In the meantime we wait and see whether Jeremy correct
bloomberg.com
Jeremy Grantham Warns US Stocks Are About to Be Crushed
The famed value investor says on this week’s Merryn Talks Money that a “major decline” is imminent. “The longer and the higher they climb, the worse it is.”
Merryn Somerset Webb28 February 2025 at 13:00 GMT+8
Jeremy Grantham
Photographer: Vanessa Leroy/BloombergIn this week’s episode of Merryn Talks Money, host Merryn Somerset Webb interviews GMO co-founder and notorious caller of market bubbles Jeremy Grantham. Grantham, who also serves as the firm’s long-term investment strategist, leans in to his more than five decades of investing experience to explain the current “super bubble” in the markets. He comments on when we’ll see a correction, the fate of the green transition and why he’s so concerned about population decline.
Here is a lightly edited transcript of the conversation. Listen in full below, learn more about the podcast here and subscribe on Appleand Spotify to stay on top of new episodes.
Merryn Talks MoneyGMO’s Grantham Says US Markets Are About to Be Crushed
Merryn Somerset Webb: Jeremy, thank you so much for joining us again. We really appreciate it.
Jeremy Grantham: It's a pleasure to be here.
Webb: I know that there's many things that you and I would both prefer to talk about, but we're going to have to start with talking about the American stock market. Last time you came on, you said, and I absolutely agreed with you, that everything had run ahead of itself, valuations were too high and we should definitely expect, although we can't time when it might happen, a very serious correction in the US [00:02:00] market. It still hasn't happened. We keep thinking it's going to happen. There are various signs that there's stress in the market. And for example, when the DeepSeek news came out, we looked at that and we said, “That'll be the end of the AI bubble.” But no, it never seems to end. It just keeps going. Has anything changed in the way you look at that market?
Grantham: I've always looked at it from the point of view that the longer and the bigger and the higher it goes, the more exciting and dangerous it will be, and this has moved up the rank of super bubbles, but it's nowhere near Japan, the mother and father of all super bubbles in ‘89, and it's nowhere near their real estate bubble of the same era.
They are the two great super bubbles of history, but a decent way behind, I think this is in third place. Ahead of 1929 just, and ahead of December [00:03:00] 2021, which actually met all the characteristics of a late stage super bubble and one really should have expected it to blow up and it did. ‘22 was a good blow up across a lot of asset classes, but AI, ChatGPT came to the rescue in November of ‘22. And initially for ten months dragged by the Mag7 and the rest of the market going down a little bit, that kept going for about a year. And then in October, November of, uh, ‘23, the market said, this looks serious, we better join in and the breadth became, uh, positive and had a perfectly decent ‘24. And the net result is that every measure of traditional value, the best of the common ones being Shiller PE, is at a record. Most of the ordinary ones are in the top one or two [00:04:00] percent and the best one of all, which is a variant of total market cap to total value added in the economy, that has this one, the highest of any in history.
Webb: That's the Buffett measure, right?
Grantham: It's a variant if you take out financials and you tweak this and you tweak that. Hussman has a, a good variant of that. And they make it clear that this has overtaken ‘29 and 2021 and moved into first place on the American record, still way behind Japan. And then Ben Inker at GMO and I, 25 years ago did a behavioural model which says forget all the logic about the efficient market or how it should work and dividend discount models and all that, just let's see what actually it explains and what is explained since 1925 and explain very well indeed is low inflation the market loves it. High inflation, it hates. High [00:05:00] profit margins, of course, the market loves it. Growth rate has no correlation at all, but stability of GDP growth, the market likes, and that's way in third place. So the things that make a portfolio manager feel comfortable, that's what decides what the PE will be. And even on that model that had a nearly perfect record. The market could drop 50 percent to get back to the normal response of flaky human beings, the normal behavioral responses would have this market at a perfectly respectable 18 PE on Schiller, and it's actually just over twice, it's 37.
Webb: And the argument that the introduction of AI and the enormous progress that's been made there and the way that AI is going to permeate through our economies and change our lives as we know them is a justification for the market staying this high, ie valuations will grow into [00:06:00] reality, or reality will grow into valuations, should I say, make this level okay, that that doesn't resonate with you at all?
Grantham: This is the argument used for every important new technology. Every really important new technology has had a bubble around it. A classic example in the old days was the railroads, where it was so obviously going to change everyone's life, and it did. So that everyone could see it clearly, everyone could put their money in it because they knew it was going to change the world. And so they started to build and design six railroad lines between Leeds and Manchester. And, of course, there was an almighty crash and everyone lost their shirts. It was one of the more spectacular busts.
That didn't say that railroads weren't important, or railways in Britain. They were incredibly important. They did change everyone's life. They did elevate GDP and productivity, [00:07:00] but they were so obvious. But in the early stages of course they attracted everyone's capital and a bust. and then you fast forward to the more recent example and that is the Internet. The Internet again was obviously going to change everything and it sucked in lots of money lots of pet dot coms and everything had a spectacular blow up and let me just focus on Amazon. Amazon went up over a couple of years twelve, fourteen times. It was wonderful and then when the market broke it dropped a spectacular 92 percent, you can check this, Amazon went down 92 percent and then out of the wreckage it was one of the handful that inherited the earth and gobbled up the retail market as others gobbled up other things and all the pet dot coms got washed away.
It's precisely the importance and the obviousness of the importance, that guarantees a bubble. And very few [00:08:00] things have been as obviously important as AI. It will, of course, change our world. It is, of course, impossible to know in what ways, and whether it will be entirely beneficial or not. And one day, one suspects we will end up with something like a world run by automatons, cyborgs, whatever we want to call it. It may take three hundred years. It may take fifty, but I lean towards the three hundred as long as civilization hangs together which is another big story we could discuss. But when you get to that point you have to always remember productivity produces. It has no offsetting consumption. So the way to think of that is just skip right to the end: one hundred percent cyborgs, no workers. What happens to demand?
The answer is of course the whole system is totally unbalanced. There's no demand and therefore there's no need for the cyborgs’ production [00:09:00] unless you take the value the cyborgs are producing and pass it through to the average people so you have to have a very decent guaranteed minimum wage and as long as you do that, everything balances and in the old days, by the way, from 1935 to ‘75, the productivity was 3 percent and the rich people got richer by 3 percent a year and the poor people got richer by 3 percent a year and everybody was happy as a clam and that turns out to be from economics and social point of view, the golden era. And then from 1975, particularly in the US all of that productivity which dropped from three percent to say two and a half and then to two, all went to the top ten percent, one percent. The average worker hardly made any progress at all since 1975 for an hour worked and that of course generates a lot of disgruntlement and complications which we see everywhere [00:10:00] really including the US. Despite our brilliant stock market, the underlying frustration is very high and the same in Europe. And how that manifests itself is you vote against the party in power. It doesn't matter whether it's right wing, like the conservatives in the UK, doesn't matter if it's left wing as in France and so on, you kick them all out.
It's a manifestation of the fact there's a very high level of disappointment amongst a broad band of workers, they're simply not doing as well as they expected, not doing as well as their parents did. Sorry, long answer.
Webb: That was a long answer, but it was a good one. Thank you. So that rather suggests that successful adoption of AI needs a huge level of government input.
Grantham: If the government does not smooth out the benefits of AI, you will have either starvation or revolution.
Webb: It's interesting, isn't it? Because we feel like we're moving into an era, particularly perhaps in the US, where smaller government is valued over big [00:11:00] government, which I would generally agree with, that a smaller government might be better than an overbearing government.
But your suggestion is that as we move into an AI era, if the government doesn't take huge steps to, well, redistribute, it won't work.
Grantham: And by the way, that doesn't take much government. You could have a few hundred people tucked away in D. C., making sure that income is redistributed. That’s not the part of government that chews up all the workers. It's pretty straightforward. You have a high minimum requirement to keep people alive, and to keep people reasonably content, away from the barricades in the high street.
Webb: Okay, so let's go back a little bit to the market. I can feel we're heading off on tangents we both want to go down, but we've got to deal with the core first.
Is there any part of the US market where you would feel safe? Obviously, we would agree that the AI stocks, AI adjacent stocks, tech in general is very overvalued, but it's not necessarily the case across [00:12:00] the board. So if you wanted to stay in the U. S. and onto this huge part of the investing community, they find it very difficult to think at all about leaving the U. S. market or even rebalancing away from the U. S. market. If they were to stay in it, is there any sector, any part of it where you would say, you'll probably be okay if you stick with that?
Grantham: Yes. Obviously, the future for greening the economy is going to be a long and bumpy one, but physics cannot be bullied away into hiding. And four years is only four years. But the remorseless damage that we have all seen in the last two years, the escalation of fires, floods, just sensational, obvious to everybody except the one or two percent who are blinded by political beliefs, I would say. That will just march on. If we do not solve that, civilization as we know it, fails.
How long it will take is almost anybody's [00:13:00] guess, but it's happening pretty fast, pretty remorselessly, and we have to fix it. I think we probably will fix it. And to do that, to green the entire global economy is a massive challenging job that will take lots of investment, lots of workers, and it will be done, I think.
Since the psychology has smashed these stocks down, and since the logic of the physics is inevitable. Unlike most things in the stock market, I would say that is an area that we'll have sooner or later, a massive regrouping and a huge outperformance of the rest of the market. Secondly, I believe that, the wider environment that we will get to talk about is much deteriorated, and that we will have to get used to many more short shocks to the system, and many more big shocks to the system than have characterized the last 75 years.
In [00:14:00] that environment, you do not want to be caught with a lot of leverage. Leverage is going to be like the 1930s. Leverage is just going to take you out of business. You have to be able to withstand shocks unexpectedly arriving, and to do that, you need little or no debt. And secondly, if you want to survive, you want to have decent profit margins to give you some resilience.
Marginal companies, cheap as hell in 1929, did not outperform the Coca-Cola's who were brutally expensive. The Coca-Cola's went down 75% but the very cheap stocks, the number 7, 8, 9 automobile companies and so on, they all went out of business and the ones that survived went down 96%. And when you're starting from 4 out of 100, to go back and catch up the Coca-Cola's who are still at 30, you have to go up 6 or 7 times just to get back in the game.
The 30s was a pretty good ultimate [00:15:00] reminder. That things are cheap, usually for a pretty good reason, so you have to tread carefully. If you're going to play the cheap game, you've got to make sure, it is armour plated with as much quality as you can get into it.
Webb: Can I take you back to what you were saying about the green transition and greening the economy? Even if you put aside the next four years and what might happen around renewable energy and climate change during the Trump period, it is still the case that the national grid in the UK across Europe, the electricity grid everywhere and including in the US, still has to be massively upgraded, massively improved because of AI.
So even if you were to put aside the discussion about climate change at the moment, it still seems that there's a lot of scope for that build out to be a good area to be invested in.
Grantham: Yeah, I think AI will improve all the aspects of the economy that you're trying [00:16:00] to improve. So it's very helpful for green tech in general, the problem is it it helps everybody. And so you have to ask yourself question: is this society acting quickly enough in general, or is it heading towards the cliff, just simply moving too slowly, protecting its corporate profits too much and allowing the carbon count and the methane count to just rise too high and seeing tipping points any minute now as tundra melts and so on and so forth.
And I think the answer is we're not looking too good. And what AI does is accelerates and makes more efficient the process that you're on. And unless we're lucky, what that will mean is that the system will run quicker and more efficiently towards the cliff edge. And for every one item that you improve, there will be the usual five in the current system that are improving to make [00:17:00] more and better useless consumption goods.
And we see this, by the way, in the inordinate increase in electric demand and the coal and gas that goes with that around the world in order to fuel AI. Along with those other cryptocurrency dangers.
Webb: We might come to that later.
Grantham: Finally, after decades of actually flat use of electricity, it's now not only rising rapidly, but predicted to rise steadily and rapidly into the future because of AI and cryptocurrencies.
Webb: But it was rising before the whole AI boom, electricity demand had started to rise as a result of the electrification of various things as a result of the attempt to decarbonize, so it was already happening pre AI.
Grantham: Well, hardly. And if you took out cryptocurrency, it was at most drifting upwards. And now, no one would accuse it of drifting outwards.
Webb: No, definitely not drifting. Let's talk, if we can, about [00:18:00] other stock markets. I know I said earlier that a lot of investors find it difficult to imagine moving any weighting out of the US, but there has actually been a shift towards Europe this year. And there's also a growing discussion about the cheapness of China and whether this might finally be that time to invest in the Chinese stock market. Do you have any positive feelings towards any other global equity markets?
Grantham: I have had no argument with the non-US markets, they've been reasonably priced, perhaps a little overpriced, most of them, but nothing much for a long time. And they still are. Of course, they are much less dangerous to own and they will very likely over five or 10 years crush the US market as has happened several times. That's how it happens, the US market will have a great decade and then foreign markets will have a great decade and close the gap a bit, and that's what will happen this time, [00:19:00] I'm sure.
Now, will they be sympathetic in a major decline in the US? Which I suspect is waiting for us. Yeah, they can be sympathetic. Just to remind you of how untidy the world is. The emerging markets with a volatility 1.3 times the market in 2022, the third year of the decline, the S&P went down 22%. This was not pleasant for a third down year in a row.
And you might've expected emerging markets to go down 30, but they went down 2. They were just about flat, and a 20 point out performance like that on the downside is completely a reflection of different values. It does happen, and it probably will happen. They will probably be sympathetic, and there will be periods when they drop quite frighteningly to show sympathy, but in between they will regroup and they'll regroup faster.
And after the passage of a decent time, they will be way ahead. I am very confident. Putting [00:20:00] timing on these, as we've always discussed, is pretty much impossible. But to go back to the main event here, The longer and the higher they climb, the worse it is. And we were hanging out with a zero weight in Japan for three years as it went from 45 times earnings to 65.
That is a whole lot worse than the US is today. And what was the price they paid? That was a unique event and they uniquely suffered for it. They spent 20 years getting to a low and they became a cheap country. From 65 times earnings, they became the cheaper one.
Webb: In 20 years, it's extraordinary, isn't it? If you were to sit down with any major investor at the moment and say, there's a distinct possibility that the US market will fall by that amount, and it'll take 20 years for you to be evens, no one will accept that.
Grantham: Absolutely not, and they never have, and they never will. Doesn't mean it hasn't happened. Every time we've had a major bubble like [00:21:00] 1929. Even in 1972 and 2000, the housing bubble. The housing bubble, by the way, was a bigger bubble than the current US stock market. Statistically, it was very impressive. There'd never been a national bubble like that. Housing used to crash in California while it bubbled in Chicago.
But that was the first time it did it. And that made it a real outlier statistically.
Webb: I remember being told over and over again during that bubble that American house prices had never fallen and they never would.
Grantham: And by the way, Bernanke said that. The US house prices had never declined. And to which I wrote in a quarterly letter that they had never bubbled before and whenever anything has bubbled, it has always declined. And of course it did. It was very well behaved, the housing bubble. It declined in three years exactly what it had gone up in three years, much to the cost of some poor unfortunates who got sucked into the housing market for the [00:22:00] first time.
Webb: Yeah, no, that hurt an awful lot of people. And actually, this current bubble may have hurt an awful lot of people, maybe not in the same way, because most people won't be leveraged into it. But nonetheless, there's an entire generation of people who now believe, as is the case in every bubble, that what they've done is bought into a sure thing.
So there's a lot of disappointment ahead, right?
Grantham: Yeah, cryptocurrency for one, which is now four trillion dollars.
Webb: When you talk about cryptocurrency, are you talking about Bitcoin, or are you talking about currencies as a whole, and do you make a division between the two?
Grantham: I was talking about all of them added together, but none of them produce anything, and none of them are a medium of exchange, materially, but they are a wonderful speculative medium. And with the stimulus program of Biden and COVID, 3 trillion dollars to play with in a system that had never had that kind of money locked up at home, nothing to do, but learn how to speculate [00:23:00] and learning to speculate. It's pretty darn easy, you just buy what's moving and what everyone is shouting about.
And I did that myself as a young man, I made a quick fortune in the two years out of business school. Enough to buy a couple of nice houses without a mortgage. I know, but I didn't buy the houses, silly stocks that all blew up. And we went from that equivalent, which today would be 2 million dollars, a million dollar house in the suburbs of Boston, et cetera, and we went back to a 20,000.
And with that nest egg that I had, I had the courage to start a business with a partner. In the investment business, because I could live on my loot, which I managed to lose so quickly that even before we got our office set up, I had lost it all.
Webb: Yeah, and you still managed to get some clients. It's a miracle.
Grantham: No, we didn't. We didn't actually get any clients for quite a while. But it did, of course, teach me a very powerful lesson that even in my own [00:24:00] account, on the frivolous end, speculating in crazy stuff was not a great idea. So I reverted to my Yorkshire roots of waste not, want not, and value for money.
Webb: And that's worked out pretty well.
Grantham: But to be slapped around the head, by the way, dear listener, when you're still young and don't have that much money to lose is a terrific idea rather than having it happen to you when you get carried away at 60 when you're about to retire, which can be brutal.
Webb: Let's not worry too much. I can feel myself getting stressed about all the people who may find themselves in difficult situations as your correction comes. So, let's move on to talk about other difficult things. One of the things that I know you think about a lot and we were talking about earlier is population dynamics. And we say in the world of journalism that you must never, ever write about demographics. Never. Because if you write about demographics, everything becomes clear and then you can't write any more columns.
Once you've written the demographics column, you have the answer and then you're stuffed after that. You can't write [00:25:00] another column. Now, you're looking at the way that population is changing around the world, and that's giving you a sense of the future as well, right?
Grantham: Yeah, first of all, let me say, I didn't know that was the watchword in journalism, but certainly my colleague and I have discovered that it's the same in the financial world. I've had a pretty decent following for 25 years. When I write a quarterly letter, people have tended to refer to it. And this was the first paper we produced. Very well researched, I thought. Took a lot more time and effort. And we dropped it into the black hole. Nobody even acknowledged that it had been posted and for a few months it sent me into a bit of a kind of psychological funk.
But what has happened is what you're describing. People don't want to hear about certain topics and declining population and their consequences and why the population is declining. These are not topics people want to talk about. [00:26:00] It makes them profoundly uneasy and they wish you'd shut up and write about something else.
Webb: That's exactly it.
Grantham: Yeah. So, I see it as the fastest moving potential threat out there, and how we're going to try and make the point felt is try and relate it more to the short term mentality, which is dudes, you better realize that a declining workforce is bad for economics, really bad. And it turns out not just to be bad directly fewer hours comes straight off GDP if you're growing at one and a half percent a year, which they were when I arrived in America in the sixties, and then you go down to a minus a half a percent, which they have done in Europe for the last 15 years, it has averaged a little shy of minus half a percent. That's a 2% drop that comes straight off your [00:27:00] GDP growth. But secondly, we stumbled across the thought that those societies with falling workforces will find they're working in a lower productive world.
So if you run a correlation, which we've just done with the decline in the workforce on one side and productivity per capita on the other, you find there's a positive correlation between a decline in the one and a decline in the other. And it's about 0.3, which means you can sit pretty easily as you plot the countries across the chart. The ones that have the better population have the better productivity.
Webb: Can I interrupt you briefly there to say that to me that's completely counterintuitive because I would have expected in a falling working population, there being an imperative for productivity improvement and it's one of the conversations that's been had in the UK for some time now. Is it the case that because we have so much cheap labor [00:28:00] available, or have done over the last couple of decades because of our migration policies, is it that availability of cheap labor that has meant that our productivity has been so bad?
And if we restrict that, or if we make labor more expensive, for example, with Rachel Reeves most recent increase in employer national insurance, will we see an improvement in productivity if we tighten the labor market? And so I'm surprised that it's that way around because I would have expected it to be the opposite.
Grantham: Economics being complicated, it may very well be in certain situations if you tighten the labor market, you will increase the productivity, okay? Granted, the problem here is the reason I believe the productivity drops is mainly what Keynes would call animal spirits. If you are living in a world where you see children basically becoming scarce behind you, kindergartens closing, grammar [00:29:00] schools closing, applications to college dropping rapidly, it starts to affect you a bit, and as you get into the corporate system, It's not expanding rapidly promotions are not anywhere near where they were thirty forty years ago not as rapid the thing is concertina ring down with and you become less aggressive less willing to borrow money less willing to get into a venture capital situation.
Why wouldn't you be more dynamically thinking in an economy expanding rapidly, and you're not used to it. And managing downwards in an economy is brutally difficult. Speak to the guys running Detroit or Japan, it's much more difficult. It is falling off a log to manage for growth, capitalism does it in its sleep but when you're declining you have a situation where there are ten shops and four of [00:30:00] them are shutters what is it like for the other six any industry where people are going out of business because they're over capacity, what is it like for profit margins to have too much capacity? To have one industry, one major company flailing at the edge to stay alive. It inflicts wounds on everybody and it's very easy to see how managing downwards is a tough business when you close a railroad station how do you downsize this that and the other. This is not a happy go lucky society, and as a consequence, I think people become disappointed, and we've seen in America how easy it is to have a society go from quite bouyant and optimistic to disappointed.
When you're disappointed, you're disgruntled, and when you're disgruntled, you vote against the party in power, and all over Europe for the last three years. We've seen a very consistent, unprecedentedly consistent move against the party in power. Doesn't matter whether it's right wing [00:31:00] or left wing, kick the fellows out.
And in point of fact, Biden had a smaller swing against the party, by a decent margin, than the average European election for the last dozen. Which is an interesting sub topic in itself. So you become discouraged it's bad for productivity it's bad for everything. Keynes, made the point that you could line up all your economic stimuli but if for whatever reason, people became pessimistic and they sat on their money and they did not spend. You’re toast. You very quickly fall into a major recession or a depression, which he experienced.
Webb: And animal spirits, as you say, disappear completely. Okay, so how reversible is this?
We can see, as you say, across Europe, populations declining. Fertility rates in particular. Fertility rates falling almost bizarrely fast. And we see that in the UK as well. And you can, of [00:32:00] course, you can mitigate that with migration. But is that a long term solution or not? It doesn't appear that the populations of most European countries consider it to be an acceptable long term solution.
Grantham: If you see the long term battle plans to 2100, which I was looking at yesterday, Europe is not going to be necessarily a basket case on population because it will have a couple of hundred million immigrants over that time span and its native workforce will drop by a couple of a hundred million. It's not really out of balance.
And a couple of hundred million over 75 years is not enormous. And the politics I think will shift as the one or two countries that try and hold out with no immigrants start to implode, there will be a lot more talk on this topic, a lot more study, articles published. It'll become pretty obvious pretty quickly that you need immigrants.
Now, where are the [00:33:00] immigrants coming from? In about 45 years, at the current rate of drop, African fertility will be about replacement, 2. 1. So you have a window of 75 years or so, if you can handle the politics sensibly, where it will be a potential help, and after that, not so much.
Webb: Yeah, that's the other thing, fertility rates in pretty much every country have persistently, consistently fallen faster than expected, right? So when you give a time frame for when Africa will be at replacement rate, the way things have worked out so far suggests it'll probably be quite a lot sooner than that. Everything in population seems to be happening faster than we expected. No?
Grantham: Africa actually has been dropping faster than Europe, but people don't notice it because it's dropping from 6. 5 to 4. 2, but that gap of 2. 3 is faster, and if they maintain that rate, which, as you say, [00:34:00] we think is pretty likely. They may very well get there in as little as 45 years, and maybe it will be 40, maybe it will be 50, but it will be pretty quick, and it will be a lot faster than most people realize.
Webb: Yeah, so you need a much longer term solution to population decline, because at one point, all populations will be declining, and there won't be the option. move populations around the place to solve one country's problem. So that's a very temporary solution, and as we always say in the UK, immigrants age too.
So it's all very well bringing in lots of people because you have an aging society, but that generation also ages. You haven't solved your problem.
Grantham: No, you've bought yourself some time.
Webb: Yeah. You’ve bought some time, but you still have to find a way as a global population, to deal with the dynamics of low fertility and decline.
Grantham: There are two issues. One is we've created a toxic environment so that fertility rates [00:35:00] are going to drop because of that, as they have been doing, particularly for the last 15 years, and that will continue. There's no reasonable hope that we will clean up the world fast enough to stop that for a few decades.
Some areas, like the EU, are doing so well, it will eventually act as a brake. And the other thing is what I like to call as propaganda calls it, Capitalism. We've created an anti-natal culture. And for whatever reason, people quite reasonably have been given incentives not to have children. It's a better life for them individually often, not to have children, to have fewer children. And in the end, we will only change the fertility rate by changing the stimuli.
So, we have got to end up sometime, I would guess at least a few decades from now, where the culture has been changed to one of nurturing family [00:36:00] and 2. 1 well educated, healthy children.
That is a part of the commons, by the way. If you don't have 2. 1 children, humans go out of business pretty darn fast. And I could show you some statistics how quickly it happens, much faster than you think, but you need it just like clean air, good soil, clean water. You need 2. 1, well educated, healthy children.And you have got to end up with a system that gives you all those four.
Webb: I feel bad. I'm point one short. I feel guilty.
Grantham: Yes, we're point nine long, so we’ll give you one of our 0.1.
Webb: Okay, thank you. We're not really coming up with a solution here or any practical actions beyond changing the way we all live.
Grantham: The solution starts always, it's better than 99 percent of the people, with communications/ propaganda. You have got to have people understand what the problem is before they can solve it.
And they do not understand it. They're not even prepared to listen to it. And yet the clock is ticking. We've got to persuade these people. This is a problem. It is solvable. You have just got to find a way of changing your incentives. Now you can bully them as I'm sure they will pretty quickly in China.
So you can't get a house unless you're married. And then you can give them carrots and you can say every child you get, not a silly little $6,000, but you get $80,000 and you get subsidized childcare. We look after the education of the children, we look after their health because it's everyone's benefit you can decide to have no children but you're not going to prosper if the world is cracking up around you for lack of people that infrastructure is collapsing around you.
I think you need a couple of dozen of these cultural shifts. They say it takes a village, it takes a [00:38:00] society to bring up enough good, healthy children. And you've just got to change the general term that people appreciate people having children, recognize them as producing a good that they need.
Webb: Jeremy, do you have any feelings on gold? Because that looks to us like it might be the other bull market of the coming 10 years.
Grantham: Darn it. Yes. I've always felt uncomfortable about gold because it doesn't have a dividend. It doesn't produce anything. In the end, other than it's a wonderful, handsome metal, and it does have a tiny amount of industrial use, but for 90 percent of it, one has to admit, it's a speculative medium.
Now, it has 10,000 years head start over Bitcoin, and it's absolutely indestructible. It is there, it's always going to be handsome, it's always going to be slightly useful. So I'm [00:39:00] uncomfortable with gold. But it is far better to stack in your mattress than Bitcoin.
Webb: I think I have to agree with you on that as well. There's too much agreement in this conversation. It should be making us uncomfortable. Can I ask you one last question? Is there a book you're reading at the moment that you might recommend to our listeners?
Grantham: Yeah, actually, James Galbraith, son of Kenneth Galbraith, the famous Economist of the 50s, 60s, 70s, he has a book that looks at economics more compatibly with the laws of physics, the laws of nature and entropy.
I think it's called Entropy Economics or words to that effect. And it's brand new and it covers disturbingly large chunks of what I'm working on. Some of which I thought was original until I read it in his darn [00:40:00] book.
Webb: Now you can just plagiarize that. It'll make it a whole lot easier.
Grantham: Yeah, but he makes the point that economics, has been spectacularly incapable of dealing with the real world. It thinks you can do it with capital and labor and productivity. And my ancient joke was, try making a loaf of bread with just a baker. And an oven. You need wheat and you need heat, you need energy and you need materials and economics doesn't cover them it doesn't cover the fact that every material of the past is finite.
We mine it. We run out. No, no, we don't. It's just a question of price, they say. It is a totally inadequate system for dealing with a finite world. And you can't have compound growth on a finite planet. Everybody knows that. That's the laws of physics. It doesn't work. And they have nothing to do with that.
[00:41:00] And so what we get is lots of assumptions to deal with a world that is simply not the real world, and I'm very attached to the real world, and I don't want to see it get destroyed unnecessarily, because of the wrong assumptions by 50 years of economists. And James Galbraith shares that view.
Webb: Excellent. I am going to order that and read it. It sounds like everyone else should as well. Jeremy, thank you so much for being with us today.
Grantham: I really appreciate it. It was a real pleasure. Thanks for having me.
— With assistance from Sommer Saadi and Mohsis Andam |
