Economics After the End

Eliminating 80% of the demand will hurt the economy, to put it mildly. The drop in demand will result in an immediate drop in prices of everything that is bought and sold. Prices of food and other perishable goods will drop greatly, but the prices will rebound, because supplies will need to be replenished regularly, but durable goods do not need frequent replacement. Production machinery will eventually need to be replaced, but that won’t be for years, which may lead to other problems. The biggest effect will be in Real Estate, which has an even longer useful life than machinery, and residential real estate outlasts people.

Manufacturing and distribution After the End There would be major problems for the economy and society, but it would create huge opportunities for the people who would remain. The biggest problems would relate to mismatches between needs and people and things available, but there would be surpluses of many kinds of goods for a considerable time.

We can expect that the distribution of goods would stop for some time, and it probably would take some time before the transportation sector settled into the new reality. There might be piles of goods in some places that were needed in other parts of the world. The matter of transporting energy products would be a mess for a short time, but in a few months the extra wells would be shut down, and shipments would be rerouted to get crude oil and LNG to places where it might be useful.

The drop in real estate prices will be the big thing that will kill the banks. Banks will be hurt by the drop in clientele, but when trillions of dollars in collateral will become mere millions of dollars’ worth of collateral, and the loans will default, so the banks will have to simply give up and walk away, instead of the borrowers walking away. To make things even worse, there will not be enough new borrowers to make up for the losses. But don’t mourn too much. The banks have been gambling for thousands of years, and they nearly always win, and there will be new banks that will take up where the old banks ended.

One interesting and related development will be that currencies and sovereign debt will also fail rather dramatically. The U.S. will default on its sovereign debt for the first time, and there will be no way to avoid the default. With the loss of 80% of the U.S. population the drop in tax revenue will be proportionate. The demands for Federal money will also drop, but just doing the basics will be all that the Feds will be able to manage; debt service will be out of the question. The international complaints about this and other sovereign debt defaults will be barely noticeable, because all countries will default. At present most currencies are backed by sovereign debt rather than hard assets, but that might change.

There isn’t enough precious metal in the world to back all of the money, but the demand for money will drop after the pandemic, and there might be enough precious metal to cover the demand that pertain to that era. That doesn’t make a huge difference, but it will be one of the oddities.

The collapse of the banks, currencies, and so on would make international trade impossible for a time. It is impossible to determine how long that paralysis would continue, but it probably would not be long, because there are always to make a deal. Put this paralysis together with lower demand, and we probably will see a long-term reduction in international trade. It simply won’t make sense to have so many things produced in other countries when the economy of scale will have disappeared. The cost of transportation probably will change relative to the cost of production, but it is impossible to tell by how much. Then there is the question of how large the labor pool will be in countries that are presently doing production; will there be enough people to provide for local needs and to produce large amounts for export? In the case of China it is likely that there won’t be enough people available, but there might be in other countries. In India, for example, the biggest difference might be that there just won’t be as many people, but the economy is well diversified, and the labor force is reasonably flexible. Parts of sub-Saharan Africa would also see little change except in population. Western Europe and the U.S.A. would see major changes to the society and government structures. I can’t imagine what would happen to the Russian economy.

Putting all this together, we should all plan to take up substance farming at tree the end. It will be a good idea for people to take up raising some of their own food; although most things will be available through commercial channels. Within a few years there probably will be a good market for specialty foods and for fine wine and other luxury items.