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Home » Personal Asides

The Quick Rise & Inevitable Decline of the Modern Economy

Last updated by on 12 Comments

I am very interested in our economy and how we got from a hunter-gatherer lifestyle (not that many years ago) to where we are today.

If you look at the timeline of human history, there are certain inventions that have allowed the human population to explode and expand, which has also driven economic activity to increasingly new heights.

The most powerful of these inventions and their impact on human society, in approximate chronological order (please spare the historian corrections) would be:

  • hunting devices: instead of being hunted, we became the hunter. Small game became big game. We could now feed more bodies
  • fire: heat supplied from saved untold lives from hypothermia and cold weather conditions, allowing human population to expand geographically
  • shelter: propagated health and population growth
  • clothing: allowed humans to live in all climates on the planet
  • agriculture: storing food allowed humans to avoid famine and population to explode by expanding food supply and diversification
  • use of domesticated animals for transportation, agricultural work, and food consumption: food and transport improvements
  • bartering: trade was the first economic activity and it still exists to this day
  • monetary exchange: increased commerce activity previously limited by physical goods
  • boats: permitted inter-continental trade and population expansion
  • the furnace/stove: permitted geo-location expansion to the poles
  • banks: personal economic safety and debt to grease the economic engine
  • modern water purification: allowed population to explode further
  • modern four-walled shelter: drove significant exchange of wealth in building and filling the homes
  • printing press: education and advertising to drive commerce
  • steam, electric, and fuel-engines: transportation
  • the use cheap fossil fuels to power engines: powered engines and transport of people and commerce
  • electricity: powered machines, appliances, and light
  • light bulb: now humans could work beyond day light hours
  • telegraph: increased the speed of delivery of communication
  • trains: moved huge/heavy materials quickly
  • refrigerators: permitted the storage of perishable food
  • phones: rapid communication by everyone
  • the 40-hour workweek standard: humans jumped from 2 to 8 hours of work per day over time, drastically increasing economic output
  • automobiles: revolutionized travel and geo-location
  • the postal service: a service to transport goods
  • highway system: permitted fast, simple nation-wide transport of people/goods
  • planes: fast inter-continental travel
  • radio: more advertising to drive commerce
  • credit cards: improved ease of transactions
  • television: even more advertising to drive commerce
  • air conditioning: geo-location expansion to the equator (its impact is very underrated – how different would population patterns in the U.S. be without it?)
  • cheap global labor: why make stuff at home when you can pay someone across the sea 10% of the wages?
  • computers: storage of data without physical constraint
  • cell phones: rapid mobile communication
  • the internet: cheap transfer of data and information to everyone. Enhanced commerce activity

Did I miss anything?

Each of these inventions were the result of humans becoming more clever about how they could manipulate the physical world to the benefit of themselves and/or their fellow human beings. Each solved what their inventors deemed to be a human “problem”. The more recent the invention, the more refined the problem solved.

Over the millions of years of human history, most of these inventions came within the last 200 years. Each has created a sizable jump in economic activity. The inventions that have come within the last 100 years have driven the overall value of an increasingly complex global economy, jobs, and personal wealth.

Like a giant machine that needs the addition of new parts to mask a problem or continue running, the addition of each new cog has resulted in an increasingly delicate inter-dependent system.

A few examples of these dependencies include:

  • global economic dependenciesthe economy is dependent on the aforementioned inventions working
  • the economy and wealth not deteriorating from inflation is dependent on these inventions being powered by cheap fossil fuels
  • jobs are dependent on the continued growth of the economy
  • humans are dependent on jobs to buy stuff
  • the economy is dependent on government and people using debt to pay for stuff they don’t need
  • debtors are dependent on creditors offering credit
  • the economy is dependent on people buying stuff
  • the economy is dependent on people paying off their debts
  • the economy is dependent on cheap manufactured junk from overseas driving profit
  • investment returns are dependent on the continued growth of the economy
  • population growth and economic growth is dependent on the use and manipulation of resources (inventions)
  • population is dependent on food production
  • affordable food production is dependent on cheap fossil fuels
  • growth of the economy is dependent on either: a.) new inventions to drive GDP or b.) population growth to drive GDP

But what happens when:

  • the cheap fossil fuels used to power the inventions and food production become increasingly rare or run out?
  • the resources used to grow the population become increasingly rare or run out?
  • the population doesn’t grow or starts to decline?
  • governments no longer can pay their debt?
  • individuals can no longer pay their debt?
  • the cheap labor overseas catches up in wage equality?
  • people run out of money to buy stuff and pay off their debt obligations?
  • GDP stalls or starts an unstoppable decline?
  • there are no more significant inventions to drive the economy?
  • there are just too many of us to take responsibility, address, and fix the problems we’ve created?
  • humans get tired of feeling like they are nothing but commoditized labor?

You get:

  • greed
  • inflation
  • war
  • disease
  • famine
  • unemployment
  • gross income inequality
  • high turnover/dissatisfaction with work
  • personal debt
  • government debt
  • political corruption
  • currency manipulation/quantitative easing
  • shrinking or flat monetary wealth
  • environmental degradation
  • fear
  • deflation
  • and a slow reversion back to basic needs

Economic growth had a great run. But what more evidence do you need that we have peaked?

A new invention or two may come along to briefly lube up the economic machine, but it will only delay the inevitable decline.

You can see the trend against bigger, better, nicer, and more expensive everywhere around you. Deep down you know this. It’s partly why you are reading this very commentary right now.

Welcome to the new economy.

It’s already been here for a while. And it’s not going away.

The more extreme it gets, the more basic skills and meeting basic needs will be valued.

Three things to ask yourself:

  1. Am I financially/physically/mentally/psychologically/spiritually in position to succeed against the challenges the new economy will throw at me?
  2. Do I have the right skills to fall back on today, 5 years from now, 10 years from now, or even 20 years from now?
  3. If I don’t have #1 or #2, what is it going to take to get me there?

We all have some work to do.

Believe it or not, I’m kind of looking forward to it.

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I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


12 Comments »
  • Mark says:

    Decline isn’t inevitable. Exponential growth cant continue forever, but that doesn’t mean the flip side is decline – the flip side is equilibrium. Right now we live in a world where we have an expectation that the future will be better, or at least more technologically advanced. This wasn’t the case for the past 250,000 years or even 2500 years of the human experience.

    We’ll be fine.

    • G.E. Miller says:

      A future that only promises to be ‘more technologically advanced’ doesn’t seem too inspiring, or convincing (that we’ll be fine) to me. Technology is running out of room to drive the economy as it has for the last 50 years. Economic decline also is not necessarily a bad thing, either. “Growth is good” has never been questioned. Maybe it should.

      • Mark says:

        Well, it’s real easy for us to question whether growth is good from our positions of priviledge. Either case it’s not a question that anyone really gets to address. Growth will continue in one way or another regardless of how any individual feels about it. All of those dire predictions have a way of sorting themselves out…they’re predictable because human society has dealt with them just fine in the past. There’s no better system to tackle those problems than a modern democracy, and they will get dealt with when they reach a boiling point.

        But give technology some credit. 90% of the things we take for granted today were literally unimaginable a hundred years ago. The trend is still pointing towards accelerated technological advancement, by an increasingly educated and productive world population, so it’s a little early to start worrying about people running out of ideas. There’s simply no evidence for it.

        The only thing that can knock us back to the stone age or dark ages is thermonuclear war. Modern medicine can deal with a plague, and unless mars attacks, the global economy doesn’t face a alien/barbarian invasion.

    • G.E. Miller says:

      Economic decline is inevitable. Physics make it so. Infinite economic growth over time would require:
      a. infinite population growth
      b. infinite resources

      Neither are possible (at least on this planet). Economy will decline. It’s only a matter of when. I happen to believe that the decline in the U.S. and other mature economies like Europe and Canada has already started. The BRIC countries still have some room for growth. There may be a few minor incremental increases from things like renewable energy, but the days of huge growth have passed.

      Economic decline does not have to mean the end of humanity, either. I’m not a Doomsday believer. Just someone who thinks that maybe we’ve peaked and it’s time to come back down to earth a bit.

  • Aaron says:

    I just discovered your site fairly recently but I’m already intrigued every time you post something on economics. I majored in econ in college and I can tell you with certainty that academic or career economists would disagree with nearly everything in this post. If there is one thing that economists have faith in, it’s the ability of human ingenuity and technology to innovate and solve problems, usually at a lower cost than anyone ever dreams about. An example of this is in the book Superfreakonomics. In it, the authors acknowledge that global warming is real and evident, but they think that the true cost will be much lower than almost every projection due to human ingenuity and our ability to adapt and problem solve.

    That being said, I think my own beliefs fall somewhere in between that view and your own. I do believe that technology and innovation will continue to drive productivity over time, and breakthroughs will continue to occur in ways we can’t even imagine right now. Food will be grown not just horizontally, but vertically. As people get more wealthy, particularly in developing countries they will place a higher value on the environment and will find new ways to care for it, clean it up, and make it thrive. But I also realize that it is dangerous to put too much faith in ourselves and our own cleverness. At heart, we are all somewhat greedy and irrational, and not everyone will be as wealthy as they want. Society as it stands now, both in America and globally, is far too filled with inequality, and it cannot continue forever as it is now. That’s why I believe the role of policy is more important than ever, and we cannot thrive without the right leadership to make tough decisions.

    In short though I think this is an incredibly complex and difficult discussion to have, and you’re very bold to try and tackle it in one small blog post. That being said, I think you would find it very interesting to brush up on some economic theory. It is just that, theory, but I think it can provide a good context within which these discussions can be framed, and if nothing else you can find stuff to disagree with if you really do believe we are on a completely unsustainable path.

    • Steven says:

      All economic theory is based on past results. As the economy has only grown, economists have no reason to believe it wouldn’t continue to do so. Scholars are blinded by a relatively short history, no?

      It’s kind of like the stock market: past results are not a guarantee of future success.

      Our economy is dependent on resources to build stuff that people buy. Those resources are not endless. Eventually, you run out of resources. What goes up, must come down. Makes sense to me.

      • Aaron says:

        Actually, the more modern the economy gets, the less dependent on stuff it actually is. Over time as people get richer their demand for services increases disproportionately to their overall demand and their demand for goods.

        You are obviously correct that resources are not endless, but as they become more scarce and the price goes up, the incentive to conserve and recycle also increases from a financial standpoint. Recycling isn’t always profitable today, but as unrenewable resources become more scarce, the marginal resources become financially viable for recycling,

        If you’re talking purely from an energy standpoint, I actually work in that field and the trajectory over time is not even close to dire. Gas is cheaper than dirt right now as the market is flush with resources from shale gas/fracking. Oil and gas will continue to be weaned over time with new environmental regulation like the Mercury Air Toxics Standard and eventually a national carbon policy. I am absolutely certain that there will be breakthroughs in solar technology over the next 30-50 years, and wind will continue to expand as Americans grow comfortable with offshore wind farms, where the potential is the greatest.

        Like I said, I don’t completely agree with economists that we know exactly what we’re doing, but I think there is still lots of room for growth, and certainly room for growth from an equity standpoint, meaning getting more people out of poverty, if we make that a priority. I think it’s mainly the business cycle stuff that we really have no grasp on yet. Alan Greenspan and others thought they could eradicate the business cycle by studying the macroeconomy and manipulating currency, but there will always be bubbles driven by greed and folly and there will always be booms and busts. However, I do believe that long term growth will continue.

  • Leah says:

    Eh, like the other commenters, I’m not so convinced. Sure, the United States might have it’s own version of a Roman fall in the upcoming century(ies), but that doesn’t mean that the “modern economy” or the “world economy” as a whole will decline to the point of war, famine, and barbaric cicumstances.

    And if it does, the “skills” you need to learn are farming your own food and building your own shelter.

    • G.E. Miller says:

      I didn’t say we’d have a Roman fall, just that we’ve peaked. And the slow decline has begun. If you aren’t convinced, are you convinced that economic growth will continue forever? Why?

      And isn’t there already war (Iraq, Afganistan, Eastern Europe), famine (domestically and abroad), and barbaric circumstances (ever see videos of some of the Arab Spring dictators urging troops to fire on civilians?).

      • Leah says:

        I don’t think economic growth will continue at the clip it’s been going forever, but that doesn’t mean “inevitable decline.”

        Look at Japan’s “Lost Years”. From 1990-2010 Japan has been in gradual economic decline. They haven’t experienced anything like war/famine/political corruption/reversion to basic needs. In fact, they found are are still finding ways to pay off their debts, manage insolvent assets and create innovative technology for the world.

        To your last point, war, famine, and barbaric circumstances are the rule, not the exception. Check out this article from the Christian Science Monitor (http://www.csmonitor.com/2006/0830/p09s02-coop.html) that says,

        “Last week marked 1,000 consecutive days with no wars between nations anywhere in the world…This is the longest episode of interstate peace in more than half a century.”

        It’s from 2006, but you can assume that even those 1,000 days didn’t count if you’re considering non-war U.S. political conflict in the middle east.

        Similarly, in the history of humanity, there has never been a time without famine and “barbaric circumstances.” Ever.

        My summary is that, in the United States, we will never in our lifetimes reach the drastic doomsday picture you paint here (i.e we will never be subject to the same corruption and conflict as exists in the Middle East, we will never be as poverty-stricken and sick as those in Africa). We may be experiencing some of these outcomes in a small way right now, but you and I are still trucking along just fine. We don’t need a forever-growing economy to maintain the equilibrium.

        If, in the event that the ENTIRE WORLD collapses to where no country or business can meet anyone’s needs, no one has any resources at all, then we will revert to self-reliance, where I suggested that you should learn to farm and build your own shelter.

        • G.E. Miller says:

          Just to be clear, I don’t think I’ve painted a Doomsday scenario. A slow decline in economic activity that has and will continue to create conflict and economic/environmental/peace challenges is different than a drastic Doomsday chaotic event, which I don’t anticipate.

          I’m glad you brought up Japan, because the U.S. over the past 12 years reminds me of Japan – stall mode. It’s happening in Europe as well. Mature economies reaching their peaks. The pace of economic growth is not accelerated, it’s decelerating, and even declining in many cases. Once we all get our fill of new tech gadgets to drive the consumer economy, where will future growth come from?

          • Leah says:

            Growth creates conflict with greed and environmental degradation, decline creates conflict with the disparity between the rich and poor, inflation etc. It’s a moot point. Either one can be “bad” for someone and good for someone else. (Full disclosure, I work in institutional investing and see that forward-thinking people don’t need economic growth, dominant parties in Congress, or any other situation to make money, run business and thrive in their personal lives.)

            To your last question, slow decline in the post-industrial service-driven societies like the U.S., Europe and Japan is really a-ok, since we have rapidly growing industrial societies like Brazil, South Africa, China, Vietnam and others.

            After those countries emerge, developing countries like the South Pacific, Central America, Egypt, Eastern Europe etc. have tremendous possibility to contribute economic growth to our planet.

            In the ’50s, no one could have possibly predicted that the driver of consumer consumption would be tech gadgets like smart phones, tablet computers, etc. Similarly, we can’t put our finger on what the next “thing” will be…but I’m 100% sure that gadget technology isn’t the end of consumer-driven innovation.

            Every force in the world has an ebb and flow. Temperatures rise, temperatures fall. Countries rise, countries fall. Emotions are high, emotions are low. Economics not exempt. If there’s a “peak” so what?? There will be another peak. And another fall. Rinse and repeat.

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