What if the World Stopped Shopping?
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today's episode 413. It's titled, What If the World Stopped Shopping?

I recently finished two excellent but sobering books by two Canadians. The first was by energy analyst Václav Smil, titled How the World Really Works. It was a detailed book on the magnitude of the energy and fossil fuel consumption.

The sheer scale of the numbers he shares, and it's very, very detailed in terms of numbers. I realized in reading the book just how difficult reducing carbon emissions is going to be. The second book is titled The Day the World Stopped Shopping by J.B. McKinnon. He's a Canadian journalist, and it was really a thought experiment on what would happen if the world indeed cut its consumption by 25%.

It would not be pretty, which brings up a huge conundrum. On one side, we really do need to reduce the amount of carbon entering the atmosphere in order to mitigate the impacts of climate change. On the other, in doing so, we could destroy the global economy by reducing the amount that we consume.

Smeal, in his book, points out that there's been a 60-fold increase in the use of fossil fuels during the 19th century and then a 16-fold increase in the 20th century.

Over the past 220 years, the world has used 1,500 times more fossil fuels. And that's been an incredible benefit to modern civilization. It's allowed billions to escape poverty. It has made our lives so much easier.

An individual today has 700 times more useful energy available than an individual at the beginning of the 19th century. Even since World War II, the rate of energy use in the world has tripled.

Physicist Robert Ayers wrote that economic system is essentially a system for extracting, processing, and transforming energy as resources into energy embodied in products and services.

We use fossil fuel for many, many things. Lubricants, asphalt, fertilizer, plastic, electricity generation, steel, cement. The annual global demand for fossil carbon is 10 billion tons a year. That's five times more than the amount of grain grown in a given year. It's twice as much water that's consumed by the

by the world's 8 billion inhabitants. We use a lot of carbon and we consume a lot of things.

In the U.S., the population is 60% greater today than it was in 1970. But we consume 400% more than we did back then, 500% more since 1965. With those types of numbers, trying to reduce the 37 billion tons of global carbon dioxide emissions from fossil fuel consumption, trying to get that to net zero,

Smeal points out, would be an energy transition unprecedented in both pace and scale. We've talked a lot about on the show about the energy transition with electricity, but electricity is only 18% of final global energy consumption. Most energy use is for making things or making things used to make things. So steel, cement, the

The sheer amount of energy used to transport food, to package food, to market food, even in terms of energy sources. In the U.S., 80% of the primary energy supply is from fossil fuels. In Japan, it was 83% in the year 2000, but by 2019, it was 90% of their primary energy sources are from fossil fuel.

It's not easy to reduce usage of fossil fuel because it is so embedded in the economy. It's highly embedded in the agricultural system. We discussed how much more efficient food production is today versus 100 years ago. And a major component of that is ammonia used in synthetic fertilizers. And that ammonia, much of that ammonia comes from the hydrogen used in that comes from natural gas. So

We use fossil fuel heavily in our production of food, and that has reduced starvation around the world. Smeal writes, certainly the affluent world, given its wealth, technical capabilities, high level of per capita consumption, and the concomitant level of waste can take some impressive action.

and relatively rapid decarbonization steps. But that's not the case with the more than 5 billion people whose energy consumption is a fraction of those affluent levels, who need much more ammonia to raise their crop yields to feed their increasing population, and much more steel and cement and plastics to build their essential infrastructures.

McKinnon, in his book, mentioned the Global Footprint Network, which is an environmental organization that measures the ecological resources used in terms of how many Earths it would need to provide those resources. In other words, humans use 1.75 Earths today in terms of the resources. It's not a sustainable level.

McKinnon writes, according to Global Footprint Network, humankind is now consuming 2.7 global hectares per person on average. This is the size of our ecological footprint, and it is 170% larger than the planet can provide for over the long term. One hectare is two and a half acres.

Americans, though, their ecological footprint is eight global hectares, much, much, much greater than many areas around the world. There are some countries that are consuming at a sustainable level, essentially one Earth's worth of consumption. Cuba, Sri Lanka, Armenia, the Dominican Republic, Philippines, Jamaica, Indonesia, Egypt, and Ecuador. Their average consumption

purchasing power per person is much less, about $11,500 compared to over $60,000 for the U.S. And I think about that. Lepro and I, in 2018, attended a Mayan wedding ceremony in a remote village in the Yucatan. A friend invited us, and we were in this casita that was dimly lit, one light bulb, I believe, some candles, and just looking around the interior of that hut,

hut effectively. Way, way less stuff. Now, in their case, I suspect they were consuming less than the earth's resources. But could you imagine cutting your expenditures and your lifestyle to where you live like the average Cuban? Having been to Cuba, I have some sense of what that's like, and it would be very, very different.

McKinnon points out, in some regards though, that lifestyle isn't that much different than many of us lived in the 20th century, where we rarely went out to eat, only occasionally, wore hand-me-down clothes. Growing up, many of my clothes were for my cousin, took very few vacations. I remember only two vacations we took growing up. And in a typical day, you just didn't spend any money. We live very different today. But if we actually cut consumption,

it would not be good for the global economy. Since World War II, there's only been four times when global carbon dioxide pollution fell. We remember the most recent time in 2020 during the pandemic shutdown. The skies were clear. You couldn't hear airplanes in the sky because no one was flying. The amount of commuting was significantly reduced. So 2020. The other times were the mid 80s, the early 90s,

And 2009. 2009 was during the Great Recession, and the early 90s was when the Soviet Union collapsed.

When that occurred, there was effectively in the Soviet Union a demodernization. Consumption fell 25%. Laszlo Vara, who's a former chief economist at the IEA, at the time when the Soviet Union collapsed, he lived in Budapest, Hungary, behind the Iron Curtain. He grew up in the 80s. He remembered watching Star Wars, drinking Coca-Cola, and was nearly as free as other Westerners.

But when the Soviet Union collapsed, one in every five individuals lost their jobs in Hungary. And under communism, the energy was free. But suddenly, individuals had to pay for their energy, and many were basically warming their house by firewood.

People were out selling their things in the street in order to raise money. One Russian student said, this is not a free market, this transition in the Soviet Union, this is a flea market. Half the people were living in dachas, country houses. In 1992, 92% of the nation's potato harvest came from these gardens at dachas, even though they represented only 2% of Russia's agricultural land.

Laszlo Varro said it was an exceptionally serious social and political shock. This is not the type of climate policy that has any political viability. Nobody, nobody would want to do this intentionally, this cutting of consumption. It might happen to you, but you don't want to live in one of those states.

The same thing occurred in Finland during the same time. This is a democratic nation, and they suffered tremendously because the Soviet Union was their largest trading partner.

Harvard economist Robert Barrow looked at other times where there's been what's known as a consumption disaster. That's what it is when consumption drops. It occurred during Europe and Asia during the Second World War. Consumption declined 54% in the Netherlands, 64% in Greece, 68% in Taiwan. In the U.S. in the last 150 years, there's only been two consumption disasters.

One was in 1920 after World War I. There were federal cutbacks and consumption dropped 15%. And then during the Great Depression, consumption dropped 21%. We didn't see any level of that type of consumption drop during the Great Recession. Why is it when we get a consumption drop, it leads to economic disasters?

Canadian economist Peter Victor models these things out. He has very elaborate models and he was trying to model the impact of a 25% reduction in consumption. And he said what this brings out, the modeling he did, is why policymakers attach so much importance to rising consumption. Everything.

Everyone's income derives from someone else's expenditures. If we all cut expenditures, then incomes go down. There are major hazards in deliberately and dramatically slowing the rate of growth.

Recall that GDP, gross domestic product, is the monetary value of what is produced, the value of the goods and services produced. And GDP is estimated based on what is spent by households and businesses. That's one way to estimate GDP. Another way is to base it on income households and businesses receive.

A dollar spent from someone is someone else's income. So if households spend 25% less, then household and business income falls by 25%. Companies cut back. They produce less. They lay off workers. And we can get this downward spiral because laid off workers don't spend as much money, which means you have less money flowing through the economy.

Aswath Damodaran, a professor of finance at Stern School of Business in New York, said, if tomorrow's consumerism dropped by 25% worldwide, you're going to get a spiraling down where millions are going to lose their jobs. It would be an incredibly painful adjustment period where people are going to have to live with a lot less across the board. What do we do then? We live in a society where there's a great deal of carbon usage.

We're incredibly fossil fuel dependent. When we have drop consumption, and a simple rule of thumb is spending equals carbon. When we spend more, it contributes to climate change through the carbon dioxide that is produced in providing that good or service. We're over-consuming the planet's resources, but if we cut back, then we'll have a depression. Before we continue, let me pause and share some words from this week's sponsors.

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Jen Say, who's a senior vice president and chief marketing officer at Levi's, has thought a lot about this, as has their corporation. She said, but as we started studying this even more, this conundrum that we're talking about, we realized that simply consuming less has the greatest impact. It's great to convince consumers to buy thoughtfully, but really the biggest impact we can have is to convince them to buy less.

And that's kind of a radical notion when you think that as the marketing leader, my job is to get people to buy more.

In August 2020, though, Levi's began to share messages about buying fewer longer-lasting clothes. They launched a platform to buy back and resell their clothes. Sade continued, I do think during the quarantine, people came to understand that our actions have consequences. If we drive less, the air clears. You can't avoid the fact anymore that the greatest impact is overconsumption.

You can do all you want to greenwash or even to make these modest steps forward in terms of how you make your product, but it won't overcome the impact of overconsumption. It just won't. That's the fact of the matter now.

This idea of buying fewer better things is one way out of this conundrum because GDP isn't a measure of how many things are produced. It's based on the value of what is produced. So if we buy higher priced goods and services, that will sustain the economy, but it would have less of an environmental impact.

I thought about Levi's because I recently, at a vintage store, purchased a Levi's jacket that was made in 1969. It's beautiful the way that it has aged, the patina. And I've been spending time stitching it where the stitches have come undone. I've used sashiko thread. Purchasing that jacket contributed to the economy in the sense that it helped

the store owner, the shopkeeper. He was happy the jacket went to a good home, but he also earned a very good fee from that because the jacket's really rare, so I paid up for it. We could pay more for goods that last longer.

David Enos, he's a material scientist at Sandia National Laboratory, wrote,

But the costs start going higher and higher. Nobody wants to spend $5,000 or $10,000 on a phone and say, hey, this phone's going to last 10 years. Most people are like, well, that's great. I don't care. I want a new one after two or three years.

I ran into this recently. My iPad that I've had since 2018, I use heavily to read newspapers, read books, and to deliver this podcast. I have the iPad right in front of me. It dropped and the screen cracked. I have never cracked a screen on an iPad before. I didn't have insurance on it because I never dropped my iPad. But I did this time. It would cost $650 to repair the screen. And it's four years old, so the battery is...

isn't as good. So then I had to decide, all right, do I pay $650, close to $800 if you include the battery service, or do I buy a new one for $1,200 that's upgraded to 5G service, has a faster chip, better battery, and then sell the old one for $300? I bought a new iPad, and I felt guilty about it. Things don't last forever, and I knew the older iPad wouldn't. But if we

consumers started to value things that lasted even longer. And I keep iPads and phones longer than I ever have. But there's a trade-off, this idea of planned obsolescence. If we always want the cheapest thing, then the goods aren't going to be made as well, and they won't last as longer, and we get in this vicious cycle of consuming, consuming, and consuming. In fact, back in the 30s, this was a big concern. If we make things too good, then there won't be...

a need for the factories, and then they won't have jobs for workers to make the replacement goods. And this is that tension that's always been there. How good of stuff should be made? How long should it last in order to keep the economy moving? And now, obviously, we have the whole environmental impact assessment.

Another interesting concept in this book was what's known as the rebound effect. If we actually cut consumption, then that can lead to economic savings, but then oftentimes we'll go spend that somewhere else, called re-spending. And they give the example of

a television that's cheaper, it's more efficiently made. And because it's cheaper, that actually leads to perhaps a direct rebound, more sales of more television. Or people take the money they saved and they spend it on other goods and services. Or there can be economy-wide rebound effects where cheaper television leads people to buy more television. So then how

households, each family member is watching a different program in a different room, which leads to the creation of more content and there's the economic impact of that.

That's where this gets so complicated. Certainly just cutting consumption isn't enough because often there's these rebound effects. So it seems to me at a personal level, the most important thing we can do is to seriously think about what we're buying and buy nicer stuff, buy nicer things, better things, higher quality things, pay for higher quality experiences so that overall we're still having customers

The same economic impact, but a lower environmental impact. If we do that, we could value the things that we have more dearly. We wouldn't reject materialism. We would actually just value, have a deeper relationship to the things that we have. The Levi's jacket, the vintage Levi's jacket, I'll keep that the rest of my life.

I like to fix things like that. I don't mind stitching clothes, if they're high quality to begin with, to continue to extend their lives. That's what we can do from a personal standpoint. Keep what we spend, the amount, the same, but buy fewer higher quality things.

From an economy-wide perspective, and I'm not an expert by any means on climate change, I keep coming back to a carbon tax that seems to be the way forward across the economy so that if we actually price carbon as it should be, then market forces and innovation will lead to...

solutions that we could actually hopefully reduce the amount of carbon entering the atmosphere. Because when you go through Smil's book, then the numbers are just, in some ways, it's discouraging. It's just like, there's no way that we'll ever get the net zero by 2050. The technology is not there yet. The battery capacity, the level of consumption is increasing. And there are billions of people still in poverty that want to upgrade their lifestyles.

So I feel like at least as an individual, we have a responsibility to be very mindful in our consumption to make room for others in poorer areas that want to upgrade. That seems fair. But a carbon tax seems like that would be a much better solution than some type of top-down solution. This would be more, I mean, obviously the carbon tax is top-down, but the innovation would come from bottom-up.

I don't know. It just, again, it was somewhat of some discouraging books, recognizing the numbers and recognizing even just cutting consumption across the world. That would have the biggest impact on climate change, but it would also move us dramatically backwards in terms of our lifestyles. It's an interesting paradox. We'll see how it evolves. That's episode 413. Thanks for listening.

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Everything I've shared with you in this episode has been for general education. I've not considered your specific risk situation. I've not provided investment advice. This is simply general education on money, investing in the economy. Have a great week.