Structural economic problems (current) are those that are not merely due to the normal business cycle, but are the result of more fundamental changes, some of which may be social or political.
Structural problems are typically caused by a combination of the following: long term effects of technological change, unfavorable demographic changes, resource depletion, unwise government action and market saturation.
These issues sometimes cause long lasting periods of slow economic growth and high unemployment. The condition has been called economic stagnation or simply stagnation.[1]
“The basic changes going on since the beginning of the century are not only important in explaining the unprecedented severity and persistence of the depression of the thirties but also in appraising the outlook for the future. The reduced rate of growth, with respect to both population and territory, is likely to be permanent. Technological change is still going on, at a rapid rate, and, so far as anyone can see, is likely to continue for a long, long time to come. In the thirties the changes were predominantly of the sort that requires relatively small investment of new capital. This, of course, may change. There may be innovations in the future comparable in their effect on investment to the railroad, the automobile, or electricity. It is highly likely, however, that further technical change will be so much ‘’more’’ capital using as to make up for the reduced rate of territorial expansion and population growth. This is the basis on which the stagnation school predicts a long-run deficiency of investing opportunity.” Harris (1943): Chapter IV Secular Stagnation by Alan Sweezy
Current fundamental structural problems include the following:
The fundamental problems have resulted in high debt to GDP ratios of the governments of many developed countries. Government debt is approaching saturation, that is, both the ability to repay interest and principal and the willingness of lenders to keep lending without runaway interest rate increases. Reinhart and Rogoff (2009) discusses the history of debt crises and the current situation.[2]
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The primary demographic problem is the unprecedented increase in life span that occurred since the late 19th century, resulting in a high percentage of elderly. A secondary problem is the decline in birth rates.[3] This has caused an aged dependency ratio to increase to levels that that will not allow many governments to continue current rates of spending on social programs.[4]
Productivity is the main driver of improvements in standard of living and economic growth. Productivity is a destroyer of existing jobs, but a creator of wealth.[5] Wealth enables spending on additional products and services, hopefully replacing jobs eliminated by advances in productivity.[6]
Under the gold standard, productivity increased purchasing power through deflation.[7]
Productivity in the U.S. (and many other developed countries) is in long term decline.[8][9][10]
The decline in productivity growth increases the difficulty of repaying debt.
New products and services are creators of jobs. Some new products and services are simply new ideas, but many are based on new technologies.
Most of today's important technologies were developed during the Second Industrial Revolution, which dates to about WW I.[11] The productivity paradox questioned why the computer revolution failed to increase productivity. Robert J. Gordon questioned the importance of the new technologies of the internet era.[12]
Resource depletion decreases productivity as more effort in the form of labor, materials and energy are required for extraction and processing. For example, early U.S. onshore oil production yield has shown a consistent decline in the number of barrels of oil produced per foot drilled. Ore grades of copper and other important minerals have significantly declined in concentration, requiring much higher volumes of low grade ore to be handled and processed.[13]
U.S. oil production peaked in 1971, and since then the share of oil imports has has risen to about twice the volume of domestic production. Real oil prices increased, in very erratic fashion, as imports rose.[14]
North Sea production peaked around 2000. World oil production has been flat since about 2005. New oil is several times more expensive to produce than oil found decades ago, even though we have better technology today. Concern is being expressed that depletion rates will soon overcome new production.
See: Useful work growth theory See: Energy returned on energy invested