Counter narrative for a better world: Virtuous Cycle vs Poverty & War
- HanseaticHunter
- Nov 12, 2023
- 5 min read
“De-growth”, the most popular concept of the well-being of societies and the world at large, aka doughnut economics, circular economy, post-capitalism, etc., has become the biggest threat for humanity. Degrowth aims to assure sustainability and prevent environmental degradation, social inequality, and other negative consequences. We will show here that actual outcomes are the opposite! Crucially, we will reveal an alternative way forward.
To start with a disclaimer, we absolutely believe in resource efficiency, i.e. using the least resources to achieve a specific outcome. Every entrepreneur inherently does so, otherwise there would be no profit, no value-added to your fellow human beings.
The underlying fallacy of de-growth lies in a simple, time-tested paradigm. The concept of "comparative advantage" is probably the single most useful notion explaining the big leap in human prosperity of the last 200 years after millennia of stagnation. It explains how the world benefits if every nation concentrates resources on the industries where they have the greatest efficiency of production relative to their own alternative uses of resources. Trade is then the great catalyst of wealth transfer in all directions. The normal procedure in the preceding millennia was relegated to flows from poor to rich countries.
There is a nice mathematical certainty to the concept:
Person A can produce 30 bushels of wheat or 10 barrels of beer.
Person B can produce 10 bushels of wheat or 30 barrels of beer.
--> Both A and B become more prosperous if A only produces wheat (30 bushels) and B only beer (30 barrels) and A sells 15 bushels to B for 15 barrels in return => both get 15w/15b, which is more than each of them can produce by themselves.
It even works if A would have an absolute advantage in both:
Person A improves to 40 bushels of wheat or 40 barrels of beer a year.
--> Both A and B still become more prosperous if A only produces wheat (40 bushels) and B only beer (30 barrels) and A sells 10 bushels to B for 20 barrels in return: A has 30w/20b and B has 10w/10b, again more than each of them can produce by themselves.
Of course, the world is much more complicated, but unfortunately economic theories are often misused to justify more regulation. The huge wealth creation of the era of globalization, 1980-2020, was based on this simple virtuous cycle:
Specifically, outsourcing production to low-cost countries
DM (developed markets) benefit from cheap imports -> more income -> more savings -> more investment -> outsource more, etc.
EM (emerging markets) benefit from increased production -> more income -> more savings -> more investment -> more production, etc.
The results have been impressive over those 40 years:
10x per capita income despite an almost doubling of the population
Percentage in absolute poverty down to <10%
One third drop of commodity prices in real terms, i.e. commodity abundance
End of famine: outside of war zones there are only 2 countries left with <2000 calories per person per day
Impact from natural disasters is steadily declining
Efficiency gains in farming and resource extraction has led to an expansion of forests by almost 1 million sq mi
Democracy wins: the % of democracies vs autocracies has shifted from 25 vs 55% to 55 vs 15%
Health gains: life expectancy has grown from 62 to 73 years, the global death rate has dropped from 11 per 1000 people to 8; malaria death rate from 13 per 100,000 people to 8; cancer death from 165 per 100,000 people to 130.
Education: literacy rates now exceed 90%; average years of education moved from 5 to 9 years.
Free time: average hours worked per worker per year in high-income countries has dropped from 1,920 to 1,710
Unfortunately, since 2020 most of these achievements have deteriorated. We are on a path of de-globalization (first lockdowns, now trade and military wars) which leads to a vicious cycle with the same dynamics as above, but in the opposite direction. Goods are becoming more expensive as the comparative advantage of specialization is lost. This is all made worse by ever increasing new regulations. The EU is the main culprit, however, the US is not far behind.
Most of these new regulations are a direct result of the prudence principal. Especially after a long period of wealth accumulation, societies spend more time attempting to protect these gains. Often risks are exaggerated or taken out of context (forgetting mitigating circumstances). Doomsayers have always gotten more attention, despite their horrible forecasting track record. Due to short election cycles, politicians are incentivized to over-react to these dangers.
A great historic example comes from China. The Ming dynasty (14th -17th century) pursued stability above all else leading to stagnation and then decline.
Of all the forces pushing the vicious cycle, paradoxically the strongest one is by many institutions attempting to do good by “saving the planet”. The “green” virtuous cycle looks like this on paper
but does not work in practice. The big fallacy is the “circular economy” element. To this day the poorest countries have a mostly circular economy and are not able to break into a virtuous cycle because they lack access to cheap energy. At the other end of the prosperity scale, the only country close to being able to achieve a circular economy is the USA, exactly because they are rich due to their access to cheap energy and their geographic and demographic diversity. But even in this case, only the USA would continue to prosper on a relative level, but the rest of the world would greatly suffer from the lack of US demand.
Top-down is lazy, bottom-up is hard work
To make things worse, we are experiencing a cascading failure of our institutions that have previously been successful:
UN = peace
EU = peace, free trade -> prosperity
WHO = health awareness, programs for EM -> life expectancy
Central banking (FED, ECB, Bundesbank) = stability and trust in money
Democratic division of powers = checks and balances, preventing abuse of power while protecting individual liberties
Making things worse is another by-product of decades of prosperity: There are too many wealthy intellectuals with too much time on their hands attempting (nearly all well-meaning) to solve issues in a top-down approach. Most often they circumvent the democratic political process (NGOs, think-tanks, lobbyists), again well-meaning, to have a faster impact.
But here is the solution: less is more and respect the “demos”
We do not need to invent any new theories, but instead adapt what has worked best throughout history to current times:
Rule of law (property rights, legal certainty)
Free trade
Business-friendly regulation
This primarily means a massive reduction of regulations and bureaucracies in DM and a stronger adherence to a simple framework in EM.
This would unleash human creativity and entrepreneurship to find solutions for all pressing issues. This leads us to our last point: When institutions fail, the people (the Greek “demos” as basis of democracy) tend to take matters is their own hand by finding ingenious solutions around stifling authoritarian rule.
The HanseaticHunter
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For anyone wanting to explore alternative ways forward, please check out these links:
· Marc Andreessen ->
· Human Progress -> Home - Human Progress
· Balaji Srinivasan -> The Network State
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