Paradigm Shifts

In class we will be talking about paradigm shifts. These can be rather trivial things (replacing a stop light with a traffic circle) or something far more dramatic. In the last year or so, Jeremy Grantham, an investor who manages something more than $100 billion, has been making the case that the world in on the cusp of a huge paradigm change, and to him its not a good one. In a very long newsletter article, he makes the case that we have lived in a world where natural resources (oil, steel, fertilizer, almost any stuff) has been cheap and gets cheaper. He argues that this era is coming to an end, and that resources are going to get more expensive. He sees this happening for a number of reasons. Most basically, he would say that no compound growth rate is sustainable forever and our society has been predicated on growth. One example of this, is his chart of increase in agricultural yields:


His point here is that it is getting harder and harder to increase our agricultural yields to keep up with population growth.

With more and more people in the world (i.e. the aspiring middle class in India and China), able to live a life that uses something on the order of magnitude of the resources we use, resources will be under increasing pressure. One of his most striking statistics is China's share of various resources:


A couple of things to note about his argument. It is undeniably true that we in the US live in a world based on the paradigm of cheap resources/material. Look in your garbage can if you don't believe it. Grantham is an investor, and he believes that global warming (which he does not doubt exists) can only be addressed if it can be made an economic issue. Here is a further piece about Grantham.