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Galbraith on Rising Resource Costs

Good piece from Mike Norman promoting Jamie Galbraith’s (another MMTer)  talk about the economic effects of resource peak and supply disruption. Galbraith cites the collapse of the USSR as an example of what rising resource costs can do to an empire.

Professor James Galbraith recently gave a  speech about the impact of rising resource costs for economic systems. The main thrust of the speech was that with the increase in the cost of resources (oil,minerals,food,etc.) business firms face the threat of diminished profits. Galbraith presented three possible scenarios in which firms attempted to deal with this threat to profits.

The first scenario was what Galbraith called the “Chinese Model”. In this scenario, Chinese firms continue to operate even though they regularly fail to make a profit. The support of the government banking system and the acquisition of a large number of long term resource contracts shields the firms from the trend of rising resource costs.

The second scenario is what I call the ‘Green New Deal”. Here, the approach is to adapt to a world of rising resource costs. A concerted effort to use/develop lower-cost resources (alternative energy) and increase efficiency results in the preservation of both firm profits and societal living standards.

The last case is the darkest and the one I fear is transpiring before our very eyes. Firms actively resist Schumpeter’s creative destruction and instead put the onus of rising resource costs on workers. They do this by capturing/incapacitating government and dismantling the social welfare system.

Judging by the austerity wave traveling through Europe and the war on unions and government intervention in the U.S., it is evident that Western firms have chosen to declare war on workers and statism. The questions that immediately spring forth in my mind are: will they succeed and if so,what comes next? (link to article)

Posted in News, Resilient Investment.

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