Outline for Final Paper

ECO316 Week 5 Final Paper The Day the Machines Went off

Effects of Electronic Shutdown on Economy

Introduction

It is a well recognized fact the major effects that power outages have on businesses and the economy as a whole. Power outages affect company production as well as critical infrastructure required for healthcare provision, water supply, financial services and telecommunication. These effects are usually very costly to the economy of a region or country as it has been demonstrated that even a 30 minute blackout can have financial impacts to the tune of $15709 (AGCS, “Energy Risks”). However, in this paper, the scenario that we are going to be dealing with is one where all electronic tools, devices and equipment would experience a power failure due to an Electromagnetic Pulse. This means that regardless of the fact that the device uses electricity directly from the power grid, or has backup power storage utilities such as batteries, it would still fail to function. Unlike the above mentioned power failures that would little affect those devices with backup power storage or those deriving electricity from other sources such as solar energy, such an electric failure on this scale would cause massive devastation of the economy since all aspects of social, political and economic life since it would severely affect healthcare delivery, communication, processing industries, manufacturing, transport and various other critical sectors. Shutdown of all electronic equipment and devices due to an Electromagnetic Pulse would cause activities in numerous sectors to grind to a halt, a factor that would severely impact the economy of a region.

The Day the Machines Went Off

Within society and the economy, money plays a vital role in the facilitation of business exchange and as a form of wealth. These roles of money are represented in four essential functions namely:

I. As a store of value

II. As standard of deferred payments

III. As a value measurement

IV. As a medium of exchange (Keynes, 2006)

Shutdown of ell electronic equipment would consequently have domino effects playing out on these above mentioned roles that money plays within the economy. As for the first function, money acts as store of value. This comes about as money is an easy way in which individuals, groups and enterprises can save surplus purchasing power which can be accessed \at the discretion of the owner. Money provides a secure, convenient and minimal risk way of value storage. However, in the vent of such a large scale electronic equipment failure, the collapse of industries and basic function services would mean that the priority would be on saving the perishable and essential goods that will no longer be sold or produced due to the impact on manufacturing and processing industries as well as retail industries. Therefore, money would lose its meaning as a convenient form of storing value since the electronic failure would cause a shift in the essential commodities.

The second function deals with money being used as the standard for deferred payments. This means that money is the only form in which credit may be paid. Credit has been seen to boost the economy in that it has facilitated major economic setup and may even be referred to as the foundation stone of contemporary economic progress (Simmel, 2004). However, in the vent of such a massive electronic failure, credit owed would rather be paid in terms of essential items that will be required to survive during such a period as opposed to money, which would be of little benefit to anyone, since money cannot. The third role of money deals with it being used as a medium of exchange. Money has been used for the longest time in facilitating the transaction of services and goods between producers, wholesalers, retailers and consumers. This function is however noted to be only applicable if money is accepted in that role within that particular region or during that particular time. This means that there may be times when money ceases to serve this role usefully necessitating that people revert to the more basic methods of carrying out business such as barter trade. Hence, in such a time of electronic failure, money would fail to meet the demands of the people and would require them to actually exchange one good for another or an item for a service since money would be of no assistance.

The final essential function of money that is listed above is that of money being used a measure of value. Money, at its most basic essence, is nothing but mere paper with print on it. This paper however, uniquely produced by the different Central Banks of the various countries globally serves to measure the value of virtually every service or good produced within the particular economy. This is as opposed to more traditional business transaction methods such a barter trade whereby it would be a hefty task determining the volume of goods or level or service that would be equated to the goods and services required for exchange. In the event of such a massive electronic failure, the priority of people and life in general would first and foremost be the propagation of those very lives. Such a massive electronic equipment failure would mean that there would be a collapse in major industries, meaning that goods would no longer be produced, except those that require little to no electronic assistance such as farming. Therefore, the need for essential goods such a food and medicine would mean that money, inherently, would be regarded in its most basic form; as mere paper of little use for the people affected during such a time.

Aside from the impact of such an electronic shutdown on money, such an outage would have severe effects on various economic components and functions. The first of these functions that I will examine is the rationing of goods. Rationing of goods would occur at all levels of society although the most significant societal level during such a time would be the individual unit and the family unit since breakdown in communication and transport would basically render jurisdictional authority systems non functional and thus everyone would be off to fend for their own. The goods that would undergo the highest rationing would be the essential items which mostly entail food and medicines. The hardest hit by such rationing would be those in urban areas noting that their food supply is highly dependent on a functional transportation network as well as functional processing industries. Therefore, the only food available to such people would be that within proximity, that is, the food within the house and that in stores and other such retail and wholesale providers. Therefore, within such areas especially, there would be massive rationing of these items both at the large scale level and at the family or individual level due to the uncertainty of the time.

The other role that would be affected is that of employment. Due to the collapse of all industries dependant on electricity, all employees of such industries and companies would be declared redundant. This has been demonstrated by the massive lay-offs experienced during massive power outages in factories and industries (Allcot, Collard-Wexler & O’Connell, 2014). This is because such industries would completely cease to function. Another reason for such redundancy would be the declination of the role of money as a value measurement and medium of exchange meaning that there would be no regulations in ace that would govern just how the employees were to be compensated for their services. Therefore, even if the particular work did not directly utilize electricity, there would still be difficulties when it came to the compensation of the employees since there would be no defined standard as to how to carry this out. Therefore, the impact on employment would be such that unemployment rates would soar and only very few individuals with extensive amounts of essential items such as food, medicine or items such as weapons that could be used to forcefully acquire such items would be able to hire or maintain employees.

Demand for paper quickly and greatly diminish. It should be noted that people are very different and there will be those few individuals that will hoard off paper money in the hopes that they will have considerable amount of such money once the electrical systems have been restored. However, even for such people, their demand for the essential items mentioned previously would surpass their demand for the money. Demand for commodity money would however increase with time after the electronic equipment failure. Such demand would be quite low at the onset of the period after the electronic failure due to the pressing need for essential commodities but as time goes by and systems become more structured, there would once again be the need for a formal method of carrying out transactions that would require the use of forms of currency rather than reliance on barter trade. Therefore, once people and societies in general adapt to the mode of life without electricity or frequently used electrical devices, then the demand of commodity money, which includes precious metals such a silver and gold, would be on the rise as their value would once again come to be appreciated.

Production of goods and services would also be severely impacted. The first and main reason for this is due to the collapse of all electronic equipment. Therefore, any industry that was even remotely reliant on electricity or on services that required electricity to function would grind to a halt. Therefore, the production of services and goods within such industries would be impacted. Another reason for the devastation of goods and service production is that all the major players within the various industries providing such services would be preoccupied with adjusting to the new situation. Therefore, whether or not their industries depended on electricity would be an inconsequential fact as these people would have it as their first priority to ensure that their secure the essential items for themselves as well as for the families for which they cater for.

There are a number of emergency measures that may be put in place so as to ensure that may be put in place so as to ensure propagation of the economy without reliance on the heavily depended on financial and banking systems. Such measure would have to recognize the sources of all critical and essential items, their distribution and alternative communication ad transport networks. The most basic step in propagating the economy after such an electrical failure would be to restore communication and transportation services. This is in recognition of the fact that no economy can run without effective functioning of these two components. Therefore, resources that could be utilized to these effects should be secured. Such resources include animals such as horses, donkeys and mules as well as hand driven or animal driven carts or carriages. The advantage of such is that they may be used for the dual purpose of transportation and communication, since more immediate methods of communication are mostly, if not entirely dependent on electricity. Those communication forms that are not reliant on electricity are much more primitive and simple ways of communication but would suffer from the fact that very few people would be aware of what they actually mean. This is in reference to communication methods such as use of devices that would produce sound such as drums, horns, whistles, trumpets and various other musical devices that can produce loud sounds as well as utilization of fire and smoke signals.

Additionally, in order to restore the economy and prevent its complete downfall, there would be need to map the critical items meaning those in highest demand and those in the shortest supply and be able to formulate a plan that will dictate he way in which such items will be traded off with other commodities that may in a little more supply and more readily available, but still functionally necessary for the period so as to give people the opportunity of carrying out barter trade so as to acquire the essential items and commodities.

Historical examples that ay demonstrated the devastation of massive failure of electrical equipment as a result of an Electromagnetic Pulse can be demonstrated by the effects of massive power blackouts. One such blackout is the 2003 Northeast power blackout that affected the Northeastern area of North America bounded by Toledo, New York, Ottawa, the James Bay shore, Ontario, Lansing, Sault Ste. Marie and Michigan. This meant that the total number of people affected was in excess of 50,000,000. The first sector that was affected was the transportation sector with those reliant on public transportation systems such as railroad services being affected. Additionally, some regional airports also ceased functions. People therefore had to mainly rely on automobile transport but this was also affected since many gas stations were unable to pump fuel. Oil refineries also had to shut down since they could oil could no longer be pumped along the pipelines due to lack of electricity. Major traffic gridlocks were experienced within cities and major towns within the area which led to most people who did not live within the area to find alternative sleeping arrangements, even within parks or office buildings (Andersson et. al., 2005).

Other than transportation, communication was also affected with a number of television and radio stations shutting down. There was also disruption of cellular communication due to the loss of backup power at the various cellular sites within the affected region. As a result of this communication breakdown, emergency services were unable to be accessed and there was a surge in crime during this period. A great number of factories was also shutdown or were forced to reduce the pace of work due to the need to conserve energy. There were numerous losses reported when it came to perishable goods.

Even though power was restored to most areas by the same evening and had been fully restored within two days to all the areas, such a short term power outage caused great losses and disruption of normal life. With reference to the hypothesized electrical equipment failure due to an EMP, this would result in an even more devastating effect since, as opposed to the power blackout where only the supply of electrical power was affected, an EMP would affect not only power supply but all electrical devices as well meaning that even if power was restored, people would still be unable to utilize that power due to the failure of their electronic equipment. The effect would be unprecedented cascading failures (Kiger, 2013). Therefore, shutdown of all electronic equipment and devices due to an Electromagnetic Pulse would cause activities in numerous sectors to grind to a halt, a factor that would severely impact the economy of a region.

References

Allcott, H., Collard-Wexler, A., & O’Connell, S. D. (2014). How Do Electricity Shortages Affect Productivity? Evidence from India.

Allianz Global Corporate & Specialty. (n.d.). Energy Risks – the dangers of power cuts and blackouts. Retrieved June 11, 2014, from http://www.agcs.allianz.com/insights/expert-risk-articles/energy-risks/

Andersson, G., Donalek, P., Farmer, R., Hatziargyriou, N., Kamwa, I., Kundur, P., ... & Vittal, V. (2005). Causes of the 2003 major grid blackouts in North America and Europe, and recommended means to improve system dynamic performance. Power Systems, IEEE Transactions on, 20(4), 1922-1928.

Keynes, J. M. (2006). General theory of employment, interest and money. Atlantic Publishers & Dist.

Kiger, P. J. (October 25, 2013). “American Blackout’: Four Major Real-Life Threats to the Electric Grid. Retrieved June 11, 2014, from http://energyblog.nationalgeographic.com/2013/10/25/american-blackout-four-major-real-life-threats-to-the-electric-grid/

Simmel, G. (2004). The philosophy of money. Psychology Press.