Brace for rapid changes in the economy; the world economy is reaching Limits to Growth
The world economy is at a major turning point, which is why we should brace for rapid changes in the economy. The world is moving from having enough goods and services to go around, to not having enough to go around. The dynamics of the economy are very different with not enough to go around. The hoped-for solution of higher prices doesn’t fix the situation; after a point, adding more buying-power mostly produces inflation. Other solutions are needed. The world economy is reaching what has been called “Limits to Growth.”
Economies throughout the ages have grown until their populations grew too large for resource availability. Researcher Peter Turchin has studied the general pattern of overshoot and collapse scenarios. The chart shown in Figure 1 is based on analyzing eight such cycles in the book Secular Cycles. The fossil fuel age began over 200 years ago, and it now seems to be reaching its end.
I doubt that President Trump thinks in terms such as secular cycles or overshoot and collapse. But tariffs and government cutbacks engineered by the Department of Government Efficiency (DOGE) seem like they might be approaches that will allow the world economy to contract in a way that could be helpful in keeping the collapse from taking place excessively fast.
In this post, I will try to explain the situation further. The issue we are facing is really a physics problem. Governments can print money, but they cannot print resources, especially energy resources. Our bodies are accustomed to having a certain amount of cooked foods in our diets. This, by itself, encourages population growth and eventual overshoot of the resource base. The self-organizing system somehow chooses its own downward path, not falling further or more quickly than necessary, under the Maximum Power Principle. This is what we are encountering now.
[1] In physics terms, the economy is a dissipative structure. Dissipative structures are self-organizing structures that require energy to grow but are only temporary.
The universe is filled with dissipative structures. Humans are dissipative structures, as are all plants and animals. Hurricanes are dissipative structures, as are star systems. Ecosystems are dissipative structures. All these things are temporary. Even economies are temporary, but no one tells us this detail.
The kind of energy that is required varies with the dissipative structure. Green plants use sunshine. Animals require plant or animal food. Humans have evolved to eat a mixture of cooked food and raw food. While a few raw food enthusiasts can get along using a blender to break up food into small particles, the general pattern is that our modern brains require the nourishment that cooked food can provide. Thus, humans need both food and some type of fuel for cooking at least a portion of the food. Fuel is also helpful for heating homes, ridding water of pathogens, and providing transportation.
Many things that we think of as man-made are dissipative structures. Governments are dissipative structures. Governments grow and often become too expensive for their citizens to support. The energy governments use is indirectly obtained through the use of taxes. A little of the energy used by the governments is purchased directly by governments to power their vehicles, and to heat and light their buildings.
Much more of the energy required by governments is indirectly consumed. For example, a portion of the taxes collected goes to pay public officials. This pay is used for things the public officials use, such as food, transportation, and housing. All three of these things require energy at many places in their “lives.”
- Food – Sunshine to grow; oil to cultivate and transport it to the store; electricity for refrigeration; natural gas or electricity for cooking; human labor for many tasks.
- Transportation – Fuel to make the metal and other materials used in making the vehicle; human labor to construct the vehicle; fuel to operate the vehicle.
- Housing – Diesel to prepare the lot where the house is built; energy of many kinds to create and transport materials such as lumber and wiring; human energy to put the pieces together; electricity for lights after it is built; natural gas or electricity to heat the home after it is built.
In fact, every part of GDP requires energy. In some cases, this is “only” human energy. Of course, human energy requires food, some of it cooked (or broken into tiny pieces with an electric blender).
Businesses in general are dissipative structures. So are international organizations of any kind. Cities seem to be dissipative structures. Religious organizations are dissipative structures. Any organization that seems to grow, pretty much on its own, is a dissipative structure.
[2] If the energy sources needed by a dissipative structure become scarce, this can badly disrupt the dissipative structure.
Hurricanes that pass over warm water tend to maintain their strength, but if they go over land, they quickly dissipate. If an animal is deprived of food, it will become weak and eventually die. If a government is deprived of revenue (and the energy sources that this revenue indirectly buys), it will no longer be able to provide the services it has promised. It may default on its debt or collapse.
[3] Many dissipative structures seem to be programmed to eventually go downhill and collapse, even when plenty of energy seems to be available.
Obviously, running out of energy isn’t the only way a dissipative structure comes to an end. Most humans don’t starve to death. Instead, when humans get to be 70 or 80 or so years old, they lose some of their strength. They more easily succumb to illnesses. Other animals are similar. Tomato plants in our gardens seem to be more prone to infestation by pests after a month or two of bearing fruit.
[4] Even economies seem to be programmed to go downhill and collapse.
Economies have a problem with their populations becoming too large for available resources. For many years, it appears that added debt (money supply) can be used to temporarily work around a resource problem. For example, a dam purchased with debt may allow irrigation so more food can be produced for a given population.
The problem with this approach is that the benefits of added debt reach diminishing returns. At some point, an economy discovers that adding debt doesn’t add much energy supply; instead, it simply leads to inflation (and, indirectly, higher interest rates to compensate for this inflation). Also, for governments, the interest on debt becomes a greater and greater burden.
The US government seems to have reached the point of having too much debt. The US Congressional Budget Office (CBO) recently published this chart related to US debt:
US taxes need to keep rising, as a percentage of GDP, just to repay US government debt with interest. This is a path that can lead to hyperinflation. This seems to be the underlying reason for DOGE and the tariffs.
Adding infrastructure such as roads, pipelines, and railroads can be helpful in the beginning. The additional infrastructure enables new businesses to be built that make use of this infrastructure. Initially, the tax revenue from new businesses makes it easy to repay the debt with interest.
But additional roads, pipelines, railroads and other infrastructure are not nearly as helpful. They may add capacity, but they don’t materially change the transportation options. The tax revenue added is less.
At some point, simply maintaining and replacing all the infrastructure becomes burdensome. Adding debt for the replacement of infrastructure becomes burdensome because the new replacement infrastructure adds no new functionality. It just maintains the old functionality. The interest on the debt must come from somewhere, but it is not built into the system the way it was when totally new infrastructure was built. Today’s approach is simply to increase the debt level and hope that the revenue will come from somewhere else.
A related issue is that old factories tend to be less productive than newly built ones that benefited from the latest advances. This allows new factories (perhaps in another part of the world) to make goods in a more cost-efficient way. An older factory is likely to lose out in price competition against a newer, more productive factory elsewhere.
[5] The analysis of Turchin and Nefedov in Secular Cycles suggests that economies often go through the pattern shown in Figure 1.
Economies discover a new resource. Perhaps they have conquered a new land, and they have eliminated the old inhabitants. Or they have cut down trees, allowing more area for farming. At a given level of technology (and fuel for the technology), a given area of arable land can support a particular number of inhabitants. If the population gets too high, the size of farms tends to fall too low to support the farmers and their families. This pattern happens if families allow multiple sons to each inherit a share of the family farm.
Alternatively (and more likely), if the population gets too high, the younger sons don’t inherit any farmland. They start working in services and or on crafts of various kinds. But these alternatives to farming generally don’t pay very well. The many workers with low wages become less able to pay taxes, creating a problem for government funding.
As the population rises, wages of these lower-paid workers become increasingly less adequate to cover the necessities of life. With inadequate nutrition, populations become more subject to epidemics.
According to Secular Cycles, as these problems arise, debt is increasingly used to work around the problems. Slow population growth and increasing debt are characteristics of the Stagflation period shown in Figure 1.
Eventually, economies fail. Governments can fail due to a lack of adequate tax revenue or by being overthrown by unhappy citizens. Alternatively, they may lose a war against another country with better weapons (made with energy supplies). All governments, as dissipative structures, can be expected to eventually fail, one way or another.
[6] The world economy now seems to be headed on a path similar to that shown in Figure 1.
The world economy now seems to be reaching the end of the age of fossil fuels. I believe that the world first entered the stagflation era in 1973, when oil prices first rose dramatically. At that time, it became clear that oil must be used more sparingly. To help economize on oil, smaller, more fuel-efficient cars began to be imported from Japan and Europe. In some places, oil was being burned to generate electricity; this electricity could sometimes be replaced by electricity from nuclear power plants.
In the 1980s, added debt became more important. Companies were told to use “leverage” to become more competitive with producers around the world. Instead of fearing credit, it should be embraced. Computers were increasingly used, and world trade was expanded. World trade very much facilitated the production of complex goods, such as automobiles and computers, because it allowed a very wide array of raw materials to be used in manufacturing.
Figure 3 suggests that world trade stalled in 2008. There has been a slight downward trend since that date. With tariffs, world trade will likely fall more quickly in the future.
One of the underlying problems facing the world economy is the fact that major types of energy supply have been falling relative to world population for a long time. The high points seem to have been in 2004-2007 for oil, in 2011 for coal, and in 2001 for nuclear (Figure 4).
Middle distillates (diesel oil and jet fuel) are particularly important in world trade. Middle distillates are plentiful in heavy oil, such as that found in Russia, the oil sands of Canada, and Venezuela. Diesel is important for operating farm equipment, large trucks and ships, and construction equipment.
Middle distillates are in short supply because it is hard to get the price up high enough, for long enough, to compensate for the high cost of extraction, distillation, and transport. If the price of diesel rises much, the price of food tends to rise. Voters don’t like high food prices. This seems to be a major reason that both Russia’s oil exports and Venezuela’s oil exports are subject to sanctions.
Without an adequate supply of middle distillates, world trade needs to be scaled back. I believe that this shortfall is the physics reason underlying the push for increased tariffs. The fact that these tariffs are particularly high against China means that long distance transport across the Pacific Ocean will be scaled back. Shelves in US stores will increasingly lack goods made with Chinese inputs.
[7] Modeling of the overshoot and collapse problem has been done since the 1950s. A recent model suggests that world industrial output is likely to fall quickly, about now.
In 1957, US Navy Rear Admiral Hyman Rickover gave a speech explaining the importance of fossil fuels to the economy and to the military. He then explained that we could not expect fossil fuel extraction to last very long:
It is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account.
Much modeling has been done since that time. Researchers at Massachusetts Institute of Technology did a series of analyses which they published in 1972 in the book, The Limits to Growth. The most recent update to this analysis shows the following summary exhibit.
The 1972 model and its update both look at the world economy from an engineering point of view. The analyses ignore the roles of governments, debt, and many other things important to the economy. The original authors of the 1972 Limits to Growth analysis said that they didn’t have much confidence in the accuracy of their forecasts after the decline had begun because of the many omitted factors.
The disturbing thing from the 2023 analysis is that it shows industrial output dropping about now. This is what I would expect to happen if there is a big drop in world trade.
[8] The world economy is self-organizing. It doesn’t seem to depend on the actions of any one person or group.
The Universe keeps growing and expanding. Many people believe that the Universe spontaneously sprang out of nothing and began to grow. I believe that there was a Creator.
An intricate system of evolution is taking place, with new dissipative structures arising and old dissipative structures coming to an end. The dissipative structures that last are the ones best adapted to the Earth’s ever-changing environment at that time.
Somehow, the world economy (and other ecosystems) maximize the total output of each part of the system, under the Maximum Power Principle. This isn’t dependent on any one system being more efficient or working better than another. Instead, the world economy tends to maximize the total output of the system, given the energy supplies (and other resources, such as water) available. Thus, the world output of goods and services is unlikely to fall so catastrophically that it quickly wipes out most of the world’s human population. For example, if industrial output is limited, it may be concentrated especially on replacement parts for current machinery and on machines needed for food production.
The intricate nature of evolution and the many dissipative structures formed, together with the Maximum Power Principle, leads me to believe that the Creator is still active today.
It seems to me that the self-organizing economy utilizes whatever leaders are available. They don’t need to have good motives for their actions. It isn’t that Donald Trump is a better leader than others, or that his ideas, as promulgated, will take a hold. The system works through many leaders of various political parties. Each leader is somewhat replaceable by other leaders. The underlying physics of the system is what leads to the changes that take place.
Religions seem all to be created by the same Creator. They seem to have many functions, including binding groups together, teaching “best practices” regarding getting along within a group here on earth, and (when resources are short), fighting against other religious groups. Religious organizations seem to be part of the self-organizing economy, as well.
[9] What I see ahead.
(a) Recession seems likely, starting out as being barely perceptible, but getting worse and worse over time.
(b) World output of physical goods and services will begin to decline almost immediately. In particular, products manufactured in the US using inputs from China will become difficult to obtain, as will goods imported into the US from China.
(c) I expect that commodity prices will fall. Deflation seems more likely than inflation. If inflation does take place, I expect that it will take the form of hyperinflation, with central banks issuing huge amounts of money, but there not being very many goods and services to purchase with this money.
(d) I expect that many banks, insurance companies, and pension plans will fail. I expect that governments will not be able to bail them all out. If governments do try to bail out all these failing institutions, the result is likely to be hyperinflation, with not much to buy.
(e) Many governments have plans for digital currencies to replace the currencies we have today. I am doubtful that these plans will work. For one thing, intermittent electricity is likely to become an increasing problem. For another, government organizations, such as the European Union, the World Trade Organization, the World Bank, and the United Nations are likely to start falling apart. Even the United States is likely to become less “united,” or it may comprise fewer states.
(f) I do not see gold as being very helpful for the long term. It seems like small silver coins will be much more tradable in the future. What we will really need is food, water, and shelter. I expect that these will go mostly to workers producing these essentials, rather than to hangers-on to the system.
(g) A few businesses may do well. Figuring out how to produce food in quantity, locally, may be helpful. Converting unused buildings to shelters for poor people may also be helpful. Private “protection” services may also do well.
(h) The stock market provided great returns for US investors in the 2008 to 2024 period, but this cannot be expected to continue. A likely result is that returns will fall very low or will turn negative.
(i) Borrowing is likely to remain challenging, or get worse. Lenders will increasingly recognize the default risk. Some lenders may go out of business.
(j) Over a period of years, trade will change to be more local. The US will lose its status as the holder of the reserve currency. It will no longer try to be the policeman of the world.
[10] There are a lot of things we really don’t know.
The Creator may be creating a religious ending that we are not aware of. In fact, such an ending could come very soon.
Otherwise, dissipative structures are very often replaced by other dissipative structures. New economies may gradually grow up in different parts of the world. Perhaps the new economies will figure out new energy sources that we are not aware of, or make better use of declining energy types. According to Physicist Eric Chaisson, the long-term trend is toward more complex, energy-intense dissipative structures being formed.
“Societies” in Figure 7 seem to be similar to today’s economy.
Source: https://ourfiniteworld.com/2025/04/24/brace-for-rapid-changes-in-the-economy-the-world-economy-is-reaching-limits-to-growth/
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