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- Last modified 03/07/08
- Copyright © by Nila Gaede 2008
1.0 How the US got to the next level
The US population is still growing today, in great measure, thanks to its immigration policy, yet despite this influx of
consumers, corporations were forced to redirect their business elsewhere. US firms were compelled to make exports
an ever increasing segment of their business even as the population of the US expanded. This is truly an ominous
realization. It tells us that the distribution of goods and services proceeds at a much faster pace than the population
expands. Cutthroat competition compels companies to take advantage of opportunities as soon as they appear on
the radar. Thus, while population chugs along arithmetically, markets saturate exponentially. Our marketing and
distribution systems are so efficient that no niche goes unnoticed for long.
So where does the US dump its surplus these days?
Well, primarily in China, India, Europe, and Japan. At the end of 2006, US exports and imports (i.e., international trade)
accounted for almost 28% of GDP. [1] For Japan, it was even higher (31%), and for Germany (80%), [2] France (60%) [3]
and the United Kingdom (50%) [4] still higher, meaning that the economies of the developed nations are becoming
increasingly dependent on exports (i.e., on foreign consumers). [5]
- " The drop in manufacturing employment since the beginning of the recession
largely reflects the weak demand for capital goods in the United States… The
share of consumer spending devoted to manufactured goods has declined
over time both in the United States and in other industrialized nations… In
2000, 42% of U.S. consumer spending was devoted to goods, down from 52%
in 1979 and 67% in 1950." [6]
" Exports from the United States have increased by 57 percent over the past ten
years, with manufacturing responsible for nearly two-thirds of total exports…
A decline in exports was one of the chief reasons for the 2001 manufacturing
recession. From a highpoint of $771 billion in 2000, manufactured exports fell
to $681 billion in 2002." [7]
The trend is to market products and services outside the country, to sell to someone else. It is not the inhabitants of the
US which are consuming US made goods and services. It is increasingly the people outside its borders which are
absorbing it.
Let’s face it. The ideal situation for the US economy would be for foreign countries to continue to absorb its surplus
goods and services until kingdom come and thus continue to provide employment to US workers at least until ZPG.
Unfortunately, this state of affairs is not in the cards. Corporations are in business to make profits and not because
of idealistic nationalism. If a corporation wants to stay in business, it must necessarily migrate to the regions where
its customers live. If a US company wants to sell a chair or a computer or a phone, it can no longer do it in the US. It
must sell it to a Chinese. And if it sells to a Chinese, it cannot continue to manufacture the product in the US at US
wages and costs and also expect to include transportation to China in the invoice. At some point it will no longer
make business sense to manufacture the product in the US. If we factor that the Chinese can only buy products if
they have jobs and incomes, then the prophecy is self-fulfilling. There was no way corporations could have avoided
shutting down their operations in the US and relocating abroad. Hence, the contemporary trend towards outsourcing
and outright relocation was predictable.
Now let’s factor in that the US, Japan, and Europe were quite privileged when globalization began. The developed
nations already had the products, streamlined operations, trained management, and aggressive sales forces. The
multinationals merely needed to find vast untapped markets. That's when the leaders of the developed nations
suddenly discovered that Communist China was not such a bad country after all.
2.0 How will China and India get to the next level?
Chinese and Indian industries will not be nearly half as lucky when they attempt to reach the same level of development.
To see why, let’s roll the movie fast forward. China and India are still expanding demographically. They are scheduled to
reach ZPG in 2050 and 2060 respectively, but as we now know, these predictions are revised downwards year after year.
We also now realize that contemporary markets saturate exponentially while the populations are barely growing
arithmetically. Consumers in these two populous countries are massively buying ‘necessary’ goods and services as I
type. It won’t take long for businesses to saturate the Chinese and Indian markets, certainly way before scheduled ZPG.
Who will the multinationals and home grown Chinese and Indian manufacturers sell to when demand in these two giants
is fully satisfied?
Certainly, Chinese and Indian corporations and branches will not find enormous pools of consumers like the US, Europe,
and Japan did! If you’re thinking about Africa and South America, think again! The markets in these regions are also being
conquered and developed as we speak. If we factor that China and India each have more population than either of the two
continents, we realize that, even in the best of cases, Africa and South America will not have as big an economic impact on
China and India as China and India had for the developed nations.
To make matters bleaker, China and India are unions. They are run by central governments than can establish global policy.
Africa and South America are confederations. The two continents are comprised of tiny countries each pulling in its own
direction. By the time Chinese and Indian markets reach saturation, there will be no virgin markets anywhere on the planet
in which to dump surpluses. Whatever population comes into this world after that crucial moment will have negligible
impact on demand.
Therefore, China and India will be seeking markets in which to place their surpluses long before they attain ZPG. This
implies, in turn, that the US, Europe, and Japan will also have trouble placing their products in China and India even
before then. If China and India will attain ZPG in about 40 years, the developed nations will have problems way before
then, which means that the global economy will reach a standstill even sooner. Note that these are structural problems
in the economy and not a temporary phase. What we are witnessing today is the development of the last markets on
Earth.
3.0 ...and still they have problems!
But it only gets worse. Despite that the US, Europe, and Japan are placing their products abroad and keeping much of
their labor force busy, these regions are nevertheless suffering major economic problems. You would think with such
vast markets as China and India, the economies of the developed nations would be growing at an astounding pace for
years to come. It turns out that they are barely chugging along.
One parameter that certainly hasn't looked good for a while in the developed nations is unemployment. As more and
more firms outsource or relocate their operations elsewhere in order to take advantage of lower costs, local
unemployment increases. We can predict with absolute certainty that internal consumption will decline for two
reasons. One is that the inhabitants of developed nations have everything they need. The other is that, as
unemployment rises, disposable income declines. This compels multinationals to relocate their operations, which in
turn contributes to unemployment.
Indeed, the numbers support my argument. In 2006, the US imported almost twice as much as it exported (imports:
1.87 trillion / exports: 1.02 trillion). This trend is obviously going in the wrong direction. Therefore it is not surprising
that organizations such as the National Association of Manufacturers and the American Manufacturing Trade Action
Coalition now want to forget good old-fashioned, unrestrained capitalism and call for protectionism.
A decline in consumption in the developed nations means that China and India will not be able to get rid of their
surpluses in a not too distant future. If the US had to resort to exports to keep its economy going while the population
was still rising and is nevertheless undergoing strategic economic troubles, China and India will reach that ominous
milestone too, but much sooner than the US did. China and India have no chance of ever developing fully like the US,
Europe, or Japan because they will not be able to find vast virgin markets to fuel their economies to the level of a
developed nation. The only reason people in Holland and Sweden live well today is that they subsidize their lifestyles
with income from developing nations. If the developed countries of Europe depended solely on local consumption,
their economies would have already disintegrated a long time ago.
4.0 Thought experiment
So let’s do a thought experiment to see if we can visualize the future. Let’s eliminate the U.S. Economy from the global
scene. The entire U.S. Economy flounders, and the remaining nations have to figure out how to solve their problems.
The US suddenly does not exist. Think of this as a major stock market crash. What will happen to China and India
without the U.S.? What will happen to Japan and Europe without China or India?
To make a long story short, we would observe a domino effect in which those who sold to the US until today suddenly
can’t find rich customers for most of the products they manufacture. You don’t just substitute 300 million rich American
consumers with 900 million poor Africans. Therefore, all of the economies of these countries would come to a dead
stop. In a matter of weeks, you would have not millions, but billions of unemployed. And there would be nothing that
anybody could do about it. If the US economy were to collapse tomorrow, all the economies of the world would come
tumbling down with it.
5.0 In God we trust
So what does it take to get the US economy to falter?
Primarily, just a general loss of confidence! The modern economy is built solely on faith: In God we trust! If we lose
faith in the stock market or the dollar, the economy is lost. That’s why the politicians spend their time acting as
cheerleaders, giving speeches about how great everything is and what great future awaits us. If people see the sham
for what it is, that’s it! The whole thing collapses.
Indeed, we may not have to wait even 40 years to experience pessimistic moods and a general loss of confidence. We
can have an unimaginable stock market crash at any moment that suddenly sets all the dominoes rolling. Imagine that
this were to happen tomorrow morning. People sense that the economy is not doing well. They sense this because
companies across the US are closing their doors and letting people loose. Or because everyone is liquidating their
ownership of stocks. A critical point has been reached. The housing market is in a slump. The high price of energy
compels the ordinary individual to forego cars or to replace them less often or to use the bike. Manufacturing
employment has reached critical levels in both the US and Europe. The service sector, especially financial services,
has begun to contract. Unable to export its surplus, the US is feeling the crunch. Unemployment is high and rising.
Millions are rapidly laid off. All investments are risky. The time of the lean cows has come. Panic sets in. There is a
general meeting of the minds. Herd mentality morphs gung ho bulls into meek bears. Everyone rushes to the counter
at once to dump his holdings, but discovers that he has to take a number and wait in line. Of course, there are a few
fiscal safeguards. No one likes or benefits from a run on the bank, but there is nothing anyone can do to stop the
stampede. Overnight, Stock certificates turn into paper tissue. Six and ten figure bank accounts are wiped out at a
single stroke of the keyboard. Fortunes dry up in the blink of a stock market screen. China and India are now
expecting orders, but the US, Europe, and Japan are fighting bigger fires at home. So now the dominoes start falling
in China and India as well. The global economy is interlocked and what affects one affects all. One mountain climber
pulls all the other ones down with him. Can you imagine not thousands, not millions, but billions of people around
the planet without work? Is this possible?
Actually, the bleak predicament that I am illustrating was already in the cards. Free will has little say within the context
of strategic, deterministic events. By the time the collapse happens, manufacturing has already become a negligible
segment of the economy. Government has no chance to stimulate the economy through rapid industrialization (or war)
because we are already there. We are as efficient as we can be. With respect to the global economy it is strategically
much worse. Government has already exhausted all fiscal policy mechanisms capable of stimulating the economy.
By the time of the collapse, governments have time and again postponed the day of reckoning by implementing fixes
here and there. The global economy is as efficient as it will ever run.
Note that these are structural problems in the world economy that will not be resolved with government policies or
foreign agreements. It was predictable that at some point the US markets would saturate and that US firms would
have to seek customers abroad. It was also predictable that US firms would seek to lower their costs by outsourcing
and establishing branches in countries where demand is strong. What did the workers and nationalists in the US
expect? Did they expect to be producing cars and refrigerators at high wages in order to sell these products to
Third World countries forever and ever? At some point developing countries begin to produce their own products,
and established US firms quickly understand the situation and move in to take advantage of the opportunities. Of
course, this does nothing for the US worker. The process just ensures that money will flow to the coffers of the
owners of US-based corporations. But what happens when foreign markets finally saturate (i.e., global population
expansion comes to a standstill)? What then? Now even the franchises and branches in foreign countries have to
close their doors. Unless revolutionary, necessary-level products are invented and stimulate demand, the entire
planet enters a phase of economic stagnation. The economy will grow no more because growth absolutely requires
more humans.
Now let’s put the two elements I’ve been talking about – food and the economy – together to see how all of this relates
to extinction.
| So what's our sales volume, Mary? Three, maybe four pairs a week? But if we moved to China we could probably double our sales like our fancy competitors Gucci and Nike. |
| Adapted for the Internet from: Why God Doesn't Exist |
| The economy will collapse before we attain ZPG |
Module main page: The economic history of Man
Pages in this module:
- 1. The service economy cannot be run on a constant population
2. The service sector has no ability to stimulate either fertility or the economy
3. This page: The economy will collapse before we attain ZPG
