Economic thought experiments – Econlib

• Perhaps the weirdest thing about our present future is that while Americans are reveling in their petty infighting, they will hardly notice it anywhere else!!! The lights flicker and go out. Famine’s tough claws will dig deep and hold tight. Access to the inputs – financial, material and labor – that define the modern world will cease to exist in sufficient quantity to make modernity possible…the past seventy-five years will be remembered as a golden age, and one that didn’t last long enough at that.

• Pierre Zeihan, The end of the world is only the beginning: mapping the collapse of globalization. (6)

Peter Zeihan predicts a rollback of globalization. He may be right. As he finished his book, The end of the world is only the beginning: mapping the collapse of globalization, the process of de-globalization was revived by the Russian-Ukrainian war, as well as by Western involvement through economic sanctions. But I rather hope that globalization is robust and that The end turns out to be just a thought experiment.

Economics students could greatly benefit from reading this thought experiment. Basic economic concepts like opportunity cost and gains from trade are rarely realized. Instead, they’re usually taught using simple paper-based exercises. In contrast, The end describes economic activity as it Actually takes place, in all its modern complexity.

With less than ten percent of Americans working as factory production or agricultural workers, the rest of us have little appreciation for how our basic needs are met. I was reminded of this during the first weeks of the pandemic, when friends in the laptop class complained about other people being on the go rather than staying at home. I had to remind them that the people they ridiculed as stupid and careless of public health allowed us to eat.

Zeihan focuses on the basics: demographics, transportation, energy, industrial materials, manufacturing and food production. It explains how these factors worked in pre-industrial societies, during the industrial revolution and in the “golden age” of the past 75 years. And it describes what might happen if (when?) the foundations of prosperity erode. It is pessimistic that global trade routes will remain peaceful and that countries will be able to adjust to rapidly declining birth rates. Economically, this will produce a vicious circle.

• … reduced interaction means reduced access means reduced income means less economies of scale means less specialization of labor means reduced interaction… Everyone becomes less efficient. Less productive. And that means less of everything: not just electronics but electricity, not just automobiles but gasoline, not just fertilizers but food… Electricity shortages hurt manufacturing. Food shortages are draining the population. Fewer people means less chance of keeping anything that requires skilled labor. For example, things like road building or power grid or food production.

• This this is what “decivilization” means: a cascade of reinforcing breakdowns that not only damage, but destroy, the foundation of what makes the modern world work. (66)

Global transport costs have fallen in recent years. Part of that comes from inventions, like the container ship. Part of it comes from low energy costs, as we have discovered more oil and more ways to extract oil. And much of it comes from America’s perceived need to protect the non-Communist world and secure the freedom of the seas.

Zeihan sees the fall of communism as a reduction in America’s motivation to be the policeman of the world. Without police, he predicts that trade will be disrupted more often by war and piracy. The violence will impose a significant tax on transport.

• Anything that increases the marginal cost of transportation increases friction throughout the system. A mere 1% increase in the cost of a subsidiary part largely negates the economics of an existing supply chain. Most communities will consider themselves lucky if their transportation costs increase by only one hundred percent (387)

In his book, Zeihan dives into the details of how the world produces and trades food, energy, and manufactured goods. It clearly explains the feedback loops involved.

Perhaps the most interesting chapters concern energy. Although Zeihan believes in the dangers of climate change, his analysis shows that “green power” is failing, even on his own terms. In order to generate, transmit and store solar and wind energy, we need to build solar panels, wind farms, batteries and new transmission systems. The cost of doing this, including the carbon dioxide that will be released into this atmosphere in the process, is daunting.

Zeihan starts with the limited availability of reliable solar and wind power.

• The areas for which today’s green technologies make both environmental and economic sense represent less than one-fifth of the land area of ​​populated continents, most of which are far removed from our major population centers. Think Patagonia for the wind or the Outback for the sun. The unfortunate fact is that green technology in its current form is simply not useful for most people in most places, either to reduce carbon emissions Where to replace energy intake. (265)

Zeihan notes the energy density of fossil fuels.

• Fossil fuels are so concentrated that they are literally “energy” in physical form. On the other hand, all greentechs require space. Solar is the worst of the bunch: it is about a thousand times less dense than systems powered by conventional means…

• … All [cities] are by definition densely populated, while green technologies are by definition dense. Squaring this circle, even in sunny and windy locations, will require massive infrastructure to bridge the gap between dense population patterns and much more dispersed green electricity generation systems. Such an infrastructure would be on a scale and scope that mankind has yet to attempt. The alternative is to empty the cities and unfold six thousand years of history. (268)

I hope people read it and come away with a better appreciation of what makes our modern world possible. We are highly specialized. We are very interdependent. Our power generation and distribution system is remarkably efficient. Those who would stifle global trade and/or fossil fuels should understand how primitive we could live if their ideologies prevailed.