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Weekend reading: Grantham on the race to save civilisation

Weekend reading

Good reads from around the Web.

I seem to have spent years arguing – online and off – with men (invariably men) who are 10-30 years older than me – about exactly the wrong problems.

There’s a certain type of clever man who tends to fret about:

  • Peak oil
  • The rise of China, especially in the context of outsourcing
  • The lack of UK manufacturing and engineering
  • The lack of future jobs in the West

Yet not one of these bothers me much at all. (Of course there have and will be switching costs to resolving any issues that do arise).

Peak oil was always a bogus threat, at least in our lifetimes and those of our kids. I didn’t foresee the fracking bonanza that’s handed me a win here quite so quickly, but I knew we’d find plenty more hydrocarbons. The world is still stuffed with them. Our problem is we’re burning them.

Also, alternative energy progresses rapidly. The sort of man I’m thinking of tends to hate alternatives – I think they’re all children of the 1950s at heart, and love to see billowing smokestacks overseen by a man from the Ministry – but they tend to respect mathematics. Eventually alternatives will win on all fronts.

The rise of China may present geopolitical tensions, but like most global trade it’s a big win for us. We get an enormous range of things far made more cheaply than we otherwise would, and we often retain the bulk of the profits generated, too. (See Apple’s margins for more).

UK manufacturing? These laments are a manifestation of the sweatshop fetish of most of the public, but particularly men of a certain age.

Most manufacturing is low-end and makes little money. We’re pretty good at the rest, and we retain a significant manufacturing base, albeit a shrinking one in relative terms because we’re so much better at services.

As for the lack of jobs in the future, that’s just a lack of imagination. Sadly, humanity shows few signs of swapping tat and titillation for more quality time, and I’m sure we’ll find new ways to keep the proles and their bosses busy for decades to come.

Like what? Like 1,000 things I could list and 10,000 we can’t imagine yet.

Just one example – for years I’ve suggested that in the future everyone might want their own custom house, designed and built to their specs by a personal architect, and fitted with bespoke furniture and designs.

That’s a lot of new skilled jobs, compared to fields of Barratt boxes.

Ten-years ago my suggestion was deliberately fanciful, but recent advances in 3D printing have led some to speculate that we might one day build houses an atom layer at a time, from the ground up. (It’s already being pioneered in Amsterdam and elsewhere).

Combine that with the computer-backed architecture that already gives us apparently impossible floating roofs and bending walls, and Acacia Avenue need never be the same again.

What really worries me

I haven’t even mentioned fears of (or relish for?) the end of capitalism and the consequent gold bug mania.

To be honest I suspect this is a temporary concern of people who’ve never read any financial history seeing banks going bust on the news. Capitalism goes through periodic waves of crisis. Always has, always will.

So am I a deranged optimist? Do I have any worries?

Absolutely I do – plenty.

Here are just a few of the things I think are really worth fretting about:

  • Environmental collapse and climate change
  • The coming uselessness of antibiotics
  • The end of all privacy and absolute (if consensual) State control
  • Biologically engineered terrorism

On the first of these, I’m indebted to reader Andrew who reminded me that Jeremy Grantham’s latest quarterly letter [PDF] was out. I usually agree with most of what Grantham writes, and this time he tackles ecological collapse and the increasing viability of alternative energy in one coherent message.

I particularly like how he calls out another bugbear promoted by the greybeard doom mongers – that the pension crisis should be solved by stuffing more kids into the bottom of the pyramid – as he like me sees population growth as a top three problem needing fixing.

Grantham writes:

The return on helping encourage a lower population everywhere is incredibly high. Yet little is done at an international level and indeed the issue is treated like a hot potato even by usually well-meaning NGOs.

But we can do it, and my guess is that we will indeed succeed on this front. In the meantime it would be encouraging if economists, The Economist (not to pick on them but I tend to hold them to higher standards than others), and economic discussions in general would look out a few more years and stop discussing lower population growth as if it were a dire economic threat rather than our last best hope.

Of course, as growth rates drop rapidly and populations quickly age, there is an added burden to workers of carrying more non-workers for one generation as the changes flow through the system. Then things stabilize again.

This cycle can be ameliorated enormously by having older people extend their contributions and by facilitating the full participation of women in all countries.

The ruinous alternative is to have an ever-growing population run off the cliff collectively.

There’s also stacks of interesting stuff about alternative energy – enough to encourage me to finally pull my finger out and write the post I’ve been promising some of my friendly opponents for years – and a second article warning on how high profit margins could herald a coming dark age of super-inequality.

Oh yeah, I believe rising inequality is a real existential threat for the West, too. Even for billionaires, although I suppose few of them would agree.

Talking of which, one who does – Warren Buffett – is hosting his annual investing festival in Omaha this weekend.

If you can’t make it you can now follow him on Twitter, where he’s now tweeting.

Slowly.

From the blogs

Making good use of the things that we find…

Passive investing

  • No free lunch from the equal-weight S&P 500 – Rick Ferri
  • The best performing stock market in the world since 2008 – R.I.T.

Active investing

Other articles

Product of the week: Virgin Money has launched a savings bond paying 3%, but you have to tie up your money for five years. Its new 3%-paying five-year ISA savings account is also a table-topper, says The Telegraph.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.

Passive investing

  • Will index investing kill the market? – Adviser One
  • CNBC’s rating decline is good for investors – US News
  • Swedroe: Stock market gains come from few top performers – CBS

Active investing

Other stuff worth reading

  • Why have so few bankers gone to jail? – The Economist
  • Crossrail to boost London house prices – The Telegraph
  • Where’s the beef with interest-only loans? [Search result]FT
  • Crowd-funding options for UK DIY dragons – The Guardian
  • What’s most important about money to you? – NY Times
  • Meet Mr Money Mustache, who retired at 30 – Washington Post
  • Matt (cartoonist) on property [Slideshow]Telegraph

Book of the week: The range of deals offered by Amazon local is impressive – I’m being touted more experience packages alongside cut-price restaurants and the like. Most boast at least a 50% discount, although like all sales bargains be sure you actually want what you buy. (Need doesn’t come into it here!)

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{ 11 comments… add one }
  • 1 SG May 4, 2013, 2:04 pm

    I agree, mostly, except that I may be more optimistic than you, even. Most of the issues will be addressed. Bacteria will be kept in check by new viral technologies. Environmental change will occur and this will be painful, especially in parts of the tropics, but new opportunities will arise for both humans and non-humans alike.

    Population growth has slowed dramatically since the 1960s and continuing to manage that decline to achieve a stable population towards the end of this century is a big challenge, but because so many people are looking into this and other problems, I have confidence that it will be achieved in an orderly way.

    The biggest problems, as always, will be essentially social. Ensuring a degree of equity amongst rich and poor, young and old, whilst at the same time not overly restraining the dynamism that differences and the law of comparative advantage engender.

  • 2 BeatTheSeasons May 4, 2013, 2:26 pm

    Aren’t you worried about a global flu pandemic? It’s well overdue because the last big one was in 1918 – and it wiped out more people than the First World War by the way. And science hasn’t really made much progress against viruses since then.

  • 3 maria@moneyprinciple May 4, 2013, 3:58 pm

    I agree on raising inequality as a major threat. I have been travelling to ‘catching up’ countries and what I see is that the main problem in many is no longer poverty – it is inequality. Austerity brings the problem to Europe as well.

    And thanks for mentioning my article – it was fun to write :).

  • 4 SG May 4, 2013, 4:34 pm

    @BeatTheSeason, Yes and no. A global pandemic would obviously be pretty dire for everyone caught up in it and cause major societal shifts, but it’s not likely to be of long term significance.

    The 1918-20 pandemic may have killed up to 100m people, 5% of the world’s population, but there were 250m more people on Earth in 1930 than 1910, so I don’t see that it can be argued that it was economically consequential for more than a few years. The Black Death of 1347-50 had far greater morbidity in proportionate terms, especially in Europe, but it didn’t stop the Renaissance.

  • 5 Greg May 4, 2013, 5:04 pm

    @SG I would suggest that the Black Death had profound and fundamental effects on medieval society as peasants were suddenly a lot more scarce and therefore had much greater leverage over the landowners.

    I’m not saying a global pandemic is a good way of lowering our inequality problem though! Anyway, in a mechanised world we don’t have the same requirements for unskilled labour.

    I don’t think it is fair to say we haven’t progressed much against viruses. HIV is now a manageable condition, for starters!

  • 6 ermine May 4, 2013, 5:20 pm

    Amazon local, is there a lady on the scene, perchance? Spa days, shellac manicure, teeth whitening, 3D brow boosting. Either there’s something unusual about your compter as far a the amazon link is ocncerned, or there’s something odd about mine. We are definitely a long way into the wants territory.

    Hasn’t this been tried before – it used to be called Groupon?

  • 7 Andrew May 5, 2013, 9:47 am

    Its a point to notice when investors’ fact driven analyses start lining up alongside beliefs of Eco-living Swampies and end of world fundamentalists holding out in the Wyoming hills. Is this a convergence towards a common held view beginning? After long view investors, the next step is for economists to work out decision based models to avoid the Tragedy of the Commons and maybe even a few political leaders might risk involvement in actions stretching beyond their electoral term.

    Grantham had a longer and more all encompassing analysis in April 2011 (A Time to Wake Up) which is worth a read from an investor standpoint. Can be found at the link below.

    https://www.gmo.com/Europe/CMSAttachmentDownload.aspx?target=JUBRxi51IIBOT6hLixuV0Rmk8buOCzFnxvzKsgYsZOA9yjWBX8%2f41JzgB30WcNlWonZMAYWkJGAPk5%2b%2f5oCSQSV6BVmiYv2i

  • 8 Grumpy Old Paul May 5, 2013, 10:25 am

    @Investor,

    I’m far less optimistic than you about jobs despite the historical precedence of new jobs being created as older areas of work disappear. There really seems to me to be something fundamentally different this time around.

    In the past, we replaced muscle power by machines and people went on to perform work requiring more sophisticated manual and intellectual skills. With the advent of AI and robotics, the areas where we really need human labour, both manual and intellectual, are becoming more and more limited. I may be lacking imagination, but unless there is some kind of technological collapse, I cannot see where large numbers of reasonably paid jobs are going to come from. Remember also, that over the last few decades real wages in the US and UK for manual and semi-skilled workers have declined.

    I always try to play devil’s advocate with myself. Maybe if there was a really big push for energy independence in countries like the UK, there’d be a significant number of jobs created building and maintaining nuclear power stations, solar panels, wind farms, tidal barriers not to mention mining coal. But how much of this work would be automated or performed by robots? Ditto a large house building programme which, in any case, would to some extent be a one-off activity.

  • 9 John @ UK Value Investor May 10, 2013, 12:15 pm

    I tend to worry about everything and nothing.

    Everything because there are so many unknown unknowns, like, did we spot nuclear weapons coming before they came? No. So we cannot know what’s coming.

    And Nothing because I’m going to be dead in a few decades anyway (unless they put my brain in a jar and attach it to a robot body) so the world’s problems can be passed on to the next generation.

    Also, I don’t like to be critical but “Peak oil was always a bogus threat” reeks of hindsight bias. A) it may still be a big threat and B) lots of smart people with tons of industry knowledge thought it was a big threat. Just because for now it looks like it won’t be a big threat doesn’t mean it wasn’t. Just because a man swims across a crocodile infested lake and lives doesn’t mean it wasn’t dangerous!

  • 10 The Investor May 10, 2013, 1:45 pm

    @John — Sorry, just lost a bigger comment I wrote by accidentally pressing ‘cancel’ and so will have to be quick. 🙂

    Firstly, I agree with your comments about deciding what’s worth worrying about. It’s definitely a moveable feast.

    As for peak oil, it’s definitely not hindsight bias here, though I understand if you’re disinclined to take my word for it. 🙂

    I have been arguing with people for a decade about it, and was using the phrase “The Stone Age didn’t end when we ran out of stones” long before it became trendy. 😉 I have taken on 4-5 typical small cap E&P investors around a table about energy and peak oil in investing meetups (sadly ineffectually, since none were even half persuaded I was right!) But unfortunately I didn’t ever write up a post on Monevator on peak oil, so I could only point you to a few half-relevant skirmishes on blog comments under my Monevator nom-de-plume. Not ideal.

    For the record, I’m not particularly arguing there couldn’t be a forced moment of peak production of oil (though I’m not saying there will be either, I think the jury is even out on that) but rather that it won’t end civilisation as we know it, at least not from an energy perspective. We have abundant energy options that are barely tapped, and we’ve done very little on the conservation of energy side, too.

    Industry experts always know all about their industry, and I take their views with a pinch of salt. (I think this incidentally is why the sort of men I’m referring to above argue their views — they grew up with heavy manufacturing and Big Science, and struggle to see past it it seems).

    Away from energy I am slightly more concerned about running out of petrochemicals when it comes to agriculture and plastics and similar, but that curve is far longer, especially if I’m right and we use less oil for energy eventually, and we might innovate here too.

    Where I do agree though is it is too soon to be sure. I am not claiming I am definitively right — we won’t know in our lifetimes, as you say. But I do think the ball is back in the long grass for a few decades.

    (wow, not so quick. apols for any typos, got to run!)

  • 11 John @ UK Value Investor June 11, 2013, 11:10 am

    Hi TI, thanks for the reply… as ever it’s a complex issue and I guess we basically agree that it’s not the end of civilisation, it will just be a massive P.I.T.A if we’ve already hit the cheap liquid peak.

    I don’t think peak oil is the primary concern any more though, certainly not with the US gas situation. That honour goes to global warming which is a fascinating and vast subject.

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