The Zero-Sum World

The Energy Limit To Growth

One of the notions being presented as the reason growth is hard to come by in the post-GFC world is that the energy costs are too high. Take for example this article here from some outfit called NEF.

The gist of the argument is that as the cost of oil itself rises, this rising cost limits the capacity for growth. Advanced economies are more likely to feel the pain as crude oil hits the $90 per barrel level while China can allegedly still handle a rise of up to $100-110, but the projected price of oil is going to be more like $180 a barrel. In other words, pain is on the way.

The silver lining on all this is that it may actually prompt the world to move away from its heavy reliance on hydrocarbons, but the transition away from hydrocarbons is going to be pretty expensive.

What all this points to is that the size of economic growth in coming years is going to be much smaller than before the GFC, and this render the world economy a kind of Zero sum game where somebody's gain is going to be somebody's loss. In the past, this kind of notion was pushed aside because economic growth had a way of making the pie bigger, rather than splitting the same pie in different ways. Indeed, if there is one reason why economic growth was valued so highly by our societies in advanced economies is that as long as there is growth, it staves off the zero-sum game.

The problem then in the zero sum world is that anybody who gains is doing it at the expense of somebody else. Take labour costs for instance. When people like Gina Rinehart bang on about productivity, what she's really saying is she wants to pay less for the labour component of the production of her mined commodities. It's the fault of the unions (and by extension the ALP) that won't allow her to make more of a buck per ton of coal and iron ore.

If she were to have her way, the miners would get a pay cut, and she would get to have more of the share of the sales (did we mention the bit where she ants to have her profit taxed less?); and this pay cut represents an increase in productivity. Much of the third world  understands this as the garment factory that comes from America to exploit child labour and families in sweatshops, far away from the advanced economies, out of sight - and they want this business.

However in an advanced economy, any increase in productivity would mean the lengthening of the unemployment queue because there aren't any growth industries to absorb the unemployed. In advanced economies, people are less flexible to move from one specialised sophisticated area of work to another; which makes it even more unlikely for people who lose their jobs to productivity rises to find new employment.

The bottom line is that 'big government' models where we pay welfare to the people who are forced out for the sake of these productivity rises are going to find it financially tough without raising taxes; while 'small government' models will have a greater disparity of wealth in their societies leading to instability. You can pick either option but in a zero sum game, somebody has to lose, and somebody is going to be unhappy. To be honest, I don't know if people will want to really go down the avenue of the 'small government' only to find social instability and a replay of the French revolution on the cards (just look at the Arab Spring and the end of Gaddafi) . Even the recent election in America points to a picture where the kind of economic fascism advocated by the wealthy was put back in its box.

Gina Rinehart should really be careful what she asks for with her rants about productivity in a low-growth environment. If she has her way, she may be contributing to sticking her own head on the metaphorical guillotine down the track.