The Economic Hunger Games

Tyler Durden's picture

Authored by Paul Donovan of UBS Global Macro,

The Hunger Games trilogy of books (and rapidly expanding film franchise) is set in a dystopian future of depleted natural resources, with humanity clinging to survival in the wake of unspecified environmental apocalypse. The Capitol governs what remains of North America, with its citizens enjoying a lifestyle redolent with material possessions - albeit often financed by debt. Meanwhile the populations of the Districts toil in dangerous conditions, generally without basic political rights, to provide the Capitol with the consumer goods that its citizens demand. The parallels to modern society are not stretched too far here. Substitute the OECD for the Capitol and a number of emerging markets for the Districts, and we are viewing the world today reflected back from a distorting mirror as a grotesque image of modern reality.

The environmental credit crunch

The challenge faced by humanity today is the unsustainable nature of modern living. This is all about credit – but about environmental credit. The world is consuming finite resources at an unsustainable rate. An example is using tomorrow’s standard of living to raise today’s standard of living (if you heat a house by burning a barrel of oil today you raise your living standard, but you can not burn that barrel of oil tomorrow, and so deny yourself that standard of living in the future). Borrowing future standards of living to enhance current standards of living is all credit is about. Here the currency is energy (or water resources, or industrial metals) rather than financial credit – but the consequences are essentially the same.

The strains of the environmental credit crunch are already visible in the global economy. Food riots, discussions of fuel poverty, export restrictions for key resources, debates over resource security – these are all manifestations of the same thing. For the first time in perhaps two generations the availability of resources might turn out to be a constraint on economic growth.

The financial credit crunch

The heroine of the Hunger Games trilogy was basically a free market economist with archery skills (most heroes and heroines turn out to be economists in disguise). One of the points of the books was to demonstrate that humanity can adapt to the constraints placed upon it. Human ingenuity leads to the more efficient use of scarce resources.

There is a caveat. Most human ingenuity requires investment. That can be investment in education. It can be investment in capital. The heroine of the Hunger Games needed both training and a bow (capital equipment) to adapt to and innovate. In the modern world, efficiency tends to require financial credit to fund the investment required. Financial credit is not necessarily the only condition, but it is a big part. Consider agriculture: economic and environmental efficiency can be achieved through upgrading agricultural infrastructure (introducing GPS to fertiliser application worldwide could save huge amounts of energy and reduce nitrogen pollution substantially).

This is where the true damage of the financial credit crunch may come in. As humanity faces up to an ever more virulent form of the “economic problem” (finite resources and infinite desires), the challenge of providing a solution to that problem will undoubtedly involve investment. The financial credit crunch limits the availability of that investment, and raises the cost – itself a further form of credit rationing.

Wrong time, wrong place

There is a risk of a double protectionism coming into place at the same time. The protection of natural resources, in particular food and energy resources, is driven by political expediency. Throughout history, populations have responded strongly to threats to food and energy supply, and the political bias to seek autarky in these areas is understandable, if regrettable. With China’s pig population due to fall ill again soon, with extreme weather changing harvest yields, and with energy poverty an increasing reality in many parts of the developed world the drive towards autarky is unlikely to diminish. This is now accompanied by a protectionist threat to the globalisation of capital flows. With government debt burdens increasing, and with the cost of capital also rising, governments are seeking to retain what capital they have within their own boundaries (naked protectionism that is often characterised by the euphemism of “financial repression”).

We therefore have an increased demand for capital to tackle the environmental credit crunch, but a reduced supply of capital because of the financial credit crunch. Investment is needed in those areas of greatest environmental stress (generally those with the least economic development), but more and more barriers are being put in place on the free movement of capital. A global problem is at risk of being overwhelmed by the forces of economic nationalism.

This is hardly an optimistic note on which to conclude the year, and we should not become too depressed. There are some grounds for optimism. Innovation can occur as an unintended consequence of other actions (the use of GPS in agriculture is a good instance). The lower trend rate of global growth may slow resource demand and delay the full force of the environmental credit crunch until such a point as human ingenuity can contain the problem. On the other hand, the most important characteristic, as the Hunger Games indicates, is the ability to adapt and change in the face of changing circumstances. Politicians tend not to be so good at doing that.

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CH1's picture

The entire system is corrupt and irredeamable.

Best to let it crash

CH1's picture

If you really think self-sufficiency is death, go suck up to any big man you prefer, but leave me alone to live as I prefer.

trav777's picture

stop spamming this sh!t.

I live in the capital, fools...I will enjoy eating your crops!

TwoShortPlanks's picture

"An example is using tomorrow’s standard of living to raise today’s standard of living (if you heat a house by burning a barrel of oil today you raise your living standard, but you can not burn that barrel of oil tomorrow, and so deny yourself that standard of living in the future). Borrowing future standards of living to enhance current standards of living is all credit is about."

TwoShortPlanks Fri, 07/06/2012 - 20:22 (You've Seen It Before, And Here It Is Again: "The Chart That Tears Apart The Stimulus Package")
I wrote: "for the past 20-30 years (especially the 15 years pre-GFC) the western world and some sectors of the emerging economies, have lived beyond our means, and (temporarily) brought forward a standard of living we were meant to enjoy 30-50 years into the future. The natural advancement of standards of living and wealth creation are (should be) as physically real an event as the purification of physical metal from the earth ie. it takes time, manpower, energy and intelligence to extract and purify something in the ground into something we can use, or store as assumed value. There is no magic in that, there is no circumventing time, energy and knowledge (fact and natural law)...So, the real issue here is that paper money can act like a Time Machine, actually, more like a Virtual Particle where, time and energy can be circumvented for a brief period, and the fruits of labour and energy can be artificially and magically emulated, but then the natural balance of things must be restored. This is true for the economy as well as the physical universe in which it resides. During the 20 or so years before the GFC we effectively brought forward a future lifestyle and wealth epoch into the present day, but now that balance must be restored."

Is this coincidence, or am I getting through to someone?!

Seer's picture

I've been there for a long time now...  It's good to see other folks on the same road.

BTW - You CAN circumvent time.  In essence that is what energy does- it speeds up a more natural rate of things.  But, I suppose that what you're really meaning is that there is no NET gain when all is said and done and measured (unless you close the window of observation before the eventual decline and reversal goes into effect).  Also, money isn't so much a time machine as it's a means whereby we can justify short-term "gains" (we're only in to marble counting so we attempt to obtain as many marbles as possible).

TwoShortPlanks's picture

Yes, I think everyone's getting a pretty clear picture as to what is happening...before too long some of those Economics books will need some additional chapters.

My use of 'Time' was purely metaphorical. I wanted to show a specific attribute of the universe, that there's no such thing as a free lunch and then relate that back to steady wealth creation as opposed to instant [fake] wealth via the printing press (when credit expansion exceeds economic growth).

Yes, sub-atomic [virtual] particles jump forward and backward in time as part of their nature HOWEVER, and it's a big however, there is a tendency to proceed forward by virtue of the second law of thermodynamics (something I wrote about years ago).

What I wanted to draw simile to was the deficit created when doing so (energy, money, whatever), in that although there seems to be a bit of leeway given, it must be filled eventually. Holding-out makes matters far worse and far more violent when the clock strikes 12.

Yes, there’s no NET gain. Everything must be earned. Much like: Energy cannot be created nor destroyed; it may only change from one form to another. Creating wealth the old fashioned way is sustainable, creating wealth through the refining of ore into Gold is sustainable too....but printing money from nothing is showing itself to be akin to digging a hole in the future. The GFC was us falling into our own hole, and cannot get out.

I also wanted to show how the production of Gold into the financial economy prevents the digging of those holes (prevents standard of living time-travel).

TwoShortPlanks's picture

"You CAN circumvent time. In essence that is what energy does- it speeds up a more natural rate of things"

Energy and rates of change?...I think you’re talking about Special Relativity, in which case it would be Energy and apparent change.

I don't believe Time Travel exists and nor will it ever exist. I believe only that Time Dilation (SR) is possible, but that's not Time Travel at all, and when you boil it down (both Time Dilation and Lorenz Contraction), it’s merely a contradiction in observations about simultaneity (like Parallax Error is merely a contradiction in observations about measurement).

If you want real Time Travel, you need only arrange all the particles in the universe to positions and states which match an earlier or future period...which is impossible!

Relating this back to the thread: The manufacturing of 'positions' and 'states' within sectors of the global economy is exactly what they are attempting to do. They brought forward a future standard of living to today. It is unstable. Now, they are trying to rearrange and support all the failing parts to form a stable reality; have their free lunch...and it is failing, miserably. The forces behind the rebalancing of the global economy are not economic, they’re fundamental to the entire universe…so I say, good luck!

This global economy will eventually collapse as it should not, cannot, and will not exist in its current state. Mathematical inevitability must be allowed to correct the anomaly, an anomaly which we created. Fighting this correction process is like fighting the tide; Tidal Forces due to the mere existence of a moon creates the tide, not the water, and you cannot make the moon vanish, so failure is inevitable.

DCFusor's picture

But incomplete.  Sure, the hugest percentage of borrowing is to live beyond one's means (or one's company or country's means).  But you could also start a productive business....just that hardly anyone does.  That's why we created this wonderful stock market - a way to borrow money you never have to pay back...Just get to IPO and you win.

francis_sawyer's picture

Yeah ~ You could start a 'productive' business [like making Chevy Volts]... Have one idiot buy one, channel stuff the rest of them, then put the US taxpayer on the hook for the rest where you bail out the company & divest of the shares at a 50% LOSS a month after you got the UNION vote secured...

What a great country!

ForTheWorld's picture

There's only one truly necessary area where productive businesses are required, and that's food production. Not Mac & Cheese type food, but fruits, vegetables, herbs, spices (if you can grow Saffron, it's worth more than Gold by weight) and livestock for meat and dairy production. If you can do it in a sustainable way that provides consistent, high quality produce, you'll never run out of customers.

Seer's picture

Um... you're missing the entire point of this article.  What the article is trying to introduce to those who may not yet get it, is that this is a PHYSICAL world, and that our economics is really based on the PHYSICAL world- along with that massive credit expansion that we undertook was the increase in extraction of PHYSICAL resources.  Not only did we borrow from the virtual world (debt), we borrowed from the PHYSICAL world: both actions are claims on the future.  We're so caught up in the virtual that we have lost track of the PHYSICAL; and when it's the PHYSICAL, not the virtual, that keeps us alive, well...

When ever anyone says "productive" I've got to ask what is their definition.  The financial folks think they are "productive."  Folks building bombs to blow up others believe they are "productive."  I look around and I don't see that we've done a very good job understanding opportunity costs.

slaughterer's picture

"Hunger Games" is just a watered-down, PG-13, Americanized (lobotomized) version of the true masterpiece (from Japan) "Battle Royale" provided here in full length for your viewing pleasure:

trav777's picture

does it have PC overtones like our movie did?

busted by the bailout's picture

Gotta call BS on this one. 

 1.  The problem now is not a financial credit crunch.  We are up to our eyeballs in liquidity.  The problem is excess capacity and too little demand causing a dearth of good capital investment opportunities to make.

2.  “As humanity faces up to an ever more virulent form of the “economic problem” (finite resources and infinite desires), the challenge of providing a solution to that problem will undoubtedly involve investment.”  Desires are not the same as needs.  The problem is too many desires, not too few resources.  We can live sustainably if we choose to.

3.  “An example is using tomorrow’s standard of living to raise today’s standard of living (if you heat a house by burning a barrel of oil today you raise your living standard, but you can not burn that barrel of oil tomorrow, and so deny yourself that standard of living in the future). Borrowing future standards of living to enhance current standards of living is all credit is about.”  No, we are not borrowing from the future; we are using what is most economical now, and we will use something else later:  solar, natural gas, electricity, wind power, wave or hydroelectric, geothermal,  coal, wood, nuclear, methane, plant ethanol.  Some are finite resources; some are not. 

4.  Etc.


Seer's picture

"We are up to our eyeballs in liquidity.  The problem is excess capacity and too little demand causing a dearth of good capital investment opportunities to make."


The biggest players, the financials, are plenty liquid?  Where are you pulling this from?  My take is that they are sucking all available "credit" to plug the holes in the reserves.

Can't push on a string.  Can't force people to buy/spend.  People are BROKE.

Ever wonder if the "capital" that's out there is becoming worth less and less when it comes to the fact of PHYSICAL realities?  "Investments" are virtual concepts that are dying on the virtual vine.  No, there's no significant returns on investment anymore because the planet isn't coughing up resources like it once did and people are BROKE (and demographics have us all aging).

I look around and the planet that you and I are looking at don't be the same.

Vashta Nerada's picture

I see a different future, one where the people in the capitol are wearing chains, and those in the hinterlands enjoy a more prosperous life.

cougar_w's picture

History responds that you are incorrect. But think what you like.

Spastica Rex's picture

What did the Western European world look like before explosive growth, before the Enlightenment, and before liberalism (the classical definition: unregulated markets, individual liberty, and rational thought)? That's a lesson of history that I think will be quite instructive.

Flakmeister's picture

There was a very good reason why it was called the Enlightenment...

Colonial Intent's picture

There was a time when religion ruled Western Europe, it's called the dark ages.

otto skorzeny's picture

yeah-The Renaissance sucked-idiot

malek's picture

The Renaissance was when the religion rule was started to get thrown off-idiot

Flakmeister's picture

Be easy on him, it just hasn't been the same since that Il Duce thingie...

JR's picture

The Declaration of Independence was a declaration of war. The signers knew what their fate would be if the Revolution failed. They literally pledged their lives when they signed their names. Americans have reaped the benefits from the liberties for which these men risked so much. Many again will chose the risk of fighting to retain these liberties for their fellow man.

This is the inscription above the churchyard grave of Abraham Clark (1726-1794) New Jersey, 14th signer for independence:

“Firm and decided as a patriot, zealous and faithful as a friend to the public, he loved his country, and adhered to her cause in the darkest hours of her struggles against oppression.”

Seer's picture

Not sure if the DC folks will be wearing chains...

If anything, one can stay that the country provides for life: cities don't, they have to import from the country.  Enjoy?  Prosper?  It's tough.  It will, however, likely beat the alternative.  When faced with reality it starts becoming more obvious:

80miltrustfundkid's picture

I heard a rumor an algo is about to shitstorm the sheep. just a rumor

Boilermaker's picture


Just buy the Russel 2K! Look at her just levitate at will every day!

That'll buy alot of corn meal!!!

the mad hatter's picture

this is why corporations are hoarding cash and the fed is trying to devalue it as fast as possible. it's an uncertain future ahead of us and everyone should be stashing resources like squirrels. what the fed is doing is devaluing the dollar to get people to spend it now.

be smart and instead of hoarding dollars, hoard precious metals.

Bag Of Meat's picture

In times of great inequality and extreme monetary crises the black markets rise, and guess what: they dont care about the "fair prices", and they send the relative prices sky high. You might be sitting on top of a mountain of gold, but the black markets are still going ask all of it for a loaf of bread. If you find the prices relative to gold too high, what are you going to do? Eat it?

Seer's picture

My wife and I "produce" food.  She does bake bread, though for our own use.  If there is extra and we need fuel for the tractor I suppose that we'd trade for some PMs to help facilitate the purchase of what we really need (if a direct barter isn't possible).

Cursive's picture

UBS allowed this to be distributed?  It more or less questions the underpinnings of global finance.  Hmm.

GottaBKiddn's picture

Paul Donovan writes as if hunger was a classroom project, and has the attitude of one who has much on his dining room table. Given that the people in his profession are stealing at an increasing rate, and evading prosecution, that dining room table might be in jeopardy.

LawsofPhysics's picture

The mis-allocation and mal-investment of capital and resources is apparent in the growing "financial services" sector which is now over 35% of the GDP in America.  Remind me, what product of real value do these paper-pushers produce again?


I remain long black markets, trustworth neighbors/employees, tradesmen, and any physical asset that these fuckers can't devalue.

gjp's picture

Bang on LoP +1

In fact, not only do they provide no real value, they subtract from value through the misallocation of capital that you refer to.

CH1's picture

I remain long black markets, trustworth neighbors/employees, tradesmen, and any physical asset that these fuckers can't devalue.

I often disagree with you LoP, but I'm fully on-board with this.

cougar_w's picture

There are 7 billion people in the world. Most of those came into place during an era of abundant energy (fossil fuels) that made food production and transportation easy, and created other enhancements to life such as modern hospitals and education. Those 7 billion will not be sustained at peak oil (where we are now) and let's not talk about what happens when the oil production rates start to actually drop.

The world can probably support 2 billion humans, given access to water, healthy farm land and conventional fuels like wood. These being in turn the product of the solar output from the sun.

What happens to the other 5 billion is hard to say. My guess is that over the next 50 years they work themselves to death trying to be among the 2 billion that end up inheriting the planet from the techno-utopians.

catacl1sm's picture

Not enough wood for 2 billion people. Wood availablity weas becomeing a problem in Europe at the advent of fossile fuels. Fossile fuels kept what had become a resource problem from manifesting.

cougar_w's picture

Ah. Well there will be a lot of fiat paper to burn. Maybe that will make up the difference.

Flakmeister's picture

A Jackson has the same BTU content as a Benjamin though....

ebworthen's picture

Soylent Green.

A dried out body would probably burn pretty well too.

malikai's picture

The fatter the better. You can turn them into diesel and minerals too, if you so desired.

Thermal Deploymerization.

BlueCollaredOne's picture

I read somewhere that you can turn peoples fat into soap as well....

Yen Cross's picture

Nasty, the whole lot of you! ;-)

A Nanny Moose's picture

Hey. First rule of Project Mayhem, bud.

Vashta Nerada's picture

Malthus said something similar 200 years ago, though his numbers were much smaller.  The fact that the sustainable number is increasing faster than petroleum reserves says something.

Flakmeister's picture

For one last time, reserves do not matter, flow rates do...

Does having $10 million in a trust that pays you $1000 a month make you rich?

Vashta Nerada's picture

Flow rate is dependent more upon price than technology.