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Musings Report 2018-8 2-24-18 What If All the Cheap Stuff Goes Away?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Welcome to February's MUS (Margins of the Unfiltered Swamp)
The last Musings of the month is a free-form exploration of the reaches of the fecund swamp that is the source of the blog, Musings and my books.
What If All the Cheap Stuff Goes Away?
One of the books I'm currently reading is The Fate of Rome: Climate, Disease, and the End of an Empire.
The thesis of the book is fascinating to those of us interested in the rise and fall of empires: Rome expanded for many reasons, but one that is overlooked was the good fortune of an era of moderate weather from around 200 BC to 150 AD: rain was relatively plentiful and regular and temperatures were relatively warm.
From about 150 AD forward, one of Earth's numerous periods of cooling--a mini ice age--gradually replaced the moderate weather, pressuring agricultural production.
Roman technology and security greatly expanded trade, opening routes to China, India and Africa that supplied much of Roman Europe with luxury goods. The Mediterranean acted as a cost-effective inland sea for transporting enormous quantities of grain, wine, etc. around the empire.
These trade routes acted as vectors for diseases from afar that swept through the Roman world, decimating the empire's hundreds of densely populated cities whose residents had little resistance to the unfamiliar microbes.
Rome collapsed not just from civil strife. invasions and mismanagement, but from environmental and infectious disease pressures that did not exist in its heyday.
Colder, drier weather stresses the populace by reducing their food intake, which leaves them more vulnerable to infectious diseases. This dynamic was also present in the 14th century during another mini ice age, when the bubonic plague (Black Death) killed approximately a third of Europe's population.
Which brings us to the present: global weather has been conducive to record harvests of grains and other foodstuffs, and I wonder what will happen when this run of good fortune ends, something history tells us is inevitable. Despite the slow erosion of inflation, food is remarkably cheap in the developed world and much of the developing world.
What happens should immoderate weather strike major grain-growing regions of the world?
Then there's infectious diseases. Global air travel and trade has expanded the spectrum of disease vectors to levels that give experts pause. The potential for an infectious disease that can't be mitigated to spread globally is another seriously under-appreciated threat to trade, tourism and cheap stuff in general.
There are other factors that could spell the end of cheap stuff, not just food but manufactured goods:
1. Fossil fuels could become much more costly. While I consider it highly likely that the price of oil in US dollars will fall to $40/barrel or lower in a global recession due to a sharp drop in demand, longer term, it's inevitable that the cheap-to-access fossil fuels (other than coal) will become depleted and the cost of accessing what's left will rise.
Since fossil fuels remain the backbone of industrial societies everywhere (yes, including Germany), a steady increase in fuel costs will push the cost of everything that uses energy (i.e. everything) higher.
2. Trade restrictions/conflicts. Globalization and populism both target "unfair trade practices" in which "unfair" is in the eye of the beholder: imports hurt the domestic economy everywhere, and exports help the domestic economy everywhere.
If trade is restricted for whatever reason, the costs of commoditized goods will likely increase, possibly by a lot.
3. Global wages are rising sharply. You've probably seen signs at Home Depot and fast-food chain outlets announcing "we're hiring": even though 100 million working-age people are "not in the work force" in the U.S., many of these individuals lack the skills and/or willingness to take jobs in the modern economy, which demand a lot of workers even in so-called low-skill fields such as fast food. To work in fast food, individuals must be able to handle high pressure and a fast pace; it's not an easy job by any means.
Many employers are reporting that they can't find enough qualified candidates who pass drug tests, yet another fallout of the opioid epidemic. Many people are saddled with felony convictions for nonviolent drug offenses, rendering them ineligible for most corporate or government employment.
Immigration restrictions and minimum wage laws will add to the rising cost of labor.
Globally, the Baby Boom generation is retiring, leaving worker shortages on the horizon even in China. (Note that workers tend to retire much earlier in Asia and Europe than in the U.S.: 60 or 62 is typically the mandatory retirement age in much of the global economy.)
As Immanuel Wallerstein has observed (I've written about his work many times), there are systemic, secular pressures to raise wages and benefits everywhere: costs are rising, and people expect more government services such as education and income security, and as taxes increase, wages must rise to maintain the net earnings (purchasing power) of the workers.
We in North American have become accustomed to cheap stuff: cheap fuels, cheap manufactured goods, cheap food and cheap labor. We may feel these are all expensive now, but we are comparing current prices to periods of extraordinarily low costs.
Prices for energy could easily rise 50%, impacting the cost of everything. Should harvests be crippled by bad weather, the cost of grains could easily double or triple from their current historic lows. Should trade be restricted and wages rise virtually everywhere, manufactured consumer goods could go up in price even as robots replace costly humans: energy, raw materials and taxes will still be costly inputs even if all human labor is eliminated.
Add in a 20% or more tariff for unfair trade practices, and all the robots in the world won't keep prices down.
Nothing stays the same in dynamic systems, and it seems inevitable to me that the current glut of low costs / cheap stuff will give way to scarcities that cannot be filled at current low prices. Cheap stuff will go away, and everything will cost more. It seems highly likely to me that the next decade will not be like the last 10 years of abundance and globalized cheap stuff.
From Left Field
The Best and Worst US Airlines in 2017 -- a bit dated but a very thorough analysis...
The hysteria over Russian bots has reached new levels (via Joel M.) -- from the Guardian (UK)
U.S. Empire Still Incoherent After All These Years (via LaserLefty) -- references two books I want to read...
Refiner goes belly-up after big payouts to Carlyle Group (via Joel M.) -- "finance capitalism" at work...
Google Chrome Now Blocks Irksome Ads. That’s a Good Thing, Right? -- adverts have become more irksome because content providers' revenues have been slashed by ad blockers and the Facebook/Google duopoly...
From imitation to innovation: How China became a tech superpower -- having the global supply chain on hand is a big help...
Didi Chuxing took on Uber and won. Now it's taking on the world -- in China, everyone uses Didi now...
How fast can a beauty blogger become the millennials’ Estée Lauder? About three years (via Maoxian)
To Get Into the 1%, You Need Adjusted Gross Income of $480,930. -- 1.4 million folks made the cut...
This Trader Quietly Built a Real Estate Empire in Downtown New York (via Maoxian) -- never sell works in an inflationary era, not so much in a deflationary era...
European Doctors Are Giving Up on the U.K.-- doctor shortages in rural America--sign of the times?
Amazon’s Jeff Bezos Can’t Beat Washington, So He’s Joining It: The Influence Game -- In the past five years, Amazon increased lobbying spending by more than 400 percent, a rate of change that far exceeds rivals’.
"The most important thing in life is to stop saying 'I wish' and start saying 'I will.' Consider nothing impossible, then treat possibilities as probabilities." Charles Dickens
Thanks for reading--
charles
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