EC Don’t Expect The World Economy To Resume Its Growth Pattern After Covid-19

Most people seem to think that the world economy is going through a temporary disruption, caused by a novel coronavirus. As soon as COVID-19 goes away, they expect the economy will be back to normal. I think that this assessment is overly optimistic. The way I see the situation, the world economy was already having severe growth problems, caused indirectly by resource problems, even before COVID-19 hit.

In a growing world economy, a person might expect that workers would be getting richer so that they could afford an increasing quantity of goods and services. What we really see is something very different. The number of new automobiles sold was falling in many major countries long before COVID-19 hit, even as the population was generally rising. Clearly, something was seriously wrong.

Figure 1. Auto sales for selected countries, based on data of CarSalesBase.com.

As I see the situation, the world has a resource problem. Resources of many kinds, including fresh water, energy products, and minerals of many kinds were becoming more difficult (and expensive) to extract, even before 2020. Substitution might have worked if the problem were only one or two resources, but not with several major resources. Cutting back was the only answer.

Thus, the shutdowns for COVID-19 came at a convenient time, allowing economies that were already doing poorly to shut down. Needless to say, there was no world leader who was willing to explain this hidden issue to the world population. Instead, world leaders used standardized code words such as “we need to move to renewables” or “we need to reduce carbon use by 2050 to prevent climate change.” Unfortunately, the ability to move to alternatives in this time frame is simply an illusion, allowing world leaders to avoid mentioning the serious resource issues that the world economy is really facing.

I expect that within a few months, a new crisis of some sort (perhaps financial) will come along, further reducing resource use. This will happen, whether or not the problem of the novel coronavirus is solved. In this post, I will try to explain the situation.

[1] The world’s economy is a self-organizing system, powered by the laws of physics. It requires a mix of resources, including energy resources, to operate.

The laws of physics require that energy be “dissipated” whenever activities we associate with generating GDP take place. For example, if a person is to drive a truck, he/she will need to eat food for his/her own personal energy. This food is “dissipated” by digestion. If the truck is to transport goods, it will need to burn some type of fuel, such as diesel. This fuel is dissipated by burning. If a computer is to operate, it will need to dissipate electricity. If a room (or a liquid) is to be heated or cooled, some sort of energy dissipation will be required.

The world economy grows in a very orderly manner. It gradually adds population, as more babies are born than people die. All of these people need food and fresh water; they also need some type of housing and clothing to protect them from the elements. Ideally, they need some type of transportation in addition to walking. Businesses are formed to enable access to goods and services that fill these needs. Governments are also formed to provide services used by all and to regulate the system. A financial system is formed to facilitate transactions, among other things.

The world economy cannot slow down and quickly restart. This is especially the case for an economy that had already started slowing, even before the 2020 pandemic. If not enough resources of the right kinds were available to enable true economic growth before the pandemic, it is hard to see how the situation would be very much improved a year later.

One key to understanding how a self-organizing economy works is to understand that the economy is multi-sided. Businesses need to make an adequate profit, to continue in operation. Workers need to earn an adequate wage to raise a family. Customers need affordable prices. Shortages of inexpensive-to-extract resources can lead to many different problems: lack of profitability for producers, or too much wage disparity among workers, or too high prices for customers. Resource shortages can also lead to people with inadequate wages wanting to migrate. They can also lead to empty shelves in stores.

[2] Depleted coal mines near population centers in China have adversely affected the Chinese economy more than it tells the outside world.

China joined the World Trade Organization (WTO) in December 2001. The Kyoto Protocol mandated that 37 industrialized nations cut their greenhouse gas emissions. More than 100 developing countries, including China and India, were exempt from the treaty. This combination of events allowed China to greatly ramp up its economy, building many new roads, factories and housing units from concrete, with little competition from the 37 industrialized economies.

China had very large coal resources, which it ramped up (Figure 2). Of course, this greatly increased world coal consumption, an effect precisely the opposite of the stated purpose of the Kyoto Protocol–to reduce world CO2 emissions.

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William K. 3 weeks ago Member's comment

The resources of minerals still exist, but they are in different locations, and the effort torecover them is different. The lithium still exits, but now it is dispersed into landfills because of stupidity. The copper till exists but now it is in scrap heaps and junkyards, as well as in landfills. The problem is, and always has been, poor to non-existing reclamation efforts. The solution is obvious, and that is recycling, which mostly has not been done. Coal may be a bigger challenge, the shortage will be in the realm of cheap coal that is easy to mine. The oil shortage of the seventies was not a shortage of all oil, it was a shortage of cheap oil. At$100 per barrel there was lots of oil.

Now the problem of over population is a bit different, and clearly worse in those areas least able to support and feed that population. But I would remind folks that many of those "civilizations" have been around a lot longer than most of the areas that are doing quite well. As for the shortage of food, just consider all of the fools whoare screaming about how terrible any genetically modified foodstuff is. I would demand that they be made to decide who will starve to death.