As this paper is opening up a discussion about a collapse in the globalised economy, it would be useful to have a definition of what collapse might be. Following Tainter and Homer-Dixon we could associate collapse with a sudden loss of complexity. However, there has been confusion in such studies where collapse has been also identified with a break-up of empires but which did not significantly alter the socio-political complexity of the constituent parts....Korowicz goes on to describe what such a collapse might look like (again, emphasis mine):
A systemic collapse in the globalised economy implies there is connectedness and integration. It also requires contagion mechanisms; these have been framed within the trophic web model. (In our framework we are not considering global pandemics, nuclear war or asteroid impacts, for example). It should be born in mind that a collapse could have intermediate states, characterized by partial breakdown and semi-stable states. However, here we are just outlining broad features.
The two other considerations are how big a fall has to be for it to be considered a collapse and over what time period. A global systemic collapse as framed here is different from much of the word's common usage in relation to the current crisis - a relatively sudden fall in income, a significant rise in unemployment, and a forced shift in a societies' previously held expectations of what the near-to-medium term holds. However, the operational fabric continues to operate as before, supermarkets are re-supplied, money works, and a diversity of complex goods and services can operate.
Rather, drawing upon section III.1, it can be argued that collapse happens when a system crosses a tipping point and is driven by negative feedbacks into a new and structurally and qualitatively different state, one with a different arrangement between parts and a fall in complexity. The operational fabric could cease to operate and the systems that are adaptive to maintaining our welfare could cease or be severely degraded. As a society, we would have to do other things in other ways to establish our welfare. Functions and specialities, a diversity of goods and services, and complex interdependencies would be lost.
We consider one scenario to give a practical dimension to understanding supply-chain contagion: a break-up of the Euro and an intertwined systemic banking crisis. Simple argument and modeling will point to the likelihood of a food security crisis within days in the directly affected countries and an initially exponential spread of production failures across the world beginning within a week. This will reinforce and spread financial system contagion. It is also argued that the longer the crisis goes on, the greater the likelihood of its irreversibility. This could be in as little as three weeks. . . .Okay, so what do I think? First of all, there is a part of me that is saying, “Who are you to have an opinion? You don’t know Jack Shit about any of this,” and the other part of me is saying, “What, am I just supposed to take things on faith and swallow them whole? And if I’m going to do that, which camp speaks the Word of Truth? Should I just eenie-meanie-minie-mo, grab an opinion and away I go?
Consider briefly a 'soft-to-mid-core' (Spain, Italy.....Belguim, France?), disorderly default and contagion in the Eurozone, coupled, as would be likely, with a systemic global banking crisis. There would be bank runs, bank collapses and fear of bank collapses; uncertainty over the next countries to default and re-issue currency; plummeting bond markets; a global market collapse; and a global credit crunch. Counter-party risk would affect trade, just as it would affect the inter-bank market. However, production and supply-chain networks are far more complex than the banking and shadow banking system.
Within days there could be a food security crisis, health crisis, production stoppages and so on within the most directly impacted countries, and the number of such countries would rise. Those with access to cash would clear out supermarkets in panic. Many would immediately suffer as we now hold little cash and have small home inventories. Supermarkets could not re-stock, and even if they could, there would be declining availability of fuel for transporting goods. Hospitals adapted to JIT would also run low on critical supplies and staff might not be able to get to work. Pandemic modeling has shown that removing at random only small numbers of a population can cause cascading failure of functions across an economy. Lack of inputs and people required for production would also begin to shut factories within days. Governments, emergency services, and the public would by and large be shell-shocked. Without serious pre-planning, a government would be unable even to provide emergency feeding stations for weeks. There would be growing risk to critical infrastructure.
Imports and exports would collapse in the most exposed countries and fall for those at risk. It would also cut global trade as Letters of Credit dried up. The longer the crisis went on the more countries would be at risk. But once the contagion took hold, it would be very difficult for the ECB/ IMF or governments to stop; it would be a large-scale cascading failure at the heart of the global financial system.
So at the risk of exposing the depths of my ignorance, I’ll wade in. I believe K’s analysis of our systemic risk is solid. Anyone that is paying attention can see that our globalized financial system and economy are zooming down a one-way street that ends in a brick wall cleverly camouflaged as Endless Prosperity Blvd. I’ve been aware of this for some time -- because our financial structure is based on ever increasing levels of debt and because the ability to service debt is dependent on growth and because there are real world physical constraints to growth, a crash is inevitable -- the biggest question becomes ‘when?’ and the logical answer seems to be ‘soon.’ It is obvious that the world’s financiers are attempting in every way they can to shore up those countries most at risk and will continue to do so for as long as it works. It is often said that they are merely kicking the can down the road, but no one knows how long before they reach the dead end. In the meantime, confidence in the game they are playing keeps the market afloat.
So what happens when kicking the can only results in a stubbed toe? Things will start to unravel, international banks and agencies will do what they can to contain the damage, and the optimism of Wall Street will be strained and perhaps broken. The market is so volatile these days with all the instantaneous trades courtesy of our whiz-bang toys that panic can spread faster than an Australian wildfire. Not that it will, but that it might. I am not sure K is right, though, when he describes the speed at which the supply chain might break apart. It seems to me that our shared mythology, the one that says all problems are temporary and that growth will resume any minute now, is so strong that it will carry us for much longer than one might expect. Some how, some way, we will patch things together and make them work. For a while, at least. Although the supply lines will eventually begin to fray, factories will stay open as long as they can, international trade will limp along, and businesses may shed some marginal employees but won’t close entirely until they have no other choice. At some point, however, our unfounded optimism is going to founder -- and as the waves of a new reality begin to wash over us, panic will set in. I just don’t think it will happen as fast as K predicts. Neither do I believe that our infrastructure will begin to crumble within the time frame he suggests.
I also don’t believe that any government would be able to do much to prevent the collapse. JMG wrote about the measures taken by the US government back in the 30’s and I don’t see how they would be effective today. First of all, banks are no longer national but international and have more real power than that of most nation states. Secondly, seizing control of a bank drowning in toxic debt does nothing to enrich a government, nor does, quite frankly, the seizing of gold even if one could do that these days without inciting armed rebellion; we haven’t been on a gold standard for a long, long time. Even assuming that a government would have the political will to respond in a timely manner -- or that any government action would be seen as a legitimate use of authority in today’s anti-government climate -- how could a government, itself already trillions of dollars in debt, restore viability to a crashing financial system?
So I seem to come out somewhere between Korowicz and JMG -- and I don’t think they’re really all that far apart to begin with.
Assuming that what we are speaking of is a collapse, most likely in the financial sector, that leads inexorably to a new stasis however unstable and temporary, I do think it is a matter of time. The questions then become how soon, how fast, how bad? As for how soon, my best guess is anytime between later today and three years from now. If I’m generous, I’ll give it five. As for how fast, I think the first stage, the collapse of the financial sector, which includes Wall Street, could happen within hours of something triggering a national default and/or a panicked sell-out, or it could drag on for months with heroic efforts being made to contain the damage. As for how bad, I really don’t know. In part, it depends on timing. If things fall apart over a period of months, and if it is summer and local foods are available, and if there is a steady downturn between now and then that accustoms folks to survival thinking and creative solutions, we might not see actual starvation, at least not here in America -- there is already starvation in this world, just not here.... If it happens with a sis-boom-bah, during the winter when heat and food are more critical, and if there are natural disasters on top of an economic melt-down, we could see a more pronounced denouement.
So now that I've hashed through it all, yet one more time, does anything change -- or is this just a self-indulgent intellectual version of a dystopic video game?