Thursday, May 11, 2017

Apocollapse Now

I may have missed it, but in my twelve years as a cost analyst for the Department of Defense, including the highest level of certification from the Defense Acquisition University, I never once heard of Baumol's Cost Disease. Nonetheless, the late William Baumol was famous for his discovery of how the cost of services rises implacably while the cost of goods decline. Cost analysts could be spared much consternation through this principle, but it also clarifies the situation for the man on the street.

When you look at the declining productivity gains over the past few decades, much of the slowdown can be attributed to this "disease," wherein more and more employment has shifted away from manufacturing and into services. Manufacturing processes are more easily automated than most service jobs, so the shift to large-scale, centralized manufacturing has improved efficiencies and profits in that sector.

From Albert Bates at The Great Change
I have built my projection of our economic future on the concepts in The Limits to Growth, which, at this point in our catabolic collapse would begin to exhibit a remission of the cost disease, i.e. as we retrace the stages of our rise to the information age, we will revert to more manufacturing employment, albeit on a more local, less automated level. This regression will make the price of goods rise at a rate comparable to the price of services.

The changes coming to manufacturing also apply to farming, since our farming is almost all conducted on factory farms nowadays. The graph that tells the story of the world's predicament has appeared here before, but looking at the details of when peaks occur in food production, then other industrial output, and finally services per capita shows the order in which we should expect to see prices rise. Even now, we are seeing the price of food rise faster than inflation. Those rising prices, first in food and then other manufacturing, will attract more entrants into the production sectors. Entrepreneurs start locally. Most of those new businesses will not easily scale as they will struggle with the same growth limiting forces that gave them an underserved niche in which to launch their business.

A retrenchment from globalism will drive much of this return to small scale. The current administration's overt and inadvertent dismantling of trade and foreign relations will facilitate this retrenchment. In that respect, their steps and missteps will aid the transition to localism. There is a difference, however, between localism and nationalism. Old Blowhard promotes the latter, but has no interest in the former. Additional steps must be taken with respect to commerce that will foster localism in order to keep employment up and pollution down as we revisit industrialism and later descend into agrarianism.

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