Monday, August 24, 2015

Shutdown Economics

The recent stock market nosedive was a reminder that future economic growth is far from a sure thing. It, and an immediate need for personal financial planning, led me to explore the economic dimension of my shutdown scenarios, which not surprisingly reflects trends seen in the variables I've already studied.

I focused on Gross World Product (GWP), which according to my population-consumption model is proportional to the square of the number of "happy environments" that exist. The two cases (projected and worst) bracketing business-as-usual both result in a total crash; and the two cases that involve holding population constant (best and hybrid) end with a smaller but sustainable GWP (29% below the 2014 level). The projected case has the largest increase in GWP after 2016 (about 12% above the level in 2014), which is bounce-back from the population loss that occurs over the rest of this decade, but it is also the last peak before GWP crashes.

The best case is of course the least-disruptive of the scenarios, with a shallow decrease toward its final value. This is due mostly to the unchanging population size while personal ecological impact glides toward sustainability by effectively enabling other species to use the resources in one-in-six of the number of happy environments that existed in 2014.

Businesses and governments appear to pay more attention to the rate of change than the total of economic activity. By this measure, 2020-2022 will be the best period of any scenario, but all years after 2016 will be zero or negative in annual change, with 2028-2031 being the worst years. Even the best case will see its worst year in 2029, with what now seems a disastrous 12% drop in GWP, but which is actually the smallest drop for any scenario's worst year.

I've neglected the unlimited case in this discussion, which unfortunately is also the likely reference scenario for economic planning. Comparing the other scenarios to this one, which averages more than 2% annual growth over the next 20 years, the future is an even uglier picture than the one drawn in absolute terms above.

Finally, it is useful to describe the result of fusing all scenarios into a combined case. In this scenario, GWP is currently growing at a measly 0.4% compared to 2.4% over the last year. In other words, today's investors are rightly worried about a slowdown. By mid-2017, the economy will be clearly contracting along with population, which will last another two years. The following two years will have a sharp spike in growth, and then GWP will begin a long fall that stops finally by 2032 when the population is only 801 million people (11% of its value in 2014). At that leveling off, the money spent by an average person measured as GWP per person will be 8% of its 2014 value, and the much-diminished civilization will barely be able to function.

This coming year is when all of us should be trying to ensure that the contraction only results in a decrease in consumption below the critical level, setting the stage for the gradual decline in consumption that marks the best case scenario. From an economic standpoint this might manifest as a distribution of wealth to the most vulnerable people, and perhaps most important, a focus on paying for reclamation of habitat and other resources for use by other species rather than using money to build more artificial environments. As personal income and expense falls, more natural means for meeting needs would be developed so the money does not have to be replaced.

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