Baby Busts and Bank Crashes: A Conversation with Demographer Nicholas Eberstadt | GoodFellows

don't look now but there's something funny going on over there at the bank George I've never really seen one but that's got all the air marks of being a run [Music] it's Monday March 13 2023 and welcome back to Goodfellows a Hoover institution broadcast examining social economic political and geopolitical concerns I'm Bill Whelan I'm a Hoover distinguished policy fellow I'll be your moderator today please report that we are joined by our full complement of all three Good Fellows today that would include the historian Neil Ferguson the economist John Cochran the Geo strategist Lieutenant General H.R McMaster they are Hoover institutions senior fellows all and joining us today for a conversation about demographics is Nicholas eberstadt Nick eberstetz the Henry went chair and political economy at the American Enterprise Institute and as I mentioned a renowned expert in demographics Nick welcome to Goodfellows hey thanks for inviting me gents well good to have you Juan so let's talk demographics here my understanding demographics Nick it is a field that is largely fueled by projections but when we look at projections this is not unlike economics or politics I suppose but we look at demographic projections Nick what is the right window for making guesses about future population changes are we talking five to ten years 10 to 20 years 20 to 50 years 50 to 100 years what what is a legitimate study in your estimation well I like to cheat and I think that the cheater's way of doing this is looking out no further than about 15 or 20 years maybe 25 at the max because that way uh all of the people who are going to be around in the future already uh you know mostly for the labor force and everything else overwhelmingly born uh today when you look out 50 years when you look out a hundred years you get into this thing of guessing how many babies The Unborn are going to be having and not to put to find a point on that nobody's ever come up with a method of doing that so that's kind of like what we'd call science fiction population I don't like to do that part so much okay and what is the demographic story of 2023 uh it's the Long March towards a sub-replacement fertility all around the world for reasons that we think we know but maybe we don't um we're seeing the crash of births in China we're seeing uh declining populations throughout East Asia we maybe see we're already seeing a really strong drop in birth rates all through the Uma and this is going to make for a smaller world than we thought and also a grayer world than we thought Nick you're being very circumspect about how far out you look but others are not so restrained the United Nations does its uh population projections and I think it's fair to say that one of the most startling things to have happened in the world of of demographic projection over the last few years has been the downward revision of the Chinese future population uh I think the last time I really thought seriously about this was about 10 years ago but when I caught up with it in the last six months we're suddenly looking at a scenario in which the population of China Could Fall by as much as half between now and the end of the century and that's a huge story it seems to me you've written about this talked about not only the causes in terms of falling fertility but also the consequences for Chinese Society this is so important for particularly Americans but I think the whole of the West that we should dwell on it a bit and let it sink in a population decline of about half by the end of the same entry is that plausible to you even lying for the fact that it's beyond your 20-year range well I mean if I'm going to co-author a book with Isaac Asimov sure I mean I think that's uh that's fine I'll I'll take that part I mean we know right now Neil that uh as of the as of today more or less at lunchtime uh birth levels in China if continue if childbearing patterns are continued which is like the you know the cheaters the weasels if but if they're continued um the next generation is going to be half as big as the current generation so I mean we're already on that escalator uh we're already definitely on that escalator and the collapsing fertility levels in China I think tell us something about the future about this world we're heading into in the next 10 or 20 or more years but it also tells us something about the dictatorship today because uh when you when you have a when you have a country's fertility level drop by 50 in five years during peace time uh something really strange is going on with the national mentality and it's it's not a it's not an explosion of optimism so I think this is telling us something about the way the Chinese people are regarding their current circumstances too I guess the big question that I keep coming back to is well what would cause Chinese fertility to go up again uh help us think about that I mean I noticed that it that in the median or it's at a middle range projection the UN assumes that it will in fact recover from its current very low level sort of half the replacement rate but I keep asking myself what what on the basis of past experience would would cause such an increase can you give us an answer to that well well Neil I I don't want to give away the secrets of the guild but as you probably know those long-term projections since nobody actually has ever come up with a reliable method for uh forecasts of fertility for any population where there's human volition over the kind of the long run it's it's kind of like a Rorschach test so the people uh sit around they say does this sound median to you does this sound low to you and then they say okay and then they get together three years later and maybe they have to kind of uh revise it so there's no there's no theory in there it's just a kind of a you know uh temperature you might say um what would do it in the real world well you're the historian I mean you've um you've seen big uh blips in births like there was a there was a blip in uh births as I recall in Germany after some stuff happened in the early 1930s we had a blip uh in the uh after the end of World War II um we've had more than a blip in Israel uh since the 90s it seems to be kind of sustained uh I it looks to me like for a fairly for an educated country like you have to have a big change in mentality and a big change in optimism sometimes religiosity sometimes ideology or politics but it has to be something big yeah that seems the corollary of your your argument that what's happening here is some kind of Nationwide pessimism associated with the increasingly illiberal term that the government has taken and for that to change presumably there'd have to be an equal and opposite Improvement I'll hand over to John it's not just China of course this is everywhere um Korea is under one um I just looked up the numbers for northern Europe looking for something else so all of Scandinavia is is downed in the 1.2 range but so let's just back to the basic question what do you know about why this is happening uh across the world well urbanization for example so um I think demography was given its name by a Frenchman back in the 1850s and uh since then there is a you know there have been thousands and thousands and thousands of studies trying to explain uh changes in fertility patterns and fertility differentials and fertility and when I said we think we know I'm trying to be a little bit ironic about that because everybody knows but they don't all know the same thing and a lot of the things they know are patently incorrect I came from back out of the University of Chicago where there's sort of the Gary Becker school of things and lots of talk about we know what caused fertility and I was like I love Santa Gary Becker's tools I love Ted Schultz's tools they're great tools and they're good for as far as they go quality versus quantity trade-off the urbanization women working and so forth that all those fabulous insights but it doesn't take us all the way it so I mean to my way of to my own personal preferences um I am more persuaded by something that lant Pritchett now of Oxford did back uh almost 30 years ago than by any other study in that whole like mountain of paper that I was describing uh he he came up with this really uh strange and bold idea that the best predictor for fertility was uh how many children women said that they wanted I mean who would have thought and it turns out to be really good across ethnicities across populations across societies across uh historical time periods to the extent that we've got historical you know data on this sort of stuff it doesn't answer the question of why those preferences change it doesn't answer the question for how desired family size changes but it's a it's a pretty good way to approach it and it shows you that in low-income countries even in countries where people uh where a lot of people are illiterate and there's a lot of rural living uh you can have a you can have involuntary you can have a voluntary below replacement child-bearing regimen now like Myanmar or Burma I mean it's just like the counter example to all of the modernization theory stuff you know so so what changes your mentality I mean look at what's happening in the Uma look at what's happening in Iran I mean tehran's birth rate is like Zurich uh it's not because it's modernized like Zurich and that's all happened really fast if it makes you feel any better historians dealing with what's already happened have really struggled I can remember when I was an undergraduate immersing myself in the great Wrigley and Schofield study on the population of England and Wales before and during the Industrial Revolution and and that revealed a really important change that happened which was age at marriage uh they just started getting married married married younger and therefore having more children and this big discontinuity is certainly associated with the Industrial Revolution in some way that nobody can quite Define at that point I can remember reading all those uh at that time state-of-the-art papers on the demographic change nobody could really explain it that something just LED people in the course of the 18th century to get married younger and that had enormous consequences for the economic history of the world but we still don't really know why that happened but but Neil look at where the Long March to below replacement fertility began didn't start in Britain started in France you know starting France around the 1750s but right before the Revolution and then not to put to find a point on it was poorer than uh what was to be but in the UK uh more rural less educated and uh kind of Catholic you know so it kind of it knocked all of the modernization kind of disidorata kind of uh off to the side yet this was the place where the where we've really as far as we can tell we find the origins of the Long March to voluntary below replacement fertility eel defrost like around the outside of Paris uh in the 1750s let me talk about something that I got very interested in recently which is that young people saying they're not going to have any children because the planets are coming to an end uh I got very interested in at the recent literature on Mental Health in the United States especially amongst young people it's a quite an alarming picture but when trying to dig into the reasons for depression and despondency one comes across this this argument which seems to be quite widespread to the point of almost being a meme we're not going to have children because the plan and it's dying when when we think about the United States there seems to be something similar going on here maybe it can go further maybe fertility can can fall further here uh talk a little bit about the demographic future of of America there's an increase in mortality with particularly the deaths of Despair story uh having an impact there it doesn't feel as if we're as dynamic demographically as we used to be what's going on and is it going to get worse but I would say it even maybe places just in context of catastrophizing generally right and and how you know you have this sort of uh various forms of Hysteria that seem to be Amplified by various forms of social media and have taken root particularly as Neil mentioned in the younger generation well I started this population getting into this population thing about 50 years ago and at that time there was actually a one of your Stanford colleagues was very much in the news in those days uh because uh uh we were supposed to run out of food and we were India was supposed to become a starvation Zone by the 70s uh and these are these and these are of course been long predicted this is the malthusian sort of approach to you know predicting the future Neo malthusian View and there was uh there was a big um a very [Music] um widely accepted or at least in certain circles very widely accepted fear of population growth uh I was a commie back then but even as as a Kami I thought that this was kind of preposterous because human beings kind of seek their own interests and the people do things for reasons and it's a lot harder it's a lot harder to make the argument that we're going to breed ourselves out of existence today obviously now whether we're going to pollute ourselves out of existence we seem to have some sort of uh need for metaphysical excitement as other types of metaphysics you know kind of vanish from our lives I guess but with regard to fertility in our country we did something very odd for about a generation which is as a as an affluent educated Society we had a more or less replacement level childbearing uh regimen about almost 2.1 births per woman which is a lot higher than almost any other affluent country um since the uh depending if you since the financial Panic of 2008 or since the election of Obama you know you choose your marker uh fertility in the United States has come down uh pretty strongly not China strongly but it's uh culpably below replacement and if you look at uh the patterns for younger women women and their uh early 20s uh later 20s early 30s they're on a slow on a lower trajectory than their older sisters or their mothers and it's not impossible that we're on a path for uh 1.6 which used to be kind of a European sort of style or maybe even a 1.4 which is a little bit above a German sort of style but these things of course do change now what's what's going on in the mentality uh every it's a Rorschach test and everybody can redo their own story if I'm going to look at that story I would point out to you the plummeting religiosity of our Rising generation of Young Americans the um expounded lack of optimism about the future uh the uh the decline in patriotism I mean I'm not sure that patriotism is something that causes people to have babies but it does seem to kind of uh correlate with a whole lump of other viewpoints that have at least tracked with that in our uh in our Western societies so so that's one thing about the births the uh the death story is not a very happy one I mean we have um we have been kind of stuck uh for the last decade and more in a very slow pace of improvement and overall life expectancy and obviously it dropped ghastly uh during the uh during the covid calamity uh how how well we recover and get back on a good track remains to be seen uh there are lots of different things not just uh not just deaths of Despair but uh cardiovascular disease is probably the big um anchor slowing us down I've um it looks a little bit too much like what we saw in Russia a while ago ago for comfort for me to see some of this stuff that's going on but leave that aside then we've got migration uh and you know we've been a um we have no migration policy as far as I can tell and despite that we're attracting Talent from all over the world uh the U.S and Switzerland are the two big uh you know the two big magnets uh for inventors from all around the world and people who don't have phds like to come here also uh I I am concerned that this awful situation we have at our Southern border this uh heinous feckless policy towards security at our Southern border May poison uh popular attitudes towards immigration we did have a big swing against immigration uh as you know uh back uh in the populist era in the first Gilded Age I would not like to see a big swing against immigration myself in our second Gilded Age I think that everybody would lose from that but sometimes we seem to be capable of arranging political structures in which everybody loses the immigrants are the ones who want to come and pay our social security and Medicare taxes and they also tend to have babies so there's some advantages to immigrants they also tend to they also tend to be extremely patriotic and have confidence in our they like this economic system and they cherish the principles you know on which our country was founded you know who who wants who wants any of that even even present company of recent immigrants this kid isn't the future Paul early uh envisioned when he wrote the population bomb and at some point uh presumably somebody's going to write some uh opposite version of that book in which the real disaster is that humanity is going to die out I think Elon Musk has occasionally expressed that view that the real dangerous population decline uh it's worth adding though that the decline certainly isn't happening in Africa yet and population there is going to continue uh to grow as far as we we can tell in fact I think all the population growth that there remains to be in the world is basically going to be in in Africa and and that then feeds into a discussion about migration uh there are magnets uh as you say uh Nick for for talent uh all over the world it's not just the US and Switzerland the UK and and Europe generally are going to attract a lot of these uh a loss of these people so are we looking forward to a world in which the population is going to hit some kind of plateau and then decline including even Africa and there will be very high levels of migration which will then elicit backlashes political backlashes of the sort you will lose that the kind of 21st century we're in there was an awful lot of migration around the world before we had fixed governments we just didn't follow it very well I mean we followed migration now a lot better because we regard it as a sort of an issue of national sovereignty and not National Security um how much migration different countries will accept I think in part will have to do with how good their own domestic fabric is at assimilating Outsiders and making them into loyal and productive newcomers uh and the Anglo uh the Anglo phone affluent countries seem to be pretty good at doing that by comparison to some others I mean not just the US and Canada and Australia and little New Zealand but the UK too For Better or Worse you may disagree with me about that one when I look at the when I look at the continent it looks to me like a much more mixed picture uh I mean they're probably immigration into Continental Europe is more of a success story than a lot of the political discussion suggests but there are also a lot of problems and of the the migrant populations into into Continental Europe don't always have the same work rates as the receiving populations the subtext obviously is coming is flows of people from Muslim majority countries coming into Continental Europe but even if you look at that it's kind of a mystery to me and I mean some of you all may have parsed this better I mean there are some receiving countries and some sending countries in the ummah where you have much better outcomes than other populations so you look at the Indonesians going to the Netherlands you never hear about them that's because it's things are actually working outside as well a system built around Asylum and not around the economic immigration that allows in single men and then denies them work permits is is guaranteed to fail I mean it's the problem is an assimilation problem you want to let in families who want to come to work hard and and uh so that that's a but let's get off the catastrophe of immigration and if I could just if I could just make it here as an American historian is is that you know that was that was the contrast between Massachusetts Bay Colony and Virginia you know Virginia Virginia was populated really with with all you know young men uh and it was families really a Massachusetts Bay Colony and there's there's a whole literature on on why Massachusetts Bay Colony thrived and the early Virginia settlements disappeared I have a question that links your world uh Nix and Hrs because one of the things you've been writing about very compellingly uh in your recent work on the US is the pretty unhealthy state of uh the young American male uh and this shows up in a variety of different ways uh it shows up in labor market participation uh it shows up in in health metrics and I wanted to kind of connect the this with hr's world where you are finding it harder and harder to recruit able-bodied young men into the military I might write in thinking that that is the case HR I seem to have read somewhere in the past week and I foolishly didn't write it down that it's it's going to be harder and harder to keep recruiting into the military because there are a smaller and smaller share of young men fit for mandatory service physically fit for it is that right yeah that's right and it is it is a big it is a big problem I think there are a number of problems that are interacting to create the recruiting uh challenges that that the military is having overall but but this is the the biggest one what you really want is you want a large population that that qualifies for military service so you can be more selective within that large population now the the numbers that are available because of just not being physically fit uh and also also criminal records for example or or patterns of drug abuse these are all disqualifiers not finishing secondary education so so that that pull is shrinking so that the health of our society is restricting the numbers who are qualified even just to volunteer for military service and what I would say to reap the tremendous benefits and rewards uh less tangible rewards associated with serving your country and serving as part of cohesive teams committed to one another and a mission bigger than selves more more young men and women are qualified for military service but as Nick's work has shown how about just qualified and willing to work period And so this might be the segue uh into Nick's uh scholarship over many years recently updated post covid on why why people are leaving the workforce so this this flight from the workforce the flight from the labor market by men goes back to the mid-1960s and it's been almost a straight line up uh from 65 say to the present I did a first edition of this book that you kindly mentioned in 2016 and on the cover I showed uh the regression line from 65 to 2016 for percentage of men not in labor force so it's almost a straight line it was like 0.96 or something um the Eerie thing is that uh for the second edition you could just continue that line upwards he didn't have to change the slope or the um the constant or anything I can't explain that it was it's eerie but we also now I think are starting to see a flight from work for women we may have seven million guys 25 to 54 war in the U.S were neither working nor looking for work but we've got about three million girls women 25 to 54 and that same age group who have no children at home who are neither working nor in education or training and aren't married and this is not the sort of gender equality that I think we want to be seeing in the United States and one of the kind of worrisome parts of this gender equality is that they are now starting to say that they take pain medication every day in about the same proportion that the Dropout guys do which is to say about half of the people in the this group half of the women in this group are saying that they're taking pain medication every day not a good sign you talked about cultural things and The Economist In Me Is rebelling there are incentives here roughly speaking once you're into the social program Network you lose a dollar worth of benefits for every dollar that you that you work especially bad if you're on Social Security Disability or or some of these other Cliffs um you know these people with no jobs and know nothing somebody's paying the bills somehow and you know in the old days men had to go to work because they had to support families well if they're not married and and and uh not supporting families so there's there are incentives at work here it's not just sort of a nebulous cultural shift that happened uh no local contendra I agree with you but do do the thought experiment with me let's take our current uh dysfunctional crazy quilt uh social benefit programs in the time machine and take them back to Salem Massachusetts in uh 1670 and try to guess uh What proportion of the population there would be enrolled in uh food stamps exactly what we have now I'm um it's inconclusive because we can't can't see what would come out but my guess is it would be a lot lower in uh Puritan New England because there would have been a lot of people there who would have thought that if they did that they'd be going to hell and it hell isn't quite as strong sales item nowadays original pilgrims started in a communitarian thing where they were all going to share everything and they tried that for a year or two and it didn't work at all nobody was working and then they said you know what you're gonna have your own plot and you're going to eat what comes off your own plot bingo okay for viewers for additional reading on the subject check out th Breen's Puritans and Adventures so I'll put in that plug for some good old Colonial history okay well Nick every step thanks for coming on Good Fellas today we hope to have you on the show again and come out to Stanford come come visit us when it stops raining horse mate if the airplane gobs ever work let a shift from catastrophe in hysteria and demographics to a catastrophe and hysteria in the banking industry specifically the implosion of Silicon Valley Banker SBB for short the largest American bank failure since a financial crisis of 2008 at the moment the second largest bank failure in U.S history the treasury Department announcing Sunday night that the FDIC will use this Deposit Insurance Fund to pay back account holders at svb along with Signature Bank in New York which is heavy in crypto President Biden went before the cameras this morning about 30 minutes before the markets opened to assure us a banking system is sound and he called on Congress for more regulation John a lot to unpack here uh why did svb melt down where where and where are The Regulators is this a bailout and the health of the banking industry but let's begin with this John svb is kind of a fabled Silicon Valley story it's a story of a bank that was started by two guys who are playing poker one night is this a simple John as the story of a bank that was created over a poker game making a very bad wager on interest rates uh pretty much yes uh which isn't you know that's to be expected the story there's a lot of fun with the malfeasance uh of this of this bank and what they did but the big story that I see is the complete failure of the regulatory system uh which has been promising us since the Dodd-Frank Act that all these things are solved this was an elephant in the room this was not complicated toxic derivatives or something strange or off balance sheet entities this is the classic way banks have been failing since Neil helped me 1622. we had the first bank uh the the basic picture was just combine uh lots of um deposits that were bigger than the minimum the maximum you can get insurance so lots of uninsured deposits companies with literally millions of dollars in bank accounts that that know that they have a chance of losing it or anything plus the bank takes that money and puts it in long-term treasuries and long-term mortgage-backed Securities which on their own are are very nice safe Securities but not if you've borrowed a bunch of run-prone money interest rates go up Daw interest rates go up sometime the value of those assets if you need to sell them Falls and we're at the point this isn't a magic Bank Runner illiquidity it's just plain old and solid uh they cannot sell if they sell those Securities to make good on the depositors uh who have every incentive to run then they're out of business and the bank ran it's just the simplest thing in the world now where were the Regulators hundreds of thousands of pages of Regulation and they could they could not see and did not see this most basic thing happening so I what I this proves to me that this architecture of Regulation uh is is is is completely failed as we already saw this in the in the 2020 stuff although that wasn't quite so clear to people's minds but it's not clear whether it's uh stupidity institutional incapacity or just the rules are so complicated that you can't do a kind of calculation that an undergraduate can do in in 20 minutes if they just look at this massive mismatch of of interest rate risk on the assets and run prone liabilities Neil the other thing to say here is that we now know what systemic means and that is whatever the authorities decide it's entirely arbitrary what banks are regarded as being of systemic significance and the other thing is that everything is implicitly in short like all deposits are now implicitly insured rather than up to the threshold had uh had raised it to 250 000 so these are fairly big changes uh and they they make as John as rightly said the entire edifice of Regulation created after the financial crisis essentially a pile of meaningless verbiage but there's another point which I think we need to focus on and that is what does this mean for the Federal Reserves strategy to bring down inflation now some of us been saying for months and months and months that with monetary policy and its famous uh long and variable lags you raise rates what uh four and a half percentage points at some point something breaks the interesting thing is that the central banks kept telling us you'll remember this John oh it's the non-bank sector that you need to worry about there are hidden pools of Leverage there so we're all looking around the non-bank sector trying to figure out what was going to break and the thing that broke was a bank actually a bunch of banks because it's not just one bank that went down there were a whole well three have gone down and more may follow so we got a banking crisis this is a further indictment of the regulatory framework but also makes me wonder how does the FED now pull off the supposed soft Landing or no Landing that is going to bring inflation back down towards two percent without a recession and we all live happily ever after surely John let me put this to you there's now a massive contradiction between what the FED is trying to do to bring down inflation by raising rates and what it's now doing to prevent a banking crisis by in effect restarting quantitative easing because I mean that seems to me to be what they've done do you agree well it's more than quantitative easing it is a handout this is real resources that are going into the pockets of everybody who lost money and so we're we're once we are in firmly in the regime of make money in Good Times by leveraging up and taxpayers come give you money in the bad times we are once again ratcheting up we do this over and over again a new class of of creditors gets bailed out um and then we'll promise ourselves to pass new rules to not let it happen again and then it happens again and larger and larger uh creditors gave out so yes effectively uh Bank deposits are all now insured and a lot of people who made a lot of money on on high leverage high-yield stuff uh got got money courtesy of the taxpayer but over above that something called the bank term funding program has now been created this was done on Sunday uh Sunday evening and that is going to be a new line of credit available to Banks and get this they'll be able to borrow against collateral that won't need to be marked to Market in fact yes be treated as if they haven't lost any value at all since the FED started hiking I'm sorry but this is kind of crazy they can borrow literally twice as much as my social securities are worth on the open market against these Securities as collateral that's an example of where If the Fed wants to raise interest rates fine it's just going to make everybody whole who who put that bet in on interest rates not happening what I can't figure out John is does this tighten Financial conditions or ease them I guess it's easing them compared with where we would be if they had not bailed out the deposit the uninsured depositors but I don't know whether this makes the inflation risk greater or over let's say a year my gut feeling is that it does and that if I would go out on a limb I would say this is the moment the FED blinks and we really are in the 1970s and he really is Arthur Burns he's not Paul volcker am I right in thinking about it this way or or is in fact there now enough of a spasm of anxiety in markets for the recession to happen and the pain more or less to be unavoidable now I can't quite make up my mind about where we are as the Smoke Clears well I'll guess that the FED will probably pause uh raising rates because they're worried about it and that this has fiscal consequences which raise inflation so I think you're right in both cases and there is a chance generally recessions need a spark uh and that spark is usually Financial so there is a chance of some general speaking Financial uh pullback that will that will uh push us towards the recession and and uh slow down that process but I think that the bigger picture is I'm still more outraged by the abject failure of this financial regulatory uh system uh which we I mean the big picture is we are still in the land of the federal government will come and drop money on every single problem that comes and that that's got to end and that's fundamentally why we have so much inflation coming hey John a deal you know what I've been hearing is is the course that they're going to be able to do all this that will be able to resolve this problem without any cost at all to the American taxpayer true or false and then if true how is that possible boss money doesn't grow on trees but about liquidity this is about people lost money and that money is going to come you know for example we're gonna money from the taxpayer so the Federal Reserve is going to give people twice what securities are worth as as a loan that you know that since money doesn't come down trees that eventually comes down to the taxpayer so John what will divide Congress end up doing here I'm Elizabeth Warren to the New York Times with the not bad saying it's time to re-regulate but she's one vote in the Senate whatever she comes up to the Senate Republican house for shoot down so will we see anything coming out of Congress I don't know what they will do it's hard to make the case we need more than the hundreds of thousands of pages of rules we got uh especially when this is so simple you know remember wonderful life when when Jimmy Stewart's Bank examiner comes in got a bank examiner Mr Carter that guy could have figured this out his undergraduate assistant could have figured this out now it's possible that the rules are so complicated that they didn't let you see an elephant in the room here but adding more rules is not the answer to that question India what about the culture of Silicon Valley one word to use for this is humbling that here's a big swaggering bank takes venture capitalist money and it's collapsed so what does that say about the culture of Technology well I think there are a couple of things uh going on here there's the crypto angle there's something slightly surreal about the libertarian proponents of cryptocurrency uh screaming to be made whole uh by the FDIC uh but I think it's probably worth seeing this as part of a broad crisis uh in the tech sector uh I mean I think future Financial historians will say things have been pretty ugly already in the tech sector in 2022 and one of the ways that they were ugly was that a bank uh like uh Silicon Valley Bank ended up with a pile of deposits uh from startups that really couldn't do much with the money and it couldn't do much with the money on the other side of the balance sheet because there was no lending to be done and therefore they uh somewhat foolishly parked it all in in long-term government bonds I think that the the crisis at this point is is mainly a West Coast crisis the reason that I think the the FED stepped in to make the uninsured creditors whole however was that there was quite a potential for contagion beyond the tech sector I'm still trying to work out why certain hedge fund managers were screaming for rescue uh through the weekend and I wondered if uh there was some kind of trade going on there uh because I think that exposure extended far beyond the depositors of uh of of Silicon Valley Bank I think that if those companies that had money with the bank hadn't been able to make payroll today there would have been quite significant consequences to say nothing of the run on other banks that were heavily marked down in the markets today by the way I don't think this crisis is over that Financial crises of this sort if you think back to the 70s and the 80s or indeed to 2000 189 can actually play out over weeks even months this has been a pretty significant tightening of monetary policy that the FED has done and as I said at the beginning of this discussion many of us said at some point something will break we just didn't know what it would be and I certainly can't claim to have foreseen that it would be Silicon Valley Bank but I think we have to remember that this thing has further to run and it's not clear to me that the measures that were taken over the weekend have in fact staunched the crisis of confidence in a whole bunch of banks uh of which Silicon Valley Bank was only one so watch this space I don't think it's okay can I just ask John if you agree with Neil's assessment that this could go on I remember the chart in your blog where you showed that Silicon Valley Bank was an outlier at least in terms of the degree to which it had invested in long-term treasuries there were others in that sort of extreme category do you think it's limited to the category of banks that it that over invested in long-term treasuries or do you think it could be broader well this particular question so a a big interest rate risk exposure unhedged combined with lots of uninsured deposits who have an incentive to run seems to be uh not something common to lots and lots of other Banks but there is you know as Neil will say so I'll once say there's something psychological about it there's a general you don't know and if our our Regulators could not spot this massive elephant in the room who knows what's going on at the other Banks um so I I I this particular problem from what I have seen seems to be small but on the other hand who knows what's out there and and all it takes is people go on who knows now the fact that all deposits are now guaranteed is astonishing fact uh no matter how large you are your deposits are guaranteed that that should help a lot in stemming uh additional runs but we'll but now we'll see what else um you know most banks are not primarily funded from deposits most banks are funded from wholesale money from short-term borrowing and markets that stuff is completely not guaranteed uh those people could run in a moment if they're uh so so more banks are are are risky on that side as well the final thing to add on this is I think by and large although I haven't gone through this line by line in the wake of a banking crisis like this it's very rare for the Federal Reserve to continue tightening monetary policy and that means that all those people who just a few days ago were saying the terminal rate for the FED funds would be 6.25 are radically retelling their story uh with the five handle or lower and indeed the markets are expecting rate Cuts in the second half of the year so I think this represents a shift uh ultimately in monetary policy as well as in uh Financial regulation and my sense is that that must on balance be inflationary you know this is not a number of people do analogies with Paul volcker and the failure of Continental Illinois in 1984. they forget that that was two years after volcker had broken the back of inflation whereas this thing is happening with inflation still at six percent we'll see what it is tomorrow and I think in that sense for the FED to Blink now that suggests to me that we're going to have a long-lasting inflation problem than uh many people were assuming just a few weeks ago John final thoughts uh uh who who knows what's gonna happen I I agree with Neil you know a badgett said uh lend freely at a penalty rate somehow we went into the Lend freely but not the penalty rate part uh so Neil's forecast that the FED will probably uh stop raising rates and lower them I think is correct that they're going to be worried Neil's also right you know bear Stearns happened a long time before Layman these things play out over time and they only really turn into a crisis on the third a fourth and fifth one who knows what you know maybe this is over maybe this is there's you know MF Global went down and and nobody seemed to care uh so there's there's certainly a lot more uncertainty about what will happen next uh and I absolutely agree with Neil on that one it's a good time to be blogging on economics and John cochrane's blog if you're not familiar it's called the grumpy Economist by all means check it out he has brilliant post already up on svb gentlemen one final segment and uh last night the Academy Awards we talked about this a couple of days ago uh we all were interested in the plight of one movie and that was All Quiet on the Western Front which had a successful night it walked away with four Oscars best original score best production design best cinematography Neil Ferguson pointing out what Cinema graphic was great and best International feature it was not named best picture but it was named best film at the British Film Academy Awards Neil I want to turn to you this is the second world war one movie up for a Best Picture in the last three years 1917 being up for the award in 2020. uh Neil you wrote the book the pity of War which re-examined the Great War the causes of it you're someone who proudly wears a red poppy every fall in in commemoration of the young men who lost their lives in that struggle is there something about World War One Neil that is particularly cinematic well you might say it's almost the opposite it's so horrific uh that your eye is in some ways uh glued to the horror uh the Western Front uh had some of the ugliest uh Warfare of all time uh and this new version of All Quiet on the Western Front depicts it very graphically and and harrowingly uh and I I think that explains why uh over a century after the event uh filmmakers are still uh drawn to it I I thought it was a fantastic film technically uh the cinematography is absolutely striking and I also thought that performance by the young Central character Felix camera who plays uh Paul the central uh figure in the book was uh worthy of an Oscar it was a terrific and completely captivating performance there were things about the film I didn't like so much uh compared with the original adaptation of the book Lewis Milestones uh black and white uh all quite in which the characters are essentially Americans I mean they're played by American actors and they speak with American an accents and I suspect that that earlier version therefore connects more powerfully with uh with with an American audience and it ends up being a somewhat pro-german account of the end of the war the thing that got me slightly was the way in which the French and German delegations in the Armistice negotiations were portrayed the French as supercilious uh uh and insufferable uh uh the militarists and the Germans as uh as uh as as civilians uh asking for Humane treatment it wasn't like that and I thought that was I thought that was off there was also a very implausible final assault uh which is what gets the hero killed uh I don't think that can have happened it was impossible to motivate German soldiers to engage in those kinds of attacks by the end they basically gone and strike uh by late summer of of 1918 but those are the kinds of things he historians always say about films no matter how good they are as a film it's terrific even if there's history I have a few problems let's hear from somebody who's actually been in combat nature well you know the movie is is about you know the futility of of World War One and the stalemate and the lack of of sense of agency that soldiers and and units had and and of course you know anybody who has been exposed to the the traumas of war the the you know the inhumaneness of War you know could be potentially scarred by that experience or or carry you know carry those those difficult memories uh with them uh but but you know I think what is is actually most damaging uh to those uh who emerge from you know from those harrowing experiences is is a sense that they had no control over the events and and you see this with you know the Detachment of the senior command for example uh senior command that is incompetent uh that is willing to sacrifice soldiers lives uh for meaningless tactical gains if even that uh the the the vast Carnage of the war you get a sense for the degree to which conscripted forces uh or volunteer forces many of them in this case were thrown into battle ill-prepared uh having not been trained adequately for uh for combat and you know what I did think a little bit about just the importance of the psychological and the moral and ethical preparation of soldiers for combat there are some important there's important lessons there as well I mean that one scene uh in the crater where the protagonist uh stabs uh a French a French soldier and then laments the fact uh that that he stabbed it a real relatively defenseless French soldier at that moment um and you know I think that it's important that to preserve kind of a warrior ethos that is important to combat Effectiveness but also it is also what makes World less inhumane is the discipline the professionalism of forces that fight as cohesive teams and expect ethical conduct from one another as well John wow that was great um World War one is not cinematic I disagree with your premise and that's the whole point it was the unheroic war very hard to make movies about it we make movies about World War II and pretend that it was easy to be heroic um but I think it's important for people like me who did not have the privilege to serve I've never seen what combat is like to to understand what war is now I'll Grant hr's point this was a a bad war and incompetently fought War but nonetheless uh what we're seeing in moderns in a cinematography uh Private Ryan was was very influential to me uh it's just some sense for normal people like us this is what war is this is what uh our ukrainians are are suffering right now and and one reason why I I think we ought to get that over with uh quickly uh but we need to understand that and uh you know back to hr's point in the previous segment one of the problems with military recruiting is that Stanford undergrads have no idea what what war is both positive and negative we don't live in a society where uh normal people serve their country in the military uh come back and that that is a way towards uh uh a high status or a part of society so it's walled off for most of us so I think I think it's very important just to see the the ugly reality of of what war is um whether fought well or or fought poorly and um that this I I think that's one of the best things to to just meditate on when you when you see this can I add something John this film of course came out at the time of the Russian invasion of Ukraine and in some ways it was unfortunate that a German director should produce a version of the great anti-war uh book I mean all God in the Western Front was one of the most powerful anti-war books to come out of the interwar period uh you might be forgiven for thinking the message of this film is just that war is bad I don't think that's how a Ukrainian audience would see it uh I think from a Ukrainian vantage point this is a film shot from the vantage point of the Invaders uh it is not short from the vantage point of the French whom we only really see very briefly towards the end but remember the French were fighting to defend their country from an Invader that had occupied a very large part of it just as the Russians have occupied a large part of Ukraine and you get a sense of this with this tragedy at the very end right where two of the protagonists who had survived so much and see so many of their buddies killed they go to they go to rob you know to rob a farmhouse or to liberate a goose and some eggs to have a a decent meal and and German soldiers were starving toward the end of the war and in part because of a very successful blockade that the Allies had put in uh at the end of the war and and what happens is the farmer's son kills the you know the main protagonist best friend uh for for having stolen from his farm and you get a sense of the the outrage of the French people and the younger generation and of course you know the The Grudge that they will hold against the Germans and then it will be magnified again after the reinvasion of France in June of 1940. I don't think that's the message of All Quiet on the Western Front I did have not seen the movie I'm sorry to say but um it's about the tragedy and the dehumanizing effect of War on on both sides these were young German conscripts who didn't know much of what they were going to as the young French conscripts didn't and yes France was defending itself against inflation at that point but remember the way this started plant de set was let's get to Berlin before they get to Paris um so it's it's not uh at that point yes but not entirely through the uh through the war so I think the real message here is there there is an awfulness to warp so let it if we have to do it let it be done well as HR uh and emphasizes and professionally and with excellent civilian uh reasons for doing the war and military commands and let us also remember how horrible it is uh if it goes badly final question we'll call it a day HR the most powerful war movie you've ever seen would be oh my gosh I mean uh there's so many I mean I I it's it's hard to say Bill I I mean I like the longest day a lot I think that's that's great I like uh um I I also like a bridge too far you know because it gets it intelligence failures and group think and and and and uh I I love Gettysburg you know because of the the role of contingency in battle and and and the actions that Buford takes uh at at Seminary Ridge uh and and his visualization of the battle um gosh you know I'll tell you I think in general though uh War films don't do a good job of of explaining the human dimension of War of what motivates Warriors what animates their souls you know that you know why they fight uh and and do what they do in combat so um I mean there are a number of Great War movies but none of them really stands it out in my mind above above all others John you mentioned Private Ryan would that get your voter you have another film in mind I I can't outdo uh HR on the review of all the many war movies I I I I watch them with this interest of a civilian in in just what is this and what is this experience so vastly different from from my uh everyday life that's what I you know okay Neil your choice uh well the movie that made the biggest impact on me when I was a boy was 633 Squadron which is uh uh a World War II uh or a film about the World War II Royal Air Force uh pilot Cruz who who essentially are assigned an enormously Dangerous Mission uh suffer tremendous casualties as a result but carry out the mission successfully the last line of that film will always stay with me uh the commanding officer watches the last uh surviving planes limp home and lighting his pipe utters The Immortal line you can't kill a squadron and and there's a tremendously powerful message there about the nature of military sacrifice and pursuit of an objective however in later life I saw one of the all-time achievements of uh cinematography which is uh the Soviet version of War and Peace and if you've never seen that you've missed out on some of the great battle scenes ever filmed where uh the director mondartuk had the entire Red Army at his disposal and uh that's that's absolutely to be seen It's a Wonderful adaptation of the greatest novel ever written and it doesn't get seen by nearly enough uh people in the anglosphere sounds good well gentlemen we're going to leave it there thank you for a spirit of conversation today uh for our loyal viewers we'll be back later this month for the new episode on behalf of the Good Fellows Neil Ferguson John Cochran H.R McMaster Our Guest today and Nick eberset we hope you enjoyed the show and we'll see you soon till then take care thanks for watching [Music] our McMaster watch Battlegrounds also available at hoover.org foreign

Channel: Hoover Institution

Views: 147,426

Keywords: Nicholas Eberstadt, demographics, population, China, India, Africa, Isaac Asimov, fertility, birth rates, Lant Pritchett, Paul Ehrlich, immigration, military recruitment, “second demographic transition”, Silicon Valley Bank, Federal Reserve, recession, regulation, monetary policy, quantitative easing, tech sector, Bank Term Funding Program, World War 1, World War I, All Quiet on the Western Front, World War One, The Pity of War, Academy Awards, 633 Squadron, War and Peace

Id: qLyFBI_ihh8

Length: 58min 51sec (3531 seconds)

Published: Tue Mar 14 2023