Gerard DiPippo on the Russia Sanctions, Demographic Decline, and the Future of the Global Monetary System

International sanctions imposed on Russia yielded immediate success, but additional economic steps could be taken to help bolster global efforts to support Ukraine.

Gerard DiPippo is a senior fellow with the economics program at the Center for Strategic and International Studies. Previously, he spent 11 years in the US intelligence community as a deputy national intelligence officer for economic issues at the National Intelligence Council and as a senior economic analyst at the Central Intelligence Agency. Gerard joins Macro Musings to talk about the Russia sanctions, the global monetary system, demographics, and other economic issues viewed through the lens of national security. He and David also discuss the lessons from the Russia sanctions, dollar dominance as a disciplinary tool, the implications of global population decline, why economic security means national security, and more.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Gerard, welcome to the show.

Gerard DiPippo: Thank you for having me.

Beckworth: Well, it's great to have you on, you are another contact I've made on Twitter and I've enjoyed your commentary there. And I must say it's a real treat to get someone on the show for the first time who was a spy, who worked for the CIA as an economist. And so, I'm dying to hear this, I'm sure the listeners are as well. What's it like being an economist in the intelligence community?

DiPippo: Well, first of all, I was not a spy. I was an economic analyst. What is it like? Well, the CIA does all kinds of analysis, and it's known as all-source analysis, right? So, they look at open source, data, government statements, budgets and then, you add to that intelligence collection, things like what they call human intelligence. So, stuff that spies collect or signals intelligence or satellite imagery or whatever it might be. And you have analysts of all different disciplines, you'll have political analysts, leadership analysts, military analysts, economic analysts, etc. And when you work on any particular issue, whether it's functional, so say debt issues in Europe or country specific like China, you have to still be fairly interdisciplinary.

DiPippo: And so, the big thing is obviously you have access to intelligence, and your job is primarily to support the president and the executive branch to provide objective assessments of world events, and where things are going. But, you're also trying to pull it all together, which is why I've often heard people ask me, "Why are there any economic analysts at the CIA?" And I think the simple answer is you can't possibly understand [national] security or the world without economics. The goals of most governments at least have some economic aspects to them. And if you're saying, where are things going, or what are the US leverage points or whatever, economics is part of the answer.

You can't possibly understand [national] security or the world without economics. The goals of most governments at least have some economic aspects to them. And if you're saying, where are things going, or what are the US leverage points or whatever, economics is part of the answer.

Beckworth: So Gerard, how did you end up as an economist in the intelligence community? As I noted earlier, you are the first guest we’ve had on the podcast that has worked at the CIA, so I’m curious as to how you got there.

DiPippo: My brief origin story there is I graduated college in 2008 with a degree in economics and philosophy, a double major. I was working in New York doing consulting, essentially research for banks. A few months into the job, Lehman, which is one of our clients blew up. And our financial situation at that small company was pretty dire. In 2009, those who are old enough to remember, there was not many jobs and in New York, especially. So, on a lark I looked up CIA, because I don't know why, but I always thought it might be interesting. And I didn't know anyone who would work there. And I applied online, and through a series of fortunate events I ended up getting a position. It took about a year, because the clearance process takes a long time.

DiPippo: But then, I ultimately started there in 2010 and my 11 years there were in short, I started doing global economics for about two years, two and a half years. That was when I did my brief stint at Treasury, by the way. And then, I was working on south Asia for about two years and then, in 2015 I was looking at the Chinese stock market and thought, "I should probably work China." So, I went over to work China in our east Asia office, with their east Asia office. And I've been mostly China focused since then, when I was at the national intelligence council that was from 2018 to early 2021. So, through the duration of the trade war, I was pretty much just focused on China related issues, because that was the priority. And it was a wonderful ride. I had some amazing, ridiculous, briefings, which I won't honestly get into. But, I definitely saw a lot of casts of characters in the previous administration, and was part of a lot of very interesting discussions. And basically, about a year ago, I thought, I love that, but I wanted to be more public, and to try something else. And so, I'm now in the think tank world, where I can do things like talk to you or talk to journalists, which was absolutely forbidden before, and see the value of open source information and just talking to people, which is really quite valuable. So, I'm loving it.

Beckworth: That would be the hardest part for me in a setting like that, is just the fact that you can't say anything. Even working at the Federal Reserve, you see people like you and myself, making comments and talking, and you want to say something, but you can't. So, I completely understand why you're on this side now. And you've shared with me a story, that while you were at Treasury, you were there from the CIA doing your time there. Tell us about how that led to your first meeting or introduction of Scott Sumner?

DiPippo: Oh, yeah. So, this would've been 2011 and I don't know how this happened. Randomly, one of my colleagues at Treasury said, "Hey, there's this guy who's giving a talk about US monetary policy." And I've been really fascinated with monetary policy, which by the way, is why I've listened to your podcast probably since the beginning. And I just went to it not knowing, and it was Scott Sumner and he was giving his presentation on the Great Depression and then, nominal GDP targeting. And that was when I was converted to nominal GDP level targeting as being the way forward.

Beckworth: So, many of the listeners probably are thinking of Jack Ryan right now, Tom Clancy novels and the recent show on Amazon Prime. How did you view that show? Is it realistic? Can someone be an analyst and jump in a helicopter and end up overseas in the thick of action? Or is that just great drama on the television?

DiPippo: There are overseas opportunities for analysts, but they're generally not what he does in that show. I mean, in the CIA, two of the big directorates are the directorate of analysis, which as it sounds does analysis. And then, the directorate of operations, which does things like clandestine collection, spying, essentially, and covert operations. And those two things, they work together, but they're going to be different people. So, it might very well be the case that there are CIA officers with guns jumping out of helicopters somewhere and going after terrorists, but they're almost certainly not going to be the analysts.

Beckworth: Okay. So, it's just great television for the rest of us to watch, and keep track of. Now, another interesting angle to this is when I worked at the US Department of Treasury, we actually had a guest from the CIA come into our office. Someone like you, I believe, an analyst or an economist, and they spent some time with us. And what is that about? Why did they do that? What's your experience?

DiPippo: Well, I mean, in general, there are what are called details, right? So, you can go work at other agencies depending on what you do. If you do economics, Treasury's a natural fit. I did a brief stint at Treasury International Affairs as part of our four month training program when I was a junior analyst. And this was back in 2011, I was working on middle east issues and Iran at the time for Treasury. And it's an opportunity to get exposure, to see how things work, broaden the experience. I think, one key difference there and something that I got from my experience was that analysts are supposed to not make policy, they're supposed to just be objective, call it as they see it. And they actually often have a truth to power function. Policy making agencies like Treasury or say Treasury IA, they're arguably objective, but they also have policy objectives. And so, it's just a different role. In fact, I remember being in an early meeting with the director of that office at Treasury. And he asked me some questions, and I had done research, and I gave him the answer. He said, "Okay, yeah. What do we do about it?" And I thought, "I'm not supposed to answer that," but actually I was, because that was the difference. So, it's a different part of the government.

Beckworth: Very fascinating. And maybe we'll come back to this discussion later. But, let's jump into some of the things that we are seeing in the news, and some of the topics we've discussed previously on this show. And I want to begin with the sanctions on Russia. So, we've talked about this, how extensive they've been, and what the goals were. I've had Matthew Klein, I've had Christie McDaniel, a colleague of mine. And you've written an article recently titled, *Strangling the Bear?, The Sanctions on Russia after Four Months.* So, walk us through this, what have we accomplished with the sanctions and where do you see it going?

Evaluating the Russia Sanctions

DiPippo: I would break down the effect of the sanctions into a short term, and a medium term. So, the first two months or so, the sanctions… in particular the sanctions that freeze the assets of the Russian Central Bank, the CBR. And then, to de-SWIFT or designate certain Russian banks, it was a financial shock to Russia. So, you saw the Ruble tanking, you saw liquidity indicators within the Russian banking system looking quite dire, but within six to eight weeks the Russians were able to stabilize it. They did that with a combination of capital control, some deft management, Putin seemed to trust the technocratic wing of the finance ministry in the central bank. And because Russia continues to earn hard currency, mostly from its energy exports, which are allowed, because there are carve outs in the sanctions for that.

DiPippo: And so, after that period passed the Ruble recovered. In fact, it's actually nominally at a higher rate than it was before the war. But, that's misleading, of course, because it's barely a convertible currency at this point. But, the more slow burn effect is I think mostly from the export controls. So that, shows up primarily in Russia's reduced imports, Russia has not reported its trade data since January, but it's possible to do mirror statistics. And you've mentioned Matt Klein, he's done a better job of this than I have, but I did a version of this in my paper. And what you saw was in March and April, there was a substantial decline in Russian imports. It looks like there's maybe a slight rebound in May, but in general, it looks like Russia's having a hard time getting components.

DiPippo: So, part of that is there probably is some triaging of the hard currency available where they're basically not allowing all importers to get things like say, consumer goods, which might be otherwise allowed under the sanctions. But also, they can't get key technologies. So, there are anecdotes of say, Russian car makers, continuing production at a smaller level, but they don't have touchscreens, they don't have airbags. They don't have a lot of the Western technologies. There are even more hopeful signs from the Western perspective of Russian tank production. So, military production being disrupted. So, I do think in that sense, the sanctions are working to degrade the Russian economy. Plus on top of that, you have what's called self-sanctioning. So, a lot of foreign firms have left Russia, even if they're not required to do so, just because of reputational risk, and it's just not worth the hassle of sanctions.

DiPippo: And over time, I think that's really going to hurt the Russian economy, especially if there's brain drain. It's hard for Russians to leave right now, but a lot of them are leaving to former Soviet states like Georgia and others. And so, Russia's economic outlook is quite dire, but the big caveat in terms of sanctions effectiveness is that, as I've already mentioned, Russia continues to earn hard currency from its energy sales. And more than 50% of whatever their exports of energy are go directly into Moscow's coffers, if you look at the historical series of the ratio there. And if you look at the data which they reported at least through May, I suspect that they might stop reporting it. But, as of May, Russia was earning something like $420 million in direct federal revenues from oil, and gas exports. And their military expenditures were $325 million, right?

Russia's economic outlook is quite dire, but the big caveat in terms of sanctions effectiveness is that, as I've already mentioned, Russia continues to earn hard currency from its energy sales. And more than 50% of whatever their exports of energy are go directly into Moscow's coffers.

DiPippo: If you trust that data, which I think is reliable enough… which means just from those revenues alone they're covering their war expenses. Plus the fact that the oil and gas revenues are typically something like 40% of their overall revenues at the federal level. So, Russia's actually running a fiscal surplus this year, they are adding to their sovereign wealth fund, the national wealth fund, building up their reserves. So, they're not draining them, which I think from the perspective of Western policymaking is looking for more avenues to cut Russia off. Even if we can do that, it's actually a high bar, because let's just say we're able to reduce Russia's hard currency earnings by 30% or whatever. It might still be plenty to balance the budget in terms of military expenditures. So, it's actually very tough.

DiPippo: I mean, Putin knew that energy was going to be his trump card internationally, and maybe some other commodities like wheat. And he is playing that hand right now, he appears to be cutting off natural gas exports to Europe, supposedly for maintenance for the Nord Stream 1 pipeline. But, a lot of people suspect that, that's going to persist. So, it's really putting the west in a tough position, especially Europe. And so, when you say are the sanctions working? Which is a natural question, I think, it's a slow bleed, but there's actually substantial cost particularly to Europe to sustain them.

Beckworth: So, I was reading recently how Iran may be sending drones over to Russia, which is a sign I think, of this slow burn. The fact that the military and Russia can't fully recuperate from all the losses it's incurred, because of these sanctions. And you've mentioned, a lot of the money, the hard currency that Russia's earning is going toward the military. But, we've also seen the military is very ineffective, maybe corruption, generals lining their pockets with money that should have gone to training troops, better equipment and stuff. So, do you think that given all these things, this war of attrition maybe if you want to call that, between Ukraine and Russia, and Ukraine continues to get funded by the West with weapons and humanitarian aid. Do you think Russia's time is numbered? Is it growing increasingly hard for Russia to maintain this war? And at some point, if we can just hold on, Russia will cave.

Is Russia Going to Lose the War?

DiPippo: So, Putin clearly miscalculated in terms of how he thought the war would go, right? He thought that he'd take Kyiv in a matter of days and depose or maybe kill the government, and put in a puppet regime and that'd be the end of it. They clearly weren't preparing for the type of sustained combined arms operations, which is why early on the Russians made some terrible tactical decisions, sending convoys deep into Ukrainian territory, which then got ambushed and wiped out. I think that now the fighting is in the east, and it is becoming more of a war of attrition, which is bad in the sense that Ukraine has sustained something like 10,000 killed. They've admitted, probably, three times that wounded and Ukraine has a population about one fourth the size of Russia.

DiPippo: So, in that sense it's bad, but materially, Russia does have replacement issues. They are, I think, mining their inventories of older even Soviet era weapons. I think it is critical that the West continue to supply Ukraine with advanced weapons, including rocket launchers that they've been sending over recently, artillery in particular, and intelligence support, which is not discussed much, but I'm sure is happening. And so, I think Ukraine has a chance. I think the problem is that they're sustaining high casualties. It'll be trickier, and Putin, I think, is betting in the medium term, if he can keep this going and then disrupt energy flows, especially to Europe, that the Western allies might cave. Because, Ukraine needs substantial infusions of not only weapons, but also money, because they're effectively cut off from exports and essentially are in a deep, deep balance of payments deficit. So, I don't know if a war of attrition actually favors Ukraine, but I have some optimism that as more Western weapons are available to Ukraine, and basically more Russian ammo depots and artillery pieces are wiped out, that maybe Ukrainians can hold on or at least retake some of their territory.

Beckworth: So, in the piece you've mentioned some additional steps, and you've alluded to them already, that could be taken to further the effort in Ukraine. And one of them was removing insurance for the ships that haul the Russian oil, and the European Union, and I believe you've said the UK have signed on to this. But, what was interesting is, you note though, that it's going to take place in six months. So, it's not immediately that they're going to impose this pain, but six months. So, the question becomes, well, who can hold out six months better? Can the Ukraine? Can Russia? In six months will Russia be at a place where it's susceptible to another shock like this? So, what are your thoughts on that, does this six month window just seem long?

Materially, Russia does have replacement issues. They are, I think, mining their inventories of older even Soviet era weapons. I think it is critical that the West continue to supply Ukraine with advanced weapons, including rocket launchers that they've been sending over recently, artillery in particular, and intelligence support, which is not discussed much, but I'm sure is happening. And so, I think Ukraine has a chance.

DiPippo: So that's, actually complicated, because what happened was the EU in June or very early June, finally passed their sixth sanctions package. The EU is a consensus based entity, right? So, you basically have to get all the states, including Hungary and others on board. And what that agreement was, was that the EU would stop, essentially, by the end of this year, stop importing Russian seaborne crude. And then, within eight months, stop importing Russian refined petroleum products. And then, at the same time, they would also basically prohibit Western or European or British insurers from ensuring maritime shipping that are necessary to transport that oil. The big wrinkle on that is it appears that the White House is very worried that if they actually do that it's going to be disruptive to energy markets, and push up oil prices. I'm sure you know that the price at the pump in the United States is a very delicate matter.

DiPippo: We're mostly insulated from the natural gas shocks, because we have our own supplies and it's not being mostly exported, but we are not insulated from global oil prices. And so, what it looks like the US is trying to do is convince the allies… the G7 plus basically, to reopen that package, to not do the ban on Russian seaborne crude. And instead, allow the importation of Russian crude, but on the condition that you do it at a much reduced price. So, Russian crude is currently trading in about $80 per barrel, it's at a discount from Brent. And I've seen something like $40 to $60 would be the price that that sort of  buyers cartel would offer… or what they would then do is if other countries like China are willing to comply with that, they would then get a waiver that allows them to still get the maritime insurance.

DiPippo: One complication with this price gap idea is it basically means you have to reopen the EU package, which is politically delicate. There have been change of government, I think, in Bulgaria and elsewhere. So, that's difficult, and I think there are serious concerns of whether this type of cartel system could actually work. I have my doubts, I don't think that India and China are going to be enthusiastic participants, they might indirectly end up participating. But, I do think there's also an open question of how effective is the maritime insurance then, because some people say that without essentially London, you cannot ship oil at all. And I've seen others say actually, no, Chinese insurance and Russian reinsurance might be adequate. It might add a few dollars per barrel, equivalent shipping, right? So, it's actually quite complicated right now.

Beckworth: So, it's not clear how well it would work, even if they did completely enact it today. But, it is interesting, the six month window, you wrote that piece in May or June. So, six months forward takes you just after the election in the US. If you want to be cynical, maybe someone in the US government was saying, "Hey, let's just wait until after the election before we do anything to further jeopardize gas prices, and further affect the election." But, that's just a cynical take. Well, let's move to another article you've written along these same lines, and that is the implication of the Russian sanctions on any potential conflict with China. So, you have an article titled, *Deterrents First: Applying Lessons from Sanctions on Russia to China.* And you've recently tweeted in response to someone else's tweet about companies are currently seeking advice, and research on what happens if there's a war surrounding Taiwan. So actually, there's a market, there's demand for this stuff right now. So, this is a very relevant essay you've wrote, so walk us through it.

Applying the Lessons from Russia Sanctions to China

DiPippo: Well, I mean, on that last point, at CSIS we have corporate sponsors, I'm not going to say who they are. But, it's very clear in my discussions that a lot of major companies, including foreign companies, are reassessing geopolitical risk now. And they are particularly looking at China and saying, Putin invading Ukraine was the unthinkable to many people, but it happened. So, now they're thinking, "What else is unthinkable?" And that's why they're reassessing those risks. The broader point of that piece was to say that the US government or the Western allies have not only been very clear as to what their strategy was with the sanctions. But, I think you can essentially break it down into three phases, the first phase was deterrence, the second phase is destabilization, and the third is degradation.

DiPippo: So, they all start with D, which I thought was clever. But anyway, the first phase, deterrence, is as it sounds, President Biden was actually pretty transparent about threatening sanctions and was very transparent, and normally so, about the intelligence suggesting that Russia would invade. That obviously failed, Russia did invade. I think, this is a counterfactual we're never going to know. But, one thing that's interesting is that the US actually under-warned, meaning that the sanctions we threatened were less than we ended up doing. Biden initially had said, "We were not thinking about de-SWIFTing banks," for example, in the early packages. And there had been no discussion of the central bank freeze. I think part of why that happened was that our European allies were basically not internalizing the risk… they were not believing that this was going to happen. As far as I can tell, only the UK government in addition to the United States, believed the intelligence. Even Ukraine didn't seem to believe it, they weren't fully mobilizing until right before the war started.

DiPippo: So, you might want to believe something is not true, so you convince yourself of that. But anyway, deterrence did fail in that regard. The second phase was the destabilization phase, which that was when people were saying, "Well, what if we go after all these oligarchs and take their yachts or whatever and then, maybe, they or the Russian people," because they were bank friends, "…will basically compel Putin to end the war." That did not happen. I think people are not so optimistic, at least in the short term. And really, there's just not a lot of historical evidence of countries backing down due to economic pressure once a war has started. And the third phase, which we're in now with degradation, that's what I was talking about earlier, where I think the export controls are having to slow bleed effect.

The US government or the Western allies have not only been very clear as to what their strategy was with the sanctions. But, I think you can essentially break it down into three phases, the first phase was deterrence, the second phase is destabilization, and the third is degradation.

DiPippo: And that's where there's probably the most effect. With regard to China, it's clear that Beijing was deeply worried by the sanctions, in particular by the sanctions on the central bank. It had never occurred to the Russian Central Bank, evidently, that non-dollar currencies could be frozen as well. So, they had been diversifying to a certain degree into euros and certainly away from dollars, but also other currencies like the RMB and others. But essentially, the G7 plus, basically every reserve currency, including the Swiss franc, except for the RMB was part of those sanctions. And if you're China and you have $3.2 trillion in reserves, by definition you cannot hold RMB as your foreign reserves, you have nowhere to go. So that presents quite a dilemma. And there are press reports of Chinese regulators calling in foreign banks and saying, "Hey, how do we reduce our exposure to sanctions?" And the banks saying, "Well, we can't because of the dollar network."

DiPippo: So, China knows it's vulnerable. It has been a clear priority at least for several years, particularly going back to the trade war, of trying to reduce China's reliance on foreign technology. So, sensitivity export controls, to the extent they can reduce their material dependency on commodities. And I think a little more ambitiously, and they know this is ambitious, reducing their reliance in the dollar for international finance. I mean, it's very clear from looking at even just the 14th 5 year plan, which is the current five year plan they're in, that self-sufficiency is a key goal there even more so than the 13th. So, they are worried, but I think China's strategy is basically that they want to make the world as dependent on Chinese exports or in the Chinese market as possible, while minimizing China's dependency on the world, right? So, it cuts in both directions.

DiPippo: That's what the goal is. I think they're having some success in that regard, but that has essentially been the trend over the past decade or so. And so, I think their optimal strategy is basically to hope that they're so important as a market, they're so much larger than Russia and so much more important for international businesses, that in the event of say a crisis over Taiwan, at least third countries like Germany will not comply with the sanctions and stay neutral, even if the US is aligned against them. And so, the point I was making in that piece, one of the points was, it is, I think, very important for US policymakers to have frank discussions with our allies early about contingency plans for [these] scenarios. Even if we think they're improbable, we have to think the unthinkable and just get our plan straight, even though that's hard to do. And ultimately, once game time or war time happens, it's ultimately a political decision and you can't really predict that.

Beckworth: Great advice, especially after seeing what happened in Ukraine. Most of us would not have expected a ground conventional war like that to take place in our lifetime. We thought that was something like world war II. But, I like this tension you bring up here. On one hand, China's very vulnerable, it has over 3 trillion in foreign reserves. And as you've said, there really is nowhere else to park those, there's literally nothing else out there on that scale to park, which is the point I often bring up when I talk about dollar dominance. But, on the other hand, the rest of the world is so interconnected and tied. I mean, you've mentioned maybe Germany would have a hard time imposing sanctions, but I suspect even in the US there might be different groups that might get upset. If we completely cut off China, there might be people trying to get elected. Well, I'm going to open up trade with China again, because it's harming your standard of living, your welfare and such. So, it is… I don't know if it's a knife edge problem, but on one hand, you could slip off one side and be in a situation where we don't have the inputs or the imports or all the things that China provides to us. On the other hand, China would be very vulnerable to sanctions on its large stock of wealth held in foreign reserves.

It is, I think, very important for US policymakers to have frank discussions with our allies early about contingency plans for [these] scenarios. Even if we think they're improbable, we have to think the unthinkable and just get our plan straight, even though that's hard to do. And ultimately, once game time or war time happens, it's ultimately a political decision and you can't really predict that.

DiPippo: I think it would be a very difficult decision even just for the US, because it's not just that the Chinese economy is bigger. If you look at Russia's share of energy exports, it's something like 10%. China's share of global manufacturing exports is close to 20%. So, even on those terms, it's much more important, and there's a lot of components. Even if something is assembled in Vietnam or even in the US, it probably has some Chinese parts in it. And so, in the case of Russia, we put in a loophole basically saying, "Well, look, you can still trade energy,” and if you're getting wonky in HS code terms, there's carve outs for 15, 20, 30 HS codes, depending on what level you're at for energy. For China, it would have to be in the hundreds or thousands if you wanted to avoid a severe disruption, which is basically saying you're not going to do the sanctions. So, I think any equivalent degrees of sanctions on China would be extremely disruptive for the global economy and for US consumers, which I think will give US leaders pause, but it really depends on what that scenario is and how it happens.

Beckworth: I think a good test run or foretaste of what that might look like would be the pandemic, right? We cut off supplies from China because of the pandemic, and people were up in arms. I remember going to Lowe's looking for tools I couldn't find, imagine losing access to your newest iPhone or iPad. But, there's just a host of real world products that would be missing if this did happen, right? And that would be a real pain, and it might lead to temporarily higher inflation. So, it would have political ramifications here at home.

DiPippo: My sort of half joke, because it's dark, is it might be the case that under an extreme scenario the US is able to reassure, and try to build production capacity at the last minute. But, it takes time and the parts to make those factories are themselves going to be partially made in China. So, it'll be difficult.

Beckworth: We've been talking about economic sanctions, and what it might mean for a confrontation with China, what we've learned from Russia. What about this idea that we've seen that's related that economic security is national security? What does that mean? And how do you see this issue?

I think any equivalent degrees of sanctions on China would be extremely disruptive for the global economy and for US consumers, which I think will give US leaders pause, but it really depends on what that scenario is and how it happens.

Economic Security is National Security

DiPippo: I mean, that's been the mantra in DC for the past five years or so or maybe longer. I think a lot of that is trying to merge what had been historically divergent policy tracks. So, there were this national security folks that would be at the Pentagon or Langley at CIA or elsewhere. And then, there were the economic policy makers at Treasury or the NEC or CEA, and they weren't really talking to each other. And the idea is now in a globalized world, particularly where our chief rival is also our major trading partner… You have to put those two things together. And so, the idea is you have to think through national security holistically, and there's just no doubt that economics is part of that.

Beckworth: So, when I think of this issue, economic security is national security, I often think of the tension between resiliency versus efficiency or you might say, having a strong domestic manufacturing base versus relying on free trade. Free trade brings a lot of benefits, virtues, it encourages corporations to be competitive, less crony capitalism, specialization, but it also means we're dependent upon the rest of the world. And one thing we saw during the pandemic, Gerard, was this call for more robust global supply chains. Not reliance on one part of the world providing all of our goods or parts for say our iPhones. So, does this resiliency versus efficiency play into this debate about economic security as national security?

DiPippo: I think it's really the core tension between those who you might call free traders, and those worried about the national security aspects. For 30 years plus, under peak globalization, the priority was clearly efficiency, low cost just-in-time production, etc. And as you say, I mean, that certainly benefited US consumers. US consumers had close to 30 years of deflation in consumer durables, right? That changed after COVID. But, the debate now is how do you manage that interest with resiliency? So, having extra capacity, whether it's here, so onshoring or in a friendly country, friend-shoring, which Janet Yellen has spoken about. And the idea is you have to balance cost with that security. I think that tension has gotten more salient as inflation increased. It was easy to talk about this during say 2019 in the Trump administration, before the inflation, but now people, I think, realize that low cost actually has its benefits too.

DiPippo: And my general observation is that US policy has talked a lot about this or things like identifying supply chain vulnerabilities. But, we actually have not done much in terms of industrial policy to address that. I think, frankly, if you're talking about consumer goods or trying to get anything that people might care about, it's just too much to manage. My advice to the US government would be to focus on key inputs or, frankly, defense goods, military equipment, that we think we might need under a severe scenario. Because, you've mentioned COVID and the truth in the matter is the only reason why things were still affordable while we had PPE was because of trade. I mean, I was wearing Korean masks, I still wear those. And so, even then we didn't actually plus up domestic production, and there's just too much bottlenecks domestically to really offset that.

Beckworth: Okay. So, this is an issue that will continue to be discussed, but this inflation scare may have dialed back the talk about, we need more onshoring, more of a national industrial policy. I mean, there were a lot of calls for things I would call industrial policy during the pandemic. “Let's have more chip production here in the US, let's have more energy independence here in the US.” So, it'll be interesting to see where that goes. Let's switch gears, and go to the history and ongoing development of the global monetary system. We've talked about this before on Twitter and other settings, and you've written on this yourself. In fact, you've had a series of conversations at your organization, where you've interviewed people about digital dollars, the future of money, where it's going. And I want to begin this part of our conversation by pointing out what we were just talking about.

My general observation is that US policy has talked a lot about this or things like identifying supply chain vulnerabilities. But, we actually have not done much in terms of industrial policy to address that. I think, frankly, if you're talking about consumer goods or trying to get anything that people might care about, it's just too much to manage. My advice to the US government would be to focus on key inputs or, frankly, defense goods, military equipment, that we think we might need under a severe scenario.

Beckworth: And this is this use of sanctions, very extensive sanctions on Russia. We seized their foreign reserves, and they thought they had this chest of protection of foreign reserves in case of a very moment like this. And lo and behold, they learned that they could actually lose it. And some people are worried that the US is abusing this use of sanction… Iran, Russia, other parts of the world, Venezuela. And it undermines, in fact, dollar dominance, it creates the incentive to get away from the dollar. And as you know, Gerard, I recently had Michael Dooley on the show, he has a paper with his co-authors, Peter Garber and David Folkerts-Landau. And he argues that the sanctions actually reinforce the dollar's dominance.

Beckworth: And his argument, just to recap what we've talked about on the show with him, is that foreign investors are incentivized to go into places like China or emerging markets when they know there's something that will incentivize those countries toward good behavior. So, if China knows that its reserves could be seized by the US, it's going to think twice before misbehaving. And so, having safe assets is not just about a safe store of value. It's about having an asset that can be seized, collateral that can be seized. That's the analogy he used. So, he's telling a very different story than the probably more common concern that we're overusing or abusing sanctions. So, what are your thoughts on that debate?

Dollar Dominance as a Disciplinary Tool

DiPippo: I think one thing that's very important to distinguish about the sanctions in Russia is that they are very multilateral. So, it is true that say in 2018, when the Trump administration pulled out of the JCPOA, reimposed sanctions on Iran, that was unilateral. There are other cases like Cuba, where the US has unilateral sanctions. And I think there is something to the argument that that creates a problem and the incentive to move away from the dollar. Except, if you're talking about Iran, Venezuela, North Korea, Cuba, these are not major economies. So that's, nowhere near enough to [inaudible]. Now, Russia is clearly much bigger, but as I've said, it is the largest major economy we have sanctioned really since World War II. But, those are multilaterals, so it doesn't really create the same incentive to move away from the dollar if you hold instead euros or yen or Korean won or whatever, and those are still susceptible to sanctions.

DiPippo: Now, you might think that in the future, let's just say with the scenario with China, that actually those other US allies will not be on board for the sanctions. So, in that case, there still is an incentive to move away from the dollar. I think there is something to that. I mean, it's clear that the Chinese government would like to, they're focused in getting away from the dollar in a way that they're not with say the Euro, although they don't use the Euro nearly as much. I think, with regard to Dooley's argument, I think it's very interesting, the idea of public collateral, he talks about… essentially, those reserves are collateral for companies, such as if countries misbehave they can be seized.

DiPippo: The thing is, and he does allude to this in this paper, but the conditions under which the US would impose those sanctions are quite unrelated to most of the activities that those companies would be concerned about. So, what they're worried about is their assets being appropriated or unfair treatment or whatever. We're not going to typically do sanctions for that, it's going to be things like human rights violations or acts of aggression as in the case of Russia, which is quite separate in most of those companies’ functions. I'm skeptical, particularly with China say in the early 2000s, that this was a major factor in companies going in. And part of my evidence for that is the fact that I'm having so many conversations with companies thinking, "Whoa, wait, these sanctions are possible?" They weren't thinking in those terms.

DiPippo: And I've actually heard a contrary claim to what Dooley is saying, where ... So, in his paper he says, "That this then incentivizes, essentially, emerging market countries to hold more reserves, more dollars, because they need more assurance in the age of sanctions." But, it actually went quite the opposite, that they're like, "Well, we don't want to hold dollars now, because we are afraid that they're going to get stolen." And Russia's behavior is actually evidence that they didn't consider that option, or they hadn't planned on an incentive where two things could happen, right? So, I actually don't quite buy it, and I would like to see more empirical evidence that's actually what's happening. Although in general, I agree with the claim that the dollar is going to remain dominant.

Beckworth: Now, those are good comments. The actual behavior that would concern foreign investors may be different than the actual occurrence where the US government steps in, and seizes the assets. They might overlap in some cases, but in many cases they may not. So that's, a fair point. Well, let's move on from that then to the future of the dollars, you know as a listener of the show, that I love to talk about dollar dominance. And again, you've had these sessions, these interviews with people about the future of money. And you've talked a lot about digital currency, but there're several paths I can imagine the world going. And I think for the time being we are going to be stuck with the dollar. It would take something really serious, some internal problems in the US, that's my view to really break the hold of the dollar. But, there's other possible paths, maybe you could have regional currency blocks, the yuan is dominant in Asia. The dollar maybe in the Americas, the Euro there, maybe we get a future of digital, private currencies. I mean, where do you see international monetary system going over the next 50 years or so?

Digital Currencies and the Future of the International Monetary System

DiPippo: My baseline is probably similar to yours. The dollar is still going to be dominant, but it might erode a little bit. Why will it erode? I mean, as Barry Eichengreen has written, there is already evidence that there is some reallocation of reserves towards smaller say, advanced economy currencies, like say the Australian or Canadian dollar. So that's one thing. But keep in mind, there's typically reallocations toward countries that are allies with the US. I think central bank digital currencies, which are a whole topic under themselves… But, I think there is some potential in theory that if they are used for cross-border purposes and are quite liquid, that they could have certain arrangements that will cut out the dollar. So, it basically would reduce the dollar's use as a vehicle currency for, essentially, trading. Now, I don't think that those digital currencies have much of an impact on the dollar as a reserve asset.

I think central bank digital currencies, which are a whole topic under themselves...I think there is some potential in theory that if they are used for cross-border purposes and are quite liquid, that they could have certain arrangements that will cut out the dollar.

DiPippo: And that's because most of those digital currencies, especially CBDCs, are explicitly designed to be essentially substitutes for cash, whether for retail or wholesale purposes, and do not pay interest. Well, if you're a bank or a central bank, you don't want to hold cash you want to hold US treasuries, anything that has yield. And so, as a store of value I don't quite buy the argument from a transactional perspective. I think at the margin, there's some potential that they will do that. Although, it seems more theoretical at this point, because it's still early days. There are multiple experimental projects underway, which the BIS is trying to coordinate. Actually, the BIS in conjunction with the IMF and the World Bank put out a paper, I think yesterday actually, talking about the need for better coordination on cross board uses for CBDCs.

DiPippo: Because, it's really a hodgepodge, there's just five or six different prominent projects underway, and involve different countries. And so, it's all very complicated, but I mean, basically my baseline is continued dollar dominance. So, with regards to regionalization, the big one there would be China, right? And it is true that they are trying to expand the use of CIPS, which is the cross border international payments system. It's often called the Chinese answer to SWIFT, but it's not quite accurate because SWIFT, it's just a messaging service. Whereas, CIPS is actually a clearing and settlement service it. But, the weird thing is it does have its own messaging service. But, my understanding is that the majority of transactions over CIPS while in RMB are still using SWIFT to actually message.

DiPippo: So it’s currently, as designed, not independent of SWIFT. Now, theoretically you could move to their internal messaging, and get more countries off SWIFT network and then, off the dollar in terms of transactions. But, one point I like to make is even if China has, let's say modest to large success with international… or at least regionally for the RMB, most of those banks that are involved, especially international banks are still going to be on the US correspondent bank network, which means you can still sanction that, right? So, unless you think they're prepared to give up the dollar in favor of CIPS, and the RMB in general, the threat of sanctions is still potent. But, what might be different though, is the US’s ability to monitor those transactions through intelligence and SWIFT might be diminished.

Beckworth: Okay. Now, what about Stablecoins? I know you've talked about them as well in your conversations over at CSIS. And the Fed, at least, is interested in CBDCs to the extent that it can facilitate wholesale transactions. It's not interested in doing any retail CBDC, that's at least my takeaway from what they're saying, is they're not interested in Fed accounts or Fed tokens for retail use, but they are interested in doing wholesale type of activity. And you've mentioned that the BIS is looking at CBDC as a way maybe to facilitate cross border flows, make it easier, cheaper. Do you think of stablecoins as a part of that future, if it does emerge that the Fed, for example, introduces a CBDC for wholesale use?

DiPippo: I mean, so one key distinction between, let's say dollar reserve backed stablecoins, like Circle, USDC or Paxos coin, is that they already exist. The US CBDC is theoretical at this point. Yes, there is project Hamilton run out of Boston shared jointly with MIT, where they're basically testing technology, but it's not deployed as an actual coin yet. I think it's also worth keeping in mind that the Fed put out that paper earlier this year, their position paper and they're very clear, they're not going to do this unless Congress tells them to. My read on that is that the tone of the paper was very much, you have to make us, we don't really want to do this, maybe that's just me reading into it. You've mentioned retail versus wholesale.

DiPippo: I actually think there's some confusion in terminology, because you're right that in that Fed paper they said we don't want to do retail. And what they mean is they don't want individuals to have accounts at the Fed, they want a two tiered system where it might be a bank or a non-bank financial institution, has access to these digital dollars, which themselves are a direct liability of the Fed, but then consumers might use them. So, what's confusing is sometimes people talk about retail as meaning, do you have direct access to the central bank? Other times they mean, no, no, no, is it used for retail transactions? And I do think that what is being discussed in the US is, in the latter sense, a retail CBDC that it would be usable by everyday Americans to buy stuff. In general, I'm not entirely sold on CBDCs.

DiPippo: Yes, it's still early days. I think that a lot of the problems that they are supposedly solving are things that could be solved otherwise, there are others who have made this point as well. In fact, the UK Treasury and I think the Bank of England did a study, which was published at the beginning of this year, looking at the potential for a retail CBDC for the pound, and they ultimately decided it wasn't worth pursuing. The Danish central bank has also reached a similar conclusion. So, not everyone thinks these are necessary. And part of it is that they think that there are security concerns, and privacy concerns that I think might prohibit or discourage general usage… That some people might think of a Fed CBDC as a surveillance tool, even if that's not justified.

DiPippo: And I think I actually agree with those who are skeptical of the financial inclusion argument from an advanced economy perspective, which is that if these CBDCs are meant to be substitutes for cash. I think a lot of the people who stay in the US who still use cash are doing it either because they're not really interested in using tech, they don't even use Apple pay or Google pay on their phone or they have a good reason. They want it to be truly anonymous, right? And that's not something that a CBDC can offer. And so, I'm just skeptical. Now, there is one big asterisk, which is that I think CBDCs probably do have a usage for cross-border, which is where there's the greatest inefficiency in global payments. But again, that's a hodgepodge of networks and trials that are underway.

DiPippo: For stablecoins, I think one problem with stablecoins is they treat it as a feature that they are digitally native, by which they mean they're part of the blockchain economy, so called web 3. That could also be a bug. And it could be a bug to the extent that the web 3 economy ends up not being that important. I'm, let's say agnostic, trending towards thinking that web 3 is overhyped. I'm not that confident in it, but I'm just not sold on it. And so insofar as stablecoins were only useful in that interface, I think that will limit their usage. The so called on ramps, and off ramps where you convert stablecoins to fiat, to regular bank deposits, let's say. And those are expensive. So, the BIS in their annual report, which came out last year, section three is then talking about digital currencies.

DiPippo: And it's pretty negative on crypto, including stablecoins. I think their claim that stablecoins are illegitimate because they have to import their credibility from fiat currency by saying, "Oh, a dollar stablecoin is basically stealing the concept of the dollar." I mean, the same thing can be said about bank deposits, right? Bank deposits aren’t actually money, right? But, one point they do make that is fair, is at least currently the gas fees so to speak, as they call them, on the blockchains are quite high relative to other digital payments. Maybe these will be improved over time as we get new blockchains, I think they will. But, currently the way that some of these things like USDC work is they function on multiple blockchains, and they have what are called bridges that go across them. And those are quite susceptible to security risks and hacking as we've seen. And so, I think it's actually a bit of a problem. So, I think part of it is some in the stablecoin community, I think, are treating stablecoins as being a separate domain that will operate in parallel in the web 3 economy, which is fine. But then, that means they would not actually be a substitute for CBDCs insofar as they're not in this real economy.

Currently the way that some of these things like USDC work is they function on multiple blockchains, and they have what are called bridges that go across them. And those are quite susceptible to security risks and hacking as we've seen. And so, I think it's actually a bit of a problem.

Beckworth: So, I had George Selgin on the show and Manmohan Singh, and they both make this argument to bring stablecoins inside the regulatory perimeter, the fence. And you can imagine a scenario where stablecoins have direct access to Fed master accounts. They have an institution, some new charter for them, regulated, they're safe. And it makes me wonder what would be the point of a separate CBDC in that setting? Would a stablecoin that's backed by a Fed master account solve or address the issues that a CBDC is set out to solve?

DiPippo: I'm quite sympathetic to George Selgin's synthetic CBDC idea. I think one advantage of it, as he's pointed out, is that if the reserve assets are basically direct Fed liabilities you don't get anything safer than that. And it also avoids the problem of supposedly tying up liquidity in the Treasury market, which I don't quite buy given I think is the expected market cap of these things, but just granted there's some risk there. I think the concern is that people that want CBDCs typically want the government to do it. And so, George Selgin has a libertarian bias, right? So, he thinks, I think correctly that private firms would be better at executing this. But then, there's a concern of, well, what if there's really just two or three companies doing all the majority of transaction with these synthetic CBDCs, and you've granted private firms too much market power. I think there's a way around that with regulation. But, I think there's an ideological barrier that prevents CBDC fans from supporting the synthetics CBDC idea.

Beckworth: I think you're right, and it's worth noting if we're going to talk about market power, and just a few firms competing. If you compare the Canadian banking system to the US banking system, the US banking system has thousands of banks, the Canadian banking system has just a few ...

DiPippo: They have five.

Beckworth: Just five, yeah. And they've withstood shocks much better than the US banking system. So, it's not necessarily a bad thing just to have a few firms providing this key financial service.

DiPippo: Yeah. I mean, again, Selgin would be the one to ask about this, but it's clear that the problem with the US historically in terms of the banking sector is that it's state regulated, and they used to have basically no interstate branch banking until essentially the Great Depression, when they reformed that. Now, I think bigger banks actually can be much safer, that's unpopular to say, but it does require some regulation which we have. So, you just have capital adequacy requirements, and you might allow non-bank financial institutions, essentially FinTech companies to have master accounts at the Fed and issue stablecoins, which, I think, is smarter just because I think that they're more likely to be innovative with the technology than a major existing bank. Right?

Beckworth: Now, Gerard, we've been talking about stablecoins, CBDCs, with our economist hat on. And we started this show, you're going to provide the national security perspective. So, put your national security hat back on. Is there any implication of CBDC for national security issues or concerns?

CBDC Through the Lens of National Security

DiPippo: I think the big issue is anti-money laundering and know your customer counter-terrorism type concerns. And I think one of the big difficulties, particularly with cross-border usage is verification of true identity. That's especially difficult if you're trying to do, say, retail person to person transactions in CBDC or in crypto. Crypto has in general, wanted to avoid the government regulation, and the point is it's supposed to be anonymous or synonymous. Regulators don't like that, we want to be certain that those transactions are not being used for illicit purposes. So, I think that's really the primary concern. I think, from a macroeconomic perspective, part of why I'm skeptical that stablecoins are going to be all that successful, is I think a lot of governments are going to essentially impose capital controls to prevent them from being freely usable across borders. I think India is more or less said that as much, China certainly will not allow trading of crypto, it's effectively banned, right? So, what's left by default is CBDCs, because the governments want to have control.

Beckworth: So that then, begs the question, what if these other countries, India, China, they go ahead with their CBDCs and you can use them cross border, but the US doesn't. So, the Fed, like you've mentioned, is waiting for Congress to tell them to do it and say Congress never does, or Republicans come to power in the fall here in 2022. And there's no push, does that have a bearing on the dollar's dominance going forward?

DiPippo: It might again in so far as it reduces the dollars as transactional currency, but in general, the emphasis of most CBDCs is for domestic purposes. Even, the Chinese eCNY, at least when it first started or they began researching it in 2014, it was very much a domestically focused product. Now, over the past year or so, they've branched out the focus more on at least experimenting with cross border uses. But, I think that's still primarily about domestic use, in part because the People's Bank of China doesn't want a whole bunch of eCNY sloshing around outside the capital controls. Because, ultimately that might make exchange rate now a bit more difficult.

Beckworth: Okay. Well, we've been talking through a number of issues with Gerard, and we've been trying to take advantage of his experience as an intelligence officer, his national security perspective, as well as the fact that he's an economist. So, I want to switch gears from money to something else that we've talked about a lot this show and that's demographics, population growth or the absence of it or a decline of it. And the Financial Times had a big article they wrote up just recently, and the title of the article is, *Global Population Growth Hits Lowest Rate Since 1950.* And I'm going to read a few excerpts from it, and I'll tell you why it concerns me, Gerard. And then, I want maybe you to respond as the national security expert here.

Beckworth: But, the article goes as follows, "The global population grew by less than 1% a year for the first time since the aftermath of the second world war in 2020 and 2021, with Europe's total population actually falling during the coronavirus pandemic according to a UN report. The populations of 61 countries are forecasted decrease by at least 1% between 2022 and 2050. And the associated low fertility rates will also combine with better healthcare to accelerate the aging of societies." I'm jumping on down to another paragraph. "The rising proportion of older people in many countries is predicted to hit economic growth and public finances, and is already posing growing political challenges." And one more excerpt down here.

Beckworth: "’Two thirds of global citizens live in a country where the fertility rate is less than 2.1 births per woman, roughly the level required for populations to remain stable if mortality rates are low. And in countries with a falling population, unless you get a productivity miracle, overall economic growth will fall,’ said Charles Goodhart, emeritus professor at LSE. In Asia, Japan's population has been shrinking since 2010,” which I thought was striking. That's 12 years of population decline. “South Korea's fell in 2020, and China is forecast to do the same this year. China's population is forecast to decline by about 6 million annually in the mid 2040s, and by 12 million a year by the late 2050s, the world's largest ever drop.” So, China is going to actually see a quite a steep decline in absolute levels of people in the country in about a decade or two, a couple of decades from now. And the rest of the world's similarly going to slow down, at least the acceleration.

Beckworth: And when I see this, I see the growth implications. I think of innovation, ideas, when you have lots of people, you're going to have more geniuses, more innovators born who can come up with solutions to climate change, to energy, whatever it may be. And on the demand side, when you've got bigger markets it allows for more specialization, more productivity growth. And if we take that away, we're going to lose that ability to generate ideas and economic growth. And even if population goes down, another issue might be that some of that knowledge might even be lost. In fact, Chad Jones has a paper where he argues population decline… it's not just a question of missing new ideas, innovations, you might lose it. All this information, and knowledge spread across millions of people, and they begin to disappear. It's lost, even if you've got it stored away in a book or in a computer somewhere. But, what is your take on this?

Implications of the Global Drop in Population Growth

DiPippo: I don't see any upside to an aging society. I think, there are some who are degrowthers, right? Who think that, "Oh, that means we will consume less." I think that we can make the energy transition, and be more economical on our use of resources, even with a larger population. Previous estimates, back to Club of Rome days like 1970, that were projecting that the world would be overpopulated, it wouldn't be able to feed itself. They were wrong. I think as you say, that a young population is the best way to have innovation, have a more dynamic society. I think also it helps break down institutional barriers, and reduces cludge. So, I think an older one is more likely to have people that are biased towards their way of doing stuff, and gets more slower to reform, which is just generally bad.

I think as you say, that a young population is the best way to have innovation, have a more dynamic society. I think also it helps break down institutional barriers, and reduces cludge. So, I think an older one is more likely to have people that are biased towards their way of doing stuff, and gets more slower to reform, which is just generally bad.

DiPippo: And at the macro level, obviously it's worse for debt repayment. Nominal GDP, it's just harder to keep going on trend if you have fewer and fewer workers. Japan is really the example of this. They've tried, and I was actually looking the other day at Japan's stats of real GDP per worker. And it's flatlining, even despite the Abenomics, right? So, it's a tough situation. I think, from a national security perspective, national security people are much more likely, let's say, to think in zero sum terms than economists. So, what they would probably emphasize is, "Well, look, China's demographics are much worse than those of the United States," which is true. China's working age population is going to decline, I think, within a decade actually. The UN just published their updated forecast, and Chinese demographic data that came out in their 2020 census was worse than expected.

DiPippo: And so, I think that is certainly a problem for their growth, but also for their ability to generally have comprehensive national power, as they call it. There is evidence that older societies have a hard time sustaining or attracting people to the military. I think Japan's run into this a bit. But, I actually think that the war in Ukraine has changed my priors a bit, because both Ukraine and Russia have pretty bad demographics, and they're clearly going at it. So, it doesn't preclude that. I thought, "Oh, if you have only [inaudible], maybe you won't fight." But no, you still do. In general, I basically support the Matt Yglesias goal of 1 billion Americans by the end of this century, right? And whether that's through pro-natalist policies here or massive immigration, which I frankly would also favor. I think it will be better in the long run economically and culturally, and for US power to have that.

Beckworth: Oh, I completely agree. I would like to see far more legal immigration, higher fertility rates. But, I think fertility rates is the lost cause. I'm sympathetic to pro-natalist policies as well. But, I think immigration is the real solution here. And my question would be, as someone who's seen the national security side of this conversation, what does the defense community, what does the national security community think about immigration? Do they see it as opportunity to help the country? Or do they see it as potential threat? Maybe, you're letting in people with questionable motives.

DiPippo: I think it's hard to generalize, but my sense is a lot of people working in issues of, say, international competition, particularly with China, recognize immigration is maybe our most distinctive advantage. And so, that's something we could play. The US military is quite diverse, and it's really a wonderful project of assimilating people from different backgrounds, different socioeconomic backgrounds or ethnic backgrounds, into a cohesive force. And so, I think it has a reputation for being conservative, and it is in its way, but it's actually a progressive force in that regard. So, I don't really think there's a general bias against immigration from the national security state, per se.

Beckworth: So, it's very interesting that you bring up China. If I recall correctly, I was reading somewhere that one of the reasons, of course, that China has this population problem is that one child policy. Now, of course, added to that now, as they've become a richer country and fertility rates have also fallen, so it's compounded. But, one of the reasons they did the one child policy, if I'm remembering this right, is that one of the leaders in China at this time read the work of Paul Ehrlich and those people in the 1960s who were talking… the de-growth people that time. And they took it to heart, and they helped promote this message at home in China, which it's interesting that Paul Ehrlich may have done more for US national security than any other individual. It's a case where the pen is mightier than the sword. So, if I am recalling that story correctly, that's an interesting twist of fate.

DiPippo: I mean, this is in the Deng Xiaoping early reform and opening period. So, after 1978, so under Mao, China actually had very high birth rates. And it wasn't until they started their reform period when they actually imposed the one child policy. And yes, they were looking at those futurists, Alvin Toffler and some others, they were interested in. And they looked at the then conventional wisdom that overpopulation would be a problem. They put in the draconian one child policy, which was, I think, a disaster for many reasons, including moral. But I think the fact that they only went to a two child policy officially about five or six years ago, and then now they're frantically trying to catch up with the pro-natalist policies without any effect… It really, to me, is one of my good examples of Chinese Communist Party planning is not as good as some people think it is. It should have been completely obvious, even 20 years ago, let alone 10 years ago, that was a disastrous policy, but they didn't change it.

Beckworth: All right, well on that note, our time is up. Our guest today has been Gerard DePippo. Gerard, thank you for coming on the show.

DiPippo: Thank you.

Photo by Contributor via Getty Images

About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.