Our Deglobalized Future

Unpacking Peter Zeihan's predictions

Note: With my friend Nathan Labenz, I launched a new podcast all about AI called the Cognitive Revolution. Please download and, if you like it, leave a review. Our first episode with Suhail Doshi about AI art and where it’s going.

This week’s Moment of Zen episode is with Aarthi & Sriram Krishnan and it’s about high vs low culture, WWE, Lex Fridman, and more. If you listen to anything, the introduction is hilarious, I must say.

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In an old piece, we summarized Peter Zeihan’s worldview. In this piece we’ll draw out some of the conclusions, namely that America is deglobalizing and that we’re facing a population collapse.

Post-World War II, the U.S. set up the global order that has run for the last 70 years. We effectively said, "You don't have to worry about wars or invasions or supply routes or food or energy or anything. The global system will take care of it, the U.S. will subsidize and protect the global system."

I can’t underestimate how big of a change this was. The world before globalization was mostly a local economy. And if you didn't have what you needed locally, you just did without it. So if you didn't have oil, you didn't industrialize. If you didn't have food, you had a very small population.

But post World War II, the Americans used our navy to patrol the global oceans so that anyone could go anywhere at any time and access any market and trade with any partner. Instead of thousands of tiny little systems, we eventually migrated into a single huge one, where anyone could import or export anything to anyone at any time. That gave us global agriculture, global energy, global finance, global manufacturing, global supply chains, everything global that we know today. 

This led to the greatest explosion of economic activity in world history and created the greatest military alliance humanity has ever known, and it has been a really good seven decades — on the USA's dime. It was like everyone had won World War Two all at once. It’s been great.

And now it's ending.

Because there was a catch with a global order: We monitored the seas for countries only as long as they aligned with us against the Soviets. In Zeihan’s view, this was an economic sacrifice America made in order to have a military advantage. We are now 75 years on from that agreement, the Cold War ended 30 years ago, and the Americans have lost interest: It just doesn’t make economic sense for the USA anymore, given we are so self-sufficient across energy, agriculture, and other inputs. Yes, we’ll have to industrialize significantly, but, as we saw with COVID and PPE, we should have done that all along from a security perspective. 

So we’re deglobalizing. 

Not only because deglobalization makes economic sense, but also because we don’t really have another option. Even if the Americans were willing to continue a 20th century strategic policy in a world where there's no longer a Cold War, we no longer have the population structure for consumption that allows globalization to work either. 

Which brings us to depopulation. Normally the population looks like an inverted V, where you have more teens than 20-somethings than 30-somethings and so on. 

But when the world started to globalize, people didn't have to be on the farm anymore, they could move into town and take manufacturing or service jobs. And they did this on a global scale. And when you live on a farm kids are free labor. But when you move into town, as Zeihan likes to say, they are expensive pieces of mobile furniture.

Fast forward 75 years. And it's not that we're running out of children. That happened 40 years ago. Now, we're running out of adults. And so we're in an ever accelerating population crash. 

And on the other side of the equation, our medicine has gotten so much better, so while we’re running out of adults, we have a disproportionate amount of grandparents to take care of! Instead of our population being an inverted V, it’s just a straight V. Too few young people, and too many old people. This is the worst of all worlds. Because when people become old, they stop working, they stop consuming, and they stop investing. So we lose our investor base, our consumer base, and our workforce all at once.

Once you’re in your 60s, your kids have moved home, your house has been paid down, your incomes are high, your expenses are low—you’re the richest you will ever be. And then you move into retirement and you liquidate all of your investments. And since a disproportionate amount of our population is 60+, that means our richest generation ever is going to basically take their marbles and go home. And in most of the world, there isn’t a generation just below them with sufficient population size to fill in their place. The Gen X generation locally and globally is quite small. Which means the cost of capital is going to skyrocket until the millennials get into their 50s, at which point we’ll go through a capital boom again.

Combine depopulation with deglobalization, and it breaks everything we know. It breaks our understanding of how trade and economics and agriculture and manufacturing and transport and the rest works. The concept of global complex supply chains goes away, the idea of a single price for oil goes away. The idea that we can feed 8 billion people goes away. 

It’s going to be a disaster for most of the world. Most of the world cannot feed and fuel itself without either direct imports. Without globalization, you’re talking about massive food shortages affecting billions of people and massive energy collapse, which as Europe is discovering right now means the lights go out. 

America is going to be fine, despite itself. We do everything in house: manufacturing, agriculture, energy — we set up the global order, but thankfully, we use it for less than 11% of our stuff. We’ll have some speed bumps on the way, but five years from now, we're going to be in a better place than we are now with a more stable supply chain system. 

America is lucky because the population is so big and so young and the land is so huge and fertile. We can rely on geography and demography to do most of the heavy lifting for us. And that allows our politics to be completely batshit—which it is. It’s our own resource curse.

While America will be fine, other countries like China, Russia, and Iran will be screwed. Ironic that the countries most critical of the U.S. world order are the countries most dependent on it. 

A deglobalized world spells bad news for China. if the Chinese can't reach Europe, they lose their largest market. If the United States throws a trade war, they lose their second largest market. if they can't reach Africa, they lose raw material resources, if they can't reach the Persian Gulf, the lights go out. They're completely dependent on globalization as maintained by the Americans for the entirety of their economic and cultural system. 

The Chinese import 85% of their oil, 85% of which comes from the Persian Gulf, and the United States is no longer there to keep the lines open. Their labor costs have increased at a faster clip than at any time in history in any country, including the Black Death. They're now at about 14x the labor costs they had back in 1999. But their labor productivity has only gone up by a factor of 2-3x. The primary source of income for East Asia is manufacturing. And a lot of that's going to go away because the East Asian countries don't have sufficient numbers of young people. Thanks to 40 years of the one-child policy combined with the world’s most rapid urbanization, there just aren’t enough people under the age of 35 in China left to even theoretically repopulate the country.

If you don't have enough mature workers, you don't have the capital; if you don't have enough young workers, you don't have the consumption; If you don't have enough children, you don't have a future. China is already out of those last few categories. This leads Zeihan to suggest that by 2050, the entire population of China will drop below 650 million, less than half of their size today.

Peter Zeihan’s new book, The End of the World is Just the Beginning, maps out the next world: “a world where countries or regions will have no choice but to make their own goods, grow their own food, secure their own energy, fight their own battles, and do it all with populations that are both shrinking and aging.”

One flaw in Zeihan’s worldview is that he ignores culture, technology, and institutions. Zeihan has no model for AI or crypto or biotech or any fundamentally altering technology. Similarly, when Zeihan talks about demographics he only talks about quantity, he doesn’t talk about quality. This doesn’t factor into account drug addiction, homelessness, fatherlessness, and other illnesses that can plague a population. In the same way a 12 person team like Instagram can outcompete a thousand-person company like Kodak, it doesn’t make sense to evaluate populations merely on a quantitative basis.

Similarly, geographic determinism alone can’t explain a country’s success: Japan is on rocks, Singapore has no natural resources, Israel is in a desert, and still they all kick ass relative to countries with lots of “young people” and “natural resources”. If Zeihan were right that natural resources and birth rates were all that mattered, Venezuela and Iraq and Brazil would be major world powers. And yet they aren’t. Similarly, America’s geography is not only luck, it’s because of the Monroe Doctrine and many other efforts to keep Latin America a backwater. Or in other words, the product of culture, technology, and institutions.

Even in the areas where Zeihan knows well, it’s not obvious that his predictions will come to pass. I understand no other single country can protect all the sea lanes, but perhaps a coalition can.

While Zeihan has proven his prescience over the past decade for his predictions around USA pulling back and Russia invading Ukraine, recently his positions are starting to be questioned more. He doesn’t get what he’s talking about when he discusses Bitcoin or AI. His position on China seems extreme, to say the least. It’ll be interesting to watch how it unfolds.