Human Capital Losses

By John Mauldin 

Remember math class? 

Let me give you a quick refresher.

In the equation 3 x 5 = 15, the 3 and 5 are factors, and 15 is the product. You can’t have a product without factors.

In economics we talk about “factors of production.” 

If you want to produce something, you need certain factors of production. 

These fall into four categories:

  • Land or natural resources
  • Labor: human beings who can work
  • Capital: money or other property that can finance land and labor
  • Entrepreneurship: ideas and risk-taking

The myriad goods and services the economy produces are all some blend of those factors. 

All four are necessary but today we’ll focus on labor, or as it’s sometimes called, “human capital.”

We are in an odd situation where it’s unclear if labor is scarce or abundant. 

Many employers can’t seem to find enough qualified workers, but the August jobs report said 8.4 million are unemployed and millions more underemployed. 

The unemployment rate dropped to 5.2%. 

Many employers are looking for workers but they only made 235,000 net new hires last month. 

The consensus estimate was 733,000, so a huge miss.

Source: Bloomberg

This is a big question with many threads. 

Today we’ll try to follow some of them.

Desperately Seeking Labor

First, a little rewind. 

When the coronavirus first struck last year and many businesses had to shut down, Congress added extra unemployment benefits. 

It also expanded eligibility to previously uncovered workers like the self-employed. 

These extra benefits later expired for a few months, then were renewed, renewed again, and now expire again this month.

For many workers the added benefits were actually more than they made when working, creating a potential disincentive to work. 

To what extent it actually did so is exceedingly hard to measure. 

Certainly some workers abused the system, but many others had legitimate reasons they couldn’t work.

Nonetheless, some states decided to end the expanded benefits as early as June. 

Employment isn’t growing noticeably faster in those states—possibly because the worker shortages that sparked the move weren’t new. 

We had them before the pandemic, too.

Source: The Wall Street Journal

Here’s a US Chamber of Commerce chart with a different view of the employment picture. 

Using government data, they divided the number of job openings by the number of unemployed (“available”) workers to get a “Worker Availability Ratio.”

Source: US Chamber of Commerce

From the employer’s perspective, a higher ratio is better. 

It means there will be more applicants and more choices of whom to hire. 

But that same high ratio means, by definition, not enough jobs to go around. 

It also means too many people without a wage to buy your product. 

In an ideal world where every worker is qualified for every job, a ratio of 1 would be perfect. 

It would mean every job is filled and every worker has a job. 

But of course, it’s not that simple.

The chart shows the worker availability ratio steadily falling since the last recession when, not coincidentally, unemployment was at its peak. 

But notice it was actually lower in the couple of years before the pandemic than now. 

Think back to 2018/2019. 

Employers, and particularly small businesses, were desperate for qualified workers. 

The monthly NFIB surveys routinely listed it as one of the top challenges and now show it as a new record.

This “labor shortage” we attribute to COVID has been brewing for many years. The virus certainly made it much worse. 

It created new health concerns and gave people other reasons to change careers or stay out of the labor force. 

But none of this is new. 

What we’re seeing now is better viewed as a resumption of the previous trend.

So the real question is what caused that trend? 

Where have the workers gone? 

And has COVID made the trend even worse going into the future?

A Single Variable

You’ll notice that worker availability chart shown above peaked in 2009–2010. 

That also happens to be when the Baby Boom generation began reaching age 65. 

Not all are choosing to retire—indeed, many (like me) are not—but the demographic winds changed about that point. 

Working age population growth slowed and, after about 2018, actually began falling.

Source: FRED

Worse, the percentage of this already-shrinking population who are available for work is also shrinking. 

The “Labor Force Participation Rate” measures the percentage of adults who either have a job or want a job. 

Some don’t because they are retired, full-time students, etc. 

So with Boomers retiring it has been on the decline, but even so, tried to stabilize in the 2016–2020 period. 

The pandemic ended that trend.

Source: FRED

The especially disturbing part here is that participation plunged quickly when COVID hit, then bounced back about halfway to where it had been, and has since been stable near that level. 

It’s starting to look like a “new normal.”

But one thing has changed. 

Prior to COVID, more older Americans (those 65 and older) were staying in the labor force. 

That trend has clearly changed. 

Let’s look at the chart:

Source: FRED

That’s the labor force participation rate, but what does that mean in raw numbers? 

Almost 1 million Americans aged 65+ dropped out of the labor force between February 2020 and July 2021.

Source: FRED

By raw numbers, looking at the total participation rate, we find that something like 3.5 million Americans of all ages who were in the labor force pre-COVID decided to leave it and haven’t come back. 

We know many decided to change careers and are now reeducating themselves. 

They will likely be back. 

The “working retirees” who are concerned about COVID risks may be back, too. 

But that still leaves the previous downtrend in the labor supply. 

What was going on?

That question brought to mind a 2017 letter I wrote called Men Without Work

I reviewed Nicholas Eberstadt’s then-new book of that same title, which explored the puzzling number of prime-age men who had simply disappeared from the workforce. 

We can point to many causes: poor education, opioid drug abuse, job outsourcing overseas, family breakdowns, and more, all of which play a role. 

I quoted Philippa Dunne who points to one specific factor.

As we shall see, a single variable—having a criminal record—is a key missing piece in explaining why work rates and LFPRs have collapsed much more dramatically in America than other affluent Western societies over the past two generations. 

This single variable also helps explain why the collapse has been so much greater for American men than women and why it has been so much more dramatic for African American men and men with low educational attainment than for other prime-age men in the United States.

This was and still is a big problem. 

My reaction to Philippa’s statement:

If we want to see things began to change, we going to have to deal with this “variable.” 

Perhaps we should rethink our concept of incarcerating everyone found guilty of using currently illegal drugs. 

Maybe we need to rethink about how long felony convictions stay attached to personal records. 

When you can’t even rent an apartment in many states because you were a felon, and in some cases simply because you were charged with a felony at some time in the past, is it any wonder that we have large numbers of people not participating in the labor force? 

With 20 million former felons in America, we have attached a large anchor to our economic growth rate, and we have unfairly burdened these men and women.

A silver lining to the current labor shortage is that employers are now reconsidering the wisdom of automatically ruling out this large group. 

They are realizing not all “convicted felons” are hardened, violent criminals. 

Certainly, some are. 

But many others were caught up in some situation or indiscretion, learned a lesson, and want to work. 

They just need a chance. 

Some are now getting one.

My Camp Kotok friend Jeff Korzenik, chief strategist at Fifth Third Bank, is very involved in releasing this “Untapped Talent,” and wrote a book with that title. 

He more or less stumbled on the problem as he met with executives of the bank’s industrial customers. 

They kept talking about hiring problems and drug abuse—not illegal drugs, but pain medications. 

That led him down a rabbit hole of economic cause and effect. 

It’s a swirling mess of drugs, prison, unemployment, and related ills, all feeding on each other.

I’ll share a few quotes from a fascinating interview Jeff recently did with Kate Welling. 

You can read the entire interview here.  

JEFF: It’s potentially disastrous. 

An economy that has too few workers to grow at a robust pace isn’t just slower-growing. 

It is an economy forever teetering on the edge of recession.

It limits access to credit. 

It is an economy that fails to engender the optimism to invest in training and productivity enhancements to build social wealth—and as we are seeing globally, slow-growing economies undermine confidence in capitalism, trade and free societies.

Adjusting the statistics for the age and sex of the US population only explains about half of the pre-pandemic decline in the labor force participation rate. 

I realized that we have to understand the reasons for this loss of American economic vitality if we are to have any chance of restoring our labor markets to their historic strength.

(JM: “Forever teetering on the edge of recession” is a good way to describe our economy. And we certainly see the “undermining of confidence” Jeff describes.)

JEFF: I know economies tend to move in cycles. 

They rhyme, if not repeat. 

But the data shows that the magnitude and the dispersion of the interrelated social problems now suppressing our labor force and sapping our economic vitality are unprecedented—making today wholly unlike past economic cycles, in kind, not just in degree.

KATE: To be specific, besides the opioid crisis, you are pointing to—

JEFF: Our entrenched long-term unemployment and the incarceration/recidivism cycle. 

Certainly one of the causes of the opioid crisis—something that permitted it to really take hold—was the big increase in the persistence of long-term unemployment arising from the Great Recession… 

Meanwhile, there is simply no precedent in US history for the labor implications of our incarceration/recidivism cycle.

KATE: What you’re saying is that all three of those complex problems are intertwined—and really crimp labor force participation—

JEFF: Yes, in the sense that the discouragement of long-term unemployment leads at least some to self-medicate and you get the opioid epidemic, and that the opioid epidemic then tends to lead to criminal justice system involvement. 

Then, around the time I was wrapping my arms around just how big these social problems are and how they are truly economic problems because of the way they depress workforce growth, I started meeting employers who were successfully offering second-chance hiring opportunities in their businesses.

John here again. 

This is a terrible problem and we are only beginning to address it. 

But COVID is bringing a new one. 

I heard Jeff speak passionately about this problem at Camp Kotok. 

If you are an employer or just want to understand the problem, you should read this book.

Long COVID, Long Problem

A few weeks ago, Dr. Mike Roizen and I wrote about “long COVID,” in which people continue showing symptoms long after healing from the disease’s acute phase. 

These vary tremendously in both kind and degree. 

Research is ongoing but it’s clearly a major medical problem. 

It will be an economic one, too.

To date, the US alone has had approximately 40 million confirmed COVID-19 cases, a number which is unfortunately growing as the disease reaches more unvaccinated people. 

More important, the latest cases tend to be younger and therefore more likely to be in the workforce.

Some studies show as many as 25% develop some degree of long COVID. 

It doesn’t seem related to the severity of their initial disease. 

Even mild cases can have debilitating symptoms months later.

Let’s estimate, I think conservatively, that long COVID afflicts 10 million working-age Americans over the next year or two. 

Some will be fully disabled, others mildly annoyed, most somewhere in between, but all will be rendered less productive.

Research is showing as many as 2 million of these people may go on disability or have their ability to work significantly reduced. 

Now think back to the equation I cited in my introduction. 

One of the factors of production was already getting smaller and long COVID could make it smaller still. 

This has a multiplicative effect, making Gross Domestic Product (GDP) growth even more difficult.

Can improved automation fill some of the gap? Sure, but not all of it, especially since many of these disabled workers will come from knowledge-driven occupations that aren’t easily automated.

Further, COVID is once again clearly having an increased impact on services and travel. 

From Danielle DiMartino Booth at Quill Intelligence.

Citi’s weekly hotel report through August 28th reveals occupancy fell from 63% in mid-May to 44%. 

Revenue per available room (RevPAR) is off by 20.5% from its 2021 peak five weeks ago. 

While we know schools have reopened and seasonals matter, it’s still noteworthy that resort RevPAR is down by 39.7%. 

TSA throughput is at a three-month low and Open Table reservations are 10% off their highs. 

Google mobility also shows that at -6.3 vs. January 2020, time spent away from home at retailers and restaurants is at the lowest since mid-May.

This partially explains the almost zero increase in leisure and hospitality jobs in August, after huge growth in June and July.

Homeschoolers Drop Out (of the Labor Force)

Here’s something that hasn’t hit the headlines. 

The number of people homeschooling their children has literally doubled in the last year, from 2.5 million to 5 million.

Source: Daily Mail

Source: Daily Mail

The increase was strongest among African-American households, which now represent 11% of US households, according to Bellwether Education Partners. 

Black households that are homeschooling jumped from 3.3% in 2020 to 16% today. 

This compares to 12.1% of Hispanic families now homeschooling, 9.7% of white families, and 8.8% of Asian families.

A significant percentage of the 2½ million new homeschoolers had at least one parent staying at home teaching. 

Not all were in the workforce before, but many were. 

All this is another giant challenge on top of the Perfect Storm potential I described last week. 

Mass unemployment and labor shortages are both problems, and we have somehow engineered ourselves into both at the same time.

Peter Boockvar had this succinct reaction to this week’s ADP jobs report miss (my emphasis):

…While Delta is the excuse now for a more uneven recovery, the inflation and supply problems are as well and I believe the predominant factors. 

Labor particularly is in short supply as we know and in turn is limiting hiring. 

We also must begin to think of the scenario that the labor market is much tighter than previously thought with just about every company talking about the difficulty in finding people. 

The belief that we're going back to a pre-Covid labor force is just not realistic as too much has changed and the Fed's goal of maximum employment defined as that pre-Covid situation is just not a goal that can be achieved.

This is more than just a jobs problem. 

The Fed is looking for the economy to reach some mythical level of “maximum employment” before it starts normalizing policy. 

The expectation they will start tapering by year-end made sense two months ago. 


Not so much. 

They will use the weak jobs data as an excuse. 

And that, in turn, leads to a variety of other challenges.

As Peter says, “too much has changed.” I agree but we don’t really know what changed, or whether the changes are over. 

Samuel Rines sent a thought-provoking letter this week noting some labor market oddities. 

Unlike the Great Recession, which had a greater effect on male employment, COVID saw women affected more (homeschooling?). 

He points to Pew Research data suggesting mothers of young children are less likely to be in the labor force. 

If so, it would be a major reversal of the last few decades.

Lower participation by both women and older Americans would be a major dent to the labor supply, and may explain some of the current situation. 

These are personal choices that vary by circumstances, but they’re clearly happening.

And now we come full circle to the math lesson at the beginning of the letter. 

GDP is equal to the number of workers times productivity. 

Two factors. If we reduce the number of workers by a combined 3 to 4 million, which is well over 2% of the total potential workforce, you also reduce GDP by 2% unless productivity dramatically increases.

That might make even the 1% real GDP growth I’ve been expecting hard to reach in 2022 and going forward.

The Return of Stagflation

On a quick note that deserves its own letter…

If the Federal Reserve looks at this lower unemployment data while not taking potential workforce shrinkage into account, they can justify (to themselves, at least) keeping monetary policy softer for longer than it should be, risking more extended inflation.

Actually, it’s worse than that. 

They are risking stagflation. 

I noted early in this pandemic era that, like the Great Depression, it would bring unforeseeable long-term changes. 

They are starting to show themselves, but only as fuzzy outlines.

We know something big is coming. 

Exactly what it is, only time will tell. Hopefully you and I can put the pieces together.

Palm Beach, Longevity, and Time Management

I am making a last-minute trip to Palm Beach to meet with my old friend Pat Cox and a number of scientists about some breakthroughs in longevity. 

Then back Sunday. 

There are so many incredible things happening in the gerontology world. 

I really do try to stay up on what’s going on.

I had many more charts and articles that just didn’t make this letter, ending up on the editing floor. 

Wages were up across the board and significantly. 

There are other smaller factors suggesting labor could get even tighter. 

Trying to keep track of it all is stretching my time management skills. 

You should follow me on Twitter

I have a lot of fun, even when I stir things up.

Thanks for reading me and please feel free to forward this and any letter to your friends. 

An endorsement from a friend is the ultimate in writing satisfaction. 

It’s time to hit the send button so have a great week!

Your planning to live much longer analyst,

John Mauldin
Co-Founder, Mauldin Economics

A new new normal, or the old new normal?

Robert Armstrong

Christopher Smart, a chief strategist at Barings, thought that I made too big a deal of the recent deceleration in the economic data. 

He thinks investors have moved on. 

He emailed:

We know the data is slowing, because it could not possibly continue to accelerate . . . investors are intensively focused on next year and the year after. 

Where will growth and inflation settle if and when Covid variants dissipate and policy support fades away? 

Much of this will be a new round of the ‘secular stagnation’ debate. 

Are we still headed lower on growth and rates, as we have been for the last 40 years, or is there something new about fiscal and monetary policy that can generate 2 per cent inflation again? 

Whoever gets that right will be retiring early.

I will not be retiring early. 

I suppose I could bet my portfolio, such as it is, one way or the other — using leveraged Treasuries, or cyclical stocks, say. 

But it would just be a guess. 

Determining whether we are entering a new regime or returning to the old one is above my pay grade (it may be above everyone’s). 

Some take the view that the new alliance of monetary and fiscal profligacy will be enough by itself to drive inflation to a new, higher plateau. 

Albert Edwards of Société Générale summed this view up in his usual style a few weeks ago:

The pandemic recession has allowed policymakers to cross the Rubicon of fiscal rectitude to reach a new land — one where their existing monetary profligacy can now be coupled with fiscal debauchery. 

At a political level I do not believe there is any turning back now the sweet fruits of monetary-funded fiscal largesse have been plucked and tasted.

I’m not as sure the profligates will win the day, politically. 

But there are other factors to consider.

The economists Charles Goodhart and Manoj Pradhan think that demographic change will tip the scales further toward inflation. 

Their work has done the rounds on Wall Street, so some readers will have made their minds up already; I wanted to touch on the arguments here, though, because it is the only case for the return of sustained inflation I have seen, outside of the “central bank and government co-ordinated money dump”. 

Goodhart and Pradhan’s core view is that prices have been depressed for three decades by globalisation, as production moved to low-wage countries, undercutting wages everywhere. 

As the populations of countries like China begin to flatline, though, wages there will rise at the same time as working-age populations in the developed world fall; workers will be in short supply everywhere, and globalisation’s deflationary effects will cease. 

“As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall” they write. 

This is simple supply and demand. 

As the supply of labour goes down, relative to available capital, the price of labour will rise, with other prices following.

Global ageing will have another effect, Goodhart and Pradhan think. 

It will reduce savings faster than it reduces investment, which will push interest rates up, as less capital will chase investment opportunities (healthcare spending by the elderly, particularly in China, will be the key driver of reduced savings). 

Higher taxes needed to keep social safety nets in place will be inflationary, too, as scarce workers will be in position to demand higher wages in response.

It is important to remember that, for this to matter a lot to investors, Goodhart and Pradhan only have to be a little bit right. 

A new inflation plateau at, say, 3-plus per cent would really make investors’ life difficult — for starters by forcing bond and stock returns into correlation, taking away a hedge that has worked for decades.

The natural response to the demographic argument is one word long: “Japan”. 

An ageing population didn’t increase inflation or real rates there. 

In fact the opposite happened. 

The Goodhart/Pradhan reply is that what matters is not demographics locally, but globally. 

Japan exported production when its workforce shrank. 

This from Pradhan in a recent interview: 

Japan is a very open economy, but it’s very close to their gigantic neighbour, China. 

In fact, when you look at the timing, what happened in Japan is no surprise: right at the time that Japan’s demography turned south, China was busy disinflating the entire world.

As an aside, one interesting upshot of the Goodhart/Pradhan thesis is that there is a political conflict on the way, pitting workers against retirees:

The elderly will become a powerful political force as their cohort swells due to ageing. 

It is this political power that we think will keep administrations from reneging too much on their pension obligations. 

The prime working age population will be a dwindling cohort but they will possess an important commodity whose price is likely to stay on an upward trend — labour . . . 

The political divide of the future will be over the elderly protecting their social safety net and the working-age population their real post-tax incomes.

That sounds like no fun at all.

I am not a good enough economist to assess this argument properly. 

I’d be curious to hear what readers think. 

It seems to me, though, that Christopher Smart has put his finger on the right question. 

Are we going back, sooner or later, to exactly the same place we were before the pandemic (but with a higher debt load)? 

Goodhart and Pradhan give a principled case for thinking not. 

Another word on shipping inflation

Two days ago I wrote about the cost of shipping from China, and whether it is going to stay high. 

Tony Foster, who runs Marine Capital, which manages investments in shipping assets, emailed in response. 

He thinks the higher prices will take a long time to unwind. 

We know there will be a lag before the supply of cargo ships catches up. 

But, surprisingly, efforts to decarbonise shipping is also a factor: 

The big liner companies are chartering ships at current (very high) charter rates for five-year terms in order to secure tonnage. 

This illustrates a significant level of confidence. 

Supermarket firms are chartering ships themselves in order to ensure certainty of supply. 

The new ships ordered will, as you say, take at least two years to come through. 

The dry bulk [ship] market is constrained (as to new orders) because of perceived technology risk. 

Shipowners don’t know what the fuel of the future will be and what propulsion/ fuel storage systems will be required to meet decarbonisation goals. 

Despite tightening regulation (and impending carbon pricing), this disincentive to invest, exacerbated by rapidly rising steel prices and thus ship prices, fuels the continued strength in the freight market, even without extraordinary growth projections for commodity markets.

Expect this situation to be long-lived.

Foster’s note raises two questions for me: how inflationary is the fight against climate change? 

And what do central banks mean when they talk about “transitory” inflation?

And one more word on Jay Powell’s stock portfolio

Several readers responded to my approving summary of Dylan Grice’s view that Fed chair’s Jay Powell’s large holding of stocks should be expected to bias his policy judgment. 

The most common reply from readers was that Powell could put his wealth in a blind trust (which is the practice for officials in the UK, apparently). 

Alas, this would not help. 

Powell could safely assume that whoever managed the tens of millions in his trust was not a complete idiot. 

Given that bonds yield very little, that would mean a big allocation to equities. 

That alone ensures that meaningfully tightening rate policy could make Powell significantly poorer.

I don’t want to sound like a damn communist here, but having a rich person as Fed chair is likely to distort policy. 

The Fed chair’s job is, on occasion, to tell markets that they can go pound sand. 

That’s a hard thing for a rich person to do. 

Palantir Bought Gold Bars

Jared Dillian

We recently got the news that tech/intelligence firm Palantir (PLTR) bought $50 million worth of physical gold to hold on its balance sheet. 

They’re not telling us where they put the gold, which is understandable.

Palantir is what I call a gifted and talented camp. 

Very bright and eccentric people work there. 

I owned the stock at one point, but no longer do. 

I hope to buy it again someday. 

You want to bet on gifted and talented camps.

Palantir bought the gold in case of a “black swan.” 

We don’t know what that might be, but we have some guesses. 

It might be a big freaking war, for starters, the chances of which ticked up a bit after the Afghanistan debacle. 

Or a currency collapse. 

Or who knows what. 

We seem to have big black swans every few years, so it’s probably not a bad idea to keep some gold around.

We had a black swan last year with the pandemic—and gold went down, at least, initially. 

Mostly because people were selling all assets to raise cash. 

That actually happened in the early part of the financial crisis as well—gold peaked at $1,000 an ounce on the Bear Stearns take-under. 

Then it sold off 30% headed into the fall. 

It didn’t make any sense.

Gold never makes any sense, but it’s outperformed stocks since 2002.

In a sense, this isn’t much different than MicroStrategy (MSTR) or Square, Inc. (SQ) or even Tesla (TSLA) buying bitcoin. 

Although the motivations are different. 

Palantir bought gold as an insurance policy of sorts. MicroStrategy and Tesla are engaging in rank speculation. 

You could make the argument that Square is holding it to facilitate payments someday. 

But nobody holds bitcoin because they think the world is going to end, because if that happens, as a risk asset, bitcoin will probably go down. 

Bitcoin also wouldn’t do so well with the power off.

As gold investors (I hold a bunch), maybe we should stop thinking about gold as a trade or an investment and start thinking about it as an insurance policy. 

But if we did that, people would have to do some serious thinking about why they hold gold. 

If you have homeowner’s insurance, you don’t hope that your house will burn down so your insurance policy will pay off. 

A lot of gold investors seem to want the planet to go down the tubes. 

They get sweaty palms thinking about it.

So, is gold insurance or speculation?

Depends on who you ask.

How High Could Gold Go?

A reasonable question. 

One thing I’ve been talking about incessantly in The Daily Dirtnap is the search for 10X inflation trades. 

After all, if inflation really is a big 10–30 year super-cycle trend, wouldn’t it be nice to retire off it?

So, is gold a 10X trade? Maybe. 

The Fed does have a bunch of gold on its balance sheet. 

Thousands of tons of it. 

It hasn’t added to or subtracted from these holdings in decades. 

Meanwhile, we have more dollars in circulation. 

So, each dollar is worth less in gold terms. 

Easy enough to understand.

If you ask the people at the Fed if we will ever return to a gold standard, they will tell you that we don’t have enough gold. 

That isn’t precisely true. 

We don’t have enough gold at this price. 

If you raised the price of gold to $15,000 an ounce, we would have enough gold to go back to a gold standard.

Not like we would ever go back to a gold standard, but it’s an interesting thought experiment.

Or maybe we would! 

Play this forward in your head. 

We have 5% inflation, which turns into 20% inflation, which turns into 100% inflation, which turns into hyperinflation. 

You remember what happened in the aftermath of hyperinflation in Weimar Germany—they turned the deutschemark into the rentenmark and backed it with land—something of tangible value. 

Gold makes a lot more sense than land, and the Fed already has a lot of it.

But there are other scenarios which are not so good for gold.

Anyway, the question was: How high could gold go? 

Is it a 10X inflation trade? 

It might be. 

That is kind of hard to believe right now, since the price action has been so craptacular, and everyone is bearish on it. 

But you have to have a pretty big imagination in this business.

As for Palantir, I’m not sure if they’re buying gold for potential hyperinflation or not, and they’re wise enough not to wade into the politics. 

That might be what they mean by a “black swan.” 

And they’re nowhere near turning themselves into a gold trust, like MicroStrategy did with bitcoin.

I don’t foresee other corporations doing this. 

It’s too weird, and it’s impractical. 

But I love things that are weird and impractical. 

Fail-Safe Failures

So much of our lives nowadays are determined by the smooth functioning of technologies of which we know little. Even if the risk of a global breakdown remains remote, we will increasingly find ourselves helpless and panic-stricken in the face of even mild upsets to ‘normal’ life.

Robert Skidelsky

LONDON – The other day, my wife and I were leaving our apartment building. 

I pressed the button which automatically opens and shuts the door. Nothing happened. 

We could not leave the building, except perhaps by jumping through a window. 

Eventually, the concierge, who happened to be outside, managed to open the door manually. 

He explained that there had been a power cut. 

The fail-safe system, which also worked electronically, had failed as well. 

The power cut lasted two hours.

I thought of all the doors in London and elsewhere which now open and shut automatically: train doors, automobile doors, elevator doors, supermarket doors (not yet, thank goodness, aircraft doors). 

At one time, all these doors were opened and shut by hand. 

The same was true of locking and unlocking. 

Today my key fob causes my car doors to lock and unlock automatically. 

I googled to find out why: “Modern key fobs work through RFID, an intelligent barcode system that uses electromagnetic fields to identify and track data on ‘tags’ that contain stored information. 

The information then passes through radio waves.”

And apparently my key has become a source of risk: “If a digital key fob gets hacked or electronically duplicated, the cybercriminal who did it can steal your car! 

And now researchers have discovered ‘key cloning’ is not only possible, but it’s a serious threat.”

So far, power outages have been local and temporary. 

India has experienced two major incidents, in New Delhi in July 2012 and in Mumbai in October 2020. The Delhi one affected 620 million people (some 8% of the world’s population). 

In Mumbai, all suburban train services stopped, with passengers trapped inside; central heating systems failed; traffic lights went dark; financial services were suspended; intensive care units in hospitals had to run on generators to keep patients breathing; and online exams had to be canceled. 

Maharashtra’s energy minister attributed the two-hour Mumbai outage to  a “technical failure.”

A permanent outage that shuts down the entire world has been a favorite theme of science fiction. 

In E.M. Forster’s 1909 short story “The Machine Stops,” the survivors of an (unexplained) ecological disaster now live underground. 

Transport, communications, production, and services are powered by electricity, and there is no personal contact: music is piped continuously into cells from which inhabitants never stir, beds descend at the press of a button, and human matter is excreted into giant “vomitories,” located above ground.

“Cannot all you lecturers see that it is we that are dying, and that down here the only thing that really lives is the Machine,” the hero, Kuno, tells his benighted mother. 

“We created the Machine, to do our will, but we cannot make it do our will now. 

It has robbed us of the sense of space and of the sense of touch, it has blurred every human relation and narrowed down love to a carnal act, it has paralyzed our bodies and our wills, and now it compels us to worship it. 

The Machine develops – but not on our lives. 

The Machine proceeds – but not to our goal. 

We only exist as blood corpuscles that course through its arteries, and if it could work without us, it would let us die.”

But then the Machine starts breaking down. 

There are hiccups to the piped music; the “virtual” lectures suffer power cuts; the artificial food turns moldy; the air becomes foul; the bath water starts smelling; and the sleeping apparatus fails.

Then, one day, the Machine stops working altogether. 

Civilization ends. 

Panic-stricken crowds fill the tunnels leading to the surface, but the jammed ventilation shafts have stopped working as well, trapping them underground. 

Permanent night descends.

Since Forster wrote his story, there have been many more explorations of this idea. 

In René Barjavel’s 1943 novel Ravage, electricity suddenly disappears, with chaos, disease, and famine following. 

More recently, in Infinite Detail by Tim Maughan, cyberterrorism has shut down the internet, and with it, global production, supply chains, communication, energy, travel, and state security systems. 

The population reverts to barbarism. 

The same idea is the premise of Blackout by Marc Elsberg, a disaster thriller about a cyberattack that causes the collapse of the European and US electricity grids.

Apocalyptic collapses on this scale are still the stuff of fiction. 

Apart from anything else, many places remain without internet, having never had the infrastructure to support it. 

But the number of such places is steadily and rapidly declining, in part as a result of the efforts of social media and tech giants, which, by expanding the number of internet users, also enlarge their customer base and broaden the reach of their information monopolies.

The slower-burning threat is that populations, accustomed to the “automatic” provision of services on which they rely, will gradually lose their resilience to “shocks,” both natural and artificial. 

Having lost their memory of how things were done in the past, and knowing little or nothing about how the processes on which they rely actually work, they will be helpless and panic-stricken in the face of even mild upsets to ‘normal’ life. 

They have made a God of the Machine, or as, academics more soberly explain, they live by the “scientific-technological paradigm” and are governed by its “frame of necessities.” 

The Machine promises to improve our lives, but what happens if the doors no longer open?

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.