There are lessons in the current worldwide economic decline as to how the global situation will interact with the population explosion in the coming decades. This recession appears to have been set up and triggered by a range of economic and political factors. A short but fierce spike in oil prices on top of a real estate price bubble combined with an regulatory trend going back decades that not only allowed banks to take on far too much risk, but also promoted a business culture in which debt became the lifeblood of businesses around the world. Why did businesses take on so much risk? The short term-focused profit motive, instead of good long term planning, seems to be a root cause.
Increasing debt made money for poorly regulated banks, but put everyone at risk. I understood in the 1980’s when business schools taught the use of debt to build new business capital, but I became quite worried in the 1990’s and 2000’s when businesses had progressed to borrowing to make payroll. Debt always adds to risk, and this left a great many businesses with far too little reserve capacity to survive a downturn. When banks began avoiding asset requirements (the ability to back up their debts and loans) by substituting insurance policies (credit default swaps) for real capital, and all those policies were held by the same company (A.I.G.), the risk was too much to bear. All it took was both consumers and companies, cautioned into spending less by the oil price spike and badly hurt by the bursting of the real estate bubble, to decrease their spending and start saving and cost cutting to reduce their risks, and a downward spiral was created which is only now seeming to taper towards a lower but hopefully stable economic level.
The increased pressure population and economic development will put on energy resources could increase the depths of future downturns. It is likely that similar combinations of legislative, regulatory, and business mistakes will provide roller coaster-like economic patterns in the future. The current situation may well decrease the average standards of living over large parts of the globe, when all is said and done. If the world population follows the pattern predicted by the UN, a world population 50% larger than today will not be able to consume resources at the per capita rate we do today. Without significant technological advances and changes in lifestyle that bring far greater efficiency, quality of life will inevitably decline over the next fifty to 100 years. There will be many adjustments to be made, by all of us, during this period, and a focus and drive for sustainability seems the most certain way to will lessen the severity of the changes.
Waiting for science to rescue us is not the answer, and conservative political organizations and media are more interested in short term influence and power than long term sustainability. Government policy focused on sustainability and the long term, and decreased incentives for short term business thinking, will be among the changes needed to reduce the severity of economic fluctuations over the coming decades. When you watch, read, or listen to the news it is apparent that this sort of thinking is still seldom mentioned. The benefits to news organizations from pursuing ratings with sensational but infrequently substantive journalism forces information that would benefit us in the long term to the “back inside pages”. The focus on standardized testing in our education systems, especially when funding is tied to it, drives educators away from teaching critical thinking and the types of knowledge we will need to adjust and survive better in coming decades, adding to the numbers of easily-misled people. The focus of political conservatives on short term power struggles and blindly decreasing government capacity to regulate business works against everyone, and their efficient media affiliates have built significant power to manipulate the uneducated. None of this promotes the kind of long term thinking we need to mitigate our current and future problems.
What can we do as individuals? Positive change begins with each of us, but requires more than personal conservation efforts. We each need to be discussing the future with our friends, family, and business colleagues. We each must take advantage of the internet and other means to let our legislators and corporate suppliers know that their focus on sustainability, long term planning, and countering the population explosion and coming energy shortages is of highest importance to us. We need to take such matters into consideration in our everyday choices, but being vocal and voting our consciences is critical to the future quality of life of ourselves and our descendants. Educate yourself and make yourself heard.
As always, I welcome your comments. – Tim