Baby Bonds And Snake Farms

pay people to kill cobras and you end up with cobra farms. that one historical mistake is the operating manual for most of modern life, and this episode runs it through three places where it still matters.

the first is monetary reform. fiat currency is a covenant that gets quietly rewritten, decade after decade, while purchasing power takes a long slow walk in a direction nobody approved. that's why people reach for scarce anchors like gold or bitcoin, something committees can't conjure at 2am. but pegging money to something finite doesn't remove human behaviour from the equation. it moves the snake farm. the mechanism comes first. the slogans come later.

the second is the uk white collar economy. if knowledge work means reading, synthesising and producing documents under deadline, large language models do a growing share of it for essentially nothing. hsbc makes the mechanism visible: headcount disappears without a dramatic announcement, and the graduate-to-manager ladder starts sealing itself off. the consequences run straight into the tax base, public spending and the architecture of upward mobility.

the third is demographics and sovereign arithmetic. fertility rates are running well below replacement, pension systems were built for a world with far more workers per retiree, and i make the case for baby bonds as collateral that grows. call it baby woods: a bretton woods replacement where the scarce asset is whoever shows up next. once children carry a bounty, the world reorganises to produce them. the cobra programme finally gets an incentive it actually wants.

and then there is the awkward part.

the collateral votes.

if you listen, send me your strongest objection or the best real-world cobra story you've ever seen.

Transcript

five people understand money

SPEAKER_00 0:03

Five people in the world understand money. The rest, they just write about it.

the cobra bounty backfires

SPEAKER_00 0:13

The British Empire once discovered that the fastest way to get more cobras was to pay people to kill them. They had offered a bounty for every dead snake in colonial India. A reasonable intervention on the face of it. A kind that looks sensible in a committee room, but catastrophic in a field. The locals, the cunning locals, who'd been watching confident men mismanage things for some time. They saw this well-formed argument. This incentive. They saw it immediately and started. They started breeding cobras. And inevitably, when when the time came and the British they cancelled the program, the breeders. Oh the breeders, they released their inventory back into the wild. And India. Well, India ended the exercise with considerably more corporas than it had started with. Declare that a thing has value. And the world reorganizes to manufacture that thing. Until the declaration itself becomes upstart. This indeed is another example of the law of unintended consequences. And the people who've never understood this. Those people, they keep designing monetary policy regardless. And there are rather more of them than you and I would hope.

fiat promises and scarce pegs

SPEAKER_00 2:34

Monetary reform. It's where the mechanism shows up cleanest. Fiat currency. Really, it's a covenant that gets quietly rewritten every decade. Purchasing power. Going on a long, slow walk to oblivion. A direction that no one pre-approved. Some yell, proclaim, agitate, that we should peg the fiat to gold or bitcoin. Something finite. Something that committees committees of central banks can't conjure up. Something that they can't conjure up out of thin air at two in the morning. The problem is that the problem is that what? It's collateralizing money against a scarce asset. Of course it doesn't abolish the human incentive to game the system. No, it moves the snake farm. The reformists. I mean, they're still more interesting than the people who goddamn manage the current monetary system. Those are the ones who've decided that the really effective trick is is the status quo to keep rewriting the covenant quietly and hope nobody reads the small print until they're out of the building. Out of the building. What does that mean? Until they've gone until they're dead, perhaps. But that covenant, that covenant has been written large at the grocery counter when you pay, when you check out. Now there are perhaps five people alive today who understand why both groups end up in exactly the same place. And what those five what they understand is this the mechanism. It precedes the politics every time. Incentives, gaming, human beings. Problem.

AI hits UK white collar work

SPEAKER_00 5:06

Let's run it through the British white collar economy. And let's think of the Cobra as software. Software or the or the singularity of AI. And the breeding program? Well that was called financial services. Something the United Kingdom builds its post-industrial identity on. Knowledge. Knowledge work. Not manufacturing work. It's a dignified name for for reading something and producing a document about it under under normally under under a deadline. And of course, you don't need me to tell you, but large language models can do this for essentially nothing. And the evidence of the damage that that will wake has been accumulating. Only last week, HSBC made it concrete. It's not a UB it is a UB 40, so one in ten. But one in ten of the HSBC of its most senior bankers have been eliminated in a single year. One hundred and thirty-four of what regulators call material risk takers. The people whose trading and deal making can make or break the bank. A bank that spent seventy million dollars in severance and shut down its mergers and acquisitions and equity capital markets teams across the UK, Europe and the United States. Not because those businesses failed, but because a simpler, leaner, leaner organization no longer needs the headcount that built those desks. Reports now put twenty thousand additional HSBC employees, roughly another ten percent of the total global workforce, at risk from the AI. It's the first wave of a deployment cycle that doesn't stop at HSBC. Scale that experience across an economy where most workers are in sectors that software can replicate. And my friends, the arithmetic is is brutal. An enterprise rolls out AI, and six months later, something like ten percent of the workforce has quietly evaporated. No announcement, the headcount it just stops and then it contracts. While the communications team talks about transformation. The junior intake that was supposed to become next year's middle management, that's already a corridor sealed from the other side. The white collar apprenticeship, that whole architecture of upward mobility the UK bet its tax base on, that doesn't get announced as extinct. It just stops being replaced. Whilst the guilt market prices the official narrative. The market, I believe the market is reading the position, not the press release. The markets always get it right, not the press, not the release. The UK's fiscal arithmetic, you know, it rested on graduates becoming managers and paying higher taxes. And with enough bodies coming through each decade, we could fund the cohort ahead. However, AI is ending that first condition, and the birth rate is ending

fertility collapse and pension maths

SPEAKER_00 9:32

the second. Elon Musk has a recurring nightmare about this, and he's not wrong. The developed world's fertility rate is is running around 1.5. That's well short of the 2.1. Forgive me, I hate decimal points, but it is what it is. Yeah, we need 2.1 to hold the population flat. Japan. Japan's already contracting. South Korea's close behind. And every developed pension system in the world. It was engineered for a demographic pyramid that just no longer exists. Designed in a world with something like five workers behind every retiree and drifting, and now we're drifting towards only two. And the serious rooms with the big policy thinkers, they've noticed.

baby bonds as demographic collateral

SPEAKER_00 10:41

The seminal work creating a framework was Hamilton and Daugherty. They were the first. They proposed federal trust accounts for every newborn child. A capital stake at the start of life rather than a safety net at the end of it. Trump scaled the politics, if not the ambition. A thousand dollar seed account for every child born in America between 2025 and 2028. The logic is correct. The number isn't. Take it seriously. Maybe it's a quarter of a million per birth. Issued as a bond. A baby bond. With the currency, the dollar backed against biological growth. The gold peg and the Bitcoin fix, maybe the Bitcoin less. But they fail at the same point. They fail. Well, Bitcoin doesn't fail. Gold would fail at this at this point in trying to anchor an expanding political covenant to static collateral. A baby bond does something stranger. The collateral itself, it grows. Baby Woods, perhaps, not Breton Woods. The collateral, it isn't gold, it's whoever shows up next. Maybe you get maybe like that we have enough people and we get to Mars after all. This is the Cobra program. In a onesie. Once a child carries a bounty, the world reorganizes to produce children. The breeders, you and I. I mean not me, I'm not having any more children, but you know, the breeders qualify immediately. And what you get is the demographics the incentive produces rather than the demographics, the policy intended. And you know what? They all vote. This is the Cobra program in a onesie. Because once a child carries a bounty, the world reorganizes to produce children. The breeders qualifying immediately. And what you get is the demographics that the incentive produces rather than the demographics, the policy intended. The baby bond is the rare cobra program where the unintended consequence is the point. Sovereign debt requires future taxpayers, and future taxpayers require people. Get the demographic collateral growing again, and at least one piece of the arithmetic starts repairing itself. It doesn't solve the harder sovereign problem, which is what happens when the software can do most of the work that those future taxpayers were supposed to be paid for.

when the collateral is people

SPEAKER_00 14:05

The collateral, after all, is the people, and they vote. Good night, God bless. This was very short. I hope you've enjoyed it. God rest. God bless, God rest is the regard.