This author has coined what is perhaps a very apt analogy - 'medeival economics'



(snip)"The free-market system is based on ever growing consumption regulated by the triangular relationship between Supply-Demand-Price: we may fix up to two of those variables, but never all three. So, what happens if the supply of essential goods goes into permanent decline? I define permanent decline as the condition where no matter how much you pay for a good, its total supply never increases but keeps inexorably decreasing with time. One common example is Peak Oil, but we may also think of food, metals, clean air and water, habitable land with temperate climatic conditions, etc.

It is obvious, to me at least, that orthodox free-market economics would go completely out of the window, since higher price signals simply won't create more supply. Out will also go fiat currency monetary policy, the basics of debt finance, pension accounting and a host of other modern-era economic principles we currently take for granted. Without preventive, enlightened intervention we may end up with a stagnant, command socio-economic system, something I call "medieval economics".

Naturally, I am not the only one thinking along those lines. Dozens of economists and thinkers have previously grappled with this idea (e.g. "The Limits to Growth", from the Club of Rome in 1972). You may also know that, as recently as the late 19th-early 20th centuries, the correlation between "growth" and "stability" was inverted, as could be seen in the relationship between stocks (growth) and bonds (stability). Price/earnings ratios were then extremely low (5-6x), whilst interest rates were tiny: stability and certainty of income were prized above all - not because people were "risk averse", but simply because there was little "growth" to be had by investing in company shares.

You may ask, "what does 60 E-Z payments for frying pans have to do with permanent supply declines?" As I said, my mind goes on tangents so I will try to explain my mental leapfrogs... If it takes a 60-month double loan for people to buy a cheap $20 item, then cash on hand is in short supply. Unencumbered cash (i.e. not from borrowing) is an excellent measurement of how much can be consumed right here, right now. Therefore, the current Price/Supply relationship for goods is such that Demand can only be covered by borrowing at ridiculous 60- month terms. And if that holds for frying pans, it also points to supply problems for more day-to-day, essential goods.

What can replace our free-market economics, if not a medieval throw-back? If we are smart, we should be thinking of regulated consumption and social cohesion, the very antithesis of the unrestrained free-market individualism that is in apotheosis right now.

After all, those $20 frying pans are made possible to us (even if with 60 payments) because the other 2/3's of the people on this planet can't yet buy them at all, but are willing to make them at a meager wage for export AND to provide the financing from their savings. What happens when this willingness goes the other way?"(snip)