One question that really interests me is "How real is the economy?"
We get these GDP numbers. But then we find that GDP includes things like the cost of litigation, medical care, and an entire list of things that are not really productive--things that don't create wealth. For a number of years I had speculated that if one only counted real, productive economic activity, then the economy of China was probably pretty close to that of the US.
Recent revelations of "ghost cities" and overbuilding in China have forced me to reconsider. After all, is a phantom economy any more real because it involves real things? Building homes that people wish to buy is one thing. Building entire cities that you wish people to move to (irrespective of what they want) is something altogether different.
This is an old chart but still interesting, from a presentation delivered in 2006 by Jan Haggstrom, who was at the time Chief Economist for Handselbanken Capital Markets.
It is a comparison of global GDP and global demand for copper and zinc, all scaled to 100 in 1949.
We see world demand for copper and zinc tracking the growth in world GDP until the mid-70's, right about the time of the first oil shocks. Then GDP continues to grow at a nice exponential rate, but there is a growing spread between metals demand and GDP growth.
That growing spread is a consequence of the exponential growth of both. Here is the same chart on a semi-logarithmic scale.
There is a slight slope-break at about the time of the oil crisis, suggesting that reported global GDP growth has been slower than it was prior to the oil crisis. But metal demand is growing at a slower rate.
There are two competing explanations for the failure of metal demand to keep pace with GDP.
The first is that GDP is no longer a good indicator of true economic activity, if by economic activity we mean those activities which create wealth. In this scenario, government reporting agencies have changed the definition of terms that make up the GDP in order to make the economy appear better than it truly is, possibly to keep their populations happy.
The second explanation is that the demand for metals is naturally reduced with increasing GDP; or there is a shift in demand for metals from copper and zinc to steel, aluminum, or others. There is some basis for believing metal demand to fall with increasing GDP, as societies shift to a post-industrial state. However, the collapsing infrastructure in the US and other developed countries shows that the metals are still needed, but they may not being used. Additionally, the populations of developing countries are obviously not in the post-industrial stage, and their populations are greater than the developed countries.
I am afraid that the first explanation fits the data better, and we are all a lot less wealthy than we like to imagine.
We get these GDP numbers. But then we find that GDP includes things like the cost of litigation, medical care, and an entire list of things that are not really productive--things that don't create wealth. For a number of years I had speculated that if one only counted real, productive economic activity, then the economy of China was probably pretty close to that of the US.
Recent revelations of "ghost cities" and overbuilding in China have forced me to reconsider. After all, is a phantom economy any more real because it involves real things? Building homes that people wish to buy is one thing. Building entire cities that you wish people to move to (irrespective of what they want) is something altogether different.
This is an old chart but still interesting, from a presentation delivered in 2006 by Jan Haggstrom, who was at the time Chief Economist for Handselbanken Capital Markets.
It is a comparison of global GDP and global demand for copper and zinc, all scaled to 100 in 1949.
We see world demand for copper and zinc tracking the growth in world GDP until the mid-70's, right about the time of the first oil shocks. Then GDP continues to grow at a nice exponential rate, but there is a growing spread between metals demand and GDP growth.
That growing spread is a consequence of the exponential growth of both. Here is the same chart on a semi-logarithmic scale.
There is a slight slope-break at about the time of the oil crisis, suggesting that reported global GDP growth has been slower than it was prior to the oil crisis. But metal demand is growing at a slower rate.
There are two competing explanations for the failure of metal demand to keep pace with GDP.
The first is that GDP is no longer a good indicator of true economic activity, if by economic activity we mean those activities which create wealth. In this scenario, government reporting agencies have changed the definition of terms that make up the GDP in order to make the economy appear better than it truly is, possibly to keep their populations happy.
The second explanation is that the demand for metals is naturally reduced with increasing GDP; or there is a shift in demand for metals from copper and zinc to steel, aluminum, or others. There is some basis for believing metal demand to fall with increasing GDP, as societies shift to a post-industrial state. However, the collapsing infrastructure in the US and other developed countries shows that the metals are still needed, but they may not being used. Additionally, the populations of developing countries are obviously not in the post-industrial stage, and their populations are greater than the developed countries.
I am afraid that the first explanation fits the data better, and we are all a lot less wealthy than we like to imagine.
The rise in the use of plastics could be the reason for the drop in metal usage.
ReplyDeleteThat may be part of the answer--but plastics can't replace copper.
ReplyDeleteCopper can be replaced by cheaper aluminium, production if which skyrocketed in 1970s. The use of plastic as a replacement for coating things with zinc has been mentioned already.
ReplyDelete