When the Boom comes

During the 1970’s and 1980’s governments and people generally in the more perfluent nations were waiting for an economic “upturn” or “recovery” to reduce what had become chronic high unemployment. The underlying assumption was that the high throughput-increase rates, the so-called “economic growth” rates of the 1950’s and 1960’s, were normal and that the more sluggish throughput-increase (TI) rates of latter years were an abnormal phenomenon that could be expected to speed up in time through this or that brilliant policy initiative or going back to the early economics of the eighteenth and nineteenth centuries; or by eliminating (depending on your point of view) businessmen, unions, migrants, taxes, civil servants, or computers; or just by waiting. Finally the upswing would come and get us all back to “normal”.

This insistent looking forward to a “boom” which eventually occurred due to unexpected events, misunderstood the reasons for the state of things at that time and ignored the limited, though abundant, nature of the world we live in.

The effect of the world’s limits on recent economic history has been discussed earlier. What have been the effects of the boom that was finally achieved?

The rate of wealth depletion has increased. The technology improvement rate has also increased, and this, by improving the ratio of net to gross throughput, has delayed the adverse effects of wealth depletion or caused that ratio to fall more slowly than it otherwise would. But, as previously shown, technology improvement cannot enable an indefinite increase in the rate of throughput of limited wealth. Nor can it enable the sustaining of a rate of throughput greater than the rate of renewal. Improving technology can, of course, by enabling substitution, increase some renewal rates, also reduce the throughput rates of some resources and increase those of more abundant resources. But still there are limits to what technology can do in any sense.

Expectations have increased in every sector of society. This is not a hard objective variable, but it is of critical importance to the state of things and to the course of events.

In the hypothetical absence of rising expectations, if they could be “frozen”, the increasing rate of wealth depletion would add a component to the rate of price increases. This component will be larger than it was before with a lower TI rate.

The increasing rate of wealth depletion in the more perfluent countries has reduced opportunities for increasing the rate of throughput in other countries. This has widened the already large difference between the per capita throughput rates of more and less perfluent parts of the world.

Money prices for resources have risen, in many cases, out of proportion to the increase in demand or to any value inflation rate that may prevail. This has benefited resource-rich nations including many of the less perfluent, in money terms, transferring throughput in their favour. But their wealth has been reduced and their opportunities for future throughput reduced because of the transfer of wealth to high-consumption nations.

The extra money has enabled the wealth-exporting nations to transfer throughput in their direction by importing goods and services, but never as much in quantity, though more diverse in quality, than the exported wealth.

When this transferred throughput has been put through, consumed, used up, the resource-exporting countries will have suffered negative economic growth because much of the exported wealth will have been extracted faster than its renewal rate, leaving it depleted.

The more perfluent countries will have had their throughput rate and their appetite for wealth increased. They will need to inflict more economic shrinkage on countries, including their own, where wealth is extracted.

An important point here that has been stated before and needs emphasis is that the process widens the gap between the deprived people of the world and the minority of high consumers. So the boom should have been dreaded, not welcomed, by less perfluent people; whatever short-term increase in throughput they may have enjoyed will be at the cost of less opportunities for throughput in the longer term.

The boom would be self-limiting even if expectations remained frozen. The steady depletion of wealth accompanied by a fall in its renewal rates and a rise in value inflation (the component of price increases caused by the increasing gap between gross and net throughput) would combine to cause rising economic stress and dislocation that would alleviate their cause.

The point here is that the world economy will certainly settle down to a steady state one way or another, whether by deliberate policy or by constraint of nature. The latter would be far more unpleasant for us and leave the world in a worse state than the former. That is why deliberate policy is advocated here. Of course it is always harder to do something involving politically unpopular steps than to sit back, let things drift, and blame the consequences on some popular target.

Another thing to note here is that the results of the boom, so far described, are the same as what has been developing anyway for several decades. The “economic recovery” as that term is currently understood, will merely make it happen more quickly and more distressingly. So its actual effect will be quite the opposite of what governments everywhere believe and hope for. A true “economic recovery” would be progress towards a sustainable steady state economy, and that is what we must hope and work for.

Posts in this Series

Leave a Reply

Your email address will not be published. Required fields are marked *