It’s not just me. It’s probably you, too. Have you noticed that it’s starting to be hard to just…get stuff? If you’ve tried buying a car lately, you might have observed that even used car prices have climbed to relatively astronomical levels. The same is beginning to hold true for good after good — from electronics to energy. What’s going on here?
I have some bad news, and I have some…well…worse news. We’re at the beginning of of an era in economic history that’ll probably come to be known as the Great Inflation.
Prices are going to rise, probably exponentially, over the course of the next few decades. The reason for that’s simple: everything, more or less, has been artificially cheap. The costs of everything from carbon to fascism to ecological collapse to social fracture haven’t been factored in — ever, from the beginning of the industrial age. But that age is now coming to a sudden, climactic, explosive end. The problem is that, well, we’re standing in the way.
Let me explain, with an example. I was looking for a microphone for a singer I’m working with. I was shocked to read that a well-know German microphone company had just…stopped making them. And furloughed all its workers. It didn’t say why — but it didn’t need to. The reason’s obvious. Steel prices are rising, and they’re going to to keep rising, because energy prices are rising. Then there’s the by now infamous “chip shortage,” chips they probably rely on, too. Add all that up, and bang — you’ve got an historic company suddenly imploding.
I’ve heard story after story like this. Small or medium sized companies just…shutting down. They can’t get raw materials. They can’t afford the raw materials they can get. In either case, bang, it’s game over — for the foreseeable future. It’s not just a microphone company — I’ve heard similar stories in industries from medical devices to auto parts to technology. So far, this is just anecdotal — precisely because it’ll take a year or two for the quantitative data to reflect it. But we don’t have to wait that long to see what’s right before our eyes.
The economy is undergoing a profound shock. Unfortunately for us, it’s going to be one of the largest shocks in economic history. It’s a “supply shock,” as economists formally call it — perhaps the greatest of all time. No, I’m not exaggerating. The world can’t get microchips right about now.
A “supply shock” means, in this case, supply itself suddenly implodes. A city’s, town’s, country’s, or in this case, a world’s.
Let’s think about that microchip shortage. What’s it really about? Well, there are three factories in which the majority of the world’s chips are made. Three factories — each hit in a different way. The one in Japan caught fire due to an equipment malfunction — apparently the blaze took hours to put out because of the conditions. The one in Texas was hit by an historic snowstorm, which knocked out power for days. The one in Taiwan is being affected by the worst drought in half a century — and microchips require huge amounts of water to manufacture.
These are all effects of climate change. They might not be the kinds of monocausal direct effects climate change deniers and American pundits look for — the hand of God roasting a factory alive — but they are very much caused by living on a rapidly heating planet. It should be eminently clear to see that when factories are freezing and burning, that is what climate change does to an economy before your very eyes. (And even if you think the Japan fire had little to do with global warming, the face of the matter is that without climate change, two of the world’s largest chip factories would still be open.)
The “chip shortage” is something that the world doesn’t really grasp yet, in its full importance and magnitude. It is the first climate catastrophe related shortage to hit us at a civilizational, global level. In a world of stable temperatures, guess what, we’d probably still have microchips to power our cars and gadgets and AV studios, because factories wouldn’t be losing power or be so parched they don’t have enough water. But they are — and so we do have a microchip shortage that has been caused by climate change, aka global warming.
That’s the first such catastrophe, but it won’t be the last. The chip shortage is just the tip of the immense shockwave rolling down the volcano. It’s just the first burning rock soaring through the ash-filled sky. Today, it’s chips. Tomorrow? Well, some of the things that are already becoming more and more costly to produce are steel, food, and water. That is because all those things rely on energy, and energy is getting more expensive.
Why is energy getting more expensive? The short-term answer is: Covid. Gas producers are hesitant to turn on the taps because they’re afraid that Covid will send the world into lockdown again. But that’s not the real answer. The real answer is that even if they begin to produce more gas, energy prices will go on rising over the long run.
Why? Because right about now, energy is vastly underpriced, like it has been since the beginning of the industrial age. When you buy a gallon of gas, who pays for the pollution, the carbon it emits, which heats the planet? Right about now, nobody does. But over the next few decades, someone’s going to have to. Because we are going to need to use that money to rebuild all the cities and towns and systems and factories wrecked by flood and fire and drought and plague.
Who’s that somebody going to be? Well, it’s probably not going to be energy companies. It’s probably going to be you, since they’re powerful, and you’re powerless.
As the price of energy rises, the price of everything has to rise, too. Because the dirty truth is that our civilisation is still about 80% dependent on fossil fuels. The problem isn’t the electricity grid, as you might think. It’s that making things like steel and cement and glass still use gas. The world has just one fossil fuel free steel factory so far. But our civilisation depends fundamentally on all these things. Without them? We go back to living medieval lives. All our steel and glass and concrete skyscrapers, factories, universities, cities, towns — kiss them goodbye.
What’s made in all those factories which are still ultimately made of by fossil fuels — of steel, cement, glass? Everything. Everything you rely and depend on. Cars, clothes, medicine. The stuff that clothes and feeds your kids. The stuff you “work” on and are tasked with buying and selling. See how deep this rabbit hole really goes?
All that adds up to the prices of everything rising. For how long? For the foreseeable future. At least for a generation or two, I’d say.
Now let me tell you the story that might help make it even clearer, and I’ll put it a little bit more formally.
From the beginning of the industrial age, our economy has “externalized” costs. Costs like what? Costs like carbon. Like the plastic that’s now jamming up the oceans, of cleaning it up. Of the misery and despair that poverty breeds — the political costs of fascism and supremacy, which rear their heads in times of poverty. Of ecological collapse.
How have we “externalised” those costs? Who have we externalised them to? Well, to “future generations,” economists once used to say. All the people who’d have to clean up the oceans and the skies and replant the forests and nurture the animals back to life. And do all that while figuring out ways to make things like steel and concrete and food and glass without killing the planet we lived on, or pushing our societies into fascism by way of inequality. Big job? Biggest in history.
Guess what? We are those “future generations.” The ones economists used to speak of, like it was in some remote future. It wasn’t. We don’t have much a choice left. We clean up the oceans and rivers, beginning now, or we ruin them for a millennia or two. That means killing off fish we eat and water we drink, too. We clean up the skies — or we don’t breathe. We decarbonise how we make stuff — or we don’t have it.
And that is what the Great Inflation really is. Let’s begin with the last point. We have to figure out how to decarbonise basics — steel, cement, food, water, how to make without destroying the planet. We don’t know how. Until we figure it out, prices are going to rise — prices of everything made in factories made of steel, largely still powered by fossil fuels, using raw materials made in other factories powered by other fossil fuels. That’s everything you can think of, from cars to clothes.
We have to figure out how to perform a Great Cleanup, too — cleaning up the oceans, skies, rivers, mountains, rainforests. Then comes a Great Replenishment. We have to replant the forests and nurture the animals and nature — biotic matter — back to life. We have no idea how to do that — we haven’t even begun. Until we do, prices are going to rise, because, well, nature’s underling a mass extinction, the first man-made one in history.
Remember when I said this was the greatest supply shock in history? Now you should be able to get why a little bit. What even comes close to: “we’re annihilating nature so fast we’ve caused the first human-made mass extinction”? Now that’s a supply shock: we’re making nature extinct. Of course prices of everything dependent on it are going to skyrocket, because we’re running out of the supply.
Or let’s come back to decarbonising steel, cement, glass — all the basics of industrial production. Until we do figure it out, all that stuff is just going to keep on getting more expensive. Sure, there’ll be a dip here and there, but the basic principle remains: making that stuff poisons the planet at an accelerating rate, and it’s going to cost more and more to produce, manufacture, distribute, and sell.
That’s not just because of carbon taxes, but for a deeper reason.
Making, producing, distributing, buying, selling the basics of civilisation the dirty way that we do causes climate change — and climate change is trying to teach us a lesson. Climate change is made of fire and flood and typhoon and plague. See the feedback effect? Good luck distributing that batch of steel when there’s a megaflood or megafire in the way. Good luck getting that supertanker full of clothes and gadgets to the right shore when a megatyphoon lasting a month and wrecking a coastline hits…all winter long. And good luck when Covid-21 hits, because, well, we haven’t vaccinated the planet, so it’s sure to — and there goes the economy all over again.
I can put that more simply: the costs of mega floods and fires and typhoons and droughts and plagues now have to be internalized, because the costs of carbon, natural extinction, poverty, ill health, inequality, were all externalized. But these are asymmetrical effects. These costs were externalised for centuries. They will have to be internalized over decades.
See the problem? The huge timescale difference? We’ve been externalising the costs of carbon and natural extinction and inequality and ecological collapse since the beginning of the industrial age. But now we have to internalise them over the next few decades — or its light out.
Human civilisation has never faced the wave of inflationary pressures it does now. It has never had to internalize centuries of externalities over decades — because if someone doesn’t pay those costs, well, then, there is more civilization, no more glass, steel, cement, medicine, factories, clothes, electronics…no more clean air, water, food…no shelter from the megafire or megaflood…and good luck having democracy or rights then.
Someone has to pay for all that. That leaves three parties. One, you and me, average folks, living average lives. Two, megacorporations. Three, the billionaires who own them. Good luck getting them to pay up. It’s a noble effort, don’t get me wrong. But if you ask me realistically? So far, there’s an effort to make global tax rates…15%. LOL. So far, they pay zero, which means you and me are going to have to pay for it all — climate change, mass extinction, ecological collapse, probably while they jet off to Mars.
You’d better prepare for the greatest inflationary wave in human history. It’s going to be really bad. This is just the beginning. It’s going to be a lot like Covid, or climate change — harder, faster, and much, much worse than anyone really thinks right about now.
Umair
October 2021
