A Set of Transitions.
Overview of the types of Transitions the world is facing.
The world is in the midst of a series of dramatic transitions. These transitions include:
An Energy Transition
A Demographic Transition
A Political Transition
An Economic Policy Transition
Each of these will be the subject of future posts. The following is a brief introduction and each topic has nuances that need to be explored.
An Energy Transition
The world is going to be transitioning from fossil fuels to electric generated by renewable energy. The question is not if this will occur, but over what time frame. Unfortunately, too many people underestimate both the time and difficulty of such a transition.
But EVERY energy transition in history has taken decades. In addition, because almost every activity in the modern world requires energy, a major misstep will cause untold harm. The transition must be done with the best and most scientific information and not on a political or ‘religious’ set of rules. Unfortunately, both Europe and the US are not looking at the problem of how the transition is going to be done by science but are setting unachievable political and ‘religious’ goals.
2) A Demographic Transition
Given the increased incomes and increased lifespans, the world is deciding to have fewer babies. The implications of fewer humans have not been adequately explored by economics and political science. For example, clearly wages will rise and be more costly. How will the higher cost of labor be dealt with? Will capital returns fall? What about sovereign debt burdens with a smaller population? These are just a few of the questions that future generations will be facing.
3) A Political Transition
With globalization, there has been tremendous pressure on every society. Change is never easy and when some win and some loose, the pollical society is put under extreme pressure. As a result, the time between Word War 2 and the election of Trump will be seen as one period. The time after Trump, will be seen as a different political landscape and a different type of situation. Globalization will decrease as many products must now be produced closer to the consumer.
4) An Economic Policy Transition
Because of the Demographic Transition, much of economics that is assumed is going to change. For example, we will now have Resource Constrained Recessions (RCR). What is it? A decrease in total economic activity, but not an increase in unemployment. For example, during the Plague, many countries economic activity decreased, but the wages INCREASED. This is a new type of recession.
An RCR will not have the political implications of a real recession and the correct monetary and fiscal policy solution may be very different. For example, if population is decreasing and thus GNP is decreasing, how would any traditional economic policy increase GNP? Monetary policy cannot solve a supply side economic problem. Further increases in government deficits might actually make the problem worse.
A follow-on post further defines an RCR.
In the following posts, each of these Transitions will be explored. So, subscribe today to this blog!
Dear Eric,
Well done!
Don