Category Archives: Financial Implications

COVID-19 and the economy: Where do we go from here?

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The COVID-19 story keeps developing. At first, everyone listened to epidemiologists telling us that a great deal of social distancing, and even the closing down of economies, would be helpful. After trying these things, we ended up with a huge number of people out of work and protests everywhere. We discovered the models that were provided were not very predictive. We are also finding that a V-shaped recovery is not possible.

Now, we need to figure out what actions to take next. How vigorously should we be fighting COVID-19? The story is more complex than most people understand. These are some of the issues I see:

[1] The share of COVID-19 cases that can be expected to end in death seems to be much lower than most people expect. Continue reading →

Increased Violence Reflects an Energy Problem

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Why are we seeing so much violence recently? One explanation is that people are sympathizing with those in the Minneapolis area who are upset at the death of George Floyd. They believe that a white cop used excessive force in subduing Floyd, leading to his death.

I believe that there is a much deeper story involved. As I wrote in my recent post, Understanding Our Pandemic – Economy Predicament, the problem we are facing is too many people relative to resources, particularly energy resources. This leads to a condition sometimes referred to as “overshoot and collapse.” The economy grows for a while, may stabilize for a time, and then heads in a downward direction, essentially because energy consumption per capita falls too low.

Strangely enough, this energy crisis looks like a crisis of affordability. The young and the poor, especially, cannot afford to buy goods and services that they need, such as a home in which to raise their children and a vehicle to drive. Trying to do so leaves them with excessive debt. If the affordability problem changes for the worse, the young and the poor are likely to protest. In fact, these protests may become violent. 

The pandemic tends to make the affordability problem worse for minorities and young people because they are disproportionately affected by job losses associated with lockdowns. In many cases, the poor catch COVID-19 more frequently because they live and/or work in crowded conditions where the disease spreads easily. In the US, blacks seem to be especially hard hit, both by COVID-19 and through the loss of jobs. These issues, plus the availability of guns, makes the situation particularly explosive in the US.

Let me explain these issues further.

[1] Energy is required for all aspects of the economy.

Continue reading →

Understanding Our Pandemic – Economy Predicament

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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.

Continue reading →

COVID-19 and oil at $1: Is there a way forward?

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Many people are concerned today with the low price of oil. Others are concerned about slowing or stopping COVID-19. Is there any way forward?

I gave a few hints regarding what is ahead in my last post, Economies won’t be able to recover after shutdowns. We live in a world with a self-organizing economy, made up of components such as businesses, customers, governments and interest rates. Our basic problem is a finite world problem. World population has outgrown its resource base.

Some sort of economy might work with the current resource base, but not the present economy. The COVID-19 crisis and the lockdowns used to try to contain the crisis push the economy farther along the route toward collapse. In this post, I suggest the possibility that some core parts of the world economy might temporarily be saved if they can be made to operate fairly independently of each other.

Let’s look at some parts of the problem:

[1] The world economy works like a pump. Continue reading →

Economies won’t be able to recover after shutdowns

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Citizens seem to be clamoring for shutdowns to prevent the spread of COVID-19. There is one major difficulty, however. Once an economy has been shut down, it is extremely difficult for the economy to recover back to the level it had reached previously. In fact, the longer the shutdown lasts, the more critical the problem is likely to be. China can shut down its economy for two weeks over the Chinese New Year, each year, without much damage. But, if the outage is longer and more widespread, damaging effects are likely.

A major reason why economies around the world will have difficulty restarting is because the world economy was in very poor shape before COVID-19 hit; shutting down major parts of the economy for a time leads to even more people with low wages or without any job. It will be very difficult and time-consuming to replace the failed businesses that provided these jobs.

When an outbreak of COVID-19 hit, epidemiologists recommended social distancing approaches that seemed to be helpful back in 1918-1919. The issue, however, is that the world economy has changed. Social distancing rules have a much more adverse impact on today’s economy than on the economy of 100 years ago.

Governments that wanted to push back found themselves up against a wall of citizen expectations. A common belief, even among economists, was that any shutdown would be short, and the recovery would be V-shaped. False information (really propaganda) published by China tended to reinforce the expectation that shutdowns could truly be helpful. But if we look at the real situation, Chinese workers are finding themselves newly laid off as they attempt to return to work. This is leading to protests in the Hubei area.

My analysis indicates that now, in 2020, the world economy cannot withstand long shutdowns. One very serious problem is the fact that the prices of many commodities (including oil, copper and lithium) will fall far too low for producers, leading to disruption in supplies. Broken supply chains can be expected to lead to the loss of many products previously available. Ultimately, the world economy may be headed for collapse.

In this post, I explain some of the reasons for my concerns. Continue reading →