We desperately need radical changes to meet the challenge of resource shortages and global warming; but there’s no political will to do so. Until this happens, two potential economic futures are likely: a slow decline, or a dramatic, quick crash. These alternatives were covered marvelously in a brief talk by Gail Tverberg, mild-mannered actuary by day but also an editor at TheOilDrum.com.
“Slow slide” looks like the default choice. As oil becomes more difficult and expensive to extract, energy becomes more expensive, people stop buying, and we go into a recession (as happened in 2008). The downturn causes oil prices to fall, but as soon as the recovery starts, oil consumption rises and the price of oil spikes again: wash, rinse, repeat.
The weak point of our economy is our colossal levels of debt. U.S. debt has ballooned from $2.4 trillion in 1974, to $17 trillion in 1994, to over $50 trillion today (only about 15% of this is government debt, by the way). How is all of this money going to be repaid? The conventional answer is “more economic growth,” but with limited oil and an oil-dependent economy this is unlikely. Most likely, this debt won’t be repaid, and we’ll see a “credit unwind” as a lot of businesses and individuals go bankrupt.
What happens if China and Saudi Arabia decide they don’t like our “funny money” and international trade declines? The economy might crash quite quickly as we live in a highly networked system. Businesses depend on spare parts, international trade, and electricity, and it’s all interconnected. Without international trade, things we take for granted — like an electric grid or computers — might suddenly become more problematic. This would lead to a chain reaction of other events throughout the economy.
It may be next week, it may be five years from now, but pretty soon we will be forced, by yet another financial disaster, to completely rethink our “perpetual growth” economic system. If we wait long enough, that rethinking may be done with the assistance of slide rulers and graph paper.