Economic collapse

The Taiping Rebellion followed by internal warfare, famines and epidemics caused the deaths of over 100 million and greatly damaged the economy.[9]

Following Germany's defeat in World War I, political instability resulted in murders and assassinations of hundreds of political figures. (See: German Revolution of 1918–1919 and Kapp Putsch)

Germany's finances were heavily strained by the war and reparations in accordance with the Treaty of Versailles, leaving the government unable to raise enough taxation to operate and make war reparations. The government resorted to printing money to cover the shortfall, which resulted in major hyperinflation; one book on these events, which includes quotes and a few first hand accounts, is When Money Dies.[7] The hyperinflation ended in December 1923, with government debt being cleared at the cost of ordinary citizens' savings.

Some believe that the hyperinflation of 1923 helped fuel the eventual rise of the Nazi party, and the rise of Hitler to power in 1933.[10] Economists, however, tend to attribute Hitler's rise to the Deflation and the Great Depression beginning in 1929.[11][12] Paul Krugman concluded that the 1923 hyperinflation didn’t bring Hitler to power, but the Brüning deflation and depression.[13] Before 1929, the Nazi party had been actually in decline, receiving less than 3% of votes in the German federal election in 1928 (see election results of the Nazi Party).

An impoverished American family living in a shanty, 1936

While arguably not a true economic collapse, the decade of the 1930s witnessed the most severe worldwide economic contraction since the start of the Industrial Revolution. In the US, the Depression began in the summer of 1929, soon followed by the stock market crash of October 1929. American stock prices continued to decline in fits and starts until they hit bottom in July 1932. In the first quarter of 1933, the banking system broke down: asset prices had collapsed, bank lending had largely ceased, a quarter of the American work force was unemployed, and real GDP per capita in 1933 was 29% below its 1929 value.[14] The ensuing rapid recovery was interrupted by a major recession in 1937–38. The USA fully recovered by 1941, the eve of its entry in World War II, which gave rise to a boom as dramatic as the Depression that preceded it.

While there were numerous bank failures during the Great Depression, most banks in developed countries survived, as did most currencies and governments. The most significant monetary change during the depression was the demise of the gold standard by most nations that were on it. In the U.S., the dollar was redeemable in gold until 1933 when U.S. citizens were forced to turn over their gold (except for 5 ounces) for fiat currency (See: Executive Order 6102) and were forbidden to own monetary gold for the next four decades. Subsequently, gold was revalued from $20.67 per ounce to $35 per ounce. U.S. dollars remained redeemable in gold by foreigners until 1971. Gold ownership was legalized in the U.S. in 1974, but not with legal tender status.

As bad as the Great Depression was, it took place during a period of high productivity growth, which caused real wages to rise. The high unemployment was partly a result of the productivity gains, allowing the number of hours of the standard work week to be cut while restoring economic output to previous levels after a few years. Workers who remained employed saw their real hourly earnings rise because wages remained constant while prices fell; however, overall earnings remained relatively constant because of the reduced work week.[15] Converting the dollar to a fiat currency and devaluing against gold ensured the end of deflation and created inflation, which made the high debt accumulated during the 1920s boom easier to repay, although some of the debt was written off.

During the 1980s, the Eastern Bloc, which relied on a highly centralized form of planned economy, experienced a decade-long period of stagnation from which it did not recover. The end of the decade saw revolutions and the fall of communist regimes throughout Central and Eastern Europe, and eventually in the Soviet Union (USSR) by 1991. The process was accompanied by a gradual but important easing of restrictions on economic and political behaviour in the late 1980s, including the satellite states, culminating with economic collapse and shock therapy in the 1990s. Even before Russia's financial crisis of 1998, Russia's GDP was half of what it had been in the early 1990s.[16]

The collapse in the USSR was characterized by an increase in the death rate, especially by men over 50, with alcoholism a major cause. There was also an increase in violent crime and murder.[1] The Russian population peaked in the 1990s and is lower today than two decades ago, as the demographics of Russia show.

A firsthand account of conditions during the economic collapse was told by Dmitry Orlov, a former USSR citizen who became a US citizen but returned to Russia for a time during the crisis.[1]

After more or less stabilizing after the disintegration of the USSR, a severe financial crisis took place in the Russian Federation in August 1998. It was caused by low oil prices and government expenditure cuts after the end of the Cold War. Other nations of the former Soviet Union also experienced economic collapse, although a number of crises also involved armed conflicts, like in the break-away region Chechnya. The default by Russia on its government bonds in 1998 led to the collapse of highly leveraged hedge fund Long Term Capital Management, which threatened the world financial system. The U.S. Federal Reserve organized a bailout of LTCM which turned it over to a banking consortium.

[17][18][19]

The depression, which began after the Russian and Brazilian financial crises,[17] caused widespread unemployment, riots, the fall of the government, a default on the country's foreign debt, the rise of alternative currencies and the end of the peso's fixed exchange rate to the US dollar.[17] The economy shrank by 28 percent from 1998 to 2002.[18][20] In terms of income, over 50 percent of Argentines were poor and 25 percent, indigent; seven out of ten Argentine children were poor at the depth of the crisis in 2002.[17][20]

By the end of November 2001, people began withdrawing large sums of dollars from their bank accounts, turning pesos into dollars, and sending them abroad, which caused a bank run.

The freeze enraged many Argentines who took to the streets of important cities, especially Buenos Aires. They engaged in protests.[21]

The president De la Rúa eventually fled the Casa Rosada in a helicopter on 21 December 2001.[22]

Zimbabwe has had an economic crisis since the early 2000s with some periods of partial recovery inbetween. Hyperinflation peaked at an estimated 89.7 sextillion percent year-on-year in November 2008 then stabilising after the local currency was abandoned.[23] In May 2020, annual inflation reached more than 800% following the reintroduction of the local currency, after which the government stopped releasing statistics as they had previously done over a decade earlier.[24] GDP contracted from 2001 to 2008 and from 2018 to present.[25]

Since 2013, Venezuela has been suffering an economic crisis. It's the worst in Venezuelan history, caused by the economic policies of the president, Nicolás Maduro the successor of Hugo Chávez, the fall in oil prices and internal and external factors. Since 2014, Venezuela's GDP has been in recession, falling more 40%.[26] The economy has collapsed,[27] causing shortages of basics goods, economic downturn and hyperinflation since 2017.[28] Also, there are drastic increases in the crime, corruption, poverty and hunger. Millions of Venezuelans have fled to neighboring countries.[29]

In Latvia, GDP declined more than 20% from 2008 to 2010, one of the worst recessions on record.[30] In Greece, GDP declined more than 26% starting in 2008.[31]

Some economists (i.e. the Austrian School, in particular Ludwig von Mises), believe that government intervention and over-regulation of the economy can lead to the conditions for collapse. In particular, Austrian theoretical research has been focused on such problems emanating from socialist forms of economic organization. This however is not a theory of economic collapse involving the breakdown of freely functioning financial markets; rather, the focus is on economic malfunction and crisis emanating from state control.

However, many Austrian economists also subscribe to what is called the "ABCT", or Austrian Business Cycle Theory. Economist Roger Garrison describes the bubble as merely a form of unsustainable boom (not a theory of all depression), as Mises and F.A. Hayek did, despite their disagreements on the exact workings of it.[41] The essential part of the theory is that it is inherently unsustainable to try to manipulate monetary policy to boost both investment and consumption; usually through interest rate manipulation and bond-buying and such. The "boom" was created by "malinvestments," as Mises called them; business decisions that are bad investments and unsustainable in the long run because lowering interest rates by padding the supply of money and credit will only work in the short-term, but will ultimately collapse because the government can only hold down interest rates so long before fear of inflation kicks in (and deflation comes at the peak of the business cycle), or they go into hyperinflation (which is completely outside the realm of the ABCT).

Romanian American economist Nicholas Georgescu-Roegen, a progenitor in economics and the paradigm founder of ecological economics, has argued that the carrying capacity of Earth—that is, Earth's capacity to sustain human populations and consumption levels — is bound to decrease sometime in the future as Earth's finite stock of mineral resources is presently being extracted and put to use; and consequently, that the world economy as a whole is heading towards an inevitable future collapse, leading to the demise of human civilisation itself.[42]

Georgescu-Roegen is basing his pessimistic prediction on the two following considerations:

• According to his ecological view of 'entropy pessimism', matter and energy is neither created nor destroyed in man's economy, only transformed from states available for human purposes (valuable natural resources) to states unavailable for human purposes (valueless waste and pollution). In effect, all of man's technologies and activities are only speeding up the general march against a future planetary 'heat death' of degraded energy, exhausted natural resources and a deteriorated environment—a state of maximum entropy on Earth.
• According to his social theory of 'bioeconomics', man's economic struggle to work and earn a livelihood is largely a continuation and extension of the biological struggle to sustain life and survive. This struggle manifests itself as a permanent social conflict that can be eliminated neither by man's decision to do so nor by the social evolution of mankind. Consequently, we are biologically unable to restrain ourselves collectively on a permanent and voluntary basis for the benefit of unknown future generations; the pressure of population on Earth's resources will only increase.

Taken together, the Industrial Revolution in Britain in the second half of the 18th century has unintentionally thrust man's economy into a long, never-to-return overshoot-and-collapse trajectory with regard to the Earth's mineral stock. The world economy will continue growing until its inevitable and final collapse in the future. From that point on, ever deepening scarcities will aggravate social conflict throughout the globe and ultimately spell the end of mankind itself, Georgescu-Roegen conjectures.

Georgescu-Roegen was the paradigm founder of ecological economics and is also considered the main intellectual figure influencing the degrowth movement. Consequently, much work in these fields is devoted to discussing the existential impossibility of allocating Earth's finite stock of mineral resources evenly among an unknown number of present and future generations. This number of generations is likely to remain unknown to us, as there is no way — or only little way — of knowing in advance if or when mankind will ultimately face extinction. In effect, any conceivable intertemporal allocation of the finite stock will inevitably end up with universal economic decline at some future point.[43]^{: 253–256}[44]^: 165[45]^{: 168–171} [46]^{: 150–153}[47]^{: 106–109}[48]^{: 546–549}[49]^{: 142–145} [50]