Why Collapse Occurs; Why It May Not Be Far Away

Collapse is a frightening subject. The question of why collapse occurs is something I have pieced together over many years of study from a number of different sources, which I will attempt to explain in this post.

Collapse doesn’t happen instantaneously; it happens many years after an economy first begins outgrowing its resource base. In fact, the resource base likely declines at the same time from multiple causes such as soil erosion, deforestation, and oil depletion. Before collapse occurs, there seem to be warning signs, such as:

  • Too much wage disparity
  • Riots and protests by people unhappy with low wages
  • Prices of commodities that are too low for producers that need to recover their costs of production and governments that require tax revenue to fund programs for their citizens
  • An overstretched financial system; conditions ripe for debt defaults
  • Susceptibility to epidemics

Many people have the misimpression that our most important problem will be “running out” of oil. Because of this, they believe that oil prices will rise high if the system is reaching its limits. Since oil prices are not very high, they assume that the problem is far away. Once a person understands what the real issue is, it is (unfortunately) relatively easy to see that the current economy seems to be quite close to collapse.

In this post, I provide images from a recent presentation I gave, together with some comments. A PDF of the presentation can be downloaded here.

Slide 1

Slide 2

Slide 3

Slide 4

In some ways, a self-organizing system is analogous to a dome that might be built with a child’s toy building set (Slide 4). New layers of businesses and consumers are always being added, as are new regulations, more or less on top of the prior structure. At the same time, old consumers are dying off and products that are no longer needed are being discontinued. This happens without central direction from anyone. Entrepreneurs see the need for new products and try to satisfy them. Consumers decide on what to buy, based upon what their spendable income is and what their needs are.

Slide 5

Resources of many kinds are needed for an economy. Harnessing energy of many types is especially important. Early economies burned biomass and used the labor of animals. In recent years, we have added other types of energy, such as fossil fuels and electricity, to supplement our own human energy. Without supplemental energy of various kinds, we would be very limited in the kinds of goods and services we could produce. Our farming would be limited to digging in the ground with a stick, for example.

The fact that there is almost an equivalence between employees and consumers is very important. If the wages of consumers are high, relative to the prices of the goods and services available, then consumers are able to buy many of those goods and services. As a result, citizens tend to be happy. But if there are too many low paid workers or people without work at all, consumers are likely to be unhappy because they cannot afford the basic necessities of life.

Slide 6

The problem civilizations are facing is a two-sided problem: (1) Growing population and (2) Resources that often degrade or deplete. As a result, the amount of resources per person falls. If this were carried to the limit, all of us would starve.

Slide 7

As resources deplete and population grows, local leaders can see that problems are on the horizon. At first, adding technology, such as a new dam to provide water to make farms more productive, helps. As more and more technology and other complexity is added, there is less and less “bang for the buck.” We can easily see this in the healthcare field. Early antibiotics had a very big payback; recent medical innovations that help a group of 500 or 1000 people with a particular rare disease can be expected to have a much smaller payback.

A second issue with added complexity is that it increasingly leads to a society of the very wealthy plus many very low paid workers. Joseph Tainter identified the combination of these two issues as leading to collapse in his book, The Collapse of Complex Societies.

Slide 8

Françios Roddier is an astrophysicist who writes primarily in French. His book Thermodynamique de l’évolution was published in 2012; it is now available in English as well.

The issue of starving people in Yemen is an issue today. In fact, hunger is an increasing problem in poor countries around the world. The world tourism industry is dead; the industry of making fancy clothing for people in rich countries is greatly reduced. People who formerly made their livings in these industries in poor countries increasingly find it difficult to earn an adequate living with other available jobs. Rich countries tend to have better safety nets when there are widespread reductions in job-availability.

Slide 9

Businesses often make long-lasting goods such as machines to be used in factories or automobiles to be used by consumers. Governments often make long-lasting goods such as paved roads and school buildings. When making these goods, they take some combination of commodities, built machinery, and human labor to make goods and services that people will use for many years into the future. The future value of these goods is hoped to be significantly greater than the value of the inputs use to create these goods and services.

There are at least three reasons that time-shifting devices are needed:

  1. Workers need to be paid as these goods are made.
  2. Businesses need to build factories in advance.
  3. Businesses, governments, and individuals are all likely to find the future payments more manageable, even with interest added, than they are as a single payment upfront.

I don’t mention the issue in Slide 9, but once time-shifting devices are created, they become very easy to manipulate. For example, no one knows precisely what the future value of a particular investment will be. Governments, especially, are prone to make investments in unneeded infrastructure, simply to provide jobs for people. We also know that there are diminishing returns to added technology, but stocks of technology companies tend to be valued as if complexity will save the world. Third, interest rate manipulations (lower!) and the offering of debt to those who seem unlikely to be able ever to repay the debt can be used to make the economy of a country appear to be in better shape that it really is. Many of us remember the collapse of the US subprime housing debt bubble in 2008.

Slide 10

The purpose of a financial system is to allocate goods and services. High wages allocate a larger share of the output of an economy to a particular person than low wages. Appreciation in asset values (such as prices of shares of stock, or value of a home or piece of land) also act to increase the share of the good and services produced by the economy to an individual. Payment of interest, dividends are rents other ways of allocating goods and services that the economy makes. Governments can print money, but they cannot print goods and services!

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William K. 1 month ago Member's comment

Amazingly enough, if you look back, that first Oip Shortage was only a shortage of CHEAP oil. There was never any shortage of expensive oil, it was available immediately. And the $120 per barrel that the oil companies "need" is to keep the obscene profits that they have decided that they observe. Just look at the profits and all of the complaints seem like a spoiled child demanding more deserts.

And the problems of insufficient wages are at least partly due to the workers having insufficient skills and motivations to deliver service worth more. And the very rich get richer because those controlling their pay have no reason to demand service worth that amount. They are a board of directors not really involved, and the compensation excess does not affect their incomes at all.