Why the world will come to an end given the current state of economics.

The world is obsessed with GDP growth. In any given year, any developed country that does not have a positive GDP growth number starts obsessing with recession and either spend more (fiscal stimulus) or circulate more money (quantitative easing). This creates more buying power is injected, thereby creating more monetary transactions, which translates into a bigger GDP at the end of the year. Either way, the incessant pursuit of more is better will eventually lead to apocalypse for Earth. How so? Let us use a simple analogy to illustrate.

Say there exists a world in which gold was the sole resource of recognized value, and currently there exists only $100 worth of it. Assume at first there were only persons A and B who each had $60 and $40 worth of gold respectively. They decide that instead of carrying the gold around they would print paper money to represent it for trading purposes. The total wealth of this simplistic economy would be $100. If another person C came into this world, and wanted a share of this total wealth, he would need new gold to sell to either persons A or B to get them to part with their paper money.

Well, supposing person C did manage to discover a new nugget of gold acknowledged between the three to be worth $20. Perhaps person A ruled this little three persons world because he had the most money among the three. Being in control, he could then be in a privileged position to print another $20 worth of paper money and buy the new nugget of gold from person C. At this point the total collective wealth within this simple 3 persons economy is now represented by $120 worth of paper money in circulation instead of $100. In effect, the economy has grown by 20% given the injection of new valuable resources and the transaction that has taken place between persons A and C.

But this process of economic growth poses a few important issues:

1. Person A, being the ruler, had the privilege of "printing" new money in order to obtain the gold. What if person B had wanted it from person C instead? He would have had to give up $20 of the $40 paper money he had in exchange for the gold. Ultimately he can only buy up to $40 of gold with the amount of paper money he had, whereas person A could just print new paper money to buy new gold that emerges within the collective economy. Is it an unfair privilege or a right of rulers to create new wealth for themselves by printing new money to pay for assets? Perhaps it is a right; a sort of compensation for the responsibility of playing Indian Chief. Someone has to lead and govern. The new paper money person A printed represented a net increase in the collective wealth of this three person world. But in effect he has became richer simply by utilizing this privilege to create money in order to buy up newly discovered gold, which is the real thing of value, not the paper money. It would be more fair if the printed money went to C instead, to reward him for the discovery of new gold . This was the old scenario in the real world before fiat money was introduced. Today, the scenario described for person A is true. Governments can simply print paper money through central banks and buy up assets and resources from other countries. The real mechanics is of course a lot more complicated, but essentially the net effect is the same: money is created with no real assets behind it.

2. Under our simple illustration the world economy of persons A, B and C did fine as long as person A, the ruler, printed new money ONLY if new gold was introduced into the collective economy. What if person A got carried away with this privilege and instead rampantly print money without the injection of new gold into the collective economy? For example, one day he decides to print another $120 to buy the gold that B & C had. Unless B&C were complete idiots, they would demand $80 and $40 for their gold respectively in order to maintain the previous ratio of wealth between the three of them since there was now a total of $240 paper money in circulation. Enters the economic concept of inflation. This is why modern economists say printing money inevitably leads to inflation - because now more paper money is chasing after the same few assets. When total paper money is divided by the same assets in circulation, the price of each asset increases. Therefore, if person A wants to print more paper money to buy and own more gold and yet still keep persons B & C happy that their paper money is not being diluted in value, then he must ensure that new gold is being injected into the economy. Otherwise, two can always overthrow one with brute strength, the basest of human power. In history revolution usually happens when the wealth gap is too wide and/or there is oppression of the common people by the rulers. The real world now no longer runs on the gold standard, so when central banks prints more paper money it must eventually be backed by the production of new commodities or services that other countries would be willing to pay for. Otherwise the country's currency will depreciate, leading to domestic inflation.

3. Of course, the modern world with all its brilliant economists advising the just as brilliant politicians understands this simple economic concept. Hence, real GDP growth has to be sustained by real injections of new value into the domestic economy rather than simply printing more money or spending borrowed money. Otherwise, the country would suffer inflation and they (the politicians) would be voted out. So, with paper money no longer backed by gold, other resources of value will need to be injected to increase the total value of the collective economy to balance the equation out.

How then, does the real world in effect inject new resources of value to an economy to justify a continuous growth of wealth? By producing more goods and services in demand. However, production of more goods and services requires the supply of either commodities as raw materials for physical products or human labor for services. New commodities are derived from mother nature (discoveries of mineral assets or increasing agriculture), and higher birth rates or immigration increases the population and provide more labor for production of goods and services (let's leave the issue of productivity aside for the time being).

Let's expand the issue broader, and come to terms with the fact that humanity is constrained by the collective limitation of having to live on earth together. Mother nature has finite natural resources for us to exploit to create more economic value for consumption and thus growth of wealth, and increasing the human population to increase labor can only lead to more mouths to feed and hence an even greater demand for natural resources. If every country on earth wants to get richer every year, where will all the resources come from?

Of course, this is a broad simplification of economic mechanisms. But whether it is a three persons economy or a 7.5 billion one, a finite amount of natural resources creates the same problem and ultimate fate. Modern economics and politics teaches us that more is good, and hence all countries will relentlessly pursue economic growth year after year in competition with each other, and fight for the same finite resources that nature can provide. Even if the world learns to recycle everything effectively and create sustainable economies, the continuous growth of the human population will eventually overwhelm what earth can sustain and feed.

At heart the human greed for more is the root cause behind the ultimate doom that modern economics will eventually lead us to. If we do not save ourselves through a spiritual awakening that leads to more honest sharing and contentment between everyone on earth, then, as some optimists hope, technology will continuously bail us out by improving the productivity of human labor and yields from limited natural resources. If all else fails, some people even believe that we will probably advance enough in science to discover and exploit new planets before doomsday comes. Either way, we are simply dealing with the symptom and not the cause. 

But should science fail us, then the human instinct for self-preservation will take over in times of desperation or strong greed. In the past wars were fought to gain control of resources and people, enabling kings and kingdoms grow in wealth and power. Today, modern countries wage economic battles to control limited natural resources and talented labor to grow their GDP, thereby wielding more influence and power (while still quietly building military capabilities knowing that brute force is still the ultimate fall back in the assertion of power). Has human civilization progressed in 10,000 years of history? I think not…Are we eventually doomed as a species? Highly probable. Advancement in sciences is not without its side effects and human abuse. Again lessons from history. And again, the real cause of the problem is the ugly side of human nature.

The only real and complete solution is really for human beings to change our mindsets and understand that sometimes less is better and shrinking in material wealth isn't regression or a weakness. This isn't about becoming a tree-hugging hippy; it's just common sense and logic that the greed and ego in all of us refuses to acknowledge.