Notes from Camp Kotok: The Ghost Boat

“I feel like my sense of gravity is shifted,” I say. I’m driving from Grand Lake Stream, Maine, to Bangor Airport to drop off Barry Ritholtz who has, for the past seven years, been my roommate and fishing buddy at the informal once-a-year gathering known as Camp Kotok.

“Yeah, me too,” says Barry. “I still feel the ghost boat.”

The “ghost boat” is familiar to anyone who’s ever spent any significant time on the water. Go out for a quick paddle, and those first few steps back on the dock can be a bit wobbly. But spend five days standing in a boat, the waves rocking beneath you, and once you get back on land, you’ll feel the disconnect between your internal perceptions of reality and terra firma for at least a few days. The ghost boat effect is definitely real. I’m still feeling it now.

This Year’s Theme: We Don’t Know Anything

“Camp Kotok” is the world’s most macroeconomically focused fishing trip; five days of sitting in canoes and dining rooms talking about investing, economics, politics, and culture deep in the middle of nowhere. It’s organized by David Kotok, the near-legendary founder of Cumberland Advisors, and the Global Interdependence Center, a non-profit that exists primarily to help foster these kinds of conversations.

2020’s Camp was postponed for Covid-19, and this year’s camp was split into two weeks to minimize risk. As 99% of the event is conducted under Chatham House Rules, I can’t name names of attendees without permission; but generally speaking, the guest list includes economists, portfolio managers, researchers, academics, and finance professionals from as wide a background as you can get.

David is fond of pointing out the non-governmental AUM influenced by the group is north of $1 trillion. I have long suspected my role is comic relief.

This year’s event featured scheduled conversations on China, central bank digital currencies (CBDCs), and of course, the current status of the pandemic. We were lucky to have quite a few folks who have genuine depth on all of these topics, from folks running giant data collection operations in Asia to doctors actually managing hospital systems.

But my overwhelming takeaway on these topics, when compared to past camp experiences, is that the range of uncertainty in our analysis is vast. We just don’t know so many things. Long Covid? We genuinely have no real idea just how much impact it will have on the economy. Delta variant? Nobody really has a playbook for what happens when you have a population reluctant to follow public health guidance. Interest rates? Even some of the smartest bond guys I’ve ever met couldn’t come up with a solid set of “if this, then that” that would inspire investor confidence.

None of this is a failure of the individuals involved. Instead, I believe we’re just genuinely in a world now where the unknowns — from how closed China will become to crypto regulation — don’t have precedents that we can really believe in. The question I kept asking, over and over, was: “So what should we be looking at? What’s the canary in the coal mine?”

And the best answer I can come back with is “labor.”

Shaking Off the Ghost Boat

It’s not a unique observation to point out that the entire planet has just been through a traumatic experience. Few  corners of the planet were unaffected, whether from infection rates or lockdowns, or just the economic hit. As finance people, we naturally tend to focus our attention on the numeric impacts of this global trauma, and hey, I do it too.

But the only data in our regular economics series that actually reflects the human, lived experience of the pandemic shows up in labor. This chart from today makes the point perfectly:

Source: Datatrek, BLS

The above, from Datatrek (and you should be reading their stuff), indicates the “quit ratio” — or how many people are leaving their jobs specifically because they are quitting their jobs (as opposed to being let go, etc.). This chart shows an astonishingly high quit ratio of almost 70%, indicating a tectonic shift in the labor market–one with reasons beyond unemployment insurance. It’s not about the quit-rate number. It’s about the why.  

There are lots of narratives for the why for individual industries facing issues: teachers’ unions, healthcare workers, meat packers, Uber drivers, suburbanization of office work. Most of the discussion focuses pretty monotonically around labor costs, and I get it — labor is an important component of the cost of almost everything in the world. But clearly there’s more going on here beyond labor costs.

WW2 probably provides the best example of a real shift in the role of labor, and there’s no shortage of reading material on it (here’s a good start). For those not familiar, the narrative went something like this:

People worked their buns off during the war, saved money (because they couldn’t spend it, largely, but the GI bill and government spending certainly helped), and then decided to buy a lot of cars and other goods, which got very expensive. Sound familiar? Workers, whose wages had been largely capped, emerged from the crisis period demanding better working conditions and wages, leading to a raft of legislation and a boom in organized labor. Sound familiar? All of this happening against a backdrop of enormous global political uncertainty and incalculable human tragedies from the actual war.

Yet those immediate economic impacts were surprisingly short-term, compared to the way the post-war Baby Boom — both a cultural and economic storm — shaped pretty much everything since, from music to literature to economic policy and, again, suburbanization.

I’m not suggesting in any way we’re going to follow that precise pattern. What I am suggesting is that the cultural and societal impacts of Covid-19 aren’t something we can stick in a bottle and examine ex-ante. While things like average wages, unemployment insurance, quit rates, and labor force participation will continue to give us nice real-time reads, I think they’re likely pointless as predictors of the future long-term.

“1984” and “Inside”

I have long held the belief that if you want to predict the future, look at what’s going on in culture. While policy is being made by Baby Boomers (still), the future is firmly in the hands of young people. It always is. And while we can survey all we want, I think the “big art” produced in a crisis era is often more telling than data. To abuse the quote from 1984, “sanity is not statistical.”

George Orwell’s Animal Farm and 1984 were products of the post-WW2 era, and reflected the lived experience of actual people, not politicians and soldiers. The smarter critics of the time saw it clearly. From the Time Magazine review of 1984 in 1949:

Most novels about an imaginary world (e.g. Gulliver’s Travels, Erewhon) have as their central character, or interpreter, a man who someone strays out of the author’s own times and finds himself in a world he never made. But Orwell, like Aldous Huxley in Brave New World, builds his nightmare of tomorrow on foundations that are firmly laid today. He needs no contemporary spokesman to explain and interpret — for the simple reason that any reader in 1949 can uneasily see his own shattered features in Winston Smith, can scent in the world of 1984 a stench that is already familiar.

Most English teachers will tell you about 1984’s cautionary messages about fascism and totalitarian states. Few get to the heart of the matter, which is how Winston’s experience makes him long for things that would become the driving forces of the 1950s: clean water, reliable food, functional infrastructure, a modicum of freedom to think and have a family–and perhaps most importantly, self-determination about what he does with his day-to-day life. Or put another way, his experience as “labor.”

In my limited view, I think comedian Bo Burnham’s Netflix special, “Inside,” is the same kind of canary in the coal mine that Animal Farm and 1984 were 80 years ago.

I’m probably not going to convince everyone who is reading this to go watch it. It’s not everyone’s cup of tea. (You can just read the transcript if you like). I couldn’t easily find statistics on how well watched it’s been, but it’s up for a half dozen Emmys and was outrageously well-reviewed. I haven’t found many people under the age of 40 who haven’t seen it. Me? I’ve watched it seven times. My kids have me beat.

One song, “Unpaid Labor,” reflects Burnham’s audience’s lived experience — not just the obvious “boy it sucks being an unpaid intern” part of it, but the immediate need to comment on, second guess, question, socialize, broadcast, and overanalyze his own thoughts. In the space of 3 minutes he makes a cutting, Tom Lehrer-like musical number:

Who needs a coffee ‘Cause I’m doing a run
I’m writing down the orders now For everyone
The coffee is free, just like me
I’m an unpaid intern
Sorting papers, running around
Sitting in the meeting I’m not making a sound
Barely people, somehow legal
Unpaid intern
You work all day, go back to your dorm
And since you can’t afford a mortgage You just torrent a porn
‘Cause you’re an intern

It’s a cute little Rockabilly number that might get a chuckle. But then he completely inverts and internalizes it using the “reaction video” trope which is all too familiar to anyone of his generation who’s spent their entire lives on Twitch and YouTube. As the music plays in another window he comments:

Um, so the idea with this song was basically that there’s so many songs in the past about… about working-class jobs, but not a lot about the labor exploitation of the modern world, so that was the idea here…

And then comments on his own reaction (all at the same time, cacophonously)

I’m being a little pretentious.  It’s, uh… it’s an instinct I have where I need everything that I write to have some deeper meaning or something. But it’s a stupid song, and, uh, it doesn’t really mean anything, and, uh, it’s… it’s pretty unlikable that I… that I feel this need, this desperate need, to be seen as intelligent.

And I think that, “oh, if I’m self-aware about being a douchebag, it’ll somehow make me less of a douchebag.” But it… but it doesn’t. Self-awareness does not absolve anybody of anything.

In discussing it with people roughly in his generation (call it 25-35), this lands not just because of the obvious “screw this” reaction to the current status of labor in the market, but because with that dissatisfaction comes a mountain of self-doubt, self-judgement, and social media’s siren call to make everything — even your terrible job — into a performance to be shared and judged by others. And all of this is describing just 3 minutes of a 90 minute special in which I would argue almost every minute is dripping with cultural commentary, which both resonates and has long-tail implications. It may not be your personal kind of performance art or comedy, but I long ago realized that just because I don’t personally like something in modern culture doesn’t mean it wasn’t going to be enormously important and have real-world implications.

So What? Big Deal?

My point (and I do have one) is pretty simple. The “Inside” generation are the ones deciding whether to become nurses, or florists, or Uber drivers. They’re coming out of a year locked in some version of a box, quietly wrestling their own psychological demons. While they’ve had wildly different experiences depending on where they lived and their starting conditions in 2020, the overall cultural experience was the same, and it was almost universally negative and introspective.

The reaction to that is actually what’s going to shape the economy for at least the next decade. Sure, we’ll wring our hands about “how much do we have to pay a McDonalds employee” and pore over non-farm payrolls. Meanwhile we’ll see massive business formation and new forms of organized labor, whether it’s traditional unions or the kind of playing-field-leveling that technology can bring. The Inside generation is not sitting around waiting for D.C. to figure things out. They’re just getting on with their lives, and they’re not really going to ask permission.

That’s why the quit rate is up. That’s why wages are coming up. That’s why business formation is rocketing. I suspect it’s also why Robinhood exists and crypto made its way into an infrastructure bill.

So that’s my lesson from the lake. Sure, there are far too many unknowns out there. The data is contradictory and transient and hard to analyze. But culture is here and now. And those of us of (ahem) a certain age would do well to dig deep into the now, whether we have to force ourselves or not. We’ve all spent 18 months standing up in a rocky boat. It’s going to take some time — decades most likely — for that ghost boat to settle down.

For more from Dave Nadig, visit the Expert Insights channel.