I’m trying hard not to be gloomy, but I’ve just been over at the The Oil Drum reading a post written by Jeremy Grantham, Chief Investment Officer at GMO Capital. This essay is notable in that it is written by someone in Grantham’s position. What I find so gloomy is the sense that our modern world is like a runaway train in terms of resource consumption.
People have been talking about peak oil and the importance of petroleum in nearly every material aspect of our lives since the Arab oil embaro of the 1970’s. What free market enthusiasts and libertarians fail to emphasize is that the market is a social phenomenon; it is not physics. It is a phenomenon that is driven by desire.
The market is like a stomach- it has no brain. It only knows that it wants more.
The idea that you remove all elected government oversight and allow this stomach to reign free across the world is just another type of politics. Inevitably and always, money aggregates into the hands of a few percent of the human population and into the wire-transfer hands of synthetic people called corporations.
In a world of increasing scarcity the prospect of reduced consumption confounds political and business practices devoted to growth, since growth typically means increased consumption.
The key psychological barrier is this- How do we feel like we’re improving as we’re making do with less?
As the cost of manufacturing increases due to increased raw material costs, unit prices will rise. The invisible hand of price elasticity of demand will inevitably partition out the elastic from the inelastic goods on the market. Whole industries relying on discretionary income will feel exposed.
The challenge for our leaders is to maintain a vibrant economy even though natural resources are becoming ever more scarce. Power is manifested in the allocation of resources. China has pointedly focused on Africa as a source of raw materials for its growing economy. The act of power is the fact of power. By throwing a lot of money around, and by controlling the flow of resources, China is exercising power. You don’t need to march an army around to demonstrate your power.
China is executing industrial policy by forging alliances and allocating resources to global sourcing action. The USA dithers with self-destructive party politics, foreign military adventures, and a narcissistic indulgence in “greatness”. Instead of wearing our hearts on our sleeves, we should roll them up and get to work building a robust and healthy culture.