In an intriguing analysis, Morgan Stanley highlights three themes they believe will shape our markets for years to come: longevity, the diffusion of AI technology, and decarbonization, i.e. the transition from hydrocarbon fuels to so-called "green energy." Let’s simplify:
1. Longevity: Imagine a world where monthly pills, albeit costing $1,000, significantly extend our lifespans. The pursuit of a longer life has always been a human fascination, and now it seems to be inching closer to reality.
2. AI Tech Diffusion: Artificial Intelligence is not just a buzzword but a tool that could redefine corporate profitability. This leap in technology is seen as a boom for the economy, pushing us towards unprecedented efficiency and profit margins.
3. Decarbonization: Transitioning from fossil fuels to green energy is not just an environmental imperative but also a potential goldmine for investors. Those willing to invest in this transition are predicted to reap considerable rewards.
That all sounds pretty and ideal for our economy, but the real world will be defined by five much different themes: sclerosis, dysfunction, debt saturation, power asymmetry and the decline of social trust.
Sclerosis
Sclerosis in a sense that the same powerful people keep holding onto their power, so nothing really changes. They believe they must keep or even grow their power, no matter what comes along. This problem is deep-rooted and seems impossible to fix.
Dysfunction
Nothing works due to the consequences of sclerosis: Those who strive for power do so by eliminating every dynamic of open, self-correcting systems: They get rid of competition (every sector is dominated by monopolies, cartels or state cartels), they get rid of transparency (information control and incoherence is how they maintain power) and they have a lock on regulatory measures:
They might make you go through a lot of difficult steps only to offer you a chance to suggest a minor change that won't really affect their control. Alternatively, they might bring you into their group, giving you a role that helps keep things the way they are.
In a system rigged to maximize the profit and power of the few at the expense of the many, nothing works because the system is no longer capable of self-correction.
Debt Saturation
15 years of expanding credit has created the illusion we can pay for everything, no matter how costly, basically forever. So we need trillions to transition to "green energy": No problem, we'll borrow it.
We need more trillions to pay for an aging, increasingly sick people. No problem, we'll borrow it. We need to borrow more trillions to fund all the status quo corruption: No problem, we'll borrow it.
And since we can take interest rates to zero forever, we can borrow whatever tiny sums we need to pay the interest on hundreds of trillions in new debt, no problem. Except for one little dynamic called debt saturation:
Earnings in the future aren't a sure thing, and eventually, the money coming in won't be enough to cover both the endless increase in spending by people and the government, as well as the growing costs of paying back a lot of debt.
We have to choose between two options: either keep borrowing and spending to maintain our current lifestyle, or use our income to pay off the increasing debt. We can't do both. So, eventually, one will fail—either our habit of borrowing and spending or our growing mountain of debt.
This reality increases risk, and capital eventually demands a real return. Interest rates can't stay at zero, so the costs of servicing the soaring debt rise rapidly.
As we keep borrowing more and more money—essentially using future earnings to pay for things now—we cause inflation. This happens because we need a huge amount of borrowed money to support an inefficient and unchanging system, and this amount far exceeds the actual value created by spending all that borrowed money.
Everyone enjoying the benefits of "free money" won't willingly stop, setting the system up for failure. To satisfy those already benefiting from the current setup, we continue to borrow vast sums. However, as the cost of interest on this debt increases, we find ourselves needing to borrow even more just to cover these interest payments. This creates a vicious cycle that keeps reinforcing itself.
Power-Asymmetry
This describes the deep-rooted inequality and restrictions present in today's world. Most people have almost no control, while a small group holds onto their power tightly, ensuring they maintain their advantages and defend against challenges from other powerful groups or popular movements.
"Debt serfdom" shows how debt can trap people, forcing them to borrow just to get by, which highlights both a lack of freedom and uneven power distribution. Those in debt have virtually no influence in the economy, society, or the rigid systems that govern them.
No amount of AI or new technology will change any of this, because all those tools serve those already in power. In effect, AI and all other new technologies simply serve to solidify power asymmetry and thus sclerosis and dysfunction.
And lastly:
The Decline of Social Trust
Social trust has declined significantly in the United States. Surveys find that public trust in institutions and the professional classes that dominate those institutions has crumbled. (See chart below.) Social trust — our confidence that other people are trustworthy— has also fallen to multi decade lows.
This was not the case in decades past. Americans maintained high levels of trust in their institutions, government and fellow citizens. The decline in social trust is across the entire spectrum: Our trust in institutions, professional elites and our fellow Americans has declined precipitously.
The causes of this decay of social trust can be debated endlessly, but several factors are obvious:
1. Institutions lost the public's trust by hiding or altering the truth to benefit secret plans and the careers of insiders. Misleading information led to the Vietnam War and the second Gulf War to remove Saddam. Events like Watergate and the Church Committee's revelation of domestic spying by U.S. security agencies also deeply damaged trust.
2. Leaders and professionals in charge of important institutions have stopped prioritizing the needs of the people, at least from a public perspective. As a result, people have lost faith in these institutions, seeing them mainly as tools for personal gain and career progress.
3. Healthcare CEOs earn millions, universities are filled with administrative roles that don't involve teaching, and defense contractors alongside the Pentagon create benefits for those already in power, all while claiming to serve the public's interest. This cycle of self-interest is often disguised with public relations efforts that barely hide the true motives.
Moving from a society where trust was abundant to one where it's scarce affects us economically, politically, and socially. In societies with low trust, economies don't grow much because people are wary of others outside their personal circles, and there's a widespread doubt in institutions' ability to work properly or to act in the public's best interest.
Faced with unaccountable, corrupt bureaucracies and a culture full of scams and get-rich-quick schemes, people give up and drop out. Rather than start a business and accept all the risks just to get dumped on or ripped off, they don't even try to start a business. Given the financial insecurity that is now the norm, they also decide not to get married or have children.
Looking back, the vast trading networks of the Roman Empire were based on personal trusted networks and trust in Rome's functionaries/institutions. The owners of trading ships dealt with trusted captains and merchants, who then paid duties to Roman functionaries in Alexandria and other major trading ports.
In other words, tightly bound personal trusted networks work well as long as the state institutions that bind the entire economy are trusted as fair and reliable — not perfect, of course, but efficient and "good enough."
But when public institutions are viewed as unfair, unreliable, corrupt or incompetent, the entire economy decays. Even personal trusted networks cannot survive in an economy of unfair and incompetent state bureaucracies and private institutions.
The American economy is now dominated by enormous privately owned and managed monopolies and cartels that are the private-sector equivalent of self-serving state bureaucracies.
Big Tech, Big Pharma, Big Health Care, Big Ag, Big Finance, etc., are even worse than state bureaucracies because there are no legal requirements for transparency or recourse. Try getting a response from a Big Tech corporation when you've been shadow-banned or sent to Digital Siberia.
The sole remaining reservoirs of trust in American life are personal networks, local enterprises and local institutions. These are not guaranteed, of course; in many locales, even these reservoirs have been drained.
The larger the institution and the greater its wealth and power, the lower the social trust — for good reasons. The greater the influence of the managerial elites, the greater the disconnect from the everyday experiences of citizens and customers.
The divide between the elites and the commoners should prompt us to examine the low-trust path we're sliding down:
Nowadays, trusting someone you don't know closely becomes a gamble. Even relying on those you do know can be dangerous in a world where exaggerating and deceit seem like the only ways left for the average person to achieve financial stability.
In a society where trust is lacking, we see economic standstill and a weakening of social bonds. This is the state we find ourselves in today. As society becomes more divided, selfish, and desperate, it becomes increasingly difficult to find a way back to a place where trust can be restored.
Stay alert, stay informed.
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