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Why the World Economy Hasn’t Collapsed… Yet.

Dominos falling. Image credit: Charl Folscher via Unsplash

It has become more or less common sense that some sort of an economic meltdown is on the horizon. Inflation is soaring while consumers struggle to pay their bills around the world. Yet, despite all this, the world economy is still supposed to ‘grow’ this year… What is going on here? What is happening in the background?

Energy is everything

Before we unpack where we are headed, it is very important to understand the basics. Rule no.1: Energy is the most important input to our economy. In fact, energy is the economy. Without it our ‘machines become statues and our workforce turns into a corpse’. Contrary to modern beliefs though, it cannot be substituted: every energy source has it’s own place in the economy. Thus

energy price increases act like an additional tax burden: you have no other choice but to pay them, or go bust.

The problem is, at least for growth obsessed governments, that we have most probably reached peak oil extraction in 2018, and natural gas is about to be peaking soon. Any lost fossil fuel ‘production’ from this point (due to wars, accidents, embargoes, political turmoil and so on) will lead to further price hikes and volatility in all areas of our lives.

The problem is, for the rest of us, that we have built a civilization entirely on fossil fuels, and despite spending more then half a century on developing alternatives, like nuclear, solar and wind, we only fell deeper into our fossil fuel addiction. We are burning more fuel, and as a result, release more CO2 and methane year after year, with 2008/9 and Covid providing nothing but a short pause.

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