survival of the individual does not work out for survival of the species. The Irish elk grew antlers up to 3.65 metres wide. This was very useful when competing with other Irish elk in the annual mating competition. It was an advantage for the individual. It was a hindrance when passing therough forested areas, allowing the elk to be trapped by predators. It was against the best intererests of the Irish elk as a species. Granted, the obstructing powerr of the antlers was also a disadvantage to the individual; but the mating advantage of the large antlers more than couinterbalanced this, while doing nothing of advantage for the species.

The Irish elk became extinct 7,700 years ago. In truth, biologists are not sure why it became extinct, but bear with me and accept that it could have been this odd antlerian arms race, for the sake of argument.

For it illustrates something that can surely happen in economics as well, letting the individual good diverge from the common good. Hockey players, if left freee to choose, will almost alsways opt to play without a halmet. It improves their field of vision and gives them a competitive advantage. But they almost all prefer a rule requiring halmets. The problem is, they do not want to get their brains bashed out, but so long as anyone else is not wearing a halmet, they feel they must not to compete.

You can see, then, why regulation of the pure free market may well sometimes be in eveyone's best interests.

Probably True

"when economies are recessing, they are healing themselves. The greater the downturn the greater the recovery, and that’s the case because the greater the downturn, the more the healing that is occurring. If Obama had sat back and done nothing upon arrival in Washington, he would today be presiding over a nice recovery. And then if he’d sat back and done nothing while adopting Reagan/Clinton dollar policies, he’d be presiding over the kind of boom that would have him on the verge of a Reagan style victory circa 1984."
--Jude Wanniski, Forbes.

The more I see and read of the history of economics, the more I think that economists have generally done more harm than good. Which argues for good old laissez-faire.

Just Want to Ride on My Motorcycle

Tata Nano. Worse than owning a motorcycle?

Why is Tata's Nano not a great success? It is the world's cheapest car, built in a huge market, India, now emerging into the middle income range and so surely craving wheels. After all, it follows a tried and true formula that has worked and worked before. It is the same formula, of a “people's car,” that worked for Henry Ford and the “Model T.” It worked again for Volkswagen in Germany and in many parts of the Third World with the VW “beetle.” It worked in England for the Austin Mini. It worked for Datsun in Japan. It worked again in Korea for Hyundai. So why not in India? 

Henry Ford's better idea.

The common theory is that Indians prefer to drive motorcycles. Does not sound terribly likely.

I have another idea, inspired by my Filipina wife's complaints about her home country. She complains that Filipinos are ridiculously pretentious—too many Filipinos will lie to pretend they are richer than they are. This is also, I think, a common tendency in India. Everywhere, really, but in our experience Filipinos and Indians really stand out in this regard, in world terms. 

Still on the road in the Philippines.

Is it pure coincidence that they also stand out in their relative failure to develop economically? The Philippines has oddly lagged behind all its Southeast Asian neighbours, besides many obvious advantages. India has lagged well behind its neighbour China, despite many obvious advantages.

The problem may be that this tendency to social pretension prevents people from making the most intelligent economic decisions. Given the chance to buy a cheap car, relatively poor Americans, Germans, and Koreans jumped at the chance to improve their lives. And on and up they went. Given the chance to buy a cheap car, it may be that many Indians thought they were too ashamed to have their neighbours see them in a cheap car. Better to look down their noses and scorn it, even though they themselves could afford nothing better. Better prestige and better self-image to own a middle of the line motorcycle than a bottom of the line car. And so they remain no better off economically and practically; they have other priorities. 

Austin  Mini: send in the clowns.

It can easily be the same with jobs—better to remain unemployed or to take a lower-paying job than to take a job with duties they consider beneath them, or beneath their caste. And so they remain in poverty. And so the economy in turn does not grow as it might, and does, in less pretentious, more egalitarian-thinking countries like the US, Germany, or Korea.

I wonder if this principle could be applied more universally?

Hauser's Law

What the chart at the linked post shows is that governments cannot increase revenue by raising taxes. Taxes seem to peak at about 16-20% of GDP, whatever that figure might be. If the government jukes taxes above this point, economic activity simply adjusts to compensate--people either pull their money out of the economy, or start playing with their sums.

The Iowa Car Crop

Lifted from Andrew Coyne, who lifted it from someone else.

http://www2.macleans.ca/2010/09/16/the-iowa-car-crop/

Slow Train Coming

My friend the left-wing columnist is stumped, he admits, by the recent US midterm elections. He attributes them to “unfocussed anger” from older people in the US upset over America's supposedly declining power in the world.

No kidding.

This is pretty dramatic evidence that there are two distinct cultures in contemporary North America, and at least one of them is completely ignoring the other.

In fact, my friend's reaction in and by itself seems to dramatically prove the validity of the concerns of the Tea Party.

Unfocussed anger? These elections had a laser focus like nothing I had seen in my lifetime. Not only were the issues laser-clear since early summer, but this election was almost perfectly predicted in the polls. In two sentences, here's the message:

1. Stop spending money, and
2. You're not listening and you don't care.

This is so obvious it is in the name of the “Tea Party” movement. Moreover, a nearly spontaneous mass movement like the TP appears to be has to coalesce around something that is pretty obvious to a vast mass of people, or else it is not going to happen. How is it then that, even if left-wingers do not agree with this perception, they cannot even be aware of other people having it? Obviously, they are not in fact listening, and they don't care. That is, they are not listening to anyone outside their own little clique, and they don't care what anyone else thinks if they are outside this clique. They are, in other words, a self-interested ruling class.

Some time last year, MSNBC featured a panel of economic experts loudly disagreeing online; as one often also sees on Fox News.

This, indeed, is the Fox News trademark; it is why they can call themselves “fair and balanced” and why the average person agrees with them. Yes, their commentators are all or almost all conservative-leaning; but that is not relevant. What matters is that they consistently have spokespeople on for both sides of any issue; so that people can feel pretty confident they are hearing all sides of the issue, from the horse's mouth, and any commentary is clearly labelled as such.

Besides getting both sides, and being respected for thinking for themselves [“We report; you decide.”], people love the excitement of hearing such arguments. MSNBC, more recently, has carved a niche for themselves by imitating the Fox format, but featuring star commentators resolutely on the left.

It is striking, and pathological, that the “legacy media,” print or broadcast, rarely does this. If and when they host what they purport to be two sides of an issue, it is usually faked, and this is visible from the plain fact that the two commentators usually agree on most things in their discussion. The permitted grounds for debate have been severely limited before the debate itself can begin. This is a visible attempt to limit public discourse, and it speaks directly to what the Tea Party and the midterm elections were all about.

To get back to MSNBC: one of the speakers, Rick Santelli, during a heated exchange when everyone was offering different opinions on the best economic path to follow, just threw up his hands and started repeating loudly and clearly, “STOP SPENDING! STOP SPENDING! STOP SPENDING!” Then he walked off camera.

Here's the link:

http://www.youtube.com/watch?v=K_7PwbxcDbs

It was a marvellously clarifying moment; it was the Tea Party in one simple sound bite; and so dramatic it was rerun many times, and garnered close to 200,000 hits on YouTube. I've heard the slogan repeated as a catch phrase a lot of times since, in what I think it a deliberate allusion: “Just stop spending.”

Few political messages in history have ever been clearer. Yet, even though it was on MCNBC, their own house channel, the left, and my friend, missed it altogether.

We are in a worldwide recession.

It is the worst since the Great Depression.

The average person is hurting.

A lot of people have lost a lot of money through over-borrowing; that's what happened in the housing bubble.

What do we all do when times get tough? What _must_ we all do? Basic, kitchen-table economics: we cut back our spending.

Yet everyone has recently been watching the US government increase spending and borrowing to unprecedented levels.

Americans know they or their children will be left with the bill.

What about this is hard to understand?

Here's another good video on the issue, as it affects Britain—where the new government has been behaving far more responsibly than the Democrats in Washington.

http://www.youtube.com/watch?v=7gd6-zfeeaM

Granted that the left or Obama or the Democrats may subscribe to Keynesian economics. Keynes may even be right, or partly right—though most economists these days seem to believe he was wrong. Even so, why on earth would the left or Obama or the legacy media think they could go extravagantly against common sense without bothering to present their argument clearly and humbly to the general public every step of the way? This speaks to being out of touch. This speaks to a sense of privilege, of a right to rule.

The second, broader, issue of being out of touch was crystallized recently by an essayist in the American Spectator:

http://spectator.org/archives/2010/07/16/americas-ruling-class-and-the/print

It was picked up and pushed hard by Rush Limbaugh on talk radio; it was rushed into book form over the summer.

I think Codevilla's argument is actually a bit less than coherent; but it picked up on and laid out a growing sentiment in the US public, the same sentiment that generated the Tea Party movement.

The idea is strong and growing, in the US and across the developed world, thanks to the Internet busting what had been an information cartel, that the world is being run by a ruling class that looks out for its own interests, not the interests of the world or the general public, and deliberately limits access to information in order to sustain its power. One important result is that government is not truly representative. Hence the “Tea Party” reference: it's about taxation without representation.

This ruling class, however, seems to me to have sealed their own doom, through a spectacular complacency. The newspapering business is classic: it is not really that traditional newspapers are doomed by the technology. The technology ought to expand the market and boost the business, because it makes the product cheaper. The problem, rather, is that no one wants the product; and they now have alternatives. By contrast, new technology has done nothing to slow down talk radio—a positively antique medium--or Fox News. Instead, news organization after news organization is sinking into insolvency because of complacency and a sense of privilege which prevents them from stooping to see or react to the world as it really is; or indeed stooping to interest themselves in the wishes or needs of their audience.

In systematically choking the flow of information for their class benefit, they have, inevitably, as ruling classes usually end up doing, starved their own members of the very information needed for their survival.

As a result, instead of trying in any way to counter the obvious popular concerns that appeared over the past year or two, the Democrats and the “legacy press” seemed to do, and still seem to do, their darndest to reinforce the impression that they are out of touch and do not care. It was all amazing to watch: like someone standing on a track with a milk train bearing down on him, and no sign of awareness visible on his face at all. It seemed the dramatic final proof that the elite were not in synch with the rest of us, and indeed that they were not competent. Everybody else saw it coming a mile off down the prairie.

Now, even after the election, we are all seeing columns from the left still wondering what happened and positing arcane theories. Frankly, most of them boil down more or less to stating publicly that the average voter is stupid and not competent to govern his own affairs. This is the tone of a ruling class, not used to communicating with the public, and not interested in doing so.

It is all like the apocryphal comment attributed to Marie Antoinette--”Let them eat cake.”

This is an over-generalization, but, on the whole, the Republicans in the US have tended to be the party of the individual, and to have appealed to voters as individuals. The Democrats have tended to be the party of groups and group rights, and to have appealed to voters as members of some special interest group—blacks, women, Catholics, Southerners, the elderly, Hispanics, teachers, unions, auto workers, gays, and so forth.

With the growth of the Internet and the information explosion it has made possible, it is no longer nearly as viable to appeal to voters as members of special interest groups. It is no longer nearly as possible to speak only to their supposed “leaders,” themselves members of your own ruling class, and expect the average member of the group to tug his forelock and vote the party line. People are more able now to look into each issue for themselves and form their own opinion.

And, having the clear impression now from what new information they have seen on the Web that they have been systematically lied to by their leaders in the past, they are very much inclined to do so.

As a result, overall, the Republican Party's approach begins to work better than the Democratic Party's approach. I expect this advantage to grow. The Democrats will have to reinvent themselves as something else to survive. The Republicans, on the other hand, may be supplanted by the Tea Party.

The same dynamic seems to be at work in Canada and Europe. There are exceptions, of course, but traditional voting blocs and deference to traditional authorities are fading.

I see it as a new chapter in human freedom and a further advancement in the democratic ideal, at least on a par with the Renaissance.

Bear in a China Shop?

This could be it, folks. Get those bolt holes ready. The big China bubble may be about to blow.



According to Stratfor and Ming Pao, rumours are circulating in China that the governor of the People's Bank of China has disappeared, and that he was under investigation for a book loss of $430 billion.

The Chinese government is blocking web pages mentioning the rumor. Meantime, the governor has not appeared in public since the rumour started--the obvious thing to do to kill it.

Hate to be alarmist, but I've been expecting this for some time. Things are never what they seem in China, there is no transparency in that economy, and the current boom seems to violate several historical principles.

If China goes into an economic tailspin, in turn, it lacks the limited resilience of more open nations. The government will probably collapse, and the government has taken care to ensure that there is nobody else around in a position to take over.

This one bears watching.

Jesus's Politics

My old friend the left-wing columnist, to whom I have referred here from time to time, recently ran a piece in which he noted without explanation that the free market was incompatible with Jesus's teachings.

I challenged him, of course. I do not think the Gospel can really be legitimately used to decide between economic systems; the question is what works to generate wealth. But economic systems are also bound up with politics, and the Bible does have something to say about politics. Notably, on the issue of paying taxes, Jesus sets up the basic concept of separation of church and state that has served the Western world so well: “render unto Caesar what is Caesar's, and unto God what is God's.”

This implies that government has a legitimate role. But it also significantly reduces the role of government, in the context of traditional Jewish teachings or the classical understanding. It declares government to be profane, and a creation of man, not part of the divine order.

In other words, the general spirit of Christianity seems to lean towards small government. On what is the fundamental point at issue, that makes Jesus a man much more of the modern right, than of the left.

Trust government? Basic reality check here: how was Jesus, God incarnate, treated by government in the Gospels? It tired to kill him in infancy, massacring thousands in the attempt. At maturity, it tortured and executed him as a common criminal. Government also did in John the Baptist, St. Paul, and the rest of the apostles, of course.

But of a stark choice, actually. More or less the choice between good and evil. God is good, and government is evil.

My friend, challenged, pointed primarily to the advice to a rich young man to sell all he had and give the money to the poor. He might also have mentioned, but did not, the fact that the early Christian community as described in Acts held their property in common. Gorbachev referred to Jesus as “the first communist.”

However, this is false. Jesus did not tell the rich young man to take someone _else's_ money and give it to the poor; he meant his own. Expressing charity stands in an inverse relationship with government redistribution of wealth: if government takes the money from the rich young man without his consent, and gives it to the poor, nobody earns merit from the act; there is no choice, no free will. One is merely poorer, and the other richer.

As we know, charity is the thing Jesus wants: it is the greatest of the three virtues, the prime commandment. Government redistribution of wealth prevents this; and is therefore a moral evil.

Merely making the poor richer is not the prime concern: as Jesus says, “the poor you shall have always with you.” He also says, “blessed are the poor,” which surely implies that poverty itself is not an entirely bad thing. His point is that riches on earth distract us form the riches of heaven.

As to the early Christian tradition of shared property, the same objection applies: if this is not voluntary on the part of all participants, it loses all moral significance. If it is voluntary on the part of all participants, it becomes what it has always been: the Catholic religious life, as practiced in any convent or monastery. It cannot be voluntary if enforced by the state.

Even if overlooked by the US or Canadian constitution, both Jesus and the ten commandments represent private property as a moral right. “Thou shalt not covet thy neighbour's goods.” Note too the parable of the workers in the vineyard:

“'Friend, I am not being unfair to you. Didn't you agree to work for a denarius? 14Take your pay and go. I want to give the man who was hired last the same as I gave you. 15Don't I have the right to do what I want with my own money?'”

Under a pure free market system, yes. Under a socialist or even heavily regulated or unionized system, no. Under “affirmative action,” again, no.

The parable of the three servants, each of whom was given a sum to invest by their master, makes plain as well that earning actual profits from the investment of capital is perfectly proper and commendable for a Christian. “Well done, O good and faithful servant!”

Jesus's, and God's, kingdom, by contrast, is “not of this world.” All attempts by man, therefore, to make some earthly paradise, are as doomed as the Tower of Babel. It will come, when it comes, only at the end of time, and mostly by divine fiat. Any efforts to do it ourselves are the work of the Antichrist. Hitler, Lenin, Stalin, Mao, Pol Pot, Kim Il-Sung, the Taiping Rebellion, Jim Jones... do we really need to repeat the experiment?

“All the kingdoms of the world,” the devil says to Jesus, who would know the truth, and pointedly does not contradict him, “all this power ... has been handed over to me, for me to give it to anyone I choose.”

Any kingdom in this social, material world, and any king or leader, is ipso facto of the devil's party. Satan runs this social, political world.

While some government is necessary, big government is accordingly the worst possible idea.

How do I know? Because the Bible tells us so.

The Case for Child Labour

Europe is not climbing out of this recession easily. The German economy just tipped back into decline, Greece is on the brink of default, and the big French Bank Societe General has publically expressed its opinion that the collapse of the Euro is “inevitable.”

This fits with the thesis of our last post here, that the real problem is the demographic decline. It is worse in Europe than in America. Europe is looking more and more like Japan in 1997: while the crisis might have begun elsewhere, the underlying demographics may prevent Europe, like Japan, from ever rising from its knees.

Time for some creative thinking, surely. We cannot afford to feed any sacred cattle. Everyone is talking about ending pensioned retirement. Sure; but one other possible solution occurs to me; and perhaps a less painful one. Perhaps we have been looking at the wrong end of the spectrum. Perhaps the better option is to end the child labour laws.

This would do three useful things. First, it would expand the active labour force at a stroke, directly and more or less immediately fixing the essential immediate problem of a labour shortage. Second, it would make childbearing and childrearing more attractive: instead of representing a huge loss of income for parents, children could be self-supporting, as children are in less-developed, less urban countries; or were in Europe until the last century. This might reverse the drop in fertility, and so fix the underlying problem. Third, assuming that children would be paid lower wages, it boosts the competitiveness and so the overall economy of the developed world.

Of course, you are horrified. I know this sounds to many as heinous a suggestion as Jonathan Swift’s original “Modest Proposal.” Many are actively campaigning against child labour in the Third World.

But do we really, in this, have the children’s best interests at heart? Were child labour laws in the first place a matter of protecting children; or of boosting the price of labour? As laws were introduced to prevent child labour, and as part of the same movement, laws were also passed to prevent the employment of women. Both were thought to be humanitarian; making either work outside the home was considered exploitation. Assuming we were wrong in thinking this about women, the point logically applies to children too.

Certainly my wife, who grew up in the Third World, deeply resents the efforts of Western “do-gooders” to try to end the “exploitation of children” in the imaginary sweatshops of Asia. “What are the children supposed to do? Starve to death?” Even if literal starvation is not an issue, I think it would be rather better for the health of any child to find paying work than to be aborted.

Or if we allow them to live, being forced to sit on their butts all day in school. You might want to argue that working is not fun for children--but do they usually enjoy school? No. School is unpaid labour, and it is mandatory. Try that with anyone else, and the proper term is slavery.

Do children hate work? Not so much. Those of us who, when young, had a paper route, or every now and then ran a lemonade stand, or had some money-making hobby, I submit, remember this experience with considerable fondness. Nothing beats the feeling of holding your own earned money in your hand. You want self-esteem? That’s self-esteem.

Would we, by allowing children to work, be limiting their future? I’m sure that argument will be made. But is it correct? How much schooling these days ends up being mostly babysitting? We discover that children who are home-schooled are able to cover the same material in about half the time. It follows that children in general could just as easily cover everything they are learning now in half the time, and have half their time free for earning. Do farm kids suffer academically from having their “chores”?

Working half-time could itself be a vital part of a proper education. The world of work changes much faster than the hidebound, bureaucratic world of school. By the time a kid graduates from college, with fourteen or sixteen years of schooling behind them, but no work experience, most of what they have learned is bound to be irrelevant. Had they been working, at least some of their working knowledge would still be current. We must, in any case, replace the current model with one of lifelong learning.

Over their twelve or sixteen years of schooling, it gets hard for some students—indeed, hard for the system—to keep their focus on the relevance of it all. With concurrent work experience, one would have a constant reality check. And anyone who goes to college, as is increasingly required of almost anyone, is all dressed up with nowhere to go for another five or six or more years after that. The frustration of this, I suspect, is what drives the angst, the utter hell, of modern adolescence—which was never seen as a traumatic period in the past, or in non-Western societies. If this enforced poverty and apartheid from the real world, forbidden to do real things, is not deliberate torture, it is certainly torture nevertheless. And in the end, after all this terrible sacrifice, how many graduate from a professional school in their mid or late twenties, only to find themselves locked for life in a job they discover they hate? Better to sample styles of work on the way there.

Yes, some parents may exploit their children for money, confiscating everything a soon as they come home. But consider: are such parents likely to treat their children better simply because they are of no economic value, but instead constantly cost them money? No, logically, the case is the reverse: at least, if the child’s labour is worth money to them, they will take better care of their children’s health. Being of some worth to them is the ultimate guarantee of any child’s safety.

Earning their own money and potentially being self-supporting also allows a child a decent chance of escaping the abusive family altogether. The present system, by contrast, seems perfectly designed to promote and enable child abuse.

Yes, we probably don't want to send children down the mines. In the old days, this was a real possibility, and child labour laws accordingly made more sense. We wouldn't want young bodies doing work that is dirty and dangerous. But with the shift from an industrial to a service economy, and with modern health and safety regimes, there is in principle such work left anyway.

For poor kids, having some money to call their own may prevent many from dropping schooling sooner than they should, either because their families cannot afford to support them, or because they watch with envy others working and having money to spend. Some may find they hate the work available with relatively little schooling—so much the better. They will stick to their schooling as a result. Others may happen upon a job they really love. Perfect—let them drop out; they have the schooling they need. And if they want more later, the same half-time system remains available.

Nor will starting a family in the meantime make this option no longer possible. The kids can take care of themselves.

The Real Cause of the Recession

An economist at the Vatican has suggested that the underlying cause of the current recession is not loose credit or real estate. It is infertility. The real estate bubble of the last few years was simply masking a deeper longterm problem which is now revealed.

To call economics an inexact science is to give it far too much credit. But what Signor Gotti Tedeschi of the Institute for the Works of Religion says has, to my mind, the ring of truth. People are our most valuable resource; they produce all other resources. No nation has ever prospered as its population declined. Witness Japan: in a dead stall economically for almost two decades, due to its rapidly falling birthrate and aging population. Welcome to our future. Japan is just two decades ahead of the world curve in this regard.

Buying a home, and then possibly also a vacation or retirement home, were the two biggest, and last big, expenditures all those baby boomers were going to make. Note that the recent bubble was biggest in retirement destinations: Arizona, Florida, Nevada, the coast of Spain.

That's been done. Now the boomer demographic is barrelling into retirement. They are going to start selling their main homes and downsizing. There are fewer coming in the next few generations. It will be a buyer's market, for real estate, for the foreseeable future. And for everything else--retirees spend less. Of course, they also produce nothing.

And remember this: while all economics may be voodoo science, demographic projections are rather reliable, at last for a few decades into the future. Numbers are numbers, and it takes twenty years to make a human generation.

So the real estate market is not going to pick itself up and resume its onward march anytime soon. And that, according to the Economist and others, was just about all the action in the US and European economies for the last good number of years.Without it, we would probably have been in recession all along. Now we will also have a huge surge in government pension and health costs, coupled with a huge drop in productive capacity, and in consumer buying power, throughout the developed world.

Hard to see how an economy can go through all that without grave economic consequences.

The rising tax burden to pay for entitlements will in turn suppress economic activity; Ibn Khaldun, the great Arab historiographer, posited that all polities eventually collapse through overtaxation. We're about to test his theory; the more so since most governments have responded to the current recession by going heavily into debt.

So, okay, the entire developed world is heading for a long, perhaps permanent, Japan-like recession. What about the developing world? Certainly, the dropoff in consumer spending in the developed world will hurt them. But their own conumers; might they pick up the slack?

It doesn't look all that promising, actually. For the past four decades, most of the Third World has been busy trying to get their fertility rates down. They accordingly face more or less the same crisis. First, forget China replacing the US as the world's dominant power—it has a bigger demographic crisis facing it than anyone, about to hit in just a few years' time. Not only did they stop making children--of the children they still made, a disproportionate number were boys, meaning they will never be able to find a wife and have children of their own. It's going to be like hitting the wall, even if China's political problems do not hogtie it well before this point. Russia? In worse shape demographically than anyone else in Europe. Of the members of the big leagues, India is rather better placed than anyone, though its fertility rate too is lower than it should be and declining. Indonesia looks relatively sound. Some nations of SubSaharan Africa are growing faster than anyone--Nigeria, Ethiopia--but they have yet to demonstrate that they have the other requisites for development: stable government, decent education, lack of curruption, and so forth. Among the already-developed nations, the US is doing better than anyone at keeping fertility levels up.

Some nations, including Canada, have thought that the solution to this demographic problem was to open up the borders to increased immigration. The assimilation problems this causes are now, however, beginning to cause severe strains, and the public is turning against the idea throughout Europe. In any case, it doesn't work: it turns out that recent immigrants very quickly age themselves, and their fertility patterns quickly match those of the native-born. And, if the problem is worldwide, we are only offshoring it, not solving it.

So, how do we solve it? How can we get the engine running again, if only for our children's children, or our children's children's children? Nobody seems to know, because nobody seems to know, or professes to know, what's causing it. Nobody seems able to explain why fertility rates are dropping so quickly. Because so many women are in the workforce? Then why are Japan and Italy leading the pack? Because of growing wealth? Then why is the US somewhat resisting the trend? Because of religious beliefs? Then why is Iran flagging? Because of urbanization? Then why didn't it happen immediately postwar, when everyone poured into the suburbs? Instead, we had the baby boom.

As it happens, I have a suggestion, which seems to me to account fully for the data. The drop in fertility is proportional to the ready availability of abortion, reliable contraceptives, a social safety net, and old age pensions. Abortion and contraceptives, obviously, allow women to choose to have fewer children. Turns out, given the choice, that most do not want ten or even five. Good solid old age pensions mean less need to have children as an insurance policy against incapacity in old age. A strong social safety net from government means less need to rely on family for one's security in tough times, hence less need to have a large family.

This explains the anomaly of the USA, still at replacement level in defiance of the trend. The USA is simply less "socialized" than Europe or Japan. Communist and ex-Communist nations like Russia, Cuba, and China suffer from having a very strong social safety net, and stand out in terms of population decline.

The cure, then, might be a bitter one: roll back the social safety net. Go back to banning not only abortion, but contraceptives as well--as was the case essentially everywhere until around the 1960s. It seems just conceivable that our grandparents were right after all.

One other possibility also occurs to me. It may be just baby-boomer wishful thinking, but one hears more and more about the possibility of new life-extending medical technologies coming in the near future. A friend of mine who is in the field says something dramatic will probably be available within ten years. If so, the sudden jump in lifespans in the developed world might save us; at least long enough to make the necessary changes to our systems. Notably, this too, to be a solution, would require ending all talk of pensioned retirement at 60 or 65.

If this comes, it will only boost the current American economic dominance. The sudden jump in life expectancy would probably be felt here first, and would add to the already relatively healthy fertility rate. The US has another advantage, that is not always appreciated: while European immigration comes mostly from Muslim lands, and involves a radical change of culture, America is built for immigration, and its immigrant supply comes mostly from Latin America--on the whole, a similar culture.

I think this is enough to make it probable that China will never surpass the USA economically. If the baton passes, as it eventually must, it will take a while.

And it will more likely be to India.