The Economic Impact of Thanos' Snap
In Avengers: Infinity War, the supervillain Thanos achieves his intended outcome from the film's onset. The Mad Titan was able to reign over the most mighty bling in the universe, the infinity stones, and use them to "snap" away half of all life throughout the universe indiscriminately and randomly. Within the Marvel Cinematic Universe (MCU), the event that became known as the "snap" or the "blip" led to severe repercussions for the remainder of the human race.
Thanos certainly thought he was helping. He lost his home planet, Titan, to what he claimed was overconsumption of resources due to overpopulation. OR NOT. Check out my previous article for an analysis of Thanos' logic regarding his plan to save the universe from overpopulation. Spoiler alert! He's dumb. Regardless, if you believe overpopulation is a potential problem, Thanos' solution was fleeting. It took the human population approximately 42 years to grow from the population Thanos cut it down to (3.8 billion) to the population right before he "snapped" (7.6 billion). It may take longer next time, but the population will eventually reach those heights without other incentives to combat the growth.
So, the Mad Titan had a dumb plan. He dusted away 3.8 billion people from Earth in addition to some untold number of universal casualties. But he paid the price, lost his life, and Iron Man and the Avengers brought everyone back five years later. Dust to dust, all harm was undone, no big deal, right?
Wrong.
After Thanos snapped his fingers in 2018, the human population in the MCU experienced the largest shock from loss of life in history. That shock led to five years in which humanity grappled with the effects of a world rich in resources but in desperate need of human labor to supply those resources. World economic shocks were also caused by the Black Death and World War 1, giving way to more equitable wealth distribution. Still, the early years were always exceptionally tough on those populations of the time.
Houses Become Worthless and Debt Unravels
The price of housing would experience the sharpest decline in history. Never, at any point, have countries had to deal with such a drastic supply glut where they may now have close to twice as many homes as the market deems necessary. For instance, the United States has around 140 million housing units for 330 million people or about one unit for every 2.35 people in the country. After the Snap, the United States would have a housing unit for every 1.18 people! Almost enough for every single person, including children, to have their own living space.
Except, nothing changed after the Snap that may lead to children needing a house, and unless child labor laws changed, they still most likely cannot afford one either. To get to the 2.35 people per housing unit from before, we would also need the housing supply to cut in half to about 70 million units.
The excess housing supply wouldn't be manageable in the short term. Common housing would be close to worthless in many cases. The lack of demand would drive virtually all housing down in cost, and that lack of demand would disincentivize further building of houses. The construction workforce would be heavily cut by private industry, as until the population increases, there are already too many housing units for the population size.
If half of all people die, then we can assume about half of all mortgages would default. For example, take a family of four:
- 25% of every former two-parent household now has no parents
- 50% would have one parent
- 25% would have no parents
In other words, 25% of mortgages have no living payers, 50% now have one job providing income instead of two to afford the previous mortgage, and 25% sit to make out okay from the arrangement. Banks can undoubtedly collect the houses of those who can't make their payments, but with the newly added 25% of wholly dusted mortgage payers, they already have too many homes with no buyers.
Liquidity, Shortages, and Inflation
The banks not only have too many houses, but they also have too much debt lent in general, much of it never to be repaid. Student loans, auto loans, and credit cards would all experience similar numbers of defaults. Total consumer debt in the United States is about $15 trillion, and around $7.5 trillion of that will never return to the banks. Similar to the 2008 financial crisis, banks would require bailouts to survive. The United States would print money to cover immediate shortfalls throughout the financial sector while dealing with costly recovery efforts on domestic infrastructure.
All that printing to save the economy would lead to an immediate injection of cash into a system already plenty flush with liquidity. After the Snap, the world economy suddenly had in its pocket the same amount of money as before, only now the money is chasing far fewer resources.
The degree of decline in resources will primarily be due to the decrease in human labor leading to supply chain problems. Many businesses today are built to operate with their current labor force, not one that's been halved. Some operations will prove more resilient – resiliency here spells for potential shortage if their production exceeds the new demand. Other operations will be less resilient to halving their labor force, and consumers will face shortages from lack of supply.
The consumer base may be halved, just like the labor force, but the consumers now are much wealthier than before. Inheritance would end up having a significant effect on the discretionary income throughout the world. Suddenly, 50% of all wealth will be redistributed, not in any sort of social-democratic redistribution either. The redistribution won't be equal – it will largely be stratified by generational wealth, wealthy families will consolidate capital among fewer members. The poor and middle class will still benefit from inheritances, but the world will not be any more equal by wealth.
All that extra money in fewer hands would lead to increased demand across many consumer markets. The people lucky enough to survive the Snap need to fill the gaps of their lost loved ones with gaming consoles, smartphones, and cars; now, they have the money to do so. The added demand and the lack of supply for new resources would lead to an overheated economy ripe with inflation in most sectors. For instance, previously manufactured items such as older automobiles or PS5s may be easy to find and subsequently not worth much with old supply filling the market. Still, new automobile and gaming chip manufacturing would face labor shortages. I could quickly buy one of the thousands of newly available previously-owned 2017 Honda Civics, but a 2022 Tesla would be hard to find due to lack of manufacturing, and demand would be too high as fewer people have more money to spend than before.
The new world would further face an extreme labor shortage. Similar to effects after the decline in population during the Black Death, the capitalist class would have to compete harder than ever to attract labor. This time, the capitalists have plenty of money and could either raise wages to attract the leftover population to join their workforce or close their doors from lack of labor. Most sectors would probably experience increased labor costs, which could lead to a wage-price spiral that further exacerbates the inflationary economy. A wage-price spiral is a theory where essentially, wages chase prices and prices chase wages. Laborers who receive wage increases demand additional goods and services, which, in turn, causes prices to rise.
Federal Policy Response
The deflationary housing sector may be a loss – just avoiding urban decay from overabundant housing would take enormous capital. The inflation running rapidly throughout consumer goods would have to be reined in through a mix of monetary and fiscal policy. The federal government could tamp down inflation through several measures, but increasing tax receipts seems like the logical first step. Inheritance taxes would bring in a lot of money in 2018 due to the 3.8 billion deaths caused by the Snap. Still, the effective estate tax rate of about 17% won't be nearly adequate to lower the money supply per a population size now halved. Governments worldwide would have to provide shelter and resources for the 25% of unlucky children that became newly orphaned; many would have to collect capital to decrease the money supply and enable them to spend money on necessary public works.
The logical immediate step for the United States government would be to increase the effective tax rate dramatically. As most wealth is concentrated in the hands of the top 10%, who hold 77.1% of all wealth compared to the bottom deciles -.5%, the estate tax should be limited to those who stand to benefit the most from inheritance. A progressive taxation schedule, or even only taxing inheritances beyond a threshold of 20,000-50,000, could provide the government with more monetary room to manage additional expenditures and reduce income inequality.
In addition to raising taxes, the United States could raise interest rates significantly to encourage citizens to save money and allow the government to collect and lessen the market's liquidity. Sort of in the mold of the Volcker Shock from the 1980s when Federal Reserve Chair Paul Volcker raised the fed funds rate to 20% to combat the persistent stagflation occurring throughout the country. The problem with this scenario is that while it may be entirely necessary to increase the interest rate in the short term, raising interest and lessening the private capital in the marketplace is generally not best after a disaster. However, the requirements for rebuilding the world post-Snap seem pretty different from a natural disaster or plague. The threat of hyperinflation and decline in labor and technological growth would have to be addressed.
Raising the interest rates would spur savings in United States-backed bonds, thus decreasing the money supply in the overheated market. Interest rate hikes may be necessary for the government to reign in an economy flush with capital and likely to use that capital on wage increases in the new, supply-shorted labor market.
The federal policy response should try to soak up as much cash as possible from the blipped individuals' private wealth because they will need as much fiscal space as possible to extend the necessary resources the public will need in the aftermath of the Snap. The fiscal space would essentially be the battle of spending on public goods like orphanages against further inflating the economy.
To be clear: Thanos fucked things up. The immediate aftermath would be a disaster—confusion, terror, grief, and the added deaths from suicide and accidents. A short while after, some begin to see that they have more resources, more capital. There are jobs out there willing to pay anything for their labor for those who still care about making money. Unfortunately, all that money being used on labor and restarting the economy hyperinflates the economy. It leads to a string of necessary federal policy decisions meant to kick off a, hopefully, short-lived recession. Cool. Cool.
Also, if you were one of the lucky lottery winners that survived the Snap, don't bother trying to collect the life insurance.
Then, after five years, everyone comes back! Humanity just began to get over the largest loss of life in history! As we learn in Falcon and the Winter Soldier, the world doesn't become magically better after the Snap is undone. You can be sure there would be severe growing pains for the newly doubled population in 2023. Cover that next week.