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Memories of the 28th Century

Economics After the End

Rating: 2 votes, 5.00 average.
18 Comments
by
PeterL
, 05-02-2013 at 02:46 PM (5375 Views)
When the Great Pandemic will eliminate 80% of the population the demand for goods and services will be reduced at the same rateand that will have a proportional effect on the economy. The drop in demand will result in an immediate drop in prices of everything that is bought and sold. Prices of food and other perishable goods will drop greatly, but the prices will rebound, because supplies will need to be replenished regularly, but durable goods do not need frequent replacement. Production machinery will eventually need to be replaced, but that won’t be for years, which may lead to other problems. The biggest effect will be in Real Estate, which has an even longer useful life than machinery, and residential real estate outlasts people.

Manufacturing and distribution After the End There would be major problems for the economy and society, but it would create huge opportunities for the people who would remain. The biggest problems would relate to mismatches between needs and people and things available, but there would be surpluses of many kinds of goods for a considerable time.

We can expect that the distribution of goods would stop for some time, and it probably would take some time before the transportation sector settled into the new reality. There might be piles of goods in some places that were needed in other parts of the world. The matter of transporting energy products would be a mess for a short time, but in a few months the extra wells would be shut down, and shipments would be rerouted to get crude oil and LNG to places where it might be useful.

The drop in real estate prices will be the big thing that will kill the banks. Banks will be hurt by the drop in clientele, but when trillions of dollars in collateral will become mere millions of dollars’ worth of collateral, and the loans will default, so the banks will have to simply give up and walk away, instead of the borrowers walking away. To make things even worse, there will not be enough new borrowers to make up for the losses. But don’t mourn too much. The banks have been gambling for thousands of years, and they nearly always win, and there will be new banks that will take up where the old banks ended.

One interesting and related development will be that currencies and sovereign debt will also fail rather dramatically. The U.S. will default on its sovereign debt for the first time, and there will be no way to avoid the default. With the loss of 80% of the U.S. population the drop in tax revenue will be proportionate. The demands for Federal money will also drop, but just doing the basics will be all that the Feds will be able to manage; debt service will be out of the question. The international complaints about this and other sovereign debt defaults will be barely noticeable, because all countries will default. At present most currencies are backed by sovereign debt rather than hard assets, but that might change.

There isn’t enough precious metal in the world to back all of the money, but the demand for money will drop after the pandemic, and there might be enough precious metal to cover the demand that pertain to that era. That doesn’t make a huge difference, but it will be one of the oddities.

The collapse of the banks, currencies, and so on would make international trade impossible for a time. It is impossible to determine how long that paralysis would continue, but it probably would not be long, because there are always to make a deal. Put this paralysis together with lower demand, and we probably will see a long-term reduction in international trade. It simply won’t make sense to have so many things produced in other countries when the economy of scale will have disappeared. The cost of transportation probably will change relative to the cost of production, but it is impossible to tell by how much. Then there is the question of how large the labor pool will be in countries that are presently doing production; will there be enough people to provide for local needs and to produce large amounts for export? In the case of China it is likely that there won’t be enough people available, but there might be in other countries. In India, for example, the biggest difference might be that there just won’t be as many people, but the economy is well diversified, and the labor force is reasonably flexible. Parts of sub-Saharan Africa would also see little change except in population. Western Europe and the U.S.A. would see major changes to the society and government structures. I can’t imagine what would happen to the Russian economy.

Putting all this together, we should all plan to take up subsistence farming at tree the end. It will be a good idea for people to take up raising some of their own food; although most things will be available through commercial channels. Within a few years there probably will be a good market for specialty foods and for fine wine and other luxury items.

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http://thoughtsfromthe28thcentury.blogspot.com/

Updated 05-08-2013 at 11:52 AM by PeterL

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  1. cafolini's Avatar
    I don't think a drop in demand is possible. Far more than half the populations of the world didn't even begin the demand the globalization of democracy will bring about. There will be balanced changes in demand, but the average change in demand will not cause depression.
  2. PeterL's Avatar
    Cutting the population by 80%will result in there being fewer consumers. Fewer consumers means less demand for goods and services, because 20% of the population cannot consume as much as the pre pandemic population could consume.
  3. cafolini's Avatar
    The population will keep growing. There will be no cuts necessary.
  4. Darcy88's Avatar
    Interesting blog entry. But what makes you think there is going to be a pandemic that wipes out 80 percent of the global population? Or is it just a hypothetical?
  5. PeterL's Avatar
    I explained that in the first of this series: population crashes happen, and they generally happen when population density becomes high. Is it hupothetical: yes. Is it subscribed to by essentially all epidemiologists? Yes.

    Do you remember that scare about the Swine Flu a few years ago? Thata was one example of how epidemiologists feel about fresh, new diseases.
  6. cafolini's Avatar
    We already have the technology to handle epidemics. Furthermore we already have the technology to populate space. Very large biospheres will be put in orbit. Large manufacturing will be done in space. The population will keep growing endlessly. This is the true meaning of the famous "the sky is the limit."
  7. PeterL's Avatar
    Believe what you like. Things are not as "advanced" as you seem to think, and Murphy's Law prevails.
  8. hannah_arendt's Avatar
    I don`t believe in Great Pandemic. Probably I won`t live so long to see it.
  9. cafolini's Avatar
    I don't believe that. That I know. ROFLMAO
    The worst Murphy can do today is give us the worst possible case. Murphy is ephimeral in that. We can handle infinite Murphies with their arses up in flames.
    But it was obvious from another thread that your understanding of gravitation and the tangential to it is very poor.
  10. PeterL's Avatar
    Quote Originally Posted by hannah_arendt
    I don`t believe in Great Pandemic. Probably I won`t live so long to see it.
    It could start any day now.
  11. Darcy88's Avatar
    80 percent is a really high prediction though. The Spanish flu only took out about 2-5 percent. Its possible, but not something I expect to happen. Even 50 percent would be high.
  12. PeterL's Avatar
    Quote Originally Posted by Darcy88
    80 percent is a really high prediction though. The Spanish flu only took out about 2-5 percent. Its possible, but not something I expect to happen. Even 50 percent would be high.
    The Spanish Flu had a mortality rate of less than one percent. A better comparison would be with the Great Plague of the 14th century, that accounted for one third of Europe and similar or higher percentages in some places, and that was Just Bubonic Plague, which has a mortality rate of about 60% if untreated. Pneumonic Plague has a mortality rate that approaches 100%; it is psread through aerosols, and it requires as little as 400 bacteria to cause a case. Like Ebola and several other diseases it just has to break out. With air travel and lots of victims travelling around the worl it's just a matt of time. A few years ago a group of alleged el Qaeda people were found dead from Pneumonic Plague in a cave in ALlgeria. It appeared that they were working on weaponiing the bacteria, and they were partly successful.

    Just wait.
  13. cafolini's Avatar
    I'd rather wait for you to give up the nonsense. It has a much better chance of happening than any uncontrolled epidemic.
  14. NikolaiI's Avatar
    Subsistence * last paragraph, not substance
  15. Darcy88's Avatar
    I doubt there would be a federal government after 8 out of 10 people has died. Cops would be reduced to 2 out of 10 their previous number and there's no way those 2 remaining would stay on the job. Pretty much the same thing with the military. 80 percent of the officers are dead. Food production and transportation has stopped. The few remaining soldiers are going to go tend to their families, and even if they didn't they'd be no match for the armed gangs which now go about looting. You'd have anarchy for months if not years and that would likely be followed by more localized government on more of a city-state level for a while. After some time America might reform, but that's a big might. The plague only leaves 70 million Americans. Many more would die of starvation. A lot would die of suicide and violence. I believe the changes that such a loss in population would inflict far exceed those you envision in this article.
  16. PeterL's Avatar
    Quote Originally Posted by Darcy88
    I doubt there would be a federal government after 8 out of 10 people has died. Cops would be reduced to 2 out of 10 their previous number and there's no way those 2 remaining would stay on the job. Pretty much the same thing with the military. 80 percent of the officers are dead. Food production and transportation has stopped. The few remaining soldiers are going to go tend to their families, and even if they didn't they'd be no match for the armed gangs which now go about looting. You'd have anarchy for months if not years and that would likely be followed by more localized government on more of a city-state level for a while. After some time America might reform, but that's a big might. The plague only leaves 70 million Americans. Many more would die of starvation. A lot would die of suicide and violence. I believe the changes that such a loss in population would inflict far exceed those you envision in this article.
    You have reasonable points, but you neglected the fact that the population of the U.S. would simply be about what it was 140 years ago, when the U.S. functioned perfectly well (arguably better than it does now). There would be some problems in logistics for a few months, but starvation would be rare; a huge amount of food is in storage for various reasons. Within a few years things would be humming along better than they had been for decades.

    I have faith in humans.
  17. Virgil's Avatar
    The medieval plague had a similar population drop, especially in Italy. There have been studies done on the economic changes. If you're really interested you might want to dig up a book on the subject and see how your predictions compare.
  18. PeterL's Avatar
    Quote Originally Posted by Virgil
    The medieval plague had a similar population drop, especially in Italy. There have been studies done on the economic changes. If you're really interested you might want to dig up a book on the subject and see how your predictions compare.
    I have looked into it. I extropolated from that. While there were towns that were wiped out during the Great PLague, the rates for large regions were not that highI think that Italy had about 50% mortality. One effect of the population drop was great individual wealth, which is thought by soe to be one of the things that led to the Renaissance. The relationship among institutions, especially the CHurch and governments, changed substantially. Then there was Poland.