A recurring theme of this blog has been the chronic and ultimately futile attempt to sustain growth in support of an ever more fragile profit-based economic model. It has been the writer’s contention that the main proximate cause of the system’s eventual demise would likely be an implosion of the financial markets driven by speculation – itself a response to insufficient market demand for goods and services – leading to uncontrollable and unsustainable imbalances. At the same time, however, it has been increasingly stressed that environmental and demographic constraints would also pose physical limits to economic and market expansion.
The current political focus on the menace of global warming has belatedly made people conscious of the potential threat to the biosphere posed by excessive production and consumption in general and of certain commodities (such as fossil fuels) in particular. Remarkably, however, little mention is made of the one factor which, above all, is driving such excesses: the unprecedentedly high rate of world population growth. At nearly 8 billion the world’s population is now some four times what it was at the end of World War ll and eight times the level of two centuries ago, while authoritative projections suggest it will reach at least 10 billion by the middle of this century before starting to decline.
How are we to explain the virtual absence of any public consideration of such population growth, as phenomenally rapid as it is unprecedented, particularly in the context of concern over man-made global warming on a finite planet? It might seem obvious that growth in the aggregate output of goods and services is likely to challenge the Earth’s carrying capacity at a certain point. Yet it is striking that virtually the only factors being considered in addressing this constraint are supply-side (environmental) ones – as are the only possible solutions, in the shape of new technological fixes. Any notion that the demand side – in the shape of ever-expanding numbers of people – might need to be restrained is barely considered.
The explanation for this rather one-sided debate evidently stems from the compulsive need – under the prevailing economic model – to pursue the maximisation of rates of economic growth – i.e. of both production and consumption. A long-standing exponent of this point of view, the Economist newspaper, views the prospect of declining world population after 2050 with evident dismay, claiming without any evidence (27 March 2021) that “fewer people may also mean fewer new ideas”. Elsewhere they argue, far more plausibly, that such a trend would be negative for global growth.
In fact it is clearly the actual and potential fading out of such growth that is now tending to undermine the entire basis of the existing profit-based global economy. A major factor behind this development is obviously the onset of the coronavirus (Covid 19) pandemic. While it is still hard to quantify its potential impact, particularly beyond the short term, there can be little doubt that it will negatively affect the contribution to Gross Domestic Product (GDP) of such major sectors as public transport and aviation as well as petroleum production and marketing, while also reducing demand for and supply of commercial real estate.
To what extent these negative factors may be offset by the creation of new contributors to value added (GDP) and sources of jobs – many in sectors that hardly exist at present – can only be a matter of conjecture. Yet based on past trends it must surely be assumed that the impact of continuing technological change will be such as to further reduce demand for labour relative to output, if not aggregate output itself. Combined with the negative pressure on growth exerted by the presumed downward tendency imposed by environmental considerations, the overall prognosis for real global economic growth must surely be negative – or at best flat and extremely uncertain.
It is this uncertainty that is set shortly to undermine the prevailing profits system with probably terminal effect. As repeatedly noted in this blog, there is now – and particularly since the start of the GFC in 2008 – an almost total dearth of new fixed investment opportunities in the global economy, other than those such as electric vehicle production that are simply going to replace existing sub-sectors of production. This problem is only likely to get worse, especially the longer the Covid 19 pandemic endures. In such circumstances it will only be possible to recycle “surplus value” into ever more socially damaging activities, such as gambling and pornography, or ever riskier speculation. Arguably, in fact, this is already happening and has only been prevented from causing a massive market upset by further application of “quantitative easing” (QE) and related forms of officially approved market rigging designed to stop asset values (including share prices) from falling.
Such desperate market manipulation must obviously have its limits, though too many exponents of so-called Modern Monetary Theory (MMT) – who also naturally tend to favour QE – are seemingly unable (or unwilling) to grasp this reality. Equally many more mainstream economists allow themselves to be seduced by the notion that such monetary sleight of hand can keep inflation at bay indefinitely. Yet at the same time the monetary authorities assert that they are just about to raise interest rates from their all-time record lows in order to choke off inflationary pressures – something they have been vainly promising to do for several years while rates have only fallen still further.
The now pressing need to confront climate change seems bound to alter this perspective dramatically. For this must make it more starkly apparent that economic growth is no longer sustainable – even at a reduced pace.
In this context continuing monetary laxity – as reflected in further doses of QE – is bound ultimately to prove intolerably destabilising. For what amounts to money printing on this scale has already led to unprecedented macro-economic imbalances – such that total debt now exceeds 300 per cent of GDP in some two dozen countries, including the US, compared with half a dozen 20 years ago. Such imbalances would have been expected, under “normal” circumstances, to result in high inflation and / or high interest rates. Since either of these would impose intolerable stress on the global economy and society, the authorities have resorted to the expedient of “QE to infinity” in order facilitate market rigging on the scale necessary to hold down interest rates, while it has at the same time evidently been found possible – at least for the time being – to channel most of the extra liquidity generated into fixed income securities – typically sold to wealthier investors via hedge funds – rather than into potentially inflationary consumption.
While, as indicated, there must be a limit to such egregious distortion, it seems impossible to know in advance what that limit might be. In recent weeks, however, there are signs that the authorities may be losing control of inflation, as the US Consumer Price Index (CPI) rose to 6.8 per cent in November 2021, the highest monthly figure recorded for this official indicator in almost 40 years (although according to some unofficial estimates the true figure is much higher). In fact without the benefit of creative accounting to hold down the officially reported inflation rate – and corresponding interest rates – this would likely remain high or push higher still. Against the catastrophically high level of global indebtedness any rates over around 2 per cent would probably prove unsustainable, leading to a financial crisis on a scale even greater than that of 2008.
At the time of writing (December 2021) it is impossible to tell whether market manipulators can succeed in turning the tide of rising inflation with or without resorting to further bouts of QE. Given what is at stake, nobody should doubt that the powers that be will stop at nothing, including serial falsification of statistics, in order to maintain the delusion that the system is functioning more or less normally