#90: After peak prosperity


As readers will recall from a previous article, SEEDS – the Surplus Energy Economics Data System – will soon cease to be a purely internal tool, and will be made available to those interested in using it.

As things stand, the intention is to make a summary version (SEEDS Snapshots) available for free download here in PDF format. Professional and business users will be offered a more detailed spreadsheet version (SEEDS Pro) at a modest price. In all, there will be 22 of each – 21 covering individual economies, plus a world economy version.

Rather than issue a technical user manual (though this may yet be necessary), it seems better to introduce the system here using a real example. The balance of reader comments suggests that the subject of this “worked example” should be the United Kingdom. It is hoped that even those readers who are not particularly interested in the UK will find this an interesting example of the economic decline phase after “peak prosperity”.

What follows here, then, is a comprehensive analysis of the British economy, conducted using SEEDS. Conclusions are left to the end, so that readers can follow the process of analysis through from start to finish. Here, for download, is the SEEDS Pro dataset for the United Kingdom. This is the premium version that will be available for purchase after SEEDS goes “live”. It is recommended that you download this now, in order to refer to it during the commentary that follows.

SEEDS 2.15 UK dataset March 2017


Let’s get a couple of technical points clear before we start. First, most economic data is presented in GBP, and the majority of this is expressed at constant values, so that the effects of inflation are excluded. Current data is converted to constant values using the broad-basis GDP deflator index, the base year being 100. (Pending the availability of complete data for last year, 2015 is the base year throughout SEEDS).

Second, where stated in US dollars for comparison, conversion is undertaken using the PPP (purchasing power parity) convention. This is generally superior to conversion using market average exchange rates, though some market-rate data is supplied as well, for those who find it useful.


After some summary tables, the SEEDS analysis begins with two tables related to energy. The first of these (starting at line 44 in the data sheet) is volumetric, and analyses the primary energy position expressed in million tonnes of oil equivalent (mmtoe). Like all tables in SEEDS, this runs from 1980 to 2030, and further amplification is provided by the first chart.

Peak energy production in the UK occurred in 2003, at 272 mmtoe, a number which declined by 59% to just 112 mmtoe in 2015. Against this, consumption has also declined, from 229 mmtoe in 2005 to 188 mmtoe in 2015. This decline reflects a number of factors, including greater energy efficiency, but also the ongoing shrinkage in manufacturing output.

As of 2015, fossil fuels accounted for 83% of British energy consumption, and renewables for 7.6%, which is far higher than the global average for the same year (2.7%). By 2030, the share of UK energy use provided by renewables is projected to reach almost 19%, though this rising share reflects, in part, the downwards trend in aggregate consumption.

The United Kingdom: energy balances


Whether the shift towards renewables has been cost effective is, of course, another question, and plays its part in the table of energy economics (starting at line 56). Obviously, the sharp decline in primary energy production has had a major effect on materials flows and costs. Back in 1999, the UK was a net exporter of 50 mmtoe, or 23% of demand at that time. By 2015, net imports totalled 76 mmtoe, or 40% of consumption.

This changing material balance has necessarily impacted the UK’s energy costs, measured in the data sheet both as ECoE (the energy cost of energy) and as EROEI (the energy return on energy invested). Reflecting global trends, the estimated ECoE of consumption (line 61) has risen from 3.8% in 2000 to 7.8% in 2015, which is not significantly different from a world average of 7.0%.

But the swing from net exporter to net importer has had a dramatic effect on the overall ECoE of the economy (line 62). Being a net exporter is advantageous, mainly because costs and taxes (which, of course, are revenues for suppliers and the government) are incurred at home rather than overseas. Accordingly, Britain’s overall ECoE is estimated to have soared from just 0.9% in 2005 to 10.3% in 2015. As we shall see, this has had a major adverse effect on prosperity.

For those who prefer EROEI measures, that of the UK in 2015 is put at 10.7:1, and is projected to fall to just 6.6:1 by 2025. Readers who understand EROEI will appreciate that a ratio this low poses a dire threat, not just to prosperity but to economic viability itself.

The United Kingdom: energy economics


The role of borrowing

The next table to look at in the data sheet considers growth and borrowing, and starts at line 125. Expressed at constant 2015 values, annual growth in GDP ranged between +£48bn and -£72bn between 2005 and 2015. The total of growth over this period was £215bn, which lifted GDP (line 69) from £1,649bn in 2005 to £1,864bn in 2015.

Over the same period, however, total debt (line 114) increased from £3,580bn to £4,950bn, a rise of £1,369bn. The trailing ten-year (T10Y) relationship between borrowing and growth was, therefore, 6.37:1, meaning that £6.37 of borrowing accompanied each £1 of recorded growth in GDP.

The relationship between annual growth and borrowing can be seen in the next chart.

The United Kingdom: growth and borrowing


Clearly, borrowing on this scale is likely to have inflated GDP, by funding present consumption at the expense of future liabilities. What this really means is that, without this borrowing, growth would have been lower.

But how much lower? According to the formula used by SEEDS to measure this effect, £182bn of borrowed money was used to finance consumption between 2005 and 2015.

Though this estimate equates to just 13% of total borrowing (of £1,369bn) over that period, and is probably conservative, it accounts for most (85%) of growth recorded between 2005 and 2015. Reference to line 70 of the datasheet shows that, adjusted for the effect of borrowed consumption, underlying GDP in 2015 is estimated at £1,467bn.

This in turn means that, without borrowed consumption, GDP in 2015 would have been 21% lower than the reported number. It also indicates that trend growth is just 0.4% (line 79) rather than the generally-assumed c2%. On a per-capita basis, underlying growth is negative 0.3% (line 94), because the population is growing more rapidly than underlying (borrowing-adjusted) GDP. Even this, of course, is before we take trend ECoE into account.

The next chart shows these trends at a glance. The blue line is reported GDP, including consensus expectations out to 2021. The black line is GDP adjusted to exclude the impact of debt-funded consumption. The red line is the real economy on an ex-ECoE basis, and is closely analogous to prosperity as individuals experience it.

The United Kingdom: economic output


Debt dangers

If we now turn to debt aggregates (starting at line 105), it will be seen that constant, inflation-adjusted debt increased from £3,580bn in 2005 to £4,950bn in 2015 (line 114). Debt trajectories after 2015 are projected using an algorithm, and this estimates end-2016 debt at £5,196bn.

This is almost certainly a serious under-statement, as data for the first nine months of 2016 show that debt actually climbed to £5,408bn in that period, a far larger increase (of £458bn) than the SEEDS algorithm estimates for the whole of the year (£247bn).

If something like this is confirmed by final data, future debt projections will need to be revised upwards. Even as things stand, the ratio of debt to GDP, having risen from 209% in 2005 to 265% in 2015 (line 122), is projected to reach 300% by the end of 2019.

Of course, this ratio refers to reported GDP – were the underlying (ex-borrowing number) used instead, the ratio already exceeds 330%, and will be well over 400% by the end of the decade (line 123).

The United Kingdom: debt


The table of external flows (starting at line 157) reflects a steady deterioration in the current account, from a deficit of 1.2% of GDP in 2005 to 4.3% in 2015. This is not a reflection of net trade, which has in fact been on an improving trend. Rather, income (which primarily comprises net returns on equity and debt capital) has swung from +2.1% of GDP in 2005 to -3.3% in 2015. At constant values, this swing equates to £96bn (from +£35bn to -£61bn) (line 169), or 5.1% of current GDP, over a ten-year period.

Finally, we need to factor ECoE into the equation in order to measure “real” or “discretionary” income. This measure which has a direct impact on perceived prosperity, because it impacts the income that households have left after the cost of essentials.

On an aggregate basis, the real economy was 7% smaller in 2015 than in 2005, and SEEDS indicates that Britain hit “peak prosperity” back in 2003 (line 71). On a per-capita basis, discretionary income declined by 13% between 2005 and 2015 (line 87), and is falling at a trend rate of about 1.4% annually.


Overall, then, the SEEDS assessment of the British economy is very bearish. Individual prosperity is deteriorating – as is the aggregate, once the effect of “borrowed consumption” is adjusted out – whilst debt continues to rise markedly. Dependency on overseas creditors has become acute, mainly because income flows have been impaired by past patterns of asset sales and borrowing from abroad.

Looking ahead, the deterioration in British economic performance is starting to look irreversible, and certainly cannot be halted, let alone reversed, without wholesale changes in policy.

* * *

Here is the new PDF for Canada:

2.02317 Canada

63 thoughts on “#90: After peak prosperity

  1. Debt; a bit ambiguous IMO. Which lines refer to non national government [private and local government] debt versus official government debt?
    As you might know national government debt is not a burden on the national government, since much of it is just investments by the private sector, which the government never spends. The rest is intragovernmental debt, an internal accounting operation between different arms of government. I was wondering if you had sorted these “debts” out in your chart?

    • This is a contentious area, where I would point out that the interpretation you cite is not generally accepted. Various governments have practised “austerity” and “deficit reduction”, implying that they see escalating government debt as a problem.

      This said, if you have downloaded the spreadsheet, you will see that debt is broken out by borrower (government, household and PNFC). Thus you can use this data set to perform your own studies.

      To put a question – what if, say, there was a banking crisis tomorrow. in which UK banks needed a rescue to the tune of £1.9 trillion (i.e. 100% of GDP, to keep it simple).

      Does the government implement that rescue; and does this increase the public debt ratio from c 90% of GDP now to 190% of GDP? If this happens, isn’t it implicit that the UK currency crashes?

      Please let me know what happens, especially if this scenario isn’t the disaster that it sounds like.

      This is not a wholly academic question. UK private pension funds have a deficit of just over 50% of GDP, and I don’t see how any government can just let millions lose their pensions and (politically) expect to get away with it. Can they rescue these funds – and, if so, how?

    • Yes, Tim. I downloaded the excel sheet, but in the short time i took to look at it I didn’t see the breakdown. What line numbers are the relevant ones?
      The lack of acceptance of what I write is unfortunately a problem for those who don’t accept it, namely mainstream economists. We know they get governments to sell gilts to match deficits but it is purely a voluntary choice. This is what Prof Bill Mitchell says’ ” The Federal debt is the private sector’s investment” [and” the Federal deficit is the private sectors profit”]
      What this says is that government debt should be an asset in the private sectors accounts and not a debt in the government accounts. I can’t parse what the flow on is from that.

    • Debt is broken out in two sets:

      Current money – lines 107 to 110

      At constant 2015 values – lines 111 to 114 (more useful, I believe)

      These are also stated as % GDP at lines 119 to 122

      The debt series for the UK starts in 1999, as I do not have internationally consistent data prior to that.

    • @ejhr – I love your sweetly innocent irrepressibility, ejhr, but cannot resist the reductio ad absurdum to which your insistence lays you so unavoidably open to. The thing is ejhr – the people and / or institutions who are purchasing the debt… expect to be paid in a currency that actually relates to real world resources.

      You are, with the best (though rather jejune) intentions, falling into yet another logical fallacy – and have, so far, abjectly failed to get to grips with the difference between the map and the territory.

      Welcome to the leaf economy:

      “Douglas Adams > Quotes > Quotable Quote

      “Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. […]

      “But we have also,” continued the management consultant, “run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship’s peanut.” […]

      “So in order to obviate this problem,” he continued, “and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and…er, burn down all the forests. I think you’ll all agree that’s a sensible move under the circumstances.”

      ― Douglas Adams, The Ultimate Hitchhiker’s Guide to the Galaxy”



      Many thanks for another astute analysis of the many concrete issues that we, and our children, have to face up to.

    • You may reside in la-la-land, DO, good luck with that. Unfortunately you are in a crowded space there, joined by just about all the mainstream economists in and out of academia. If you desire reality, you will never find it there. You belong to the “leaf economy”. It’s a bit strange in La-La -Land but sits well alongside the others there.

      My world is unlike yours. Mine is entirely able to be verified. Let’s begin with your observation the debts need repaying in an acceptable currency. No logical fallacy. Any sign of that will show up a gap in your understanding.

      “Government debt”. You clearly have no idea what it is. The government auctions treasury bonds to what purpose? I have the answer, what’s yours? What does the government do with the money raised? Why do investors buy the bonds? Tell me so I can straighten you out.

      Over to you now. Don’t be afraid to answer.

    • Of course, nowadays, – according to the ejhr economy – we don’t even need actual leaves anymore ; we can just create digital tokens for them out of thin air… and then even a complete planetary defoliation will NOT INVALIDATE THE FULL FAITH AND CONFIDENCE in the currency!

    • @ejhr

      The best example to illustrate my point is the UK’s ww2 debt to the USA – which, as you pointed out, the USA insisted on being repaid in gold.

      As far as my being “joined by just about all the mainstream economists in and out of academia” – this just reminds me of the proud parents noticing that, out of the whole parade, their little Johnny was the only one marching in step.

    • @ejhr

      I can agree entirely with your (only slightly snipped) statement which I quote below. The idea that MMT can actually *solve* our present problems is precisely what I have been taking issue with.

      “Our civilization has passed its peak [back in 1970-71] and debt growth is how we mask it, how it allows BAU to carry on. I’m afraid only a crash is going to stop it. MMT is simply looking at the existing system … , but it’s not a magic potion.”

    • I wouldn’t myself use the word “solve”. No economics theory is going to do that. MMT is just a superior manager of the economy as we see it today.

  2. Tim : thanks for sharing this analysis which is really thought-provoking. Interesting that this week’s Economist magazine is very upbeat about the world economy citing evidence of an upturn in Asia, Europe and America putting it down to loose monetary policy and fiscal stimulus. I guess your prediction would be that this will fizzle out.

    • Well, growth isn’t the whole answer, especially if that growth is predicated on another surge in debt.

      I’m very sceptical about stimulus, whether monetary or fiscal, because it’s not worked since the GFC, despite being tried on a gigantic scale. Fiscal stimulus may not work as expected where debt levels are high – people may use it to pay down debt instead of boosting consumption. Monetary stimulus hasn’t worked, because it has pushed up savings where people are concerned about pension provision.

      The US situation may be encouraging, and of course I applaud the steps towards normalising rates. But we need to see consumption in the US being boosted by rising real wages, not credit. In the UK, it is now apparent that the spurt in growth since the Brexit vote was simply higher household borrowing, and things are now turning down, as retailers can attest. An improvement in the Euro area is possible, but comes from a very low base. Japan is now monetizing debt on a truly dangerous scale. Asia could indeed improve, but China is certainly adding debt at huge rates.

      In short, I’d rather wait and see…..

  3. Dr. T – I can understand if you prefer not to answer because this question might be too political, but I also have Scottish family & am hugely curious on this point, because of course it’s personal, so: Given England’s economy is in free-fall & there are no political checks or balances like having an opposition for example, would Scotland now be better off free from being chained to a corpse?

    The usual trump card to scare all Celtic nations into continuing to be good vassals is that they’ll be significantly poorer if they achieve political adulthood, but once it becomes increasingly obvious that the cost of that union, post-brexit, is never ending poverty from infinite austerity anyway, perhaps perceptions could actually change.

    For anyone who’s capable of independent thought at this point, it’s obvious that Scotland really is already a totally different country, achieved with just a little autonomy. The NHS, education system & care industry for example, still function like they used to in all of the British Isles in gentler times, proving the difference is purely for ideological reasons; whilst there is no ignorant scapegoating of foreigners for the general ills of normal life. These exact same institutions there aren’t being sabotaged for future privatisation via the neoliberal blueprint, lurching from crisis to crisis on a daily basis as in England. But, out of interest, the killer question is, do you think Scotland could be the same or better off than if it stayed with the rump little brexit Britain …..if it stayed in the EU &/or independent anyway? Otherwise, how much worse off could it possibly be?

    • ‘The NHS, education system & care industry for example, still function like they used to in all of the British Isles in gentler times, proving the difference is purely for ideological reasons’.

      Such is the incompetence of the SNP that seems to be in doubt. Socialism doesn’t work but a core of Scots are blinded to this fact by their dogged determination to hate the English at all costs.

      Scotland (still) enjoys the generous provisions previously enjoyed by England because of the generosity of it’s financial settlement within the union.

      The rules of political correctness would never allow poor oppressed Scotland to receive equal treatment to England..no it’s kicks and screams and DEMANDS special treatment which the England hating chattering classes fall over themselves to comply with…

      And I can’t be the only reader irritated by this sparsely occupied country piously lecturing England about it’s ‘ignorant scapegoating of foreigners’.
      What part of Dr Morgan’s analysis regarding the decline of per capita GDP do the Scots not get ?.

    • Ken

      I think we need to distinguish between Scottish politicians and Scots generally. Their politicians, for the most part, are all that you say – but this does not reflect the Scottish people.

      Traditionally, Scotland was a Labour stronghold. But in Scotland, as in England, Labour has failed its traditional supporters, and the SNP has taken Labour’s place. This may be why the SNP always seems so left-wing.

      This said, one doesn’t need to be left-wing or a nationalist to dislike, for instance, the creeping privatisation of the NHS. Perhaps the further one is from London, the more one dislikes what comes from the centre of government?

  4. This is a tricky one. Ahead of the 2014 referendum, I published a report, widely covered in the press, arguing against independence on purely economic grounds – I thought the SNP side were overestimating future oil revenues, underestimating possible losses of financial services businesses to London, and ignoring Scotland’s large share of unfunded public sector pensions.

    Obviously, some of this has now changed. For starters, though, I don’t see Scotland being admitted to the EU, because Spain (with its fears over Catalonia) would not be the only potential veto. Of course, we can’t even be certain that the EU will survive in its present form (though my hunch is that it probably will).

    On any realistic reading, Scotland is subsidised by England, and even more so now, with oil prices so much lower. I’m not impressed by Sturgeon, politically astute but that’s not the same as being good in government.

    Those are the negatives. Against that, the UK’s decline seems to be gathering pace, strengthening the case for independence. One of the main factors dragging Britain down is the cult of neoliberalism, and Scotland could improve her economy by escaping that – I don’t see Scots embracing London-style zealotry for a failed economic paradigm.

    Ultimately, “a country is more an idea than a place”. If Scots want to go it alone, and are prepared for some economic hardship as part of getting there, then the decline of the UK is weakening the case for remaining in the Union.

    • Thank you for your considered, thoughtful reply, it’s more-or-less what I figured, so hard to know which way to jump when there are so many variables for each option. Looking at the Scandinavian countries though, even the poorer ones like Iceland, they seem to be doing well enough, so it’s as you say, a choice of quality of life vs the actual amount of cash in your hand at the end of the day.

      It’ll come down to what the majority think is worth it, nominal GDP – figures distorted by useless economic churn anyway – or being poorer on paper but having a more peaceful society. Once the basic needs of life are satisfied, any more material goods lose effect disproportionately in terms of happiness anyway.

      A friend of mine just came back from holiday in Portugal for instance & was really impressed by their quality of life, when she’d been expecting them to be quite depressed given that they were economically nearly as bad as Greece even quite recently. Life in Ireland doesn’t seem much (if any) worse than the UK either & their population/economy is tiny too.

    • Though not a Scot, I began my working life there, and found it a really exciting place to be, and certainly very different from England. It certainly passes any test of “different-ness”, if that has any relevance to independence.

      You are so right about quality of life – in fact, after inflicting masses of stats on readers lately, I’m thinking of writing about this next. It is a hugely important question. We may be forced, by economic trouble, to learn to distinguish between “standard of living” and “quality of life”, a choice some of us have always recognised as critical.

      Over the last decade or so, I have come to regard neoliberalism not only as an economic failure, but as something socially and politically toxic as well. My reasons for moving overseas reflected this. I know of one place (which I won’t name) where per-capita GDP is supposedly very low, but the quality of life is really amazing.

  5. Hi Tim:
    Would you be so kind as to share the PDF or Xcel file for Canada?
    I am not a “professional” per se and will only use it in private and mostly to convince some local lumber heads as to where they stand.

  6. England is simply paying back for years of inciting warfare in Europe and killing millions of Europeans, to be replaced by Asiatics and Africans.

    Even now, it acts like it is the ‘balancer’ of Europe when it has turned into an appendage of USA.

    I think sooner or later the Royal Court will ‘relocate’ to Ottawa, and England will never meddle with European affairs again.

    • This is perhaps a bit extreme. The bigger issue, as I see it, is how much the UK/England has changed, and not for the better, in recent times. Every country has strengths and weaknesses, and the UK seems to have accentuated its weaknesses, and neglected its strengths, over a prolonged period.

  7. Tim, you ‘know of one place … where per-capita GDP is supposedly very low, but the quality of life is really amazing.’ That would be Moray then!

    Good post btw. I’ve skimmed it, but will read in more detail during a wee sojourn to York this week.

  8. Dr T – I look forward to your coming article on the importance & interplay of quality of life (qualitative) with other aspects of economics, (quantative) it will provide a welcome balance to perhaps the most important question in live. (”Where & how do you want to live?”) As with most complex issues, the answer must be necessarily multifaceted to do it justice, so a holistic approach is probably best.

    I am not a Scot either, but have a branch of my extended family who are & they chafe at what they see as being used historically as a laboratory/labour reserve/dumping ground – in short, not equal partners – with money not coming into it. I spent half my life in the third world & most of those countries chose independence, even when knowing full well it was going to come at a harsh price economically. The attitude was that yes it would be undoubtedly more comfortable living with your parents for free in your middle age, single, in the room where you were born, but who’re you really cheating? Only yourself out of a meaningful life, you are in a way a prisoner of childhood, still following orders – their house, their rules.

    Quality of life is indeed critical to happiness at least as much as ‘a stonking economy’, because it dictates what will happen in society at large – so ignoring it can be folly. If a country is wealthy, at the cost of having destroyed it’s own environment, to the point where they can’t breathe the air, drink the water or eat the food from there for example, then how can they be content; cue unrest. Or you could have an economy based only on one highly valued primary product & when that runs out the entire population is sitting on a sea of sand with no means of survival. Most developed countries today have reached a point where individualism is so exalted that there are few socially bonding ties; people can walk past someone having an epilectic fit on the pavement & not bat an eyelid …..I think there’s a cost in your level of happiness living under those conditions.

  9. @ejhr – I must admit to a smidgeon of agreement with you ejhr, in that a monetary sovereign government can conjure currency (or magic money) out of thin air, independent of its relation to real ‘hold in your hand’ wealth (resources), in the same way that a bank makes a loan simply by creating the amount in their ledger – and thus meaning, as you say, that a deficit actually does / can be seen as a benefit to the economy of that monetary sovereign state…

    but I still think that this is funny money – and, as such, merely represents a new claim on the real, and limited, resource pie.

    i don’t see how you can think that MMT can help us out of the resource crisis that drtim is talking about?

    • I see a slight improvement in your understanding, DO. You are correct that a monetary sovereign government can create its own currency debt-free, Just by paying its invoices on instructions from Treasury. This money is the source of growth in the economy as it’s a net credit and not a liability [which bank money is]. Real resources are required but economics just assumes they are there. Tim shows that to be a big problem in the future but we are not there yet. It will eventually be a zero sum game.
      In the meantime it helps to understand true macroeconomic procedure. We are all empowered by understanding and we might as well make the economy benefit all of us. Mainstream economics through the application of neo-liberal ideology is very damaging to the fabric of our society. We need to be rid of it, regardless of the resources issues.

      We are all dead eventually. MMT makes the economy a more equitable place in the interim. The mainstream makes it much worse. MMT supports a UBI [universal basic income] because it understands it would be debt-free money. the money, unlike QE, would go directly into the economy, raising GDP etc and thus possibly being revenue neutral. IN that case Inflation would stay contained and the currency strong. The spending limit is the Output Gap, the difference between today and a future with full employment etc. Just the same a government could conceivably bankrupt the nation, just by an act of parliament. Unlikely that one though.

  10. On MMT, could someone please walk us through how the process works in this example?

    Let’s assume the UK needs to bail out the banks, to the tune of 100% of GDP (i.e. £1.9 trillion). How does this happen? Does government debt rise by 100% of GDP? And does the value of GBP emerge unscathed?


    • It looks as though I am the only MMT cognisant person on this blog Tim. I am an amateur, by profession an architect, now retired. So I cannot call myself an expert like Bill Mitchell or Michael Hudson. but I can give my hopefully informed opinion.
      I suppose the question really is “what would MMT advise in contrast with what the mainstream did in the last GFC crisis?”
      It is a political situation, far from being just an economic one. I don’t know exactly the workings of the bail out crowd from 2009, but Ben Bernanke used MMT [not openly] to provide the bail out money. That is, as he admitted, he simply marked up the needy banks’ reserve accounts in the Fed with numbers to match the bail out. He did not use taxpayers money.
      Unfortunately, all that money just went to bank coffers and the neo-liberal cult of austerity was not touched. So not much benefit accrued to the general populace. MMT would address that.

      The First thing to say politically about MMT is that it derides austerity as a completely unnecessary blot on the economy. It is utterly unnecessary. So MMT might also bail out the banks but QE is not required. QE is an asset swap, which maybe suited the politicians and other ignorant people to make it look like it’s being paid for. It doesn’t have to be paid for! The payments Treasury gets the Fed to make [I’m using the USA as an example here] are with numbers marking up accounts. There is no box of numbers for the fed to dip into, they are effectively from thin air. They come without liability [only the Fed, the CB’s, can access this]. It’s not for USERS of currency.

      The banks will mark down their own numbers in accounts to reflect the reduced worth, but they can use the Fed money to pay back borrowings made by the public to the banks. This way the public are not wearing poor decisions and investments made by the banks. They got away with that in 2009. No one will permit that behaviour again. Also all the internal insurances and debt obligations will have to be written off, with no compensation. Then ban it. Another Glass-Steagal act.
      I’m no banker but something along these lines will need to be adopted.

      The end result will be a massive deficit spend into the everyday economy. None of the Austerity nonsense and no permission to let the wealth accrue to the rentier class. In that sense there will have to be some re-evaluation of private debt. So the banks will get new money to pay down private debts and the public will get a revalued house etc with the original mortgage much reduced, even eliminated. Steve Keen said those without mortgage debt should get a direct injection into their accounts to not be disadvantaged. The idea is to let the public be able to spend and buy goods and services which will boost the economy and get some inflation going again.

      Peripherally MMT wants a job guarantee scheme so anyone willing to work can have a job. But I would prefer a UBI, a living stipend paid to everyone, say over 16. with NO exceptions. Once again this is a deficit spend, and once again with free money. But the resultant growth in the economy would raise its value maybe enough to make the payments without excess inflation risk. As long as resources are for sale this can be done. Runaway inflation is the spending boundary.
      I refrain from more detail here. Another time.

      All this deficit spending is anathema to conservatives, but they choose this out of rampant ignorance, not understanding what MMT says, which is that economies only grow with deficit spending. Budget surpluses are good for them but bad for the economy which will suffer recessions. They also force the federal government to sell bonds to pay for the deficits, but its really stupid. Fancy borrowing your own money. They do!!!
      MMT clears all that up.
      Hope this helps

    • John

      Thank you for this – and I certainly agree with a lot of the policy ideas that come from it. Opposing “austerity”, of course, does not rest entirely on MMT – the Keynesian case is that austerity is counter-productive, as it undermines demand. The Keyesnians themselves have a problem, though – truly gigantic stimulus simply hasn’t worked.

      On MMT itself, I find it both logical yet counter-intuitive. If, say, we double the money supply whilst the quantity of goods and services remains the same, logic implies that prices double – i.e. inflation.

      So, what MMT seems to say – correct me if I’m wrong – is that we can carry out a balance sheet exercise without inflating the money supply in circulation. So we can (say) rescue banks without causing inflation. It is certainly true that QE has not triggered inflation. It hasn’t triggered growth either, but its supporters can argue that one cannot prove a negative – without QE, would a drastic slump have happened? We simply don’t know.

      Where I can, I think, go along with MMT is about debt repayment – arguably, debt can be renewed (time-extended, or replaced/recycled) so that the question of repayment never arises. If, say, a 10-year bond becomes a 200-year bond, the owner still has a claim, and he can still sell it in the market. He has not, in that sense, “lost out”, then. His claim to 100 dollars (pounds, euros….) is still just as valid. He cannot collect it from the borrower, but he can turn his claim into immediate cash by selling it.

      So far, so good. But I still have two problems, conceptually.

      America, for example, has had growth over 10 years of $2.3T, but has increased its debt by $11.5T. This means that GDP is growing each year by $230bn, but only so long as debt increases by $1,150bn. Can this carry on indefinitely? Perhaps – but it sounds counter-intuitive.

      Then there’s interest – QE slashed rates to almost zero. Great for borrowers, bad for savers, arguably zero-sum game. But low rates undoubtedly distort the economy. They keep afloat “bad” businesses which really should go bust – and this is necessary to create space for new, better businesses (“creative destruction”). Then, low interest rates ravage returns on investment. So, even if debt isn’t a problem, pension fund deficits are.

      Sure, we could treat these deficits as a form of debt, nationalise them as public debt, then use MMT to extinguish these debts. This, however, gives money to pension recipients, who otherwise would not have received it (that’s what pension fund deficits surely mean). Is “giving money to people who otherwise wouldn’t have got it” inflationary?


    • MMT is quite counterintuitive, but so can bookkeeping be. A lot of economists don’t ‘” double entry bookkeeping. MMT shows deposits come from outside the double entry system, so called thin air. But then money itself is problematical. Numbers in accounts are not money. In that sense the federal government has no money, neither do the banks because all their transactions are just numbers, labelled money but not liquid. If you want cash from your bank, the bank has to buy it [vault cash] from the government as they can’t make it themselves. It gets quite complicated!

      So manipulating numbers can conceivably be done without real world consequences. Your 200 year mortgage is like that. Or consequences can be relatively benign. The sort of partial debt jubilee I mentioned halves asset values but also halves the debts, so the balance is still zero. The idea is to try for a reset and wind back the extremes we are seeing today.

      You touch on the major approaching trauma. Our civilization has passed its peak [back in 1970-71] and debt growth is how we mask it, how it allows BAU to carry on. I’m afraid only a crash is going to stop it. MMT is simply looking at the existing system and showing how it really works, but it’s not a magic potion.

      Pension fund deficits are not really a deficit. Any future spending is only a liability at the instant it falls due. At that same instant the new debt can be paid by the government of the day. That why there is no such beast as an unfunded liability. We do not save for it. Private super simply takes away spending power from the purchaser of super. Eventually government will be forced to step in and top them up with its free money. So why bother unless you can absorb the losses through zirp etc? Who can guarantee a company will last solvent till your retirement? Look at the mess with General Motors super bankrupting it and slashing benefits as a result.

      In order to stop the runaway gap between economic worth and the debt it requires, it’s simply a matter of not booking it. It’s free already. I mean not booking deficit spending on pensions and welfare and fixing the banks. That would hide inflation, but it still may not be but modest.

      Giving money to people who otherwise wouldn’t have it is inflationary, but that’s desirable if it’s modest. I haven’t seen a calculation where the various factors are added up – the up front cost for a UBI [which would zero out all other pensions etc] less the economic boost it would cause to the GDP and against the output gap. The potential of the economy at full employment is greater than the existing economy by this output gap. The White House figured it was $1.8 Trillion back in 2012, but that was probably conservative and well down on today.

    • @drtim @ejhr

      In my view both MMT and what we might call ‘mainstream economics’ are merely competing theories which, although describing our current situation in some surprisingly different ways, can actually offer no way out of our resource crisis – so this is not a direct answer to your question.

      Interesting though it is to seek clarity and some kind of explanation of just how we ended up in this mess; and some idea of how things may work out in the immediate future, – which is precisely why I follow your blog, drtim, and engage with other commentators, take a bow ejhr, – I do not believe that there is any way of manipulating the economy that will allow BAU to continue for much longer.

      The iceberg has been struck, and all debate about deck chair allocation and arrangement is becoming increasingly irrelevant.

      I believe that the only rational response to this situation is to look to the lifeboats.

      Fortunately, as human beings, our needs are few and easily met. Food, warmth and shelter.

      The main thing to aim for is to try to find ways to meet some of those needs for yourself – without having to pay for them.

      So – get some chickens, feed them on your kitchen waste and fill a couple of carrier bags with things they like to eat when you go for a walk each day. This’ll get you eggs for free. If you’ve enough land to free range them you needn’t bother with the carrier bags.

      Buy a whole load of Jerusalem Artichokes while they are in season (ie now in the UK) and dig them into your own garden and any wasteground nearby. Establishing a patch of burdock is even easier and possibly even more productive. Just collect the burrs, allow them to dry, break them up and scatter them anywhere that you’re likely to remember to go and harvest the roots afterwards.

      Get an old fashioned, ‘turn the handle’ meat mincer. If things get really bad you can mince up a few carrier bagfulls of anything that isn’t actually poisonous (even plain grass will do) , squeeze the juice out of the resulting pulp; and then boil it. The protein coagulates and you just need to skim it off the top and squeeze out the remaining liquid.

      I have many more simple and almost free ways that I use to reduce my dependency on BAU – perhaps I should write them up in a blog while we still have the Internet to share things on.

    • Thanks, and an interesting discussion, making many good points. Frankly, though, I think it’s a bit over-zealous in places, and somewhat light on cost issues.

      We need to start somewhere else, I believe. Despite current low prices (caused by over-investment, and thus cyclical), the cost of oil and other fossil fuels is on a sharply rising trend. This means that renewables can, and I think will, become cheaper than fossil fuels. But matching the cost of today’s new sources of oil isn’t the same as matching the costs of legacy assets, like giant Middle East fields.

      So, if we relied on fossil fuels alone, we’d be facing a cost disaster. Renewables can help us prevent that. But they can not restore the super-prosperity we enjoyed when fossil fuels were abundant and cheap.

      Technological progress is impressive – but it is still governed by the envelope of the laws of thermodynamics.

      Then there’s the environment, where renewables are vital. I remember a few years ago looking up vertically at the sky over rural England and noting the disturbing yellow tinge – being this visible is still not a common event, but is worrying nonetheless. When I travel to the UK from a place with the world’s cleanest air, the difference is almost tangible. Even the Mediterranean, where I live, is palpably cleaner than Britain. And, irrespective of global warming, pollution itself is a killer.

      So we must go for renewables – and I think that the US needs to put more capital into renewables, and less into hydrocarbons.

      We just mustn’t delude ourselves that we’ve cracked it, and can transition painlessly, without any sacrifices or changes. I find it hard to evisage the machines that hack 1 tonne of copper out of 500 tonnes of rock running on electricity. I can’t see electric accessing of nitrogen fertilizer on the necessary scale, either. An electric-powered 747 would need the entire output of Sizewell for 90 minutes to charge its batteries. Renewables produce electricity, but are still less than 3% of all primary energy.

      Without being too flip about this, I think renewables may save humanity – but I don’t think they’ll rescue consumerism.

  11. Dr T – Fascinating stuff, I think most people, once cleansed of their group-think brainwashing wont care that much about rescuing consumerism because it’s mostly just mindless wastefulness. They’d be quite happy to rescue most of their current decent standard of living, by which I mean a possible daily quick shower to stay healthy vs a jacuzzi whilst half the planet don’t have clean drinking water to give just one example.

    I totally get you on pollution – people for the most part don’t get the real cost of modern life because things like pollution aren’t priced in & it’s not so obvious to the senses on a daily basis. If it’s not too personal a question, I would really like to know where you recommend living in the Med because I’m working on a dream of retiring there soon.

    I seriously think UBI can work because whilst I battle to understand MMT despite being multi-degree’d, (in the sciences) what is playing out anyway in terms of QE, anything-it takes money for bank bailouts, white elephant projects or prestige wars, doesn’t seem too be any less voodoo economics. (if that’s the implied criticism of MMT) Then as far as energy is concerned, I think we could transition to sustainability if the elite were removed from gate-keeping duty. Yes renewables won’t have the concentrated energy power to fly a plane, but if they took up the heavy lifting of daily power generation for mundane/non-specilised usage, like heating, running vehicle batteries, everyday arbitrary electric homeware devices, there’d be enough specialist fuels left for things like planes. We could carpet deserts with solar panels & regulate/tax encourage for new-builds to be energy neutral on homes, commercial buildings & infrastructure in general – the tech for all this already exists now – it’s just corruption & ineptitude that is preventing it from becoming a reality.

    • Thank you, Savant, for some very insightful comments.

      Let’s divide the world into those who “get” surplus energy economics, the foibles of consumerism, the environment and the failure of neoliberalism; and those who don’t. The latter often dismiss the former (us) as dreamers, not in touch with nitty-gritty reality. That’s a vulnerability that we need to counter – hence my throwing a lot of stats and theory at readers of late: on global debt, China and, here, the UK (and I’m going to cover the US here pretty soon). I’m convinced we (myself included) need to equip ourselves to answer in detail.

      Consumerism is part-and-parcel of neoliberalism. It’s based on one fundamental misconception. If a poor person is given money, or things, his/her life is improved, and happiness and fulfilment with it. But it doesn’t follow that, for someone who isn’t poor, simply piling on more consumption and more things makes them even happier, and even more fulfilled. It’s a delusion, but a powerful one. It’s actually pretty childish. Children can easily think that being given a new bike or a new phone will make them happier, but adults are supposed to have grown out of this.

      From this perspective, making sure people everywhere have “enough” is imperative. It’s what economics should be about. Market forces can help in this, as Adam Smith showed. Greater prosperity, if it means greater security, is a force for good. But there comes a point at which this becomes “consumption for consumption’s sake”.

      There are challenges ahead – fossil fuel resources are rising in cost (even if they oscillate in price), and it’s a moot point over how far renewables can counter this. We may not go on getting “richer” – and my belief is that this process has faltered anyway.

      But this means we have to make the best of what we have. We need two things. First, the smartest way of running things, which neoliberalism clearly isn’t. Second, a new frame of values which isn’t consumerism, but broader fulfilment.

    • Hi Tim

      I certainly agree with you on the difference between wealth and quality of life but I seem to remember many studies of this which does confirm this view, so it’s not something that is completely foreign to people. It’s certainly a view which is pushed relentlessly by business for obvious reasons but it’s not a view that is actually held by many others who can indeed see that more Mammon is not necessarily a good thing.

  12. Let us imagine, for a moment, that deck chairs are units of currency, and deck space is the resource upon which each deck chair is a claim. This is a one-to-one relationship of deck chairs and deck space.

    While the ship is still being built in the shipyard, the deck space is increasing and more deck chairs can be created to claim the increasing deck space. This is still a one-to-one relationship – in a situation of growth.

    Once the ship has sailed, no more deck space is being created. Since not everyone uses their deck chairs at the same time, however, the number of deck chairs can be increased well beyond the actual deck space available at any one time. This is the deck chair version of fractional reserve banking.

    At some critical point, however, if the number of passengers is increasing (population growth) and increasing numbers of deck chairs continue to be created – there will be more people wanting to use their deck chairs at the same time than there is deck space available.

    This is a resource crisis – and no amount of fiddling with the method of deck chair allocation (different economic theories) will fix this (though one could, for example, try things like only allowing red deck chairs on some days and only blue on others – but these are still allocation fiddles rather than increasing the the underlying problems: the finite deck space).

    The problems that we face today, in the real world, are a whole order of magnitude greater than this – for our ship turns out to be the Titanic; and no amount of rearranging the deck chairs can address the issue of the iceberg.

    The time has come to think seriously about life boats.

  13. Tim
    Thanks for the work you’ve put in on this and for making it available. Remarkably (worryingly)
    consist themes since “The Perfect Storm”

    I think the economy is what’s known in technical terms as a “Norwegian Blue” although on the
    basis that misery loves company so are most others in one way or another.

    What’s really worrying is the EROEI figures- the rapid decline and the forecast further decline.
    On my reading of your work and Charles Hall we have absolutely no wriggle room – healthcare on its way out followed shortly by education (if I understand correctly) and on top of this we have to renew much of our energy and transportation system and rebuild the economy. Oh and lots of infrastructure and a new runway at Heathrow and Crossrail 2 and many other nice things. I feel
    tired just thinking about it.

    Just to cheer you up I thought I’d pass on this bit of boomer special pleading from the Times. In an article about how the population is set to rise to 70 million within a decade Baroness Altman former pensions minister and pensions expert said “We’ve got to start putting some money aside now. We should be celebrating that the baby-boom generation are going to live longer on average than previous generations but we need to make sure they have some resources earmarked in case they need care” Celebrate you millenials and back to the poor house. The thought of the government having a digital piggy band to put earmarked non existent resources into is mildly amusing ( at least I think so).

    “I think renewables may save humanity – but I don’t think they’ll rescue consumerism.” I’m enjoying the transformation of “Terrifying Tim” into “Very slightly optimistic Tim”

    Thanks again


  14. Regarding the transition to renewables – I’m already preparing myself for a lower standard of living. Although my views will not appeal to the young who want a better mobile phone every 18 – 24 months – the fact is that we’ve currently almost reached the limit of silicon technology so it is time to consolidate on all consumer goods.

    Currently we are wasting massive amount of energy on producing consumer goods that have a very short lifespan. Think cheap white goods – electronics – Marks and Spencer’s clothes and many makes of cars.

    We have created a replacement based society which cannot go on for much longer – regardless of how much we would like to show off a new car to our neighbours.

    I’ve invested in three Miele products – including a washing machine and tumble dryer. After 5 years not a hint of trouble (they’re both guaranteed for 10) – but my poorly made Hotpoint went up in smoke after only 3 years.

    Now I don’t know how much more energy is used to produce a Miele washing machine than a poorly made one – but if it lasts 3 – 5 times longer (which it probably will) then there must be an overall net energy saving.

    You never know – by 2030 – 2035 – after painful adjustments – we could have a happier society – living in much cleaner air – that has learnt to make do and not base happiness on walking around shopping centres wondering what to buy next.

    If the goods we are buying by then are far more robust (think graphene to strengthen certain products and stronger more durable materials) they’ll be less need to shop anyway so we could spend time involved in more life affirming activities.

    We might even have yet more time on our hands if robot labour takes over –

    Break out the darning needles.

  15. Thanks Tim – fascinating stuff.

    Something occurred to me – if house prices in the UK had grown in line with CPI since the 1970’s, we would have a more prosperous, wealthier, and more equitable society. Is that correct?

    • I’m sure we would. Young people would be much better off, the economy would be better balanced, job mobility would be better, and huge sums of capital tied up in the “capital sink” of the housing stock could have been invested much more productively. Also, there would have been less incentive for speculation, and thus a greater emphasis on innovation.

      More like Germany, in fact……..

    • House prices are just one symptom of dysfunction in our economies. The rise of Neo-liberalism from the late 1960’s was well entrenched by 1980. It touted the infamous trickle down theory allowing the parasite rentier class to enjoy stripping the usual economy and financializing it for their own benefit using that theory as justification. So to have a more equitable society, tackling neo-liberal policies would be more important than winding back house prices.

  16. I have spent some weeks now reading up on MMT, seeing that fellow contributor to Dr. Tim’s blog here, suggested that he had some insight and fundamental understanding into the workings of the Economy, that most of us, if not all of us, were missing.
    I must confess that having delved into the subject matter, I am now of the opinion that there is nothing great to be learned from it. There was no Epiphany.
    I’m sorry, ejhr2015, I can tell that you are a true believer and that you cling to your religion, but I do not see your case as holding water, it must be the Austrian blood in me.
    Yes, you may be seeing a light that the rest of us do not, but it maybe that that light you are perceiving is not really a light at all, but simply the result of something pressing on your optic nerve.
    You said that MMT is counter intuitive and complicated, and that raised a few flags with me. Counter intuitive I can handle, but complicated, No.
    When somebody tells me that something is “complicated” it means only two things: 1) either they do not fully understand the concept themselves and are thereby unable to explain it, or 2) that they are lying or are deliberately withholding something from you.
    I read Dr. Tim’s blog here with great interest for a purely selfish motive, Self-preservation and the protection of my family. I need knowledge to make informed decisions.
    I have an intuition, ( yes, I’m a scientist but still suffer from animal instinct ) that there is something gravely wrong with our society, and that it is Economics which is at the core of this malaise. It is the Economic Voodoo which Charlatans ( mainstream economists ) and High Priests ( bankers ) have convinced our own governments to inflict upon us hard working folks, that is deeply corrupted.
    Donald Trump is right about one thing, “The swamp needs to be drained”. We need to establish a level playing field, so that we reward those in society who deserve to be rewarded, and not those with the stickiest fingers and of deceitful purpose.
    When I look at SEEDs, I see the world for what it is. One concept which I buy into fully is that the Economy is an Energy Equation. We are not going to change the world by arguing about which side of the balance sheet that a certain book keeping entry should be on, or about how governments should view Debts as Assets. We are passed that stage. One thing that we need to be clear about is that we are in the unravelling stages of the world economy as we know it. The SEEDs data shows this quite clearly. I think that the UK is leading the way, and that the decision to brexit might just be a heavy foot on the accelerator. This economy may unravel with simple discomfort for some, or this may end in war, with death and destruction all around us.
    At one stage I thought that MMT might work if we had a one-world Govt. with a one-world central bank issuing a one-world currency. That however was a concept too scary for me to take further !
    Anyway, I will probably not be around long enough to see what brave new world comes out at the end of this, but what I do need to do, is to preserve what little wealth I have accumulated over the years to see me through the years of decline that lie ahead. I think that focussing on the reality of our situation, based on Data backed by hard facts provided by Dr. Tim’s work here, and presented in an unbiased non-ideological, way will help me and others get through.

    Basically I need a “Store of Wealth”, and a “Means of Exchange”, something that I can put my surplus pay into today, so that I can still buy what I need once my productive years are over.

    In fact I think I will invent something, and I will call it: “Money”.

    PS. Excellent work Dr. Tim.

    • Don’t worry about me Johan, worry about your good self. If you can’t understand MMT it’s purely your problem, not mine. I am perfectly happy in the knowledge that MMT is based on reality, based on explaining the laws that created money and the power governments are given by their national constitution to create and control money,- in any way they like. So if the Government decides it must raise taxes for revenue live like a household, yes, it can. BUT it is free to do what MMT says it can do, which is to buy all its debts with money available according to law from thin air., ex nihilo.
      And many other important arrangements.

      You make a ridiculous case in criticising “complicated”. It’s obviously too complicated for you, but it’s complicated for anyone, and rendered all the more so in that MMT has to combat the false propositions of the entrenched mainstream that bedevils economics today.

      You have decided you will stay part of that mainstream cult and continue to throw in your lot with the mainstream. That’s entirely up to you, but I will not refrain from correcting erroneous ideas they cause you to throw up. I don’t wish your misinformation being believed by another blogger.

      If you ever find a fact that shows me in error, be my guest! So far i see only your diversions and assumptions, such as assuming MMT requires a one world government. It doesn’t.
      As to us heading for a cliff, MMT says nothing but no economic argument says anything, yet. Economics assumes it’s all good going forward. Tim and Gail and the bloggers all know better. But that doesn’t mean we can’t do something about getting economies onto a sound footing in the meantime. It may well give us more breathing space, because a crash will be truly ugly.

    • ejhr,
      I am sorry that you feel this way, it is obvious that as far as MMT is concerned, you have true and manic belief in it, to the point of fanaticism. I might even suggest that you are so close to the “light”, that you may even be blinded by it.
      I did try to go along with what MMT was postulating, I wanted to find the “truth”; I still do, but I do not believe that it lies with MMT.
      As for “not understanding”, how can you say that it is me who is not understanding ?
      You are assuming a pretty arrogant stance in saying, that I and several others are incapable of understanding MMT.
      I mean, you are only an architect, so I would say that my degree in Physics trumps your hnd or degree any day when it comes to the ability in understanding complex systems. The same goes for all the other very well educated and astute people who read these pages. We all have valid opinions and Dr. Tim Morgan does exceedingly detailed and meticulous research. His conclusions are solid based in fact and figures, and these do not need faith to be believed. I am much more inclined to take his view of the world economy than that of a hobbyist who has “seen the One light” and who refutes and denigrates any views and opinions from others whom he deems are essentially too stupid to understand.
      As I indicated earlier, maybe you should have a neurosurgeon look at those optic nerves of yours.

    • It’s a bit rich of you to criticise ME because YOU can’t understand. Childish behaviour! Equally childish is to compare professions in that light. You really are a sad case. But I am disappointed you cannot “Get” MMT. We need all the help we can to turn around the massively dysfunctional economy we are stuck in today.
      You haven’t actually said what it is about MMT you can’t get. Give me an example.

    • @ejhr

      “A Government … is free to do what MMT says it can do, which is to buy all its debts with money available according to law from thin air., ex nihilo.”

      This is disingenuous, ejhr, and you know it. You have already conceded that there is an upper limit on such ex nihilo money creation and that “real resources are required” though you try to qualify this by saying that “economics just assumes they are there”.

      (Taken from this comment of yours: https://surplusenergyeconomics.wordpress.com/2017/03/19/90-after-peak-prosperity/#comment-3275 )

      You also admit that:

      “Our civilization has passed its peak [back in 1970-71] and debt growth is how we mask it, how it allows BAU to carry on. I’m afraid only a crash is going to stop it. MMT is simply looking at the existing system … , but it’s not a magic potion.”

      Given that this blog is discussing the reasons for the crash you refer to – due to a lack of resources – and that you agree that MMT “is not a magic potion” that can prevent this; what on earth is the relevance of MMT to this discussion? We have no more “breathing space” and while we might be able to kick the can a little further down the road by adopting the MMT view of deckchair rearrangement – this does nothing to address the real issues.

      As for Gail’s blog – there’s a limit to the number of times I can see the Leonardo sticks picture and retain my sanity! If the ‘gems’ you refer to are the few simple ways that I suggested to reduce one’s reliance on the economy that you agree will crash, I’m glad.

    • D O. you fail to think through your reasoning. Let me remind you MMT is the most rational way of working what the Constitution gives to the government, this is -TOTAL power over the currency. This is a double edged weapon in that the government can act sensibly and/ or it can act stupidly. Stupid is the chosen path today. MMT would be the sensible way. To call it disingenuous shows you haven’t a clue.
      It’s certainly relevant that we are on an irredeemable path to destruction. My suggestion is that following MMT will give us a chance to avoid instant chaos so we might be able to have a more managed descent . The end will still be the same, but in the meantime…..
      MMT is thus very relevant to this discussion. Glad you asked. Now you know.

    • @johan: You want a store of wealth and a medium of exchange, something to put your surplus into today so that you can still buy what you need once your productive years are over.

      I’m not sure that any of us will be able to buy what we need when we need to in the future – a simple power cut when I was shopping earlier today meant that we all had to wait until the power came back on… and then it took ages for the tills to reboot so we could pay for our stuff – and power cuts will become increasingly common.

      Not long ago shops could cope quite easily with this: we just paid cash for the price-labelled goods and they rung the money into a mechanical till.

      No longer, it seems.

      Electrical payment systems and barcode scanners etc are bad for business – and bad for their customers.

      So, just like it has been for millions of years, we just have to try to put systems in place that will provide for us in our old age – and leave a productive legacy for our children’s future.

      These systems are really not that complicated – they consist of fairly small areas of land – and children who grow up and will do their best to take care of you when you come to your time of need.

      All you need to do, Johan, and any others pondering the same question, is to think about what you need each day – food, warmth, shelter – and find a place that you can grow it on.

      Then start trying to do it.

    • @Default Opt.
      Sound advice, thank you.
      I myself am a man of simple means, I enjoy a good meal a good wine. Fortunately I am also fond of gardening and growing vegetables. I have a small plot of land in Austria which I was intending to retire too, its a bit out of the way, but beautiful scenery all around. I would have absolutely no problem in settling there even without electricity. I have opted for Au and Ag coins to help pay my future bills; there is no guarantee that these will be accepted, but their history is good.
      As for the other points that you raise, well I think that we all know that it is quite pointless to try to discuss anything with religious fanatics. We will always be wrong, because in their eyes we are too stupid to see their “truth”.
      .. and as you point out, even if they were to be right in their Theory, the world economy is now too far gone to avoid the coming collapse.

    • Yes, Johan. We cannot use excel anymore to make the world go round. Those days are over.

  17. Dear Dr. Tim
    I very much agree with you that money is the language of energy. But it is impossible for me to swallow that renewables could even give us the slightest relief in our energy predicament. In the following I present a real existing example of a wind farm placed in the see in Denmark. It is called Anholt Vindmøllepark. Price 10 billion DKK (1 GBP = 8.61 DKK. All wind mill are industrial product and are therefore produced under industrial circumstances in factories driven by electricity which they get from coal fired power plants. I assume that the price of 1 ‘industrial’ kwh is 0,50 DKK. The production price of the farm equals consequently 20 billion kwh, which I ask the farm to repay in its lifetime. It has an installed capacity of 400 MWh and a lifetime of 25 years. Its total production will be a little less than 50 % of capacity. A total production of 40 billion kwh is a fairly good guess. That means an energy balance of 2! And I have not calculated maintenance and operation in! And I have ignored all the problems connected with intermittent current.

    • Hello Niels.
      The first offshore windfarm in the world (the Vindeby Offshore Wind Farm – Denmark) has just been decommissioned and is now being removed. Its lifetime capacity factor was 22%. Your guess of 50% for a capacity factor for the new wind farm you mention is probably over-optimistic.

  18. America, for example, has had growth over 10 years of $2.3T, but has increased its debt by $11.5T. This means that GDP is growing each year by $230bn, but only so long as debt increases by $1,150bn.

    The debt-GDP causality relationship remains far from proven. Let’s take U.S. households, for example. Debt increased by 3.7T (11.5T to 14.2T) , but cash deposit equivalents increased by 3.4T (4.8T to 8.2T) over 10 years. The argument is that most of household borrowing ended up in savings accounts.



    It’s a major weakness in you analysis if you are only going to focus on stock flow ratios.

    • I accept the point about cash savings. If I had access to data on household cash holdings, I would incorporate it.

      However, the essential logic remains solid, because it is not suggested here that all borrowing fuels consumption. Far from it. Taking the UK as an example, total borrowing between 2005 and 2015 was £1,369bn. But the system treats only £182bn of this (13%) as borrowing used to fuel consumption. There are strong transmission mechanisms from borrowing into consumption, of which household unsecured credit is just one.

      Moreover, I’m not suggesting that stock flow analysis explains everything. Rather, I’m saying that failure to incorporate this at all is a blind spot in conventional interpretation.

      For instance, to accept £215bn growth in the UK, 2015 vs 2005, you’d have to assume that borrowing £1.37 tn over the same period had no bearing on it. The rapid pace of debt accumulation strongly suggests otherwise.

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