Sunday, March 20, 2011

Economic stability and geologic transients..

Some 7 billion people or so populate nearly every corner of the planet in a scheme where (most) people spend their time and effort working in some way in return for money to exchange for things they need and want to buy. Using this basic framework for a somewhat cooperative society, its remarkable what humankind has accomplished over the last few thousand years. Our economic and social patchwork of a system has evolved into an amazing machine that allocates human resources around the globe to research, invent, manufacture, build, distribute, educate, feed, supply water, clothe, house, transport, cure, entertain, administrate, protect, destroy, and fill all the purposes that contribute to our standard of living. Almost no one is self-sufficient, but we all contribute in some way. By freeing up people from daily survival tasks it enables specialization of skills and efficiencies and provides a stream of innovation that make the technological advances more available to all. Man-made technology, not evolution, has enabled our species to propagate exponentially in this period. It isn't a perfect system, more like a Rube Goldberg machine, but it works more or less.

Until a major cataclysmic event. The kind with devastation so enormous society can't really prepare for it. Think major earthquakes, volcanoes, meteors.. With our complicated high tech modern global economic system, the shock waves to the economy will wreak havoc long after the seismic waves dampen out. The global economy barely feeds us all as it is. If there were to be a major disruption in a supply chain and valuable resources became scarce and expensive, it would increase costs and leave people at the fringes vulnerable to losing what meager lifeline they had. What happens when the supply ships with humanitarian aid quit arriving every week?

We have had some very damaging regional disasters in the past century in which many thousands of people have died and entire cities were wiped from the map, but none of these spread an economic contagion that dragged the global economy down with it. We've been lucky in some ways. The comet/meteor? that exploded over Russia in 1908 leveled some 800 square miles, but luckily it was a very remote area.  The Tunguska Event.  This explosion was compared to 1,000 times the nuclear bomb dropped on Hiroshima. If something of this size were to strike a major metropolitan area now, the toll could easily climb into the millions and send the entire global economy off the rails in its wake. No spot on the globe is immune from the destruction of a major geologic event. None of the 7 billion people are truly "safe".

What is unfolding in Japan in the wake of the recent earthquake and tsunami would have been strictly a local issue 100 years ago, but not anymore. The disruption to supply chains in various industries and the full impact of the disaster in Japan will take weeks to comprehend. It is difficult to gage how much of an economic contagion the global economy will be exposed to or how long it will be until all operations are back online. Of course there will be some price drops in commodities that Japan won't need as much of for a while like petroleum, and that will help consumers elsewhere somewhat.  There will be economic disruptions far beyond Japan due to the impact on currency exchanges, the reduced economic activity and damage to operations supplying high-tech components to other businesses worldwide.  Just be glad it wasn't anything close to another Tunguska Event over Shanghai or NYC. Humans would survive, but I'm not so sure our big machine would.


  1. Economic stability plays an important role in avoiding economic crisis. Economic stability is also defined to avoid large swings in economic activity such as high inflation, and excessive volatility in exchange rates and financial markets.