The Great Hunger

What is the real problem with the global economy? The traditional academic position, espoused by Paul Krugman, Christina Romer and most the White House and Federal Reserve is that this ever since 2007 we have experienced a series of severe negative demand shocks — starting with the bursting of the housing bubble, the sub-prime bubble, the implosion of AIG, Lehman Brothers, and Bear Stearns, and continuing through the European debt crisis, various natural disasters and geopolitical upheavals — which first brought us into crisis, and have since imperilled any nascent recovery. The staunchest view – pushed especially by Krugman — is that the only way to reverse the effects of these demand shocks is through massive stimulus, to create a multiplier effect and raise aggregate demand.

But I believe that simply juicing the wheels of the economy with more money is simplistic, frivolous and mechanistic. We have to understand that the negative demand shocks are not simply bad luck or statistical noise, but instead reflect the reality of severe underlying structural problems. And without solving the underlying problems, a stimulus will keep things ticking over for months or years, until the same problems rear their head again down the road.

So the dissenting view, as posited by myself among others, is as follows:

Those troubles are non-monetary — they are systemic and infrastructural: military overspending, political corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, the derivatives-industrial complex, food and fuel inflation and so forth.

Of course, there are multiple routes to tackling the underlying structural challenges. Pimco’s Tony Crescenzi focuses on the dangers of excessive debt:

Politicians and the beneficiaries of their fiscal illusions for the past 80 years abused the Keynesian philosophy, relentlessly and dangerously pursuing the use of debt for self-aggrandizement. Today, the citizens of indebted nations bear a heavy burden and must begin repaying the debts. It is a herculean task, because the debts are mountainous.

At the other end of the spectrum, UBS’ chief economist George Magnus, taking a cue from Marx, focuses on raising employment levels and middle class wealth so that they can afford to consume more:

Consider, for example, Marx’s prediction of how the inherent conflict between capital and labor would manifest itself. As he wrote in “Das Kapital,” companies’ pursuit of profits and productivity would naturally lead them to need fewer and fewer workers, creating an “industrial reserve army” of the poor and unemployed: “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery.”

The process he describes is visible throughout the developed world, particularly in the U.S. Companies’ efforts to cut costs and avoid hiring have boosted U.S. corporate profits as a share of total economic output to the highest level in more than six decades, while the unemployment rate stands at 9.1 percent and real wages are stagnant.

U.S. income inequality, meanwhile, is by some measures close to its highest level since the 1920s. Before 2008, the income disparity was obscured by factors such as easy credit, which allowed poor households to enjoy a more affluent lifestyle. Now the problem is coming home to roost.

Both of these points — despite coming from entirely different angles — are valid. There are a lot of problems, many of which stack up and make each other worse. But in my opinion there is one issue that is more troublesome than any other, and for which a remedy is desperately needed.

With an ever-expanding global population, requiring more food, more resources, more production and more infrastructure it is very difficult for existing systems and structures to handle the growth. Here’s the global population:

Here’s global oil demand:

And here’s global food consumption:

This runaway growth means that there is ever-more competition for food, land and resources, pushing prices up and inventories down. Higher prices mean less expendable income for the poor and middle classes — lowering sales of non-necessities (another downward pressure on growth) — and more debt acquisition as nations, corporations and people scramble for resources. And with withering and depleted infrastructure being constantly tested by growing populations, the mood of doom can make individuals, governments and global markets extremely edgy. American and global consumer and producer sentiment are heading to all-time lows. If we want to look where the negative shocks are coming from, we should first look to global population growth.

But people have the right to reproduce, and in reality larger population is broadly a good thing, because it means there will be more productive workers, more entrepreneurs, more inventors, geniuses and creatives. 

We also know that when nations industrialise, their population sizes become much more static
, so as long as the world industrialises, runaway population growth or overpopulation will not be a problem. We can safely assume the world population should stabilise at somewhere around nine billion. In my opinion, even twelve or fifteen billion is not so much of a problem — so long as the challenges that those population sizes pose are met.

The main challenge is the simple task of getting enough food, energy and space for however many people are alive. Now we know that the solar energy hitting the earth exceeds the total energy consumed by humanity by a factor of over 20,000 times. More solar energy hits the world in a day, than we use in fifty years, at current rates, so energy itself is not a problem. The problem — and where the real challenge is — is converting this energy to meet the needs of the vast numbers of new people. But there are thousands of technologies, systems and strategies that we can deploy in meeting the challenge — starting with widespread solar and wind generation, and moving on to 3-D printing, carbon-scrubbing trees, synthetic oil, urban farming, improved grazing technologies, carbon nanotube desalination, electric and hydrogen transportation and so forth. This is really a matter of will: if we choose to rise to these challenges — in terms of spending, in terms of development and in terms of infrastructure — they can be met.

Creating a better food, energy and resource infrastructure is not really an ideological issue — unless your ideology is resource wars, famine, oil shocks and the destruction of our global civilisation. These strategies can be put into action by the market and investors for profit, or through government intervention, or both. The issue is not “which is better? Government or private industry?” The issue is meeting the challenges of the 21st Century by whatever means necessary.

16 thoughts on “The Great Hunger

  1. Regarding income inequality, I beginning to think it can be explained most simply by using the World Series of Poker as an analogy:

    If everyone plays the game long enough, someone always end up with all the chips.

    • there’s a math theorem that when making bets in the “flipping a coin” game, you can beat your adversary in finite number of rounds if… you have unlimited borrowing possibility :D

      I think it’s more than a curiosity – the rich use “unlimited borrowing” to defend status quo: current distribution of work and thus wealth.

      In a really free market, provided that anyone can learn any job and adapt quickly, people would end up quite equally wealthy. dispropotions in income come from dispropotions in abilities (and efficiency). but when the market is manipulated by the wealthy who control the state, the rest can only try catching up. the rich have the monopoly to produce, the rest can only refill.

      • Great responses, guys. This economy is a martingale double-up, triple-up system — unlimited leverage double down, keeping the rich flush. Gonna write an article on it. I have spent a lot of time in casinos…

  2. mantrid,

    So your saying that the wealthy use money manipulation and anti-free market policies to stay rich and that the misallocation of money, labor and resources falls to the middle and bottom classes in the form of a lower living standard?

    Yeah, that about sums our problems up!

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  4. You are seeing fiscal and monetary policies deflect the changing priorities of humanity for the benefit of those in control of said polices. Power is shifting away from TPTB, and they don’t like it.

    There is no demand shock, ‘demand’ is killed in the traditional economic sense. Consumption != Production != Happiness. Our societies are too damn efficient now with important exceptions to infrastructure/energy inputs/commodities management as you (and stagflation) eluded to.

    Krugman’s plan to print money to dig ditches and fill them back up might make the GDP/CPI/WTF numbers look good and bonuses hefty but it doesn’t help humanities problems, rather it merely massages the numbers and pacifies us with the game of life while the banks profit. We need to eliminate social debt to become a free and happy society.

    It’s unfortunate our financial system requires eternal growth, because wisdom in life teaches you that more isn’t always better.

  5. “Krugman’s plan to print money to dig ditches and fill them back up might make the GDP/CPI/WTF numbers look good and bonuses hefty but it doesn’t help humanities problems, rather it merely massages the numbers and pacifies us with the game of life while the banks profit.”

    Exactly my point.

    “We need to eliminate social debt to become a free and happy society. It’s unfortunate our financial system requires eternal growth, because wisdom in life teaches you that more isn’t always better.”

    Interesting. I personally believe that growth is a money-centric measure that ignores the real picture of needs and wants and social conditions. But in terms of “growth” as evolution as a species, and as a civilisation there is so much for us to accomplish — starting with putting mechanisms in place to sustain the environment (I’m agnostic on climate change, but it’d be nice to have CO2 at pre-industrial levels), produce enough food and goods for everyone, etc.

    The end-game for me is going off-planet, mining the solar system, producing a self-sustaining model for energy, because that would be the ultimate insurance policy against civilisational collapse. That will require an awful lot of development, work, and innovation, if not “growth”.

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  13. Whether such technologies as you describe will work is not information accessible to the discipline of economics, rather it is a scientific/engineering problem.

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