Subscribe

Español

Thinking 2020

Written by Pablo González and Pedro Nonay trying to understand Covid 19’s consequences.

Entry 1
Entry 2
Entry 3
Entry 4
Entry 5
Entry 6
Entry 7
Entry 8
Entry 9
Entry 10

Entry 7 – Covid 19

April 28, 2020

I said at the end of entry  6 that it was my turn to talk about predictions. And I will do so. Of course, I clarify that they are based on the conclusions I have reached with my analysis, my head, and my information. There is no guarantee that they are true. But I will use them for my decision making, at least until something makes me change my mind.

I also say that I will put them in a somewhat disjointed way. To do it well requires a lot of “communicational marketing” time that I do not want to spend. And that I won’t give much more than a few cursory explanations of why I arrive at each conclusion, beyond the exposition of the previous entries (for the same reason of necessary marketing work). At the end of the day, I do not intend to sell anyone on the goodness of my conclusions, but simply to state the ones I have, and share them with friends.

On the other hand, recent information (to which I have been directed, precisely, by my friends, which is more based on podcasts than on readings, which is another symptom of changing times) makes me see that there are quite a few people saying things very similar to what I say in those entries (yes, they say it with better exposure and marketing). But, most of what I have been able to hear analyzes what is happening and does not get involved in what is going to happen. I am going to get involved, with the clear risk of being wrong.

Take the above as a disclaimer (haha).

But, before moving on to that point, I would like to make one last comment.

A bit of optimism: Kondratiev.

Almost all my friends know that I have been very excited about Kondratiev’s long wave cycle theories of economics for more than a year. Not because they are new (they are a century old), but because they are so applicable.

To summarize it crudely, Kondratiev was the one who best predicted the crisis of ’29. And he framed it in a periodic way, identifying the rhythm and the causes (always technological changes). He concluded that, every 70 years (approximately) the economy changes drastically. It is like one game ends and another begins, because the rules change.

Kondratiev divided each of the long economic cycles into 4 phases, which he named after the seasons of the year. Each cycle began with spring. Very curious that he went to the agricultural year as the base, and not to the natural year, and curious that also that was the natural year of the Romans, which began in March (month to which the Romans gave the name of their main god, which was Mars), although that is not so strange, because the Roman economy was very close to agriculture. What is curious, if not curious, then at least worthy of speculation, is that all the current “mess” started in March (fate?).

The fact is that, for Kondratiev, winter ended in total economic disaster. After the winter came the spring, where the new order began to “bloom”, then the summer, … Each of the seasons lasted a little more than 20 years. And both spring and summer were very good times.

So, under that theory, if we end early with Kondratiev’s last winter, what comes after that is more than 40 good years.

However, these will be good years for those who know how to adapt to the new rules, which is what we should apply ourselves to.

For those who do not want to go deep into Google about Kondratiev’s theories, I put below one of the best graphs summarizing them that I have found. Notice how winter begins, for him, with the concept of worry, and ends with the concept of despair (we are not that far from the end). Also note how he proposes investments in gold and the like for winter, and in markets and real estate for spring (of course, it is a summary that needs to be adapted to current times, but it gives an idea).

Therefore, we may be about to “start the good stuff”. Of course, we have to try to get to the beach before the boat sinks (we are no longer in the middle of the ocean, but a few kilometers from the coast, but it is not easy to swim those kilometers, better to get a little closer).

The sticking point is that Kondratriev expert economists had (before Covid 19) a near consensus that winter ended in 2025. Hopefully they now think that times have accelerated.

My predictions 

Having said all of the above, I will now go on to outline some of the things that I believe are going to happen, and which will shape the future world scenario:

Although I have already said that they will be a bit messy, I will start with more macro stuff, and then work my way down, as far as I can get.

  1. Duration Covid 19
  1. There will be de-globalization (unfortunately).

    But it will not be a total deglobalization that will lead countries almost to autarky. Rather, it will be partial. Something similar to what happened after 1929. At that time things were quite globalized (within the technological capabilities of the time). After the crisis, globalization subsided, but did not return to the levels of the previous century. The upper classes and core businesses (oil, cars, …) remained fairly globalized.

    Related to what I will say about geopolitics, those core businesses will be globalized within the 2 political blocs that are being set up. 

    Small and medium-sized businesses will be quite local.
  1. Inflation vs. deflation.

    At first they will avoid hyperinflation. I dare say for a time measured in years, but very few.

    This will be so because the macro-financial engineering tricks they apply will work somewhat. They will prevent currency printing (including their tricky variant of saying that the Fed’s purchase of junk bonds is not printing) from triggering currency devaluation. But that will be very much conditional on the velocity of money remaining low. When it stops happening, hyperinflation (or something like it) will follow.

    As long as demand is lower than supply, things will go down in price, as has happened with oil. In other words, devaluation. But when the equilibrium stabilizes, the currency will become weaker.

    Therefore, we can hold the money in cash, but I do not recommend doing so for more than a year or two. After that, it will lose its value. It is also not advisable to have long-term contracts referenced to these currencies (or, we must keep a close eye on the ones we have, and decide whether to negotiate any changes).
  1. Dollar and Euro

    They are very close to their end. It will happen as soon as the supply-demand equilibrium I mentioned above is reached. Which will be the time when interest rates will start to rise, and when inflation will also start. After that point, and based on all the “junk” that is in global debt, the best that those in control will come up with is to “wipe the slate clean”. 

    They will go down in history as the framework of the Weimar Republic.

    We have that time (very few years) to see how we disengage.

    The new coins are not yet assembled. We will have to keep an eye on them. In the meantime, the classic way out is gold. It is also worth having “things” instead of money. I mean physical things that people like, which will depend on the inventiveness and investment capabilities of each one.
  1. Economic power.

    The new bosses are the technology companies. The old banks, and their associated structures, such as old energy, old telephony, … will disappear (either by bankruptcy, or by being absorbed by the technological ones). Nothing different from what happened when the oil industry overturned the power of shipping and trains at the end of the 19th century (Rockefeller and Carnegie against the Commodore).

    It is necessary to get out of investments and contracts with this world. It is advisable to do so before the collapse, which I estimate in a few months.

    Of course, if the Covid 19 hiatus does not last too long, and does not resurge, the change of power will be a little slower. As a friend told me in a fortunate phrase: “overthrowing these kinglets and their associated aristocrats will not be an elementary task”. They still have power and they will try to defend themselves. They will lose in the end, but the speed depends on the depth of this particular crisis.

    In the world we are going to, of the importance of data and connectivity, they have nothing to do in front of the technological ones.
  1. Reindustrialization.

    No. I do not agree that we have to go back to “abandoned industry”. It is as if we were told in the 19th century that we had to go back to agriculture. 

    Of course, industry will be necessary. As agriculture is still necessary today (very much so). But it will become something of a commodity (as agriculture is today). It will no longer be the key to anything. It will simply be a very necessary business, with small margins, reserved for large operators who control each sub-sector and make their money based on volume.

    And it will not be important for employment (despite what everyone insists on saying), because automation will advance more and more. It is the same thing that happened to agriculture, which in the old days was the majority of employment, and now it is residual.

    Here I say that we will also have to change the traditional economic lessons. The primary, secondary and tertiary sectors are obsolete. In employment, almost everything will be what was called tertiary (services), a sector that should be renamed and subdivided into multiple categories if we want it to give us any useful information.

    As for the much talked-about “relocation”, I think there will be a lot of that, but not at the country level, but at the geopolitical block level. And the speed of implementation will be much slower than expected, because it requires a lot of investment. There are many opportunities linked to this.
  1. Geopolitics.

    The US will lose its hegemony (so will the dollar). China will rise, but will not replace it. 

    For some decade (one or two, no more) we will be in a balance of blocs similar to the cold war. Between them there will be little trade and no coordination. 

    This requires dismantling the infinity of cross-investments that currently exist between the blocs. This will not be immediate at all. In this reorganization there is room for many failures and many successes.

    China will have to look for its customers in “its allied bloc”, as well as in domestic consumption. Also its supplies, which is something it already has almost done (unlike the USA). 

    The US will have to do something similar. Since it has that job backlog and a very weak economy, it is going to suffer doing it.

    There is a relevant point in the amount of US public debt, or that of its allies, held by China. A potential agreement would be something along the lines of China saying to the US: “OK, to avoid problems, I’ll let you not pay me the debt you owe me, as long as you transfer ownership of all your investments (and those of the people of your allied bloc) in my area of influence”. 

    It is up to us to know in which block the country we are interested in (Spain, or another) will fall, and which block we see as the best option for the long term future (be careful, this is not so obvious). 

    If we don’t like where we are, we will have to find a way to move. Because the new normal is going to be here for a long time.
  1. Block policy

    The Chinese bloc will change very little in its way of acting and making policy. They will only modify a little the type of agreements with their satellite countries, which will not be required to implement communism, but commercial vassalage and the guarantee that the government has the masses under control will suffice.

    The other bloc will change a lot. Nothing to do with continuing the capitalism we know. It will change so much that I cannot summarize it here. I try to describe the changes in what I indicate up to point 15.
  1. Nationalizations

    Outside the Chinese bloc, there will be an increase in nationalizations. But it will not be because of integration into communism (that is in the Chinese bloc).

    Rather, it will be due to two different causes:

    • If public money has to be put into a company, the previous crisis (the idea of doing it on a non-repayable basis) will no longer work. The state that puts it in will say that either it will be paid a good interest (well guaranteed), or that putting the money in will be considered as a capital increase, so that it will become a shareholder (relevant, given that the company in crisis will have a very low value before the new money enters). Nothing very different from Franco’s INI. 

      Whoever is in a company of this type will have to decide whether it is better to file for bankruptcy in time, or to accept to be a minority in the reorganized company, without being responsible for the debt burden.

    • Because the State decides that a company is too strategic for the national interest. In this case we would be dealing with a concept of expropriation, in which it will be necessary to discuss, in lawsuits that will last for decades, the concept of fair compensation.

      Whoever is in a strategic company will only be able to decide whether to get along directly with the government, and accept the long lawsuit (to see how it turns out), or whether to collaborate with them, agreeing on some quality of life during the lawsuit, as well as “being well seen” in the lawsuit itself (the clearest case will be that of maintaining the ownership of a smaller company, which has the nationalized company as a captive client).

  1. State Economy.

    I continue with the “non-Chinese” block.

    As a result of the nationalizations mentioned in the previous point, as well as the new companies that will be created from scratch with the argument that this sector is strategic, there will be a strong increase in the public production sector.

    Again, nothing different from Franco’s economy.

    Of course, and inevitably, this will lead to an increase in corruption, as well as great inefficiencies. A pity, but that’s the way it is.

    The space for private enterprise will be reserved for the few large, non-strategic companies and SMEs. They will be allowed to act, as long as they do not bother too much, and accept government corruption (which will be in more disguised forms than in the past). 

    That is to say, the market economy will be restricted to the small bourgeoisie, who will be left to work so that the public sector will not have to descend to these thankless tasks, which it would not know how to do well. Nothing very different from what has always happened, even in the Middle Ages. There will be the rulers, their pampered aristocrats, the small bourgeoisie (even the middle), and the masses. And, above them all, the real power, which will be the technological ones.

    There will be a small group of countries where this will not be the case, but much nicer, but I deal with that in point 12.
  1. Freedom, privacy, justice, …

    For the record, I am still in the “non-Chinese” block.

    All of these concepts will still exist in some form. But they will all be downgraded from what we knew (not that they were full).

    With the excuse of the need to avoid new health or economic crises, they are going to implement new forms of control, which will remain forever.

    It is the example of the surveillance of our movements through the telephone, or of the things we share through the networks (they will call it system-destabilizing hoaxes), …

    Actually, that was already happening, but the information was in the hands of the technology companies, and they used it to further their business, not to monitor our political activism. Now the government is going to have it, and they’re going to use it for their purposes. And the technology companies will accept it, because it is the way they collaborate so that their power is not taken away from them (although they will not tell the government everything they do with the information).

    In any case, Covid 19 has given us the ultimate example: haven’t we all lost our freedom to go out on the street? And we have accepted it for good. That’s the way it’s going to go.

    In any case, life will be bearable. You will be able to do almost anything, as long as you stay out of trouble. 

    We must realize that, without reaching what they will do in the other bloc (the Chinese), there is a little convergence between blocs in this (and in many other things). It is as if this block will close a little, and the Chinese block will open a little (which is what it has been doing).

    I am struck by the fact that here, again, the former Franco regime is a good example.
  1. Social class inequality

    The first thing to say is that the problem is not so much inequality, but the fact that the lower class has become too low. If that class had an acceptable standard of living, it would not matter too much if the upper class lived much better.

    As this fact is the breeding ground for revolutions and wars, and as these situations are not wanted by those who want to control each territory, they will apply ways to avoid it (let’s see if they succeed, because war is a probable option, even if none of us likes it).

    It is important to remember that those who “control the scene” have never cared about the quality of life of those at the bottom (neither now, nor at any time in history). What they want is to be allowed to do their own thing. Quite simply. For them, people are nothing more than a necessary hindrance for their territory to be exploited (and I have not become a far lefty, it’s just that truths are what they are).

    Different places will apply different solutions to this:

    • Some, even within the “non-Chinese” bloc, will apply brute force. Strong police state, and fuck those who live badly, but don’t bother them.

    • Others will investigate subsistence formulas. This is the case of the famous minimum income, along with a slightly softer police state.

    • And others, the more fortunate ones, will investigate formulas that allow the lower classes to live well so that they do not revolutionize. They will do so along the lines of the social democracy of the Nordic countries, but changing the capitalist rules in the sense of restricting corporate profits and increasing salaries, as well as in the sense that business activity should internalize environmental and social costs.

      These will be the places where life will be more pleasant, without having to live with suffering. But they will not do it out of kindness, but out of efficiency to their goals. 

      This is the group of countries to which I referred in point 10.

      In the other places, the upper class will have to live in ghettos, so as not to coincide with those who have a hard time and avoid being killed. 

      Choosing this system, or the previous ones, will depend on the cost assessment of the powerful: is it cheaper for me to organize things so that the poor are less poor, or do I spend the money on strong police?
  1. Populism

    Related to the previous point, there will clearly be (and already is) a large increase in populist regimes.

    When the masses suffer and are mostly uneducated, and as long as there is democracy (even if only formally), the best way to get their vote is with a messianic leader. It does not matter that the leader speaks profound nonsense, what matters is that he has empathetic ties with the masses.

    That leader will deceive the masses to get their votes, and then make agreements with the real powerful to collect their huge commissions for the work of controlling that territory.

    I don’t see those leaders as being in the style of Hitler, or Lenin. They were really the leaders of their revolution. I see them more in the style of Perón.

    This will be the path for many non-Chinese bloc countries. Especially for those who choose the second path of those I mentioned in point 12.

    Related to this is the case of the autocrats. They too will achieve power on the basis of the support of the masses, as a manipulable uneducated majority, but they will gradually abandon democracy without complexes. This is what will happen in the countries that I have mentioned as the first case in point 12.
  1. Puppet states

    As I said above, geographic political power will have no other use than to control the local masses and allow access to local resources (mining, agriculture, labor, …).

    This political power will not have any capacity to control the real power, which will be done by the technological ones. Nor will they be able to manage local autarchy, because it will be avoided. There will be block autarchy, but not local autarchy.

    Therefore, these local powers will be “surrendered” to the orders of the real powers. They will be puppet states.

    This will occur in almost all states that are not “blockheads”. Actually, this has been the case for a long time. But now it is going to happen with greater force and less disguise than before.
  1. Europe as a union

    Based on all of the above, it is clear that Europe has no chance of being “head of the block”. 

    The most it can aspire to is to be an important partner of one of the blocs. But in that case it would be uncomfortable for the leader of that bloc, who would prefer to handle things without partners.

    Moreover, in the distribution between the blocks, I have already said that Europe could be the “spoils”.

    Therefore, it is in the interest of both blocs for Europe to be disunited, and for each country (or region) to have its own puppet government that it chooses as a bloc to serve (in the sense of servitude).

    Therefore, I see the continuity of Europe as very bad. It could only happen if there is a lot of intelligence and coordination in its governments, in order to sell themselves together a little more expensively and less servile to the corresponding bloc. But it does not seem that such intelligence and coordination is the main factor of the current European governments.
  1. Rebus sic estantibus

    This point I make not as a trend, but as a potential intelligent diversion.

    If the rule of law and freedom are maintained, even formally, which I believe they will be, there is a very important gap for risky lawyers. 

    The truth is that there is no greater change of circumstances than for a country to make decisions that modify the entire Law, as has been the case of eliminating freedom of movement with confinement.

    All individuals and companies had made their previous decisions (life decisions, investment decisions, hiring decisions, …) based on a framework that has been completely changed by a unilateral decision of the government. However justified that government decision may be, it is clear that the rebus sic estantibus clause can be invoked to annul contracts. And it is clear that a guilty party can be identified from whom compensation can be sought: the state, which is the one that has changed the rules.

    It is also clear that whoever gets into this mess will be subjected to the greatest pressure imaginable.

As this note is getting too long, I will cut it here, and continue later.

As a summary of the points discussed, I say that it seems that, in the old rich countries we are going to set up regimes with some freedom for small things, but with almost medieval vassalage for big things. I can’t resist putting here an excerpt from something I read today at https://medium.com/new-york-magazine/in-2029-the-internet-will-make-us-act-like-medieval-peasants-96422d3c7155.

If you have any feedback or comments on what I’ve written, feel free to send me an email at pgr@pablogonzalez.org.

You are allowed to use part of these writings. There’s no property rights. Please do it mentioning this websitte.

You can read another writings of Pablo here:

Esta web utiliza cookies propias y de terceros para su correcto funcionamiento y para fines analíticos. Contiene enlaces a sitios web de terceros con políticas de privacidad ajenas que podrás aceptar o no cuando accedas a ellos. Al hacer clic en el botón Aceptar, acepta el uso de estas tecnologías y el procesamiento de tus datos para estos propósitos.
Privacidad