With an impending cataclysmic event, when would the economy break down?

Question

Motivational musings:

If there was an impending, unavoidable, and universally accepted cataclysmic event that will absolutely destroy everything, how long would it take for the economy to break down? Specifically, what would the depreciation of fiat currency look like. I imagine that if the end of the world is in 1000 years, little will change, but if it is in 10 years, things might get interesting.

Answerable question:

Are there examples in history that show how people change their participation in an economy in light of impending doom? (A city under seige, an epidemic, etc.)

Answer 1

While this is not a complete cataclysm, the Plague of Justinian is a good place to start. Why? Because it was far reaching throughout the Byzantine Empire, was considered one of the deadliest plagues throughout history, but didn't hit everywhere all at once, so there was at least some forward warning of it through parts of the empire.

As for economic impacts; economies that face crises like this end up reducing their production of 'normal' goods and services as they divert resources to managing the problem. This means that the economies contract, causing either recession or depression. This is a problem if there are fixed costs throughout the empire, like roads. If your empire is actually reducing in numbers and geographic size, then a reduction in the economy isn't that bad as it's really GDP/population that counts - a country with double the GDP but double the population and infrastructure needs isn't really that better off by comparison to its neighbour. In Justinian's time however, the Byzantine empire was still trying to expand and recapture the glory days of Rome. That meant they needed to maintain (if not increase) tax revenue at a time when population was decreasing. That put pressure on the survivors to fund tax revenue from an ever decreasing pool, meaning an increasing percentage of their own income was going to the state.

Ultimately, the answer to your question is dependent on the type of cataclysm being faced, and the populace's reaction to it. If they all just give up and stay home from the moment they find out about it, then your economy tanks because no-one's out there producing. If on the other hand your national leaders offer hope, or a way forward at least, then your economy may languish but survive in some form.

When you get right down to it, the job of a Government is to provide the infrastructure and rules necessary to stimulate production. That means roads, hospitals, schools, police etc. Roads to get goods to markets, hospitals to keep working people fit for work, schools to teach the young what they need to know in order to be contributors to the economy in good jobs, and police to ensure that there is a measure of safety for people out working. If you add to that the military to protect from other governments who want your land or resources to benefit their own economy, then you have a lot of what you need in terms of economic support. Most countries also add to this some form of social welfare in the hope that those down on their luck can be supported just long enough to get back out into the workforce as well. With that, you pretty much have a comprehensive framework for your economy.

The trouble is, when facing war, pandemic, massive catastrophes (either foreseen or unforeseen) and other disruptions, at least some of that production gets diverted or doesn't even happen. That means that your economy (at least temporarily) shrinks. If your numbers are preserved however, you'll still need to build houses, grow food, make clothes, etc. - in other words, support your populace, who consume the production of your country. That means, any temporary losses eventually correct themselves.

In your scenario however, the trick will be making sure that people don't give up. There's no point building a better future for yourself if there's a guarantee that there's no future to build. As such, it will be up to the leadership of your nation to offer some sort of hope in order to preserve the economy in some form going forward.

Answer 2

The answer to original question is literally "opinion based", but it is based on opinion of people in your world, rather than on mine or yours.

Economy will break down when people believe it will break down. Entire economy is a self-reinforcing set of beliefs. If you believe that working will get you money, and that you will be able to spend that money in a meaningful way, you will work, and thus enable others to spend money.

So, depending on how government and media manage people's mood, economy can either collapse immediately, or last until a few days before the event. If Fox News says "run for the hills", and NBC says "go spend time with your family", and government does not say anything, nontrivial share of people will follow the advice of their favorite media, and economy will collapse. If government says "there is a threat, but we can handle it", and media say "stay calms and carry on", then the world will carry on. More realistically, different countries/communities/social groups will have different beliefs, and will thus act differently.

In fact, it is a nontrivial ethical decision: Tell people the truth and cause immediate collapse? Or lie, and let people enjoy life while they can? I remember reading a story where Inevitable Doomsday turned out to be slightly exaggerated, and the "live in the now" character had committed suicide b/c he could not live with all the things that he did.

EDIT/Addition: Hope never dies.
My (limited) knowledge of psychology tells me that no matter how overwhelming the evidence is, many people will refuse to accept the inevitability of their death, and will do all sorts of things to maximize their chance of survival (even if it's all in their heads). These efforts will change the economy, but they will prevent total collapse.

• Religious people will think that God will save the faithful, or send them to "heaven". So they will keep the faith, which often means keeping the life going.

• 1000 years are enough to get off the planet, and even out of the solar system (via a generation ship). Even 10 years might be enough for a small group, and you can get lots of other people to help by promising a lottery for who gets to be saved. Even if it does not actually work, you can get people working towards a goal.

• Any natural cataclysm is impossible to predict with certainty, especially if you are talking about years from now. That's what every scientist and STEM major believes. Maybe it will not happen, or will not be as destructive. So building a shelter or working to contain the cataclysm is a viable way to maximize your chances of survival.

  • Specifically, asteroid trajectories have margin of error, which grows larger as you go further into the future, and even 10 years is enough to deflect or destroy the asteroid.

• If aliens come and say "we will kill you in 10 years", some will think it is a prank or a test, others will try to negotiate or please the aliens, some will try to join the aliens (as workers, slaves, pets, etc.), some will join the resistance and try to overthrow the aliens.

Answer 3

A western-style capitalist economy would break down as soon as "debt force" collapses. That's not the same as confidence. Money circulates through an economy much like a fluid through capillaries. It has volume and velocity and is driven by force. Without a compelling reason to be exchanged (demand) money would simply sit at rest. After all, essential goods can always be bartered.

The main motive force of money in western capitalist economies is debt since money is the most efficient means of servicing debt. This insurance is printed on every US Federal Reserve Note (i.e. dollar bill): "This note is legal tender for all debts, public and private". In fact every Reserve Note is itself a debt instrument. It represents a promise to pay contract to the US Federal Reserve (central bank) by the US Treasury (taxpayers).

Debt works in an economy only when there is sufficient motive to service the debt as contracted. That's largely driven by the fear of negative consequences resulting from failure to service it. But in light of an impending cataclysm that fear would be moderated by two psychological forces: a) the sum of even greater and more immediate fears, and b) doubt that there would be any post-cataclysmic consequences of ignoring debt. The latter would likely begin taking effect as soon as news of the cataclysm was widely known. Debt servicing with money would quickly come to a halt, leaving money only of value as a trade currency, likely to also be short-lived with the inevitable hyperinflation.

When debt servicing stops in a capitalist economy, the economy has essentially broken down.

Answer 4

You're going to see a major shift to the economy immediately if the time horizon on the doom isn't too far out.

NASA finds a 50 mile rock that's going to smack us in one year. Two things will happen:

1) Every place with the engineering capability to do so will be building Orion drive ships and loading them up with nuclear-tipped missiles. Realistically, against a threat of this magnitude this is a hail mary option, but the attempt will be made. (There won't be a problem with refugees trying to board, these are suicide missions.)

2) Investment will basically cease. Only an investment with a payback period of less than a year makes sense and even then it probably doesn't given the disorder that will be happening. Note that "investment" in this context is very broad--nobody's going to go to school, almost all maintenance will cease.

I suspect martial law will have to be declared to keep people working in order to keep them alive even until doomsday. (Otherwise an awful lot of people will decide to spend that last year doing what they want and living on savings--so many people that needed things won't get done.)

Answer 5

Impending Cataclysm is one of those rare scenarios where living in an open society with total transparency and an independent press is actually detrimental to the welfare of the citizens. An unavoidable doom is exactly the kind of secret which should be kept from the people, so that they can enjoy whatever time is left to them.

The counter argument to this truth comes not from any ethical issue (as is often depicted in apocalyptic tales) but rather from any uncertainty over whether the doom is unavoidable. If there is even the smallest chance that society can be saved, then knowledge of the need for such salvation must be conveyed to those people capable of pursuing it. Even then, the inevitable panic inherent in public knowledge of the threat should be avoided for ethical and humanitarian reasons.

So to answer the question, an impending doom would have no economic effect if those who know of its approach have the ability and moral character necessary to keep it secret. And it would immediately collapse any economy where the knowledge got out, potentially cascading other economies in nations which could have kept the secret if not for the world wide web and global news networks.

If you look at how we all responded to the comparatively minor threat of Y2K, it is obvious that people do not act responsibly in the face of crisis. Knowledge is not always a good thing.