Nobel laureate: The World Economy Is A Pyramid Scheme, Steven Chu Says

Probably worth a read here.

"The world economy is based on ever-increasing population, said Nobel laureate Steven Chu, a scheme that economists don't talk about and that governments won't face, a scheme that makes sustainability impossible and that is likely to eventually fail.

"The world needs a new model of how to generate a rising standard of living that’s not dependent on a pyramid scheme," Chu said at the University of Chicago.

Chu didn't specify what that new model would look like, but he offered a solution to the population growth the current one relies on.

"Increased economic prosperity and all economic models supported by governments and global competitors are based on having more young people, workers, than older people," Chu said. "Two schemes come to mind. One is the pyramid scheme. The other is the Ponzi scheme. I’m not going to explain them both to you, you can look it up. But it’s based on growth, in various forms."

For example, healthy young workers pay the health care costs for aging workers and retirees, the former energy secretary said, a scheme that requires increasing numbers of young workers. And economic growth requires more and more people to buy more and more stuff, with dire environmental consequences.

There are at least two problems with that:

"Depending on a pyramid scheme or a Ponzi scheme, there’s no such thing as sustainability," Chu said.
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As standards of living increase, population growth declines. So if the economy succeeds in raising standards of living, it undermines itself.
"The economists know this, but they don’t really talk about it in the open, and there’s no real discussion in government," Chu said. "Every government says you have to have an increase in population, whether you do it through immigrants or the home population. So, this is a problem."

China has replaced its one-child policy with incentives for parents to have two children, Chu noted as an example, and France offers a prize, the Médaille de la Famille Française, to mothers of large families. Incentives like these will not help the world achieve sustainability, he said.

Chu, the man who solved the Gulf Oil spill with a doodle on a napkin, then offered two painless solutions to population growth:

"Education of women and wealth creation. Across all cultures. You go negative. You go negative birth.

"In many countries around the world, developed countries, Japan, Spain Italy, we’re talking about 1.3 (children per couple), 1.2 going below 1, where 2 is steady state."

So Chu expects these effects of rising living standards to eventually offset the growth of human population. That will help the environment, he said, but it will also require a new kind of economy.

Chu's visit to the University of Chicago was sponsored by the Energy Policy Institute of Chicago (for whom I sometimes host podcasts) and the Institute of Molecular Engineering."

Source: https://www.forbes.com/sites/jeffmcmahon/2019/04/05/the-worl…

Comments

  • "The world economy is based on ever-increasing population,"

    ummmm, yep
    .

  • -7

    …that economists don't talk about and that governments won't face…

    A speech with these sorts of rhetorics… No wonder Al Gore is a Nobel laureate for a power point presentation that is humiliatingly inaccurate.

    What's next? Cancer medications the pharmacists won't talk about?

    • +2

      So what are your qualifications in discussing economics or climate science aside from watching Fox News?

      • +2

        If I had a gender studies qualification and claim that gender is non-binary, does someone else need a qualification to dispute, or arguments from authority wins by default?

        Ps. I didn't dispute what this economist is saying merely mocking the conspiracy theorist click bait rhetoric which did in the past got someone a Nobel laureate for bullshit (which I am claiming Al Gore's projections are FoS, which the proof is already in the pudding).

        • +1

          That’s a nice reductio ad absurdum, but it doesn’t address the main question, which is about the validity of the arguments presented here.

          Also, your arguments are so full of sh!t. The guy we’re talking about here is a Nobel laureate in Physics, awarded in 1997 for pretty significant contributions to the field. He’s probably one of the most successful American physicists alive today. Obviously it has nothing to do with whatever his discussion today on economics is about. Al Gore, on the other hand, won a Nobel Peace Prize, which is awarded on a completely different basis to the prizes awarded in the sciences.

          The accuracy of Al Gore’s presentation aside, it’s clear that this guy earned the Nobel prize on his own merit completely separete from what is being discussed here. So your statement of “conspiracy theorist click bait rhetoric” winning a Nobel prize is just not true.

  • Not quite true. The USA might get 300 consecutive years of record growth and budget surpluses and pay off it's debt. If not, yeah, it's a big ponzi scheme.

    • +1

      frankly US is probably the only country in the world where they can print the money to save their country without anyone having a say about it.

      • +4

        It is pretty crazy that the US doubled money supply during the GFC but the effect on the AUD was only temporary. We're kinda back to pre GFC exchange rates again.

  • +1

    Since when Economics / Governments ever concerned with pesky thing like; equality, reality and long term (?)

    I'm surprised how long its been going this long.

  • +5

    Wow, just wow, there is so much wrong with all of this.

    The premise of all of this is based on the appeal to authority fallacy. That said, Mr Chu is a Nobel laureate in physics, not in economics. So while we have this "unimpeachable prognostication" from a Nobel laureate, his award is an entirely separate disciple.

    We then have the argument shift … from "the world economy is a pyramid scheme" to arguments concerning economic growth and rising living standards. While these items are related, they are tow very different topics when you are talking in this context.

    Then, we go on to the appeal to emotion … another fallacious argument. In this case we have vague terms like "unsustainable" bandied about without ever being defined, mixed in with a bit of "healthy young workers pay the health care costs for aging workers and retirees" populism.

    Economic growth, by definition, is the ability for an economy to produce increasing outputs of goods and services over time, ideally on a per capita basis to allow for increased standards of living. The latter part of this statement means that an economy (and its workers) must become increasingly productive over time. Economic growth is ultimately wasteful if it is not being driven by increased productivity.

    If I attempt to devine what Mr Chu defines as "sustainable" it would appear to require solutions including a "steady state" population that appears to be at lower levels than that existing today.

    Firstly, moving to lower levels of population is an extraordinarily painful proposition that firstly requires you allowing your population to age rapidly. This puts enormous pressure on the economy to simultaneous provide for the needs of the elderly/retired and the desires of the working population. Witness the slow decline of the Japanese economy. It requires, in the near term, either the working population to accept decreased investment across the economy, or the elderly/retired population to accept cuts in social welfare and healthcare. This is hardly the "painless solution" that is described here.

    Secondly, once this "steady state" is achieved, it can only be based on the population not seeing improving standards of living over time. Is this the world we want to live in? Do we really want to live like our parents and grandparents? Do we really want our children to have no better life than we have today?

    While it is true that increased wealth is highly correlated with decreased birth rates, this (1) is a relatively modern phenomenon, and (2) has not yet run its course. The generation of parents who have had lower numbers of children than in the past are still young, many would still be in the working population. It remains to be seen how this will play out as this generation enters retirement with relatively smaller populations of working people underneath them. The article mentions Japan, Spain and Italy as countries with low birth rates. I've already spoken about Japan. I'd hardly be holding up the examples of Spain and Italy in support of any argument on economic management.

    This is a far more complex problem than the simplistic ideas outlined in this article.

    • Agree with the biases in the Forbes article.

      Also, the world population will reach a steady state. See Hans Rosling's excellent TED talk.

    • +2

      This puts enormous pressure on the economy to simultaneous provide for the needs of the elderly/retired and the desires of the working population.

      Witness the slow decline of the Japanese economy.

      Where is the enormous pressure? Slow economic decline is not indicative of enormous pressure.

      Further neoliberal economic says Japan should be a failed economy with it's level of debt to GDP - but it isn't. There are other economic theories such as Modern Monetary Theory that do predict the outcome in Japan so I have no idea why you're continuing down this ideological road chasing a failed theory that predicts opposite land.

      Economic growth is ultimately wasteful if it is not being driven by increased productivity.

      Nationally the privatised electricity market lost 30% productivity 2007 - 2012 as it went from 6,000 managers to 19,000. Another failed prediction by neoliberal economics: efficient markets with lowest costs that get passed on to the consumer. Looking at reality it's pretty obvious it's a theory for fools to believe in.

      This puts enormous pressure on the economy to simultaneous provide for the needs of the elderly/retired and the desires of the working population. Witness the slow decline of the Japanese economy. It requires, in the near term, either the working population to accept decreased investment across the economy, or the elderly/retired population to accept cuts in social welfare and healthcare. This is hardly the "painless solution" that is described here.

      As per usual for neoliberal ideologues they're ignoring business tax and the record amounts of money that is not being taxed and acting as though there are two seperate systems where individuals pay for everything and business has nothing to do with paying their fair share of costs. There is not a crisis of money occurring here there is a crisis of tax avoidance and shifting the tax burden onto the poorest individuals, eg GST, instead of taxing the richest people in the world eg Amazon.

      It's the usual irrational lunacy from the right wing: screaming about who is going to pay for healthcare, unemployment, the aged … while the country carries out illegal wars with the US and not a single soul was heard screaming about who is going to pay for it.

  • +2

    Honestly I'd be more concerned about climate change because scientists are predicting the end of human civilisation.

    • "We all wanna save the world, but how are we gonna pay for it?…Not going extinct is expensive." Obama

    • -1

      12 years apparently and not one US senator voted for the green new deal

      • -2

        I know right?

        The Green New Deal is amazing! All 5 pages of meticulous details.

        … and AOC… she's so funny. "Farting cows". That's what ya'll need to make the proposal more readable.

    • not the end, just a change to the stable climate that has benefited the creation and growth of human settlement and civilisation.
      There would be a lot less environmental refugees if there were less people. And to think the enhanced greenhouse scenario is good for GDP, as we have to rebuilt after each event.

  • "For example, healthy young workers pay the health care costs for aging workers and retirees, the former energy secretary said, a scheme that requires increasing numbers of young workers. And economic growth requires more and more people to buy more and more stuff, with dire environmental consequences."

    Not exactly correct, the workers produce all the goods and services for themselves and the retirees. There are approximately 5.3 working age persons per retiree currently but this is projected to reduce to 2.5 workers per retiree in the future. Unless there is a massive productivity increase it will not be possible for 2.5 workers to grow all the food, provide all the goods and service for themselves and the retired.
    It is nonsense to think that there is a funding issue with the age pension and health care costs.. The main issue is inflation with too many people competing for too few goods and services.

  • Don't trust economists to get things right. High level context take note but don't put money on it. How many got the last financial crisis or the one before that one?

  • Big Al sums it up perfectly. There is no shortage of money. The government just has to make sure there are things available to purchase when the money is paid.

    https://youtu.be/veCAN9Mmaws

  • Robots

  • Um, no. The nature of variability in production and capacity is what causes the ponzi aspect of the economy.

    Sure how Mr Chu sees the world is that it may look like a ponzi because it isn't backed by any guarantee, but like anything in the world you cannot really guarantee anything. That's why we have futures contracts for certain products and penalties where one cannot deliver. Farmers can hedge their positions if they know they cannot deliver the produce by buying back the opposite side of the transaction. This may not be possible in some circumstances where there is no liquidity and/or they left it too late.

    That's just a simple example of why anything looks like a ponzi because it isn't really backed. The whole economy is backed by a higher being to some extent. It's all done on faith.

    I'd like Mr Chu to define sustainability in what he thinks it is theoretically, as that is not actually possible in relation to the uncertainty of nature. Anything that he comes up with will only be a theory. People should look into what the human condition is.

    Advocating removal of people from the planet via what many would term as eco-terrorism is not really the solution as the ponzi aspects of finance are still there. If anything it makes it worse as you need to find a way to improve standards of living, but at the same time there are less people to exploit from the workers pool. Unless he is advocating keeping only AI experts and relying on automation, in which case he would be advocating his own removal from this planet as he isn't working in the AI field. That relies on future uncertainty and whether it is even possible to automate enough to allow the survival of a select few elites. I don't think Mr Chu understands the fundamentals or the limitations to automation.

    His argument goes to the core of survivorship and what it means to be a human. Nobel laureates with fictional solutions to fictional problems.

    Not to mention his population control policy could lead to the failure of AI if the person who is meant to take the human civilisation to the next level is never born.

    • The best solution to the fictional problem is just to have a recession when there are more older people than younger workers. Every country goes through this process. Trying to avoid that is like trying to avoid the fact a drought just occurred due to nature; you now have no food and are blaming it on someone else.

      Why isn't the current growth model good enough?

      There will always be a pyramid scheme where the founding families are stronger. That's inherent in the way we reward humans. Why would anyone work otherwise? This again goes to the core of what it is to be a human.

      Schemes will fail because of unpredictable outcomes. Ponzi schemes can continue indefinitely without any issue provided everyone is blind until some systemic failure. (Here the proposed issue is environmental degradation and the solution of lower population growth is proposed. However, it ignores the fact that automation may create more waste and more environmental degradation which is required for a higher standard of living. How do you have less environmental damage and higher standard of living. That's laughable to some extent.) Pyramid schemes and the status quo have remained steady until unpredictable outcomes like a coup arise.

      That unpredictability is built into nature, no model can predict it. To be honest, it's pretty obvious it won't be able to be modelled because it would be subject to many revisions into the future.

      How about he just give up on higher standard of living and just accept the economy for what it is… Boom & Bust here we come.

      Put our faith in mother nature and the higher beings to guide us. If our living standards drop, we can only hope it is temporary rather than permanent. Tinkering with population control may be one thing that destroys us in the end, for one it is obvious that it decreases gene pool variability. Pray the next AI scientist is born tomorrow. That's all we can do.

      • I hope in the next 18 years I can hire that person for my startup.

        Until then people like Chu tread dangerously thinking they have good intentions but not realising they are doing the exact opposite of what society actually requires.

  • Its all a PONZI scheme.
    Nothing more

  • That's why Australia needs immigration. Do you want your uber eats to be cheap or not?

  • +1

    I had a hunch about this problem for years
    Now someone is putting it out there

    Every god damn government banks on ever inflating population
    It so (profanity) stupid.

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