Transcription
The idea of skin in the game is that it's not so much a deterrent as much as a filter. When you drive on a highway, even on Friday night or even on New Year's Eve, you know, anyone could make could drive backwards, kill 15 people. Why it doesn't happen frequently? It's because you can only do it once. Drivers have skin in the game. So car accidents kill people. You kill innocent victims, but you're first to go or or you're likely more likely to go.
So skin in a game used to be part of war, but that was my talk in 2018. So I'm not going to repeat that talk. I have something else. But so it was it was to be because most commanders were on a on a front line. So society got rid of Sullivans and all these guys. Okay. By putting them in front of line. So war mongers were more likely to die. And this is how we had control that we lost now with technology because you can be in a air conditioned room, kill half a million people and incur no personal risk.
We have problems understanding dominance and in geography mostly because historians are statisticians and I'm statisticians. So view things differently and you got to look at uh history more as a process than as some kind of uh textbook museum description of things. In 2007 when I published the black swan it's an old book now the United States had about 20% of the world economy. I'm using percent power parody which is the most rational one. Europe, same thing. 20 What's Europe now? What's EU now? 20%. And China 6%. Now the US is about what 15%. And declining, dropping. Europe is about 14%. And really dropping. And was China north at 20%. Okay. So I'm talking about within the life of a book, right? Okay. So you think that the future is going to be any different? Well, there's something called compound growth, a very small differential in growth can produce monstously large outcomes. And this is what Warren Buffett discovered, okay, over time. So are we talking about the next generation even half a generation from today we know who's going to dominate the planet. Okay, someone may argue well PPP you know uh is not real is you real dollars even in real dollars the story is similar but the other thing I'm going to say now that we're talking about weapons at PPP how much would it cost to produce this chair probably made in China probably cost $1 there how much would it cost to make that chair here a lot I mean we and in the military Apply that to the military. We spend what? About a trillion. How much do the Chinese spend? About a third of that. Just compare the prices what they get for a third of that. And you realize who is a real superpower or getting to be a superpower. And if it's not a superpower now, wait about two hours, I don't know, or sure or two weeks or maybe two months. Just like we see buildings coming out of nowhere.
Now this is not pro-China anti-China. This is just a description and as I noticed in the black swan we have difficulties dealing with stein with projecting things with time the the way we project how thing will happen based on a very primitive analysis of the past no even you know no consideration of second world effects. So this is now you can expect that this meeting about war may have to take place in Beijing because you may find it more important to convince them than a bunch of people in Washington who are overpaid because of you know and then we have disease they don't have the three diseases we have the first one is educational cost 100,000 you know what they produce for you know I mean as a professor we have students coming in very qualified How much does an education cost? It's not one order of magnitude. It's two order of magnitude less. Okay. The second point is healthcare. By now, China's 20% of the uh nature index and publication largely in biology and medicine. Okay. So you know that they're and and their healthcare is improving very fast and you know how much cheaper it is for them to do business and our the third problem in the military there is an escurve in life in biology everywhere this I discuss in antifragile in great details that things go up with accelerating returns convex and then it slows down and you got to imagine that that too applies to economic growth post.
Once you have a twocar garage, do you want to have a fivec car garage? Maybe. Yeah, some people like to have five cars. All right, some people collect cars, but in general, the incentive is not there. So, China is growing fast. Why? Because they still have people who don't have a car, okay? Don't have a car garage. So, it's still growing, okay? they got a lot of people and and you can you know you have your own growth to take into consideration. So whereas when what whereas Europe they have their one month vacation they'd like to grow but there's no incentive. So you have diminishing growth and it's entirely healthy. You reach destination. It applies to your life, you know. Same thing with food. You don't have food, you want a lot of food and then you saturate. Now the what is the problem there? The problem is that it is the countries that have reached saturation that have the most debt amount of debt and that's when you need to grow. There's a French expression one only lends to the rich people. So the problem is you get rich and then you borrow you borrow a lot and then now you need to grow and how you going to grow okay and and of course you have blunders like by this current government. They don't realize that the aim of these tariffs is to prevent growth. Why? because the economy has 4% unemployment. So if you're, you know, you're going to have someone who's a brain surgeon, you're going to have to move resources into lower margin items. Of course, you're going to slow down economic growth. It's the equivalent of asking for more balance um a brain surgeon to become a gardener once a week, you know, take care of this garden or her garden uh on grounds that hey, you know, it's already ripped off by by gardeners. You got to do it yourself. That's the reasoning of the Trump administration. Well, that depresses GDP. So, it's going to is, you know, uh I'm sure there are economists. Yeah. I mean uh they're say I disagree with economic establishment at that point. That's pretty much orthodox economics. So so we have a problem now with that metastatic government and of course you know u irresponsible fiscal policy. All right. And we don't have the political mechanism to correct for that because people can understand that debt is is maybe interesting when you're growing in the the lower part of the S-curve but it's a bad thing up top and you got to do something quickly because soon most of our expenditure will be servicing the debt. Ah ah but there is a problem and what is the problem is that you got to borrow. Now you depend on borrowing and guess what you need foreigners or locals ah to buy your debt. Now what did the uh former president Joseph Biden do in 2022? He convinced any human being on the planet who is not part of the US government to avoid US denominated assets. Why? Because if you freeze if you you freeze assets in your own currency, you're discouraging anyone from it's no longer a safe currency. If if you because you had breakfast with the first cousin of someone who knew Putin when he was a student in St. Petersburg. Now your assets are frozen. Okay. What are you going to do? Avoid the dollar. Hence go where? Gold. So we have more and more transactions conducted in US dollars nominally with the money stored in gold. And guess what? By forcing the EU to do the same and even Switzerland to freeze assets, you're you're basically convincing people that that's what we got to do. So gold rallied now about what 35%. And all central bank reserves and bricks are moving on to gold. Okay. Now not counting the new I would say schizophrenic or I I would I would say a random rather than schizophrenic because schizophrenia has this pattern but here is random. Our new random president is definitely convincing people to stay even further away than the previous less random but more predictable but of course no less nefarious one.
As I said, there's an S-curve and you got a problem from that. Uh, immigration or migrations here in Western Europe anywhere. When the economy becomes mature, it so happens that fewer people are interested in uh cleaning bathrooms. They're more interested in teaching uh medieval history than cleaning bathroom. You can't blame Do you want to blame him for that? Okay. So, you run out of people to clean the streets. You don't yet have robots to do that and what do you do and you don't have domestic services you know so you import people okay hence immigration in mature economies western Europe and dependence on that immigration in the US I tend to ride my bicycle because I became a cyclist since 2018 which changes my life so I added uh more books and of course uh the activity of cycling. So I go to neighborhoods and all I see is Latin American workers. I mean I didn't ask them for their uh uh immigration status but but I think I can just looking at the statistics make my own inference. So now what happens if you deport a substantial number of these people have a brain surgeon as I said we'll have to do what to go mow the lawn uh learn masonry and uh you know and then of course empty the garbage can there stuff like that that brain surgeon prefer to delegate. You know, now the the and then you know what happened during COVID when we had a small little shortage of labor? What happened to prices? Restaurants had to close because waiters were asking astronomical number of dollars. Well, that's what would happen without immigration. This is what's not sinking in that it's fine. You want to be in ethnost state, you're welcome. Free. It's freedom. But what comes with it is that you're going to have to teach your people to clean bathrooms. All right? So, you got to decide. And it's a market that decided immigration. This is why Meloney got elected on a platform, an anti-immigration platform. And guess what? Immigration increased in Italy. Okay? and uh and it would have been worse if Ukraine did not supply Western Europe with all these people eager to work doing anything. Okay, so that's the problem we have now with ICE. I mean they fundamentally know that the US economy would collapse without illegal immigrants simply because that's how it was built. You had to reverse. You have people have to have no lawn. You had to change the culture, reduce the size of houses and live in prefabs. I mean, of course, the prefabs would be made in China and shipped here or maybe made in some in Mexico with Chinese equipment. But so, but you can imagine what would happen if you want to restrict immigration. So, you you have this you can't have the pioneered tool. So what happens that the solution they're opting for is a solution of humiliating the workers but sort of keeping them here. Okay, that's what is happening with ICE. So somewhat as vicious and not far from here. I mean you can you can ride a bike you know uh to where the person is operating and it looks like that's the only motive because economics doesn't match the uh I mean the output is not what so it's simulating so or maybe getting borders so we have a problem here and elsewhere now you say okay I want to be museum state and It's bad to have immigrants. That's fine. You kick the immigrants out. You have your museum state and and you say, "Okay, I'm not going to have an economic growth." Or maybe the GDP would go down by 30 40%. That's fine. But you got to make your choices rationally. Not like like say I want to eat a cake. I skip the cake now. Lunch. I I want to eat the cake and I want to lose weight. Okay.
Today in Europe, the government represents about 55% of GDP. In France depends if you count education or not up to 70%. I don't know it depends how you count say high numbers and here in US it's actually higher than reported because the government is involved in the recent plus you have local government. You got to add that up. 100 years ago it was mostly under 10% and often under 5% of GDP. So you realize that the government role had been creeping up in things that that you know so when we talk about a dictatorial government in 1900 they couldn't control that much because that was not much of the economy that was not a large share of the economy compared to today. So government has been creeping up as even in in in economies deemed to be uh driven by Adam Smith. All right, government be creeping up. So this is the something you can't stop. Scale matters as a central element of any description. And let me say so I had an apherism uh inspired by by two brothers and I was arguing with them and about who libertarian not libertarian why the size and the scale matters and the aframe came out like I'm libertarian at a national level national mean US uh Republican at a state level democrat on a municipal level and communist at a family level. All right. You got so you can be and and based on so so basically it depends on scale where you want the government to be because sometimes you can't escape government. If you're member of country club they have a government they have the rules enforcement all of that. Okay. So uh but that that this is not trivial point because when we compare countries when we look at the successes of nation states all right the one that had been successful are tiny ones okay so not or or within tiny ones city states the citystate model has has had worked beautifully uh in history and when we look at the success of Dubai because it's small right Dubai Singapore is small Okay. Um, Venice was small and lasted a thousand years. So, we look at successful models of governance. Okay. You always see scale. And what's happening is that with the growth of the US economy and of course, hence the complexity of it. we are going away from governance naturally and and so you need even more drastic control of the US government than we have had to have in in say 40 years or 50 years ago. So I don't know there questions are not allowed I think. No no okay so no questions. So, thank you very much.