General

The British "Economist" weekly website published an article entitled "The Problem of Shortage in the World Economy" on October 9. The full text is as follows:

In the 10 years since the financial crisis broke out, the problem of the world economy is lack of spending. Nowadays, as governments stimulate the economy, consumers are spending money lavishly, and spending has begun to increase substantially. The surge in demand is so strong that it is difficult for supply to keep up. With rising inflation worrying investors, the oversupply of the 2010s has given way to economic shortages.

The direct cause is the new crown pneumonia epidemic. The US$10.4 trillion global stimulus plan triggered a fierce but asymmetrical rebound. Consumer spending on goods exceeded normal levels, which has strained the global supply chain that has been lacking investment.

However, there are two deeper reasons for the economic shortage.

The first is decarbonization. The shift from coal to renewable energy has made Europe, especially the United Kingdom, feel the impact of natural gas supply panic. This week, this situation once caused natural gas spot prices to rise by more than 60%. The rising carbon price of the EU ETS has made it difficult for people to switch to other polluting energy sources. The high prices of transportation and technical components are leading to increased capital expenditures for capacity expansion. However, when the world tries to get rid of polluting energy, incentives for long-term investment in the fossil fuel industry are relatively lacking.

The second reason is protectionism. Trade policy is no longer based on economic benefits, but to pursue a series of goals, including the implementation of labor and environmental standards abroad and even the punishment of geopolitical opponents.

All over the world, economic nationalism is exacerbating economic shortages. The problem of the lack of truck drivers in the UK has been exacerbated by Brexit, and India’s coal shortage is partly due to its wrong approach in trying to reduce fuel imports. After years of trade tensions, since 2015, the proportion of cross-border investment by companies in the world's GDP has fallen by more than half.

There is no doubt that the deeper reasons behind economic scarcity will not disappear, and politicians are likely to end up formulating dangerously wrong policies. One day, hydrogen and other technologies will help improve the reliability of green power, but this will not immediately eliminate the shortage problem. As fuel and electricity costs rise, there may be a strong reaction. If governments cannot ensure that there are sufficient green alternatives to fossil fuels, they may have to relax emission standards and regress to more polluting energy sources to solve the shortage. Therefore, governments must plan carefully to deal with higher energy costs and lower economic growth rates caused by eliminating emissions. Pretending that decarbonization will bring about miraculous economic prosperity will surely be disappointing.

Economic shortages may also intensify the temptation of protectionism and state intervention.

The chaos in economic life often leads people to question economic orthodoxy. The trauma of the 1970s led to the rejection of big government and Keynesianism. The risk now is that pressure in the economy will lead to abandonment of decarbonization and globalization, with catastrophic long-term consequences. This is the real threat posed by the shortage economy.