#EconomicDownfall #AdvancedEconomies #GDPGrowth #OilConsumption #InterestRates #WorldEconomy #FinancialCrisis #GlobalShift
In a thought-provoking article authored by Gail Tverberg via Our Finite World, the discussion pivots around the ominous trajectory of advanced economies towards a potential downfall. The core argument hinges on the historical GDP growth trends among OECD countries, revealing a persistent decline since the early 1960s, a trend that’s worryingly poised to usher these economies into a phase of permanent shrinkage—evident from the expected meager 1% annual GDP growth rate for the group in 2022. This trend, as alarming as it is, becomes even more concerning when contextualized with the fact that it occurred amidst an era of increasing debt within these economies. This debt growth, acting as a stimulant, arguably masked the speed at which the GDP growth was decelerating.
The narrative then delves deeper, linking the decline in GDP growth to a stagnation in the growth of oil supply, particularly poignant given the historical significance of oil in powering economic expansion and industrialization from the 1940s through the 1970s. The United States, being the predominant consumer of oil during this period, reaped the benefits in military and financial hegemony, showcasing the critical role oil played in crafting the post-World War II economic order. However, the subsequent plateauing and the eventual decline in oil supply growth, especially post-1970s, corresponding with escalating oil prices, marked the beginning of a shift. This shift wasn’t just in terms of economic adaptations to new oil realities but also included broader socio-economic transformations, including the move towards service-oriented economies, away from manufacturing and mining, thereby exporting a significant share of industrial activity to lower-wage countries.
Moreover, the intricate dance between oil consumption growth, GDP growth, and policy maneuvers around interest rates are dissected to offer insights into the economic mechanisms at play. The article illustrates how, prior to the 1980s, higher interest rates were employed to temper economic growth. The piece charts the course of the global economy through various phases, from the infrastructure boom fueled by cheap oil in the mid-20th century to the strategic adaptations necessitated by the oil crises of the 1970s, through to the era of falling interest rates from 1981 to 2020, which, while it spurred economic activity, also laid the groundwork for widening economic disparities.
As the narrative unfolds, it casts a shadow over the future, accentuating the precarious situation that advanced economies find themselves in, amidst rising interest rates since 2020. This development threatens to invert the benefits derived from decades of falling interest rates, suggesting a grim outlook for asset prices, economic stability, and the existing social order. Drawing upon the Maximum Power Principle from biology, Tverberg extrapolates the implications for the global economic ecosystem, hypothesizing that the competitive edge may shift away from advanced economies to emerging ones, in a resource-constrained future battle for economic supremacy. This hypothesis is supported by visuals and data illustrating the decline in industrial output and oil consumption leadership by advanced economies.
In essence, the confluence of declining GDP growth, stagnating oil supply growth, shifting dynamics in global oil consumption, and the recent pivot towards rising interest [rates](https://www.thestreet.com/fed/fed-rate-hikes-2022-2023-timeline-discussion) paints a cautionary tale. It highlights the inherent vulnerabilities and challenges facing advanced economies in a rapidly changing world, prompting a reevaluation of long-held economic dominance and posing critical questions about the future direction of the global economy.
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