Understanding Our Pandemic – Economy Predicament

The world’s number one problem today is that the world’s population is too large for its resource base. Some people have called this situation overshoot. The world economy is ripe for a major change, such as the current pandemic, to bring the situation into balance. The change doesn’t necessarily come from the coronavirus itself. Instead, it is likely to come from the whole chain reaction that has been started by the coronavirus and the response of governments around the world to the coronavirus.

Let me explain more about what is happening.

[1] The world economy is reaching Limits to Growth, as described in the book with a similar title.

One way of seeing the predicament we are in is the modeling of resource consumption and population growth described in the 1972 book, The Limits to Growth, by Donella Meadows et al. Its base scenario seems to suggest that the world will reach limits about now. Chart 1 shows the base forecast from that book, together with a line I added giving my impression of where the economy really was in 2019, relative to resource availability.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil,” with dotted line added corresponding to where the world economy seems to be in 2019.

In 2019, the world economy seemed to be very close to starting a downhill trajectory. Now, it appears to me that we have reached the turning point and are on our way down. The pandemic is the catalyst for this change to a downward trend. It certainly is not the whole cause of the change. If the underlying dynamics had not been in place, the impact of the virus would likely have been much less.

The 1972 model leaves out two important parts of the economy that probably make the downhill trajectory steeper than shown in Figure 1. First, the model leaves out debt and, in fact, the whole financial system. After the 2008 crisis, many people strongly suspected that the financial system would play an important role as we reach the limits of a finite world because debt defaults are likely to disturb the worldwide financial system.

The model also leaves out humans’ continual battle with pathogens. The problem with pathogens becomes greater as world population becomes denser, facilitating transmission. The problem also becomes greater as a larger share of the population becomes more susceptible, either because they are elderly or because they have underlying health conditions that have been hidden by an increasingly complex and expensive medical system.

As a result, we cannot really believe the part of Figure 1 that is after 2020. The future downslopes of population, industrial production per capita, and food per capita all seem likely to be steeper than shown on the chart because both the debt and pathogen problems are likely to increase the speed at which the economy declines.

[2] It is far more than the population that has overshot limits.

The issue isn’t simply that there are too many people relative to resources. The world seems to have

  • Too many shopping malls and stores
  • Too many businesses of all kinds, with many not very profitable for their owners
  • Governments with too extensive programs, which taxpayers cannot really afford
  • Too much debt
  • An unaffordable amount of pension promises
  • Too low interest rates
  • Too many people with low wages or no wages at all
  • Too expensive a healthcare system
  • Too expensive an educational system

The world economy needs to shrink back in many ways at once, simultaneously, to manage within its resource limits. It is not clear how much of an economy (or multiple smaller economies) will be left after this shrinkage occurs.

[3] The economy is in many ways like the human body. In physics terms, both are dissipative structures. They are both self-organizing systems powered by energy (food for humans; a mixture of energy products including oil, coal, natural gas, burned biomass and electricity for the economy).

The human body will try to fix minor problems. For example, if someone’s hand is cut, blood will tend to clot to prevent too much blood loss, and skin will tend to grow to substitute for the missing skin. Similarly, if businesses in an area disappear because of a tornado, the prior owners will either tend to rebuild them or new businesses will tend to come in to replace them, as long as adequate resources are available.

In both systems, there is a point beyond which problems cannot be fixed, however. We know that many people die in car accidents if injuries are too serious, for example. Similarly, the world economy may “collapse” if conditions deviate too far from what is necessary for economic growth to continue. In fact, at this point, the world economy may be so close to the edge with respect to resources, particularly energy resources, that even a minor pandemic could push the world economy into a permanent cycle of contraction.

[4] World governments are in a poor position to fix the current resource and pandemic crisis.

In our networked economy, too low a resource base relative to population manifests itself in a strange way: It appears as an affordability crisis that leads to very low prices for oil. It also appears as terribly low prices for many other commodities, including copper, lithium, coal and even wholesale electricity. These low prices occur because too large a share of the population cannot afford finished goods, such as cars and homes, made with these commodities. Recent shutdowns have suddenly increased the number of people with low income or no income, pushing commodity prices even lower.

If resources were more plentiful and very inexpensive to produce, as they were 50 or 70 years ago, wages of workers could be much higher, relative to the cost of resources. Factory workers would be able to afford to buy vehicles, for example, and thus help keep the demand for automobiles up. If we look more deeply into this, we find that energy resources of many kinds (fossil fuel energy, nuclear energy, burned biomass and other renewable energy) must be extraordinarily cheap and abundant to keep the system growing. Without “surplus energy” from many sources, which grows with population, the whole system tends to collapse.

World governments cannot print resources. What they can print is debt. Debt can be viewed as a promise of future goods and services, whether or not it is reasonable to believe that these future goods and services will actually materialize, given resource constraints.

We are finding that using shutdowns to solve COVID-19 problems causes a huge amount of economic damage. The cost of mitigating this damage seems to be unreasonably high. For example, in the United States, antibody studies suggest that roughly 5% of the population has been infected with COVID-19. The total number of deaths associated with this 5% infection level is perhaps 100,000, assuming that reported deaths to date (about 80,000) need to be increased somewhat, to match the approximately 5% of the population that has, knowingly or unknowingly, already experienced the infection.

If we estimate that the mean number of years of life lost is 13 years per person, then the total years of life lost would be about 1,300,000. If we estimate that the US treasury needed to borrow $3 trillion dollars to mitigate this damage, the cost per year of life lost is $3 trillion divided by 1.3 million, or $2.3 million per year of life lost. This amount is utterly absurd.

This approach is clearly not something the United States can scale up, as the share of the population affected by COVID-19 relentlessly rises from 5% to something like 70% or 80%, in the absence of a vaccine. We have no choice but to use a different approach.

[5] COVID-19 would have the least impact on the world economy if people could pay little attention to the pandemic and just “let it run.” Of course, even without mitigation attempts, COVID-19 might bring the world economy down, given the distressed level of today’s economy and the shutdowns experienced to date.

Shutting down an economy has a huge adverse impact on that economy because quite a few workers who are in good health are no longer able to make goods and services. As a result, they have no wages, so their “demand” goes way down. If the economy was already having an affordability crisis for goods made with commodities, shutting down the economy tends to greatly add to the affordability crisis. Prices of commodities tend to fall even lower than they were before the crisis.

Back in 1957-1958, the Asian pandemic, which also started in China, hit the world. The number of deaths was up in the range of the current pandemic, relative to population. The estimated worldwide death rate was 0.67%.  This is not too dissimilar from a death rate of 0.61% for COVID-19, which can be calculated using my estimate above (100,000 deaths relative to 5% of the US population of 33o million).

Virtually nothing was shut down in the US for the 1957-58 pandemic. When doctors or nurses became sick themselves, wards were simply closed. Would-be patients were told to stay at home and take aspirin, unless a severe case developed. With this approach, the US still faced a short recession, but the economy was soon growing again. Populations seemed to reach herd immunity quite quickly.

If the world could somehow have adopted a similar approach this time, there still would have been some adverse impact on the economy. A small percentage of the population would have died. Some businesses might have needed to be closed for a short time when too many workers were out sick. But the huge burden of job loss by a substantial share of the economy could have been avoided. The economy would have had at least a small chance of rebounding quickly.

[6] The virus that causes COVID-19 looks a great deal like a laboratory cross between SARS and HIV, making the likelihood of a quick vaccine low.

In fact, Professor Luc Montagnier, co-discoverer of the AIDS virus and winner of a Nobel Prize in Medicine, claims that the new coronavirus is the result of an attempt to manufacture a vaccine against the AIDS virus. He believes that the accidental release of this virus is what is causing today’s pandemic.

If COVID-19 were simply another influenza virus, similar to many we have seen, then getting a vaccine that would work passably well would be a relatively easy exercise. At least one of the vaccine trials that have been started could be reasonably expected to work, and a solution would not be far away.

Unfortunately, SARS and HIV are fairly different from influenza viruses. We have never found a vaccine for either one. If a person has had SARS once, and is later exposed to a slightly mutated version of SARS, the symptoms of the second infection seem to be worse than the first. This characteristic interferes with finding a suitable vaccine. We don’t know whether the virus causing COVID-19 will have a similar characteristic.

We know that scientists from a number of countries have been working on so-called “gain of function” experiments with viruses. These very risky experiments are aimed at making viruses either more virulent, or more transmissible, or both. In fact, experiments were going on in Wuhan, in two different laboratories, with viruses that seem to be not too different from the virus causing COVID-19.

We don’t know for certain whether there was an accident that caused the release of one of these gain of function viruses in Wuhan. We do know, however, that China has been doing a lot of cover-up activity to deter others from finding out what actually happened in Wuhan.

We also know that Dr. Fauci, a well-known COVID-19 advisor, had his hand in this Chinese research activity. Fauci’s organization, the National Institute for Allergy and Infectious Diseases, provided partial funding for the gain of function experiments on bat coronaviruses in Wuhan. While the intent of the experiments seems to have been for the good of mankind, it would seem that Dr. Fauci’s judgment erred in the direction of allowing too much risk for the world’s population.

[7] We are probably kidding ourselves about ever being able to contain the virus that causes COVID-19. 

We are gradually learning that the virus causing COVID-19 is easily spread, even by people who do not show any symptoms of the disease. The virus can spread long distances through the air. Tests to see if people are ill tend to produce a lot of false negatives; because of this, it is close to impossible to know whether a particular person has the illness or not.

China is finding that it cannot really contain the virus that causes COVID-19. A recent South China Morning Post article indicates that roughly 14 million people are to be tested in the Wuhan area in the next ten days to try to control a new outbreak of the virus.

It is becoming clear, as well, that even within China, the lockdowns have had a very negative impact on the economy. The Wall Street Journal reports, China Economic Data Indicate V-Shaped Recovery Is Unlikely. Supply chains were broken; wholesale commodity prices (excluding food) have tended to fall. Joblessness is increasingly a problem.

[8] If we look at deaths per million by country, it is difficult to see that lockdowns are very helpful in reducing the spread of disease. Masks seem to be more beneficial.

If we compare death rates for mask-wearing East Asian countries to death rates elsewhere, we see that death rates in mask-wearing East Asian countries are dramatically lower.

Figure 2. Death rates per million population of selected countries with long-term exposure to the virus causing COVID-19, based on Johns Hopkins death data as of May 11, 2020.

Looking at the chart, a person almost wonders whether lockdowns are a response to requests from citizens to “do something” in response to an already evident surge in cases. The countries known for their severe lockdowns are at the top of the chart, not the bottom.

In fact, a preprint academic paper by Thomas Meunier is titled, “Full lockdown policies in Western Europe countries have no evident impacts on the COVID-19 epidemic.” The abstract says, “Comparing the trajectory of the epidemic before and after the lockdown, we find no evidence of any discontinuity in the growth rate, doubling time, or reproduction number trends.  .  . We also show that neighboring countries applying less restrictive social distancing measures (as opposed to police-enforced home containment) experience a very similar time evolution of the epidemic.”

It appears to me that lockdowns have been popular with governments around the world for a whole host of reasons that have little to do with the spread of COVID-19:

  • Lockdowns give an excuse for closing borders to visitors and goods from outside. This was a direction in which many countries were already headed, in an attempt to raise the wages of local workers.
  • Lockdowns can be used to hide the fact that factories need to be closed because of breaks in supply lines elsewhere in the world.
  • Many countries have been faced with governmental protests because of low wages compared to the prices of basic services. Lockdowns tend to keep protesters inside.
  • Lockdowns give the appearance of protecting the elderly. Since there are many elderly voters, politicians need to court these voters.

[9] A person wonders whether Dr. Fauci and members of the World Health Organization are influenced by the wishes of vaccine and big pharmaceutical companies.

The recommendation to try to “flatten the curve” is, in part, an attempt to give vaccine and pharmaceutical makers more time to work on their products. Is this really the best recommendation? Perhaps I am being overly suspicious, but we recently have been dealing with an opioid epidemic which was encouraged by manufacturers of Oxycontin and other opioids. We don’t need another similar experience, this time sponsored by vaccine and other pharmaceutical makers.

The temptation of researchers is to choose solutions that would be best from the point of their own business interests. If a researcher gets much of his funding from vaccine and big pharmaceutical interests, the temptation will be to “push” solutions that are beneficial to these interests. In some cases, researchers are able to patent approaches, even when the research is paid for by governmental grants. In this case they can directly benefit from a new vaccine or drug.

When potential solutions are discussed by Dr. Fauci and the World Health Organization, no one brings up improving people’s immunity so that they can better fight off the novel coronavirus. Few bring up masks. Instead, we keep being warned about “opening up too soon.” In a way, this sounds like, “Please leave us lots of customers who might be willing to pay a high price for our vaccine.”

[10] One way the combination of (a) the activity of the virus and (b) our responses to the virus may play out is as a slow-motion, controlled demolition of the world economy. 

I think of what we are experiencing as being somewhat similar to a toggle bolt going around and around, moving down a screw. As the toggle bolt moves around, I picture it as being similar to the virus and our responses to the viruses hitting different parts of the world economy.

Figure 3. Image of how the author sees COVID-19 as being able to hit the economy multiple times, in multiple ways, as its impact keeps impacting different parts of the world.

If we look back, the virus and reactions to the virus first hit China. China’s recovery is moving slowly, in part because of reduced demand from outside of China now that the virus is hitting other parts of the world. In fact, additional layoffs occurred after Chinese shutdowns ended, because it then became clear that some employers needed to permanently scale back operations to meet the new lower demand for their product.

Commodity prices, including oil prices, are now depressed because of low demand around the world. These low prices can be expected to gradually lead to closures of wells and mines extracting these commodities. Processing centers will also close, making these commodities less available even if demand temporarily rises.

As one country is hit by illnesses and/or shutdowns, we can expect supply lines for manufacturing around the world to be disrupted. This will lead to yet more business closures, some of them permanent. Debt defaults tend to happen as businesses close and layoffs occur.

With all of the layoffs, governments will find that their tax collections are lower. The resulting governmental funding issues can be expected to lead to new rounds of layoffs.

Natural disasters such as hurricanes, tornadoes, floods, earthquakes and forest fires can be expected to continue to happen. Social distancing requirements, inadequate tax revenue and broken supply lines will make mitigation of all of these disasters more difficult. Electrical lines that fall down may stay down permanently; bridges that are damaged may never be repaired.

Initially, rich countries can be expected to try to help as many laid-off workers as possible with loans and temporary stipends. But, after a few months, even with this approach, many individual citizens and businesses will likely not be able to pay their rent. Default rates on home mortgages and auto loans can be expected to rise for a similar reason.

We can expect to see round after round of business failures and layoffs of employees. Financial systems will become more and more stressed. Pensions are likely to default. Death rates will rise, in part from epidemics of various kinds and in part from growing problems with starvation. In fact, in some poor countries, lower-income citizens are already having difficulty being able to afford adequate food. Eventually we can expect collapsing governments (similar to the collapse of the central government of the Soviet Union) and overthrown governments.

Longer-term, after this demolition ends, there may be some surviving pieces of economies. These new economies will be much smaller and less dependent upon each other, however. Currencies are likely to be less interchangeable. The remaining people will need to learn to make do with many fewer goods than are available today. It will be a very different world.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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3,868 Responses to Understanding Our Pandemic – Economy Predicament

  1. psile says:

    That’s 500,000 cars in the U.S. alone.

    Hertz files for bankruptcy protection as rentals evaporate in pandemic

    New York: The more than a century old car rental firm Hertz Global Holdings has filed for bankruptcy protection after its business all but vanished during the coronavirus pandemic and talks with creditors failed to result in needed relief.

    Hertz said in a US court filing on Friday, US time, that it voluntarily filed for Chapter 11 reorganisation. Its international operating regions including Europe, Australia and New Zealand were not included in the US proceedings…

  2. MG says:

    Brasil, with its favelas with high population density and the weak government, was predestined for this catastrophy:

    • Fast Eddy says:

      Not nearly as big a catastrophe as this though … right?

      The overall burden of influenza for the 2017-2018 season was an estimated 45 million influenza illnesses, 21 million influenza-associated medical visits, 810,000 influenza-related hospitalizations, and 61,000 influenza-associated deaths


      Imagine how many deaths there would have been if they counted flu-infected skydivers etc….

    • info says:

      So much rubbish. No one seems to recycle or care about making their environment clean.

  3. Herbie R Ficklestein says:

    Yep, we are preparing!
    Americans use their $1,200 stimulus checks to splurge at Walmart, Target, BJ’s and Best Buy — here’s what they’re buying
    Elisabeth Buchwald
    MarketWatchMay 22, 2020, 9:11 AM EDT

  4. About Dennis L’s quote on universities, it does not matter whether somebody has a degree from Harvard-Facebook, whatever. Since such degrees will be seen as bogus as all these for-profit vocational institutions.

    Before WW2, few people received post secondary education. Universities were for upper classes, to network, have fun, etc.

    There were land grant institutions run by states to train vocational students for their own use. A lot of state universities began as teacher’s colleges, not considered to be full universities back then. They taught agriculture, technical studies, and military tech. Humanities and medicine were for the upper class.

    After WW2, the GI bill was invented to keep the returning soldiers out of workforce for some time. Because there were not enough universities to house them, all of these institutions were renamed as full universities.

    Berkeley ,also called Cal, is legitimate since it began as a full university right from the start. UCLA began as the southern branch of California Normal School(teacher’s college). The main branch of CNS became the San Jose State University, which is not taken seriously; UCLA is not considered to be a legitimate university because of its origins. (Ditto to the various universities under the University of California system – only Cal is legitimate, the rest stepchildren.)

    That’s just one of the examples.

    No matter how much money the state universities and the second and third tier private universities might get from tech companies, their degrees will be worthless. Those who paid to take such courses will be no different from those who took huge loans to take worthless courses from a for-profit ‘universities’.

    Once again, Universities will be for the upper classes, who will be paying a much higher tuition since the capacity will have to decrease significantly. Companies will set up their own technical institutions, with a preference for the family of existing employees,and smaller companies will just take experienced employees released from the larger ones.

  5. The monastery system, while having its goods and bads, was very, very dysgenic since it kept a large portion of higher IQ people out from the gene pool.

    That situation was kind of alleviated during 13th-15th century when a lot of higher ranked priests openly sired children via concubines. Not surprisingly, Renaissance occurred around that era.

    The Lutheran reformation led to the Counter-Reformation, which led to the priests once again having to remain celibate. Not only that led to lots of same-sex molestation, it once again kept people of ability out of gene pool, and we can see how that ended up in the countries which are still kind of Catholic.

    That situation persisted in Asia, too. The smartest child became buddhist monks, spending their lives reciting ancient Buddhist scripts and being out of gene pool. In Japan, following a major civil war around 1200, a monk named Shinran said monks should be able to sire children, and he did it himself. (His descendants still head Buddhist sects founded after him.) Although some Japanese Buddhist sects remained celibate, in general it is permitted for Buddhist monks and nuns to leave progeny, which is why it got ahead of other Asian cultures.

    I wonder what Gregor Mendel, a priest, thought about studying heredity. Perhaps Mendel, who was not good looking, thought his genes deserved to be pulled out of the gene pool.

    • My impression was that priesthood (or becoming a nun) was a way of handling excess children who could not inherit a farmer’s property. Excess population was a problem even back then. Having these people remain celibate helped keep down the population, which was a huge benefit to society. There may have been a downside, in terms of molestation, but apparently the benefits of holding the population down offset any disadvantages, in the eyes of those who came up with this system.

  6. Fast Eddy says:

    Rocking and rolling … have some video of protesters beating the sh it out of two clowns who must have said the wrong thing … but on Whatsapp so cannot upload here

  7. Fast Eddy says:

    I’m gonna get me one of these before this all ends… a mouthy one…

  8. Fast Eddy says:

    A thing of beauty…. do not mess with the mob

    • Fast Eddy says:

      Too bad he missed him with that sign 😦

      Running dog

    • Fast Eddy says:

      A Hong Kong lawyer was badly beaten by several people clad in black following an argument just a few streets away from protests over Beijing’s proposed national security law for the city on Sunday.

      The head of the Law Society confirmed the victim was a member and condemned the assault, saying that if the violence was over differing political stances, the state of affairs in Hong Kong was “pathetic”.

      Legal sources identified the victim as Chan Tze-chin, who attended a Legislative Council session in his personal capacity last November to support a controversial law banning the use of masks to hide one’s identity. He is a partner at Cheung and Liu Solicitors and has both civil and criminal practices, and is the convenor of the Law Society’s swimming team.

      According to police, the 40-year-old man got into an argument with dozens of people erecting roadblocks on Lee Garden Road in Causeway Bay at about 3.30pm. Several members of the group began hitting him with umbrellas and chased him when he tried to flee.

      At one point, five “rioters” opened their umbrellas in an attempt to hide what their accomplices were doing, police said.

      The attack was caught on video and circulated widely on social media, showing the victim on the ground as the masked men rain down blows to his head and torso near the head office of the Po Leung Kuk charity group on Leighton Road. As the assailants leave, he struggles to his feet, his face bloodied, and stumbles away.


      Anthem please!

      Time for the medal presentation …. I’ll need 10 of these please

  9. Fast Eddy says:

    Latest video (no link).. a girl tries to walk past a protester roadblock — another girl belts her in the face with a bamboo pole… then grabs her hair and throws her to the ground

    • Harry McGibbs says:

      These videos are gloomy viewing, FE. Do you think China will risk a brutal, Tiananmen Square-type intervention or are they still too fearful of HK forfeiting its status as global financial hub if they do that?

      I was reading that the Chilean military were using rubber bullets this week in Santiago and wondering how long it’ll be before they’re using live ones. Things turning very nasty again in Guinea and Iraq, too.

      • Fast Eddy says:

        There won’t be a Tsquare moment in this … because that would end HK on the spot. There would be a mass exodus of top local and expat talent… and it would require martial law… not possible in a major financial centre…. and the martial law would need to be permanent – because this would just flare up again.

        The protests have been a LOT more violent than yesterday — and the CCP didn’t do anything more than instruct their thugs to beat the students. They are like castrated old men being run around by 18 year olds…. I am entertained.

        The world is very anti China at the moment – and everyone is watching…. and hating the CCP.

        Pity there are no longer any mainland tourists around… it would be so much fun to taunt them

  10. Minority Of One says:

    Coronavirus: Aggressive rodents looking for new food sources as restaurants remain closed, CDC warns

    “…Since the start of the pandemic, there have been increased reports of rat cannibalism and infanticide in New York, as well as more rat complaints in residential areas – including in Chicago – as humans produce more food waste at home. Roving rat armies, including one caught on camera scavenging New Orleans’ empty streets, are concerning to the CDC, which says rodents can carry disease…”

    “Roving rat armies.. can carry disease.”

    What’s coming next – the plague?

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