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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