Does China Have Feet of Clay?

No one knows what China’s future holds, and there is a long history of faulty predictions of systemic collapse or stagnation. Neither outcome is likely, though the country is facing several challenges that are far more serious than many observers seem to think.

Joseph S. Nye

nye189_Antonio MasielloGetty Images_xi jinping

CAMBRIDGE – Chinese President Xi Jinping seems to be on a roll. He has sent a rocket to the dark side of the moon, built artificial islands on contested reefs in the South China Sea, and recently enticed Italy to break ranks with its European partners and sign on to China’s Belt and Road Initiative. Meanwhile, US President Donald Trump’s unilateralist posture has reduced America’s soft power and influence.

China’s economic performance over the past four decades has been truly impressive. It is now the main trading partner for more than a hundred countries compared to about half that number for the United States. Its economic growth has slowed, but its official 6% annual rate is more than twice the American rate. Conventional wisdom projects that China’s economy will surpass that of the US in size in the coming decade.

Perhaps. But it is also possible that Xi has feet of clay.

No one knows what China’s future holds, and there is a long history of faulty predictions of systemic collapse or stagnation. While I don’t think either is likely, the conventional wisdom exaggerates China’s strengths. Westerners see the divisions and polarization in their democracies, but China’s successful efforts to conceal its problems cannot make them go away. Sinologists who know much more than I do describe at least five major long-term problems confronting China.

First, there is the country’s unfavorable demographic profile. China’s labor force peaked in 2015, and it has passed the point of easy gains from urbanization. The population is aging, and China will face major rising health costs for which it is poorly prepared. This will impose a significant burden on the economy and exacerbate growing inequality.

Second, China needs to change its economic model. In 1978, Deng Xiaoping wisely switched China from Maoist autarky to the East Asian export-led growth model successfully pioneered by Japan and Taiwan. Today, however, China has outgrown the model and the tolerance of foreign governments that made it possible. For example, US Trade Representative Robert Lighthizer is focusing on the lack of reciprocity, subsidies to state-owned enterprises (SOEs), and coerced intellectual property transfer that have allowed China to tilt the playing field in its favor. Europeans are also complaining about these issues. Moreover, China’s intellectual property policies and rule-of-law deficiencies are discouraging foreign investment and costing it the international political support such investment often brings. And China’s high rates of government investment and subsidies to SOEs disguise inefficiency in the allocation of capital.

Third, while China for more than three decades picked the low-hanging fruit of relatively easy reforms, the changes it needs now are much more difficult to introduce: an independent judiciary, rationalization of SOEs, and liberalization or elimination of the hukou system of residential registration, which limits mobility and fuels inequality. Moreover, Deng’s political reforms to separate the party and the state have been reversed by Xi.

That brings us to the fourth problem. Ironically, China has become a victim of its success. The Leninist model imposed by Mao in 1949 fit well with Chinese imperial tradition, but rapid economic development has changed China and its political needs. China has become an urban middle-class society, but its ruling elites remain trapped in circular political reasoning. They believe that only the Communist Party can save China and thus that any reforms must strengthen the Party’s monopoly on power.

But this is exactly what China does not need. Deep structural reforms that can move China away from reliance on high levels of government investment and SOEs are opposed by Party elites who derive tremendous wealth from the existing system. Xi’s anti-corruption campaign can’t overcome this resistance; instead, it is merely discouraging initiative. On a recent visit to Beijing, a Chinese economist told me that Xi’s campaign cost China 1% of GDP per year. A Chinese businessman told me real growth was less than half the official figure. Perhaps this can be countered by the private sector’s dynamism, but even there, fear of losing of control is increasing the Party’s role.

Finally, there is China’s soft-power deficit. Xi has proclaimed a “Chinese Dream” of a return to global greatness. As economic growth slows and social problems increase, the Party’s legitimacy will increasingly rest on such nationalist appeals. Over the past decade, China has spent billions of dollars to increase its attractiveness to other countries, but international public opinion polls show that China has not gained a good return on its investment. Repressing troublesome ethnic minorities, jailing human-rights lawyers, creating a surveillance state, and alienating creative members of civil society such as the renowned artist Ai Weiwei undercut China’s attraction in Europe, Australia, and the US.

Such policies may not hurt China’s reputation in some authoritarian states, but modern authoritarianism is not ideologically based the way communism was. Decades ago, young revolutionaries around the world were inspired by Mao’s teachings. Today, although “Xi Jinping Thought on Socialism with Chinese Characteristics” has been enshrined in the Party constitution, few young people in other countries are carrying that banner.

China is a country with great strengths, but also important weaknesses. American strategy should avoid exaggerating either. China will increase in importance, and the US-China relationship will be a cooperative rivalry. We must not forget either part of that description. No country, including China, is likely to surpass the US in overall power in the next decade or two, but the US will have to learn to share power as China and others gain strength. By maintaining its international alliances and domestic institutions, America will have a comparative advantage.

Joseph S. Nye, Jr., is a professor at Harvard University and author of Is the American Century Over? and the forthcoming Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.


How betting on oil prices greases the industry’s wheels

The message from futures markets is that high spot prices will not last

OF ALL THE lines of all the characters in all the scenes in “Casablanca”, the ones that resonate most are spoken not by Humphrey Bogart, the leading man, but by Claude Rains, who plays Louis Renault, a cynical police captain. Needing a pretext to shut down Rick’s, the nightclub owned by Bogart’s character, he declares that he is “shocked, shocked to find that gambling is going on in here”.

Renault’s line captures the fake distaste for gambling that lives on in polite circles. It finds expression even in impolite circles, such as finance. Take the market for oil futures. Only the gauche would describe it as anything other than a system for transferring risk. Oil producers sell futures to insure themselves against a price rout that would threaten solvency. Investors earn a risk premium by buying them.

There is something to this characterisation. Producers are indeed short futures much of the time. But often, they are long. Perhaps the real reason for a thriving futures market is that people both inside and outside of the oil business enjoy a punt on the price of crude. If so, that is all to the good. The prices that wash out of these wagers are an invaluable guide to decision-making about production, storage and investment.

The benefits hinge on the relationship between spot prices, futures prices and inventories. The spot price is what you pay if you need a barrel of oil immediately. The futures price is more like a wager on a sporting match. If the spot price of Brent crude in a year’s time proves to be higher than $67, the current 12-month futures price, the buyer wins the bet; if it is lower, the seller wins. If oil prices are hard to predict, futures prices should be lower than spot prices. This theory assumes there is excess demand to hedge against falling prices. Speculators are needed to take the other side of the bet. Low futures prices are the inducement they in turn require.

In practice, periodic gluts and shortages mean that oil prices are prone to wild swings. The oil market switches between “backwardation” (where futures prices are below spot) and “contango” (where they are above it). The volatility of prices makes it difficult to detect a reward for speculation, or risk premium, in any single commodity market. But studies by Gary Gorton and Geert Rouwenhorst of Yale University find that a buyer of a varied basket of commodity futures would earn a hefty risk premium.

What links the spot and futures prices is the level of stocks held by the oil industry. Storage is costly, but so is running out of supply. As a rule, the lower stocks are, the higher the premium speculators should demand. Just as ample stocks tend to dampen price volatility, skimpy stocks tend to amplify it, making speculation riskier. Backwardation gives speculators a compensating reward.

What is today’s oil market telling us? OPEC agreed in December to cut production. Demand is picking up. The spot price has risen from $53 to $70 a barrel since the start of the year. The market may well tighten further in the short term. Saudi Arabia, OPEC’s largest producer, is pumping less than its quota; it seems keen on higher prices. Meanwhile foreign-policy hawks in America want to tighten the screws on Iran’s oil exports. Power cuts in oil-rich but inflation-ravaged Venezuela have further reduced its capacity to pump oil.

Futures prices are below spot prices. This backwardated curve is a signal to run down stocks while prices are high. And inventories have indeed been falling, according to an analysis by Martijn Rats of Morgan Stanley, suggesting that the market is undersupplied. If stocks fall further, backwardation is likely to become more extreme. And the more futures prices fall relative to spot prices, the more tempting is the risk premium they offer to investors.

The other message from the oil curve is that high spot prices will not last. In this regard, OPEC faces a dilemma. Higher prices solve short-term problems: Saudi Arabia needs an oil price of around $80 to balance its budget, for instance. But they are a spur to non-OPEC sources of oil and to non-oil sources of energy. The long-run result is an oversupplied market and lower oil prices.

“Casablanca” is full of such dilemmas. Rick is forced to choose between love and honour, and judges that dishonour would spoil love. For Renault, having Rick arrested for the murder of a German major would be a feather in his cap. Instead he plays the long game and orders his squad to “round up the usual suspects”. As time goes by, an alliance with Rick might prove more profitable.

Picking Sides: What Brexit Means for the UK, US and China

The controversy in London over the Huawei leak is about far more than technology.

By Ryan Bridges


A sacking in Whitehall is revealing the strain Brexit has put on the United Kingdom’s foreign policy. British Prime Minister Theresa May fired Defense Secretary Gavin Williamson on Wednesday over leaks to the press of conclusions from a British National Security Council meeting in late April. According to the leak, the British government had decided in the meeting that it would allow Chinese telecommunications firm Huawei to provide “non-core” components for the construction of the U.K.’s 5G mobile infrastructure. The NSC’s decision sparked immediate outcry from critics of the decision in the U.K. and U.S. officials who have been urging allies to shun Huawei technology. In a statement, Williamson denied that he had played a role in the disclosure.

Whoever leaked the Huawei decision likely hoped the backlash would force the government to reverse course and ban Huawei. A known China hawk, Williamson caused a diplomatic tiff with Beijing in February when he said the first deployment of the new HMS Queen Elizabeth aircraft carrier would be to the Pacific and that the U.K. needed to demonstrate its willingness to use “hard power” against China and Russia. In response, the Chinese government canceled British Chancellor Philip Hammond’s planned visit to China.

More important than who leaked the decision, though, is what the discord within the British government says about the limits of British strategic flexibility. A year before the 2016 Brexit referendum, the British government had launched a deliberate campaign to improve ties with China. During a visit to Beijing in 2015, then-British Chancellor George Osborne hailed the start of a golden era in U.K.-China relations and set a goal to make China the U.K.’s second-largest trade partner by 2025. In March 2015, the U.K. caused outrage in Washington when it became the first Western country to join China’s Asian Infrastructure Investment Bank. The same year, the U.K. and China signed nearly 40 billion pounds (worth $60 billion in 2015) in bilateral trade deals.

When May took over as prime minister, she tapped the brakes on the golden era. Just weeks into her premiership, May delayed one of the most significant of those bilateral deals – plans for China’s General Nuclear Corporation to buy a 33 percent stake in the 20 billion pound Hinkley Point nuclear power project – so that her government could review the contract. During her first official visit to China in February 2018, May raised concerns about sensitive issues like intellectual property theft and steel dumping, and she refused to endorse China’s massive Belt and Road Initiative.

But in the age of “global Britain,” when the U.K. is downplaying the importance of ties with Europe in favor of the rest of the world and aspiring to free trade agreements with major trade partners, including China, May’s initial position was untenable. There’s been no sign of backtracking on the (unofficial) Huawei decision, even after the U.S. repeated its threat to cease information sharing with countries that use the Chinese firm’s 5G technology. And last week, Hammond offered “British project design and legal, technical and financial services expertise” to help China “realize the potential” of the BRI, even after the U.S. criticized Italy’s decision to sign a memorandum of understanding related to the project.

To be sure, countries around the world are searching for the appropriate balance in relations with the U.S. and China at a time when they are increasingly competing for influence. Countries like the U.K., Germany and France have some strategic flexibility lent by economic heft and a degree of physical isolation from the two powers, separated as they are by an ocean from the U.S. and by Eurasia from China – a position few others enjoy. But only London is facing the possible exclusion from a customs union and single market with its largest trading partners, forcing it to curry favor with countries like China in case it needs a rapid trade deal to make up for lost revenue. It’s London that is under domestic political pressure to demonstrate to voters that it can thrive on its own without the European Union. If Germany or France – who, unlike the U.K., aren’t actively seeking a trade agreement with Beijing – want something from China, they can call on a bloc with a combined economy larger than China’s to speak for them. If the U.S. wants to withhold a trade deal from one of them, it has to give up its aspiration for a deal with the EU – something the U.S. president has wanted for a while.

A year ago to the day of Williamson’s firing, the chairman of the pro-Brexit European Research Group, Jacob Rees-Mogg, wrote that without the EU, the United Kingdom could “build a truly special relationship” with the United States. British Trade Secretary Liam Fox said last November that Brexit gave the U.K. the rare opportunity to raise the “special relationship” with the U.S. to a new level. The problem now is that to do so, the U.K. must choose a side: It can’t have a super special relationship with the U.S. and a golden era with China at the same time. The U.K.’s eventual exit from the EU means Britain won’t have to take orders from Brussels, but it also means balancing between Washington and Beijing will be more important than ever. The deeper the strain in those relations, the less freedom Britain will have in its foreign affairs.

The Fed Is Paralyzed By Mixed Messages

The Fed tightens and stocks tank. The Fed promises to stop tightening and stocks soar. The Fed implies that it might actually cut rates and stocks soar some more. The Fed appears to take back the rate cut promise and the markets turn choppy.

It’s been a wild ride. But during the past four months of it, the Fed has yet to actually do anything other than talk.

Meanwhile, contradictory signals from the economy threaten to keep the Fed paralyzed. Consider:

The dollar is rising. This is deflationary because it makes US goods more expensive overseas, other things being equal lowering corporate sales and profits. A too-strong dollar would normally lead the Fed to cut rates to relieve the pressure on exports.

US dollar Fed paralyzed

Unemployment is plunging. In April, the US added 263,000 jobs, sending the official unemployment rate to a five-decade low of 3.6%. Average hourly pay rose 3.2% year-over-year. Meanwhile, anecdotal evidence of labor shortages is becoming comical, with companies eliminating drug testing while recruiting from local high schools and jails.

This is a signal for the Fed to tighten aggressively to head off a spike in wage inflation (which, as noted above, is already well ahead of the Fed’s 2% inflation target).

unemployment Fed paralyzed

Long-term interest rates are down. The yield on the 10-year Treasury bond (from which mortgage rates, among other things, are derived) has fallen from 3.2% in November to around 2.5% today. This implies a slowing economy and therefore an excuse for the Fed to ease.

10 year Treasury Fed paralyzed

Stock prices are back at record highs. The main reason the Fed to stopped tightening was the flash-crash in stocks near the end of 2018. But now stocks are back to pre-crash levels, while tech IPOs are being greeted with feeding frenzies. By any previously reliable measure, stocks are back in the kind of bubble (the chart below is the tech-heavy NASDAQ) that in the past has convinced the Fed to tighten.

NASDAQ Fed paralized

There’s more, but you get the point. Whatever the Fed does from here on out – including nothing at all – will likely cause serious problems. Easing might send wage inflation to levels last seen during the 1970s currency crisis. Tightening might send the dollar up to unsustainable levels, invert the yield curve, and cause stocks to crater, setting off a 2008-style Wall Street implosion. Staying the course and just talking as in the past five months might lead to either of the above.

The people running the Fed want to give the impression of control, but the fact is they’re just as baffled by the contradictory data as everyone else. Which is why their words – increasingly the only tool they have left — make less and less sense.

Growth That's Bought But Not Paid For

Peter Schiff


•The Economy Is Not Strong.

•Any "Growth" Is Being Fueled by the Fed and Debt.

•This Can Not Last.

Very clear warning signs are now flashing that the U.S. economy could be heading for trouble and that the longest expansion in recent memory may soon end. But as usual, financial media and mainstream investors are once again flushed with optimism as the stock market plows higher.

Last week, the Fed gave a narrative confirmation to the dangers when they officially called off their monetary tightening campaign. The curtain came down far earlier than just about anyone in the mainstream had predicted. Just a few months ago, most assumed that the Fed would continue raising interest rates and shrinking its balance sheet well into 2020 and beyond. Now it has indicated no further hikes for 2019, and perhaps just one for 2020. Similarly, it now plans to end its balance sheet reduction program by September (Federal Reserve Board, FOMC press conference, 3/20/19). The program was supposed to last for many years and cut the Fed’s $4.5 trillion stash of government and mortgage-backed bonds, by 50% or more. But now the Fed only anticipates a few hundred billion in total reductions, which will barely put a dent in its huge stack.

The Fed’s rapid reversal should have caused many to wonder if the economy is far weaker than they had thought, or more precisely, if it was merely a bubble fueled by the monetary stimulus the Fed was withdrawing. Technical confirmation for the Fed’s concern arrived last week when the yield curve inverted for the first time since the 2007 lead-up to the Great Recession, meaning investors are receiving lower interest on 10-year government bonds than on three-month Treasury bills. This reversal of the normal rules of duration risk, where investors get higher rates for longer lock ups, usually precedes a recession (Yield Curve & Predicted GDP Growth, March 2019, Cleveland FRB). In fact, many economists regard yield curve inversion as the single most reliable recession predictor.

So after the heady gains in the market over recent years investors should be very concerned that the game will change. Instead, after one of the worst Decembers in history, investors jumped back into stocks with passion in January and powered the S&P 500 to its best quarterly performance since third quarter 2009. As has been the case for years, investors seem to have been fixated on low interest rates as the only driver that matters. The disconnect is most pronounced in the Trump Administration itself, where former monetary hawk and current White House economic advisor Larry Kudlow, called for the Fed to immediately cut rates by 50 basis points, even while lauding the miracles of the Trump Economy. If the economy is the “best in American history” as Trump likes to suggest, why then the urgent calls for rate cuts?
Last week, many of those who remain confident in the economy and the markets pointed to the newly released data that showed relatively strong GDP growth for 2018. Although the numbers did reveal a slowdown in the fourth quarter, the full year came in at a modestly healthy 2.9%, tying with 2015 and 2006 for the highest growth rate since 2005 (U.S. Bureau of Economic Analysis). In fact, 2.9% is 38% faster growth than the average 2.1% achieved since 2000. With a business-friendly administration still in the White House (that can finally look past the specter of the Mueller investigation), many see the return of another Goldilocks era for the U.S. economy.

But, to make that assumption, forecasters not only must ignore the elephant in the room, but they must ignore the fact that the elephant is now sitting on top of the house. The 2.9% growth achieved in 2018 came amidst a staggering expansion of government debt. It’s bad enough that the deficit came in at $779 billion, the most red ink since 2012 (when the economy was still struggling in the shadows of the Great Recession), but the national debt surged by a staggering $1.481 trillion (data from Economic Research Division, FRED, FRB St. Louis).

Many people would assume that the annual budget deficit, which is the difference between what the government spends and what it raises in taxes and other revenues, would be the same as that year’s actual expansion of the debt. But so far this century, the annual deficit has averaged $552 billion, while the annual debt expansion has been 55% higher, averaging $853 billion. The difference comes from the fact that deficit numbers exclude expenditures that are considered “off-budget” which inexplicably includes such line items as Social Security and the Postal Service. The amount of those off budget items fluctuates wildly from year to year, but was particularly high in 2018.
Viewing our current economic “strength” through the prism of debt accumulation yields a much different impression. Just compare 2018 to 2015, the last year that the U.S. GDP expanded by 2.9%. In 2015, the debt expansion was equivalent to 4.25% of the overall economy. But in 2018 that rose to 7.1%, the highest debt growth/GDP ratio since 2012, and an increase of 173% from the 2017 level of 2.60%. This is the steepest year to year acceleration since, you guessed it, the Great Recession when the ratio expanded by almost the exact trajectory, 170% from 2007 to 2008.

Looking at the numbers in aggregate make it even clearer that our recent economic growth has simply been a function of debt creation. In 2015, in order to grow the economy nominally by $515 billion we added $781 billion in debt, a net loss of $266 billion. In 2018, in order to grow the economy by $1.033 trillion, we had to expand the debt by $1.481 trillion, a net loss of $448 billion.

As I have argued many times, you can’t get richer by going deeper into debt. The analogy I use, which has been picked up by other pundits in the financial world, goes like this: Suppose you bump into an old friend you haven’t seen in years. You ask him how he’s doing. He says fantastic: He’s tells you that he’s bought a new house, a new car, and just got back from an around the world trip with his wife. You conclude that your friend must be doing well financially. If you then found out that all those things were put on a credit card and that your friend has no money in the bank to pay back the loans, would that alter your perception? If you are a modern market watcher, or if you are Larry Kudlow, perhaps not.

The amount of debt we will pile on the back of the U.S. economy is set to rocket higher in coming years, and Washington has proven even less capable of dealing with the coming crisis than I could have imagined (and I imagined a lot). Worse still is the possibility that wildly socialistic, big-spending Democrats take over both ends of Pennsylvania Avenue in 2020. While Democrat ineptitude may squander the political opportunity currently in front of them, a potential recession in the next 18 months could assure Democrat victory even if they nominate avowed socialists eager to adopt the Venezuelan model for success.
But whether or not a recession is around the corner, investors should understand that there may now be a new normal with respect to monetary policy, which is it will never be neutral or tight again. We may be in the age of permanent stimulus. Heavy stimulation in good years to give way to super-duper triple whammy stimulation in bad years. But after nearly a decade of super low rates, which have been the tent pole holding up asset prices in the stock, bond, and real estate markets, could we have expected any different?
Much like how low teaser rates on home mortgages in the lead up to the housing crash of 2006 enabled larger loans that went into default once rates rose, the artificially low interest rates that the Fed has delivered over the past decade has been a teaser rate for the entire economy. Last year the Fed tried to take the teaser rate away. But the market went into convulsions, so they stopped. If the teaser rate were ever really taken away, it’s the entire economy that will collapse, not just housing. Given this, we could expect that the debt will zoom past $30 trillion quicker than you can say 2024 and the Fed’s balance sheet will move to $10 trillion and beyond.

I believe the only reason the U.S. dollar did not collapse following our initial foray into 0% interest rates and quantitative easing in 2009 was the market’s confidence that the policy was not permanent and that it would be successfully reversed after a recovery took hold. Once that conceit is exposed, who could believe that the Fed will ever be able to normalize rates or that an even larger balance sheet will ever be unwound. The Elephant will get fatter and climb up even further on the roof. But unlike Dumbo, he won’t be able to fly….just fall, crushing everything that didn’t have the good sense to get away.

One Day There May Be a Drug to Turbocharge the Brain. Who Should Get It?

By Carl Zimmer

                                                                                                             Credit Benedicte Muller

In 2011, Dr. Dena Dubal was hired by the University of California, San Francisco, as an assistant professor of neurology. She set up a new lab with one chief goal: to understand a mysterious hormone called Klotho.

Dr. Dubal wondered if it might be the key to finding effective treatments for dementia and other disorders of the aging brain. At the time, scientists only knew enough about Klotho to be fascinated by it.

Mice bred to make extra Klotho lived 30 percent longer, for instance. But scientists also had found Klotho in the brain, and so Dr. Dubal launched experiments to see whether it had any effect on how mice learn and remember.

The results were startling. In one study, she and her colleagues found that extra Klotho protects mice with symptoms of Alzheimer’s disease from cognitive decline. “Their thinking, in every way that we could measure them, was preserved,” said Dr. Dubal.

She and her colleagues also bred healthy mice to make extra Klotho. They did better than their fellow rodents on learning mazes and other cognitive tests.

Klotho didn’t just protect their brains, the researchers concluded — it enhanced them. Experiments on more mice turned up similar results.

“I just couldn’t believe it — was it true, or was it just a false positive?” Dr. Dubal recalled.

“But here it is. It enhances cognition even in a young mouse. It makes them smarter.”

Five years have passed since Dr. Dubal and her colleagues began publishing these extraordinary results. Other researchers have discovered tantalizing findings of their own, suggesting that Klotho may protect against other neurological disorders, including multiple sclerosis and Parkinson’s disease.

Now Dr. Dubal and other researchers are trying to build treatments based on these results. Either by injecting Klotho into the body or by stimulating the brain to make more of the hormone, they hope to treat diseases like Alzheimer’s.

The researchers developing these treatments readily acknowledge that they may fail. And other Klotho experts think there’s a huge amount of work left to do first to figure out how Klotho affects the brain.

“You’ve got all of this amazing stuff showing a really major impact, but we can’t really explain why,” said Gwendalyn D. King, a neuroscientist at the University of Alabama at Birmingham. “That’s where we’re stuck.”

But what happens if scientists get unstuck? What if a drug that enhances cognition really were possible?

Eric Juengst, the director of the University of North Carolina Center for Bioethics, has been thinking about these questions for two decades — back when such drugs were little more than thought experiments.

We tend to think of drugs that enhance performance — say, sports doping — as bad. Drugs that cure or prevent diseases are good. “The scientific community and the public all draw that line,” said Dr. Juengst.

When it comes to Klotho, there may be no such line. In theory, such a drug might offer both a way to prevent diseases of the brain and to enhance it.

Recent research is giving these questions a sudden urgency, according to Dr. Juengst.

“It’s exciting for someone who’s been doing armchair work on this for a long time to see it happening in the real world,” he said. “But it also makes it all the more pressing that this conversation get started in earnest.”

Spinning a Thread

In 1991, a cardiologist in Japan named Dr. Makoto Kuro-o began to study high blood pressure. He inserted DNA into mouse embryos, hoping to create a line of rodents that suffered from the condition.

Instead, some of his mice seemed to get old too fast. “Usually mice live two years, but these mice were dying after two or three months,” said Dr. Kuro-o, now a professor at Jichi Medical University in Japan.

Dr. Kuro-o suspected he had accidentally shut down a gene that had something to do with life span. When he autopsied the mice, he was astonished to find atrophied muscles, brittle bones and atherosclerosis.

“It’s like accelerated aging,” he said. He spent the next few years searching for the gene. When he and his colleagues finally found it, they named it Klotho, in honor of one of the three fates of Greek mythology. Her job was to spin the thread of each person’s life.

The Klotho hormone is produced in a few organs, Dr. Kuro-o and his colleagues found, including the brain. When they studied mice that lacked the hormone, they found that cognition deteriorated far faster than in ordinary animals.

These dramatic results led Dr. Kuro-o and his colleagues to reverse their experiments. Instead of breeding mice without Klotho, they produced a strain that made twice as much as normal. In 2005 the scientists reported that the extra Klotho allowed the mice to live longer.

Dr. Dubal wondered if extra Klotho might keep the brain resilient in old age. In one experiment, she collaborated with Dr. Kuro-o and other experts to study its effect on Alzheimer’s disease.

They began with mice that display some of symptoms of Alzheimer’s. Like people, they develop clumps of proteins in the brain and suffer a steep cognitive decline.

Dr. Dubal and her colleagues bred these mice with Klotho-boosted mice. As the offspring aged, they made the protein clumps that their forebears did. But in terms of learning and memory, they tested as well as healthy mice.

When the researchers bred healthy mice to produce extra Klotho, they got an even more striking result. The mice weren’t just resilient — they did even better on learning tests than normal.

                                                                                                                           Benedicte Muller

Scientists can’t run these kinds of experiments on humans to see if the hormone had the same effect, of course. But nature has run an experiment of its own.

Some people carry a genetic variation that causes them to produce higher levels of Klotho than average in their bodies. Dr. Dubal and her colleagues identified a group of healthy old people with the variant and tested their cognition.

They scored better than people who make an average level of Klotho. “It’s not like they didn’t undergo cognitive decline,” said Dr. Dubal. “It’s just that they started off higher.”

In March, Dr. Dubal and her colleagues published a study suggesting that Klotho may also provide some protection from Alzheimer’s disease to people as well.

One of the biggest risk factors for Alzheimer’s disease is a genetic variant called APOE e4. Inheriting two copies of the gene can increase the risk more than eightfold.

Dr. Dubal and her colleagues found that many people with APOE e4 appeared to be on their way to Alzheimer’s disease even if they had no sign of dementia yet. They had markers indicating a buildup of clumps in their brains.

Then Dr. Dubal and her colleagues looked at the people with both APOE e4 and extra Klotho.

They had no extra clumps.

It’s possible that in these people Klotho is slowing the effects of carrying APOE e4, Dr. Dubal speculated. “Maybe their brains are biologically younger,” she said.

A few other research groups have also found promising results in people, but all of the studies — Dr. Dubal’s included — are small. Nevertheless, the combination of results from people and mice have spurred some Klotho researchers to try to turn their knowledge into a treatment.

A Brain Protector?

In 2015, one of Dr. Dubal’s collaborators, Carmela Abraham of Boston University, decided it was time to form a company. She and her co-founders called it Klogene Therapeutics.

Based on her 15 years of research, Dr. Abraham reasoned that raising Klotho levels in the brain might shield people from degenerative disorders of the brain. Klogene has been developing a range of new techniques to manipulate the hormone.

In one line of experiments, they used the gene-editing technique called Crispr to alter the DNA of human neurons. The engineered cells make more Klotho.

Klogene also has been testing compounds that can raise the production of Klotho. “Our dream solution is that you take a pill a day, the way you take statins right now,” said Dr. Abraham.

Dr. Dubal is also collaborating on drug research: She’s investigating injecting Klotho into the body. The strategy comes out of a 2017 study that took her by surprise.

She was going to observe what happened to mice that got Klotho injections in the brain. But first she injected the hormone into the bellies of mice, to have a point of comparison. Within a few hours of the injection, the mice started doing better on cognition tests.

Dr. Dubal is now following up on that unexpected result with a biotech startup to see if injections can prevent Alzheimer’s disease.

“The vision would be a shot in the belly,” she said. “But we just don’t know until we test it.”

Earlier in her career, Dr. King helped Dr. Abraham search for compounds that spur the brain to make more Klotho. But these days, Dr. King is skeptical about the prospect of a drug: “I think it’s very early to be heading directly there.”

Dr. King doesn’t dispute the remarkable results of the Klotho experiments. It’s just that researchers can’t account for them.

When Dr. Dubal injects Klotho into mice, for example, the hormone doesn’t actually get into the brain. It must trigger some series of reactions in the body — but no one can say what they are.

For her part, Dr. King thinks the priority now is to take a close look at what Klotho does in individual cells.

“We’ve got a lot of really big observations, and we really need to understand what’s going on at the cell level that would explain them,” she said.

Dr. King and her colleagues have inspected cells taken from a region of the mouse brain called the hippocampus, which is vital for memory. Without Klotho, these neurons grow slowly and don’t sprout a healthy supply of branches. Dousing them with the hormone lets them multiply normally again.

Other studies suggest that Klotho can alter other types of neurons. But Dr. King doubts that one hormone can do lots of different things to lots of different kinds of cells.

“I wonder if there is something fundamental that Klotho is doing to support the brain,” she said. “If you have this helper around, they function better.”
Enhancement and Ethics

What would happen if Dr. Abraham found her dream solution and invented a pill to raise Klotho levels in the brain?

Perhaps people would respond like mice, gaining protection against disorders like Alzheimer’s disease. It’s also possible that healthy people would respond to such a pill the way healthy mice respond to extra Klotho — their minds would be enhanced.

For Dr. Juengst, the ethics of such a drug would be tricky to sort out. “Enhancement is not inherently evil,” he said. “We’d all have to give up coffee if it was.”

Yet we frown on performance-enhancing drugs because they offend our sense of fair play. Winning the Tour de France thanks to doping feels like a betrayal. If people could raise their SAT scores by taking a pill the night before an exam, that might not seem fair to many of us, either.

Dr. Juengst thinks that Klogene’s experiments with Crispr raise some particularly thorny questions. Would it be acceptable to use gene editing to alter people’s brains so that they made more of the hormone? Why not get an early start and alter Klotho in embryos?

Surveys about gene editing tend to reflect a traditional divide between diseases and enhancement. People are more inclined to approve gene editing to prevent a disease, and tend to say enhancement is wrong.

But if a Klotho-based treatment one day prevents dementia, there may be no way to enjoy those benefits without also accepting its use as a brain enhancement.
“I still struggle with it,” Dr. Dubal said. Despite the ethical complexities, she thinks that cognitive enhancement from Klotho could be a good thing — not just for individuals, but for society.

“If you were going into brain surgery, you’d want your neurosurgeon to be as sharp as possible,” she said. “Would it be wrong for her or him to take a shot of Klotho before your surgery? Probably not.”

But Dr. Dubal does see a risk of injustice if only some people are offered the benefits of a brain-enhancing drug. “Why couldn’t they be available to all?” she asked.

Ultimately, though, the most important factor for Dr. Dubal is whether the ethical concerns about enhancement prevent research into Klotho as a way to treat life-threatening diseases.

“We’re going to have 115 million people with Alzheimer’s disease by 2050,” she said. “If we can make this an effective treatment, then it is unethical not to do so.”