#114: Déjà vu, all over again


Adjectives such as ‘shocking’ and ‘astonishing’ have been applied to the recognition, in Britain’s recent budget, that growth is going to be extremely weak well into the 2020s, and that real earnings will remain lower in 2022 than they were back in 2008.

The favoured explanation for this weakness is the so-called “puzzle” of poor productivity. Solving this mystery will, supposedly, restore robust growth and reverse the long years of deteriorating prosperity.

In fact, there’s nothing too ‘astonishing’ about any of this. For a start, productivity is really nothing more than economic output divided by hours worked. The calculation uses GVA (gross value added) rather than GDP (gross domestic product), but the former is a subset of the latter, differing only through some modest technical adjustments. Hours worked don’t oscillate dramatically over time. So saying that ‘productivity is poor’ is another way of saying that ‘economic performance is weak’.

The latest hand-wringing over prosperity really amounts to official recognition that the British economy is feeble. In the years prior to 2008, productivity grew at an average annual rate of 2.1%. Ever since its inception in 2010, the Office for Budget Responsibility (OBR), which advises government, has framed its forecasts on an assumed return to this previous rate.

In reality, trend growth in productivity since 2008 has been just 0.2%. The OBRs acceptance of this new reality was the cause of the sharp downgrades to growth assumptions announced by chancellor (finance minister) Philip Hammond in his budget.

If there’s a “puzzle” here at all, it is why the OBR has expected anything different, and why it has held to this assumption for so long. The shock and astonishment expressed about this by experts and the media is unlikely to be shared by the general public. They know all too well that prosperity has been deteriorating for a long time.

A second “puzzle”, far worthier of attention than the productivity conundrum, is why the-powers-that-be do not seem to understand the real issues involved. Essentially, the most constructive single thing that Britain could do would be to address serious imbalances in the economy.

And none of these is more important than the grave imbalance of incentives. Put another way, risk and return are extremely out-of-kilter, discouraging activities that would inject growth into the economy, and favouring those that do not.

Put yourself in the position of somebody with, say, £1m to invest. How does this person set out to increase this capital?

Essentially, there are two ways of doing this.

First, he or she can invest in an enterprise, bringing new goods or services to the market. This can be described as ‘innovation’, because the aim is to create value where it didn’t already exist.

The alternative is to buy existing assets, aiming to profit from a rise in their price. This can be termed ‘speculation’. This is not intended as a pejorative term. It simply means that anticipated rises in asset prices are speculative, because these increases might not happen, and prices might actually fall rather than rise.

For the investor, either strategy can prove equally efficacious. From a national, macroeconomic perspective, however, they are as different as chalk and cheese.

Investing in new goods and services adds value to the economy.

Investing in existing assets does not.

The trick for government is to favour the innovation route which delivers new streams of value, making it more attractive than the alternative, non-value-adding choice. By ‘more attractive’ is meant ‘offering a more favourable blend of risk and return’.

Britain, to a greater extent than most, has got this balance wrong. Moreover, successive governments, far from addressing this handicap, have gone to great efforts to make it even worse.

The person investing in a new enterprise necessarily faces significant risk. His new product might fail, or the economy might turn against him, making customers less willing or less able to buy his product. He might not have access to sufficient capital, at a low enough cost, to see him through the stages from research and development to marketing and impact. Competitors might undermine his efforts, perhaps through combination or predatory pricing, or perhaps simply by making a better offer to consumers.

Risk, then, is stacked against the innovator. It also requires a lot more effort than simply buying existing assets and hoping for a rise in prices.

Because of this, government needs to be pro-active in encouraging the innovative entrepreneur. This includes not making the alternative, speculative route too attractive.

This hardly describes British policy. The innovator faces hurdles at every stage of the process. He encounters a forest of regulation, some of which is necessary, a lot of which is simply gratuitous, and much of which bears proportionately more heavily on the entrepreneur than on larger, established competitors. Taxation is pretty onerous, including employment levies, the obligation to devote resources to collecting sales taxes, and the truly absurd Business Rates, absurd because it is unrelated even to turnover, let alone to profits.

The speculative route, on the other hand, gets a great deal of help from government. If asset prices, and most obviously those of property, threaten to fall, government will intervene with back-stops, most obviously with harmful gimmicks like “help to buy”, but more seriously with monetary policies calculated to inflate asset markets. No-one is going to back-stop the innovating entrepreneur in the same way. To cap it all, profits made on capital gains are taxed far more generously than income from creating new sources of value.

What successive British governments have said, in effect, is that ‘we favour speculative investment’. They have backstopped speculative activities, and have imposed low rates of tax, and pretty modest regulation, on those who want simply to buy existing assets and gain from increases in their price.

A more sensible route, surely, would be to redress the balance of incentives. This approach would favour innovation by granting some regulatory exemptions to small firms, removing some of the tax burdens imposed on them, perhaps providing advantageous lines of credit, and ensuring that bigger players do not act in ways detrimental to the small business, or otherwise benefit from a playing field that is far from level.

Complementary to this would be higher rates of tax on transactions and capital gains, combined with an avowed withdrawal from backstopping the prices of property and other assets.

These weaknesses are not unique to Britain, of course, but appear more serious there than in many comparable countries. Large allowances are given against taxes on capital gains, taxes which are often levied at rates lower anyway than on comparable amounts of income.

If a country sets out to favour the speculative over the innovative, it can hardly then complain if investors opt for speculation, and don’t put much effort into innovation.

The SEEDS model shows the real severity of the British economic malaise. Per capita prosperity, as measured by the system, has declined by 9.4% since it peaked in 2003, and continues to deteriorate. In the years since then, Britain has borrowed £5.50 for each £1 of recorded growth, and even the latter includes a sizeable component of simply boosting apparent output through the spending of borrowed money.

With energy costs rising, the crunch point of talks over post-“Brexit” trade looming, the currency at significant risk, and investors presumably questioning the wisdom of investing in an economy where customers are getting poorer, now is not the time to fiddle about with cosmetic incentives, and indulge in naval-gazing over a supposed “productivity puzzle” that is, in reality, no puzzle at all.


= = = =

Here’s how productivity looks on a basis adjusted for the “borrowed spending” impact on economic output:

114 UK productivity 02jpg_Page1





221 thoughts on “#114: Déjà vu, all over again

  1. A Reuters examination, including a review of court records of cases, shows that across China, unqualified borrowers use fake documents to secure mortgages, while loans deceptively obtained for other purposes are funneled into property.

    These frauds are often committed with the consent and encouragement of other parties to the transactions, including lending brokers, property agents, valuation companies and the banks themselves.”

    SHANGHAI/HONG KONG/BEIJING – When Zhu Chenxia bought a flat early last year from Lei Yarong in the up-market Nanshan district of China’s southern metropolis of Shenzhen, the two women drew up three purchase agreements to cover the deal.

    Only one was genuine.

    In the legitimate contract, Zhu agreed to pay Lei 6.49 million yuan (about $980,000) for the 96-square-meter apartment near the city’s border with Hong Kong, according to records filed in a Shenzhen court. With the help of her property agent, Zhu cooked up a second contract with Lei that overstated the value of the flat at 7 million yuan. This one was for the bank.

    If Zhu had presented her lender with the true purchase price, she would only have been entitled to borrow up to 70 per cent of that amount, or 4.54 million yuan. Chinese regulations stipulate that first-home buyers in some major cities must make a down payment of at least 30 percent to reduce bank exposure to risk. The higher valuation convinced the Bank of China to lend Zhu 4.85 million yuan, leaving the lender less buffer against a price drop.

    Details of the deception are contained in a court judgment from a subsequent dispute between Zhu and Lei over the transaction. Remarkably, Zhu herself disclosed the fraud to the court when she gave evidence that showed the pair had conspired to cheat the bank and the government.

    More https://www.reuters.com/investigates/special-report/china-risk-mortgages/

    Sub-prime… on steroids, crack, coke, speed, heroin, meth, etc…

  2. One wonders if a lack of real productivity growth and real ‘value’ added is actually a good thing in the long term.

    Assuming that a significant component of UK productivity is producing things we don’t really need and that may be detrimental in the long term (e.g waste, pollutants)

    If the powers that be don’t have the causal knowledge to help them figure this productivity issue out, then maybe they should remain in the dark?

    • That would be fine, Kevin – if only they were not responsible for the current and future well-being of millions.

      “Rubbish in, rubbish out” surely applies as much to policy as it does to calculation. I seem to be thinking in cliche-terms this morning – “if it’s not measured, it’s not managed”, and “the blind leading the blind” both seem apposite…..

    • Yes – They seem to be in a bit of a predicament.

      A friendly challenge to an underlying implicit premise within your previous comment and also your wider body of work:

      Are they actually responsible for the prosperity and well-being of millions of people, or do we just believe this?

      I raise this only to help gain potential additional insight, and also as a hypothesis to explain the lack of informed policy development and action by previous administrations.

      I can say with some confidence that national and regional ‘authorities’ have implemented and encouraged mechanisms which have resulted in increased prosperity in the past. But was this their responsibility? Or was increasing prosperity a tool used to help ‘govern’? Will they have a continued interest in prosperity?

      This questioning of the role, and hence the concerns, of authorities is something that started when I was doing Enterprise Modelling for the defence and security ‘bit’ of HMG. When attempting to model these systems we couldn’t even agree on the purpose, function, or role of these systems – and where the boundaries for departmental responsibilities lied. Further investigations suggested that this was also a problem for HMG more widely? What is it for? What are it’s functions and hence it’s responsibilities? This is far more fluid than most people realise and their expectations of government are based on past government activity, not any stated purpose of government.

      Sorry for the rabbit hole – keen to challenge premises to help improve the arguments.

      I agree in principle with your statements on what government should do. But that conclusion is based on my expectation of HMG only. Which could be far wide of what they are willing or able to do.

      However I do appreciate that by making our expectations public there is the potential to influence the the role of HMG chooses to play over the next few decades.

    • @drkevinoniell

      What an interesting premise to challenge – and a very good point!

      Thank you.

    • Kevin

      This is a very interesting question. (I assume you are referring to the periodic resilience exercises, in one of which I was invited to participate?)

      I’m bound to come at this from an economic and historical perspective. First, history. Back in 1500, there was no reason why Europe, rather than any other continent, should have risen to world economic and political superiority – after all, China, at least, had a more developed cizilization, and Arabia was ahead of Europe in many respects. What made the difference seems to have been context. Moreover, there was no obvious reason why Protestant rather than Catholic Europe should have won this race, but it did. Again, this seems a matter of context. Commerce, and with it finance, exploration, colonisation, industry and naval power all seem to have flourished in Europe, again because of this context of law, belief, ethics, motivation, ideology and so on. Governments play a major role in the setting of this context.

      Second, economics. Apart from some kindergarten liberals who would privatise absolutely everything*, everyone recognises an important economic role for government. Even free-market radicals recognise the need to control monopolistic and oligopolistic behaviour, to enforce contract law, and limit abuses. (Right now we have to decide what to do about the tech giants, where attitudes differ markedly between the EU and the US). More important still, government sets fiscal and monetary policy, controlling interest rates and the money supply, and applying fiscal and monetary stimulus or restraint. These set the ring – again, the context – within which economic activity takes place.

      We can see this very graphically in recent experience. First, excessive deregulation created the credit bubble, and the dispersal and proiliferation of risk, which caused the crash. Since then, ultra-cheap money has enabled the system to co-exist with huge debts, but has created asset bubbles, stymied ‘creative destruction’, and undermined pensions because it has destroyed returns on capital.

      So there’s definitely a role for government. This doesn’t mean government alone, because other factors, including culture, ethics, beliefs and motivations come into it. Neither does it imply that government always knows what it’s doing!

      * A proposal to put the Crimean War out to private tender received 114 votes in the House of Commons in 1855. In fairness, the contemporary Army was a complete shambles.

    • I interpreted the question to be whether the main purpose of ‘the powers that be’ was ultimately simply to remain ‘the powers that be’ rather than the health and wellbeing of the population, economy etc.

      Related to this is the question of whether ‘the government’ and parliament themselves are ‘the powers that be’ – or merely useful idiots for interests behind the scenes.

    • Yes – the powers that be act towards self-preservation, albeit often in the sincere belief that this is the same as the general good.

      Though often bracketed as “sci-fi”, John Wyndham’s best books are really about how institutions, society and the public react to disruption – that’s why I enjoy them even though anything ‘futuristic’ leaves me cold. The Kraken Wakes, Trouble With Lichen and The Midwich Cuckoos are good examples. Personally, I think Wyndham nails it.

    • @Default0ptions

      I have interchanged the terms “powers that be”,”government”, and “authorities” on purpose to describe different perspectives of the thing others might refer to as ‘the elite’ or ‘the establishment’. I prefer the term “authorities” since is does not imply a role, but makes explicit their ultimate ability to exercise power over other groups for good or bad.

      A hypothesis I have been testing recently that I may have implied in my comments, is stated below (I have re-phrased to relate to Tim’s article):

      “The maintenance of the “authorities” prominence and the increase in their prosperity was previously best met through increasing the prosperity of the local commoners, since prosperity was primarily a function of innovation. However, in the late 20th Century more efficient methods were developed which are speculative and hence are not perceived to be limited by cost and availability of real resources, or take advantage of non-local labour which are more efficient offsetting increasing ECoE. However, these methods are ultimately extractive on the local commoners therefore reducing average commoner prosperity over time.”

      Keen for input to help test this.

  3. @Default0ptions

    Thank you Default. Tim’s work has for a long time challenged peoples preconceptions of what the future holds and why extrapolating the recent past to model the future may not be a very informative way of developing strategy. I’ve been an advocate for years now. One factor that is often implicitly assumed to be consistent in Tim’s work and others who anticipate the future is that the obligations/responsibilities, and hence concerns, of regional authorities remains fairly consistent.


    I know you are thinking about “collapse scenarios” yourself for a future piece. Which is partly why I was poking on assumptions related to government/authorities responsibilities and obligations.

    In a similar ‘collapse’ scenario development exercise I was involved in (we referred to it “energy-complexity spiral unwinding scenarios” – from J.Tainter) – one of the critical uncertainties determining the outcome was the ability of authorities to meet public governance expectations.

    This “ability” being a function of the authorities available resources, perceived responsibilities, perceived obligations, and perceived priorities. High emphasis on ‘perceived’ with all actors in these scenarios because their was no consensus view on this reflected in policy guidance to be used. The closest guidance to inform prioritisation of resources was the guidance for civil emergencies, which assumes a localised event, outside assistance, and a return to BAU very quickly. All the scenarios assumed that GOV.UK ‘Life After Growth’ policy guidance hadn’t been developed and ‘promising a return to growth’ 😉

    Myself and a few convinced colleagues never really got the chance to follow through on this work in the government sector – requests to continue to devote resources to these questions fell flat on their face at the first quarterly review when we had to justify what we had been spending our time on this financial year. Also it was not seen as my department’s responsibility to explore these things. So keen to see how you define ‘collapse scenarios’, where your conclusions go and what factors you think will be critical to the outcomes.

    • Kevin

      I have a somewhat ambiguous attitude to “collapse scenarios”. On the one hand, there’s a logic which points very strongly in this direction. On the other, though, I’m interested in what might be done now, if not to avert these things, then at least to plan ahead.

      I really don’t think that government, in the UK or elsewhere, really gets it where energy, the economy and the environment are concerned. As for public reactions, their only guideline on deterioration is “recession”, which by definition is a temporary, reversible and comparatively brief “event”. They can probably contemplate foreign invasion (which is very unlikely) more easily than they can grasp an irreversible deterioration in prosperity.

      Neither, I think, do they understand public responses to a sustained deterioration in prosperity. Taking the UK as an example, SEEDS says that prosperity (per capita) peaked in 2003, and has since fallen by 9.4%. I submit that we can see it all around us, in practical areas (such as debt, family hardship, cost of household essentials, food banks, the NHS, defence, tax revenues – the list is almost endless) and in more subjective criteria such as popular mood. As the saying goes, ‘if it walks like a duck, and talks like a duck, it’s probably a duck’.

      Even gradual increases in our own prosperity make us pretty relaxed about others who are “doing better” than we are. If A is getting more prosperous, he’s not too bothered that B, already wealthier, is growing prosperous more rapidly than he is. In times when A’s prosperity is deteriorating, this attitude changes fundamentally – hence, amongst other things, attitudes to immigration, “Brexit”, the Conservatives, Donald Trump, etc etc etc..

      So what I’m getting at is that three things, at least, should be obvious to governments – deteriorating prosperity, the failure of their systems to identify it, and popular reactions. I keep up the hope – forlorn though it may be – that somebody will listen…..

    • The PTB are not taking any action in anticipation of the end of BAU …. because they know this is an extinction event.

  4. Tim – the exercise I was involved in what to create a functional/capability based representation of the defence sector. This model was to help strategy development and service implementation through the use of a common language to talk about what it is we do, who performs what functions, and delivers what services. An outcome was also to identify replication of functions and services

    But from the start we were basing it on what the organisations had done, not what they were their to do (their purpose). So we couldn’t define boundaries at all. We had to start from the top-down. What is this Ministry actually for?! The shortcut answer from everyone was to describe what it does. A frustrating exercise that really showed how ungoverned government is 😉

    I am aware of the periodic national security assessments – and am aware of the resilience work done within government. I have contributed some of my own analysis to this exercise in the past. However, my conclusions on this process and the outcomes is that it is focused on specific short-term events, assumes return to BAU over time, and doesn’t sufficiently consider systemic long-term risks such as those you discuss, and especially the long term impacts of increasing ECoE. Hence my naïve attempts to try and set-up a process to get these sort of risks systematically defined, evaluated, options generated, and pushed into the policy development sphere.

    This work may happen – but if it does I couldn’t access the information even at my clearance level. So I work on the assumption it doesn’t happen.

    • I think it might, just possibly, be happening somewhere in the United States, and/or in China. It’s quite certain that they’d never tell us if it is.

      What I try to do is walk the narrow line between analysing the alarming without being alarmist.

    • “walk the narrow line between analysing the alarming, without being alarmist”

      Brilliant! Made me smile.

      Unfortunately, I got tagged as alarmist during my brief, officially sponsored, sojourn into ‘decline studies’. Doors closed quickly after that, and I couldn’t stomach futures research all based on the implicit premise of continuous growth.

    • Kevin

      It seems to me that there’s a conversation that some of us perhaps ought to have.

      There seems a need to blend, or maybe synthesise, various things, including: understanding of ECoE, the economy and, perhaps, climate change; awareness of how government (etc) functions; interpretation of popular responsiveness; and perhaps other, related issues too.

      What I think I’m saying is that long-assumed certainties are rocking. If I’m right that conventional economics doesn’t grasp this, it follows that advice to government doesn’t understand it either.

      For instance, it has taken the OBR more than seven years to recognise that it’s assumptions about the UK economic outlook were wrong. This does not – I stress this – make the OBR incompetent. Far from it. Rather, they are extremely bright people, and probably provide the best possible advice that government could have from a conventional economics perspective.

      The resulting conclusion – essentially, that recovery will be slower – is similarly framed within established assumptions. It is now accepted – albeit with “shock” – that average wages will remain lower in 2022 than in 2008. That is unprecedented – yet no-one is questioning either (a) conventional methodologies, or (b) the eventual restoration of what is thought of as ‘normality’.

      There’s the rub. Economics has always been framed from within assumptions which include limitless potential. Absent that, its most recognised, indeed revered and unchallenged tenets start breaking down.

      Ricardo’s law of comparative advantage, for instance, is mathematically demonstrable, and hence an article of faith for economists – but only functions without limits to scope for growth.

      Keynes’ principles of monetary and fiscal stimulus, likewise, are demonstrable, and virtually all economists (and not just “Keynesians” – a political term) accept them. Yet stimulus, since 2008, has been so gigantic than any reading of Keynes could only predict rapid growth, with risks of overheating and inflationary take-off.

      Those assumed consequences made the risk-return balance favourable, because we could always tackle the side-effects after we had recovered from 2008. But this isn’t what has happened – gigantic stimulus hasn’t restored growth or prosperity, it hasn’t been a temporary or ’emergency position, the economy hasn’t overheated, and the inflationary reaction hasn’t been the one predicted by theory.

      Please note, too, that government isn’t the only end-user of economists’ product. Finance and business are ‘customers’ of economists too. They are, I think, moving from confusion to discontent over the decreasing efficacy of economic interpretation. I deliberately refrain from anything that might look like investment advice, but I can highlight some very big sectors, and companies too, where invalid assumptions are likely to result in things going horribly awry.

      Finally, it’s reasonable to assume that what is commonly called “capitalism” hasn’t so much ceased to work (as the BBC’s Kamel Ahmed mused recently), but rather ceased to exist, at some point since 2008. By definition, ‘capitalism’ requires (positive) returns on capital, where ‘profit’ is the difference between return on capital less cost of capital – so where are we, when both are negative? Not ‘socialist’, to be sure, yet anyway – but if not ‘capitalist’ either, then where?

      Being ‘alarmist’ doesn’t boost anyone’s credibility, or influence, and actually for quite good reasons – we need ice-cool analysis, not superheated panic. Some of the responses to my ‘Perfect Storm’ report taught me this, even though it was reasoned, relatively restrained, and written the position of head of research at an important financial institution.

      Inshort, this may be a moment of fracture, or at least of tilt – new conditions, new rules, and everything to play for.

    • As you know, Tim, I have taken a keen interest in understanding real economics as opposed to the so-called mainstream brand put out from academia. The mainstream is precisely that, mainstream and thus it has the ear of governments and politicians across the board. Unfortunately it is just about always wrong. When the Queen paid a visit to the London School of Economics, she asked why no one had foreseen the GFC. No one there could answer. Steve Keen was one economist who saw it coming [It’s on record] maybe a couple of others but usually it’s the heterodox economists who get it right. These LSE people feed the government and the press.
      So, as you say, the organs of government have clever people on staff, but are fed bad data and end up with a mess.

      Governments don’t like being bearers of bad news, so they avoid any sensible public display .
      I don’t think there are plans to manage things if the SHTF moment comes. Maybe in secret something is being prepared. It would have to address urgent needs such as rationing of food and fuel. It would have to keep the police serving, the army ready to put out fires, the hospitals going even without power. Many options are required but keeping chaos at bay is super important. The crash will not all happen at once unless chaos takes over.

    • Clearly the situation we are facing is one of utter desperation. The policies of the CBs and governments reflect that they understand that we are in uncharted waters. You don’t commit suicidal policies unless you understand that without them … you die prematurely.

      By all rights the global economy should have collapsed in 2008. Without these ‘insane’ polices this ship would be at the bottom of the Marianas Trench.

      And to this day – the ship remains afloat because of these ‘insane’ policies. Pull back CB support (including plunge protection) for the stock markets — and they would – in the time it takes for the automated programs to fire a pulse through the grid with sell orders…. collapse into a heap of rubble.

      The way I see it the CBs and governments have done an incredible job over the past 9 years (and in the years leading up to the 2008 crisis)…… They have given us 9 years of extra life….

      As much as I’d like to play armchair quarterback and critique what they have done I will not because:

      1. I do not have access to the information that they are using when they make policy decisions.

      2. They would have teams of the best of the best working on keeping BAU alive — I don’t try to tell a brain surgeon how he could perform an operation more effectively either….

      3. They are performing miracles on a daily basis extending BAU – if that is just pure luck then so be it — but I hardly think it would be possible to have a decade long run of pure luck. Someone has a pretty good idea of which buttons to push and levers to pull to squeeze the last bit of mileage out of this busted up jalopy.

    • A shrinking pie simply abolishes currencies, whether we like it or not. We can slow down the shrinking by destroying demand for physical stuff like food, metals etc. in several places; Ukraine, Venezuela, Middle East, by creating havoc. Is this on purpose?
      Or, we can extend the lifetime of our monetary system through, indeed, “adventurism”. We are seeing both now.

      The paradigm shift goes from currencies to money, eventually. Because we don’t need currencies anymore, there’s no growth! So we can go back to money that is steady and doesn’t need debt and inflation; the money comes back to the physical plane as the monetary plane goes first Jupiter, and then crashes. Its the fogs of fiat that disturbs the viewpoints. We were born in debt based diapers made with surplus energy.

    • Regarding Tim’s comment on the “need to blend, or maybe synthesise, various things, including: understanding of ECoE, the economy and, perhaps, climate change; awareness of how government (etc) functions; interpretation of popular responsiveness; and perhaps other, related issues too.”

      IF groups of people want to develop and implement strategies to mitigate the affects of what some refer to as the ‘Age of Consequences’, then I agree that such a synthesis of knowledge and blending of the ‘ologies’ would need to be widely encouraged, and advice from such people heeded.

      I have previously been a practitioner and fervent advocate of methods which go by the names of “holistic studies”, “systems thinking”, and “interdisciplinary research”. Research that goes where it needs to gain the causal knowledge required to answer the question, or solve the problem – rather than limit itself to appropriate questions (and appropriate assumptions) from within their traditional knowledge silo.

      I even worked for a time in a research group named “Systems Thinking Consultancy” which was developed and encouraged to solve interdisciplinary problems primarily in the defence and security sector, but also when needed across HMG. This group was filled with brilliant, odd, and very interesting characters as you can imagine.

      One of the big challenges that became apparent very quickly is that no-one, with a decent pot of money to spend, seemed to value this ‘breadth’. We tried many ways to express our value proposition to the people we felt we could help, and to develop competency frameworks to recognise, reward, and hence encourage people in to such interdisciplinary practice. My conclusion was that a culture of expert specialism doesn’t know how to appreciate the value of the ‘specialist generalist’ and hence to employ them productively. (Also, the ‘generalist’ has a habit of inconveniently pointing out the silly assumptions a specialist research area makes and where its boundary of concern is conveniently drawn to keep out ‘problematic external factors’, such as increasing ECoE 😉 )

      In time the need to earn a living/justify existence meant this group ended up being a spare pool of intellectual labour to work on anything anywhere where some heavy analysis needed to be done. Inevitably, unfulfilled and underappreciated I returned to my so called ‘deep specialism’ in electronics and telecommunications -because I could easily express my credentials within widely recognised specialist professional accreditation systems, and ultimately earn a better salary (especially after kid number two arrived). The synthesis you describe only happens in my own personal time now.

      The reason I tell this story is because to fill the need you describe, a society has to encourage people to want to fill that need, probably through financial security and career satisfaction. So it has to appreciate the need first, so it can value it appropriately and reward it. It is no wonder people silo their knowledge within existing specialist framework. It could be potential career suicide to pursue ‘synthesis of knowledge’. Unless you have a sponsor who is as enlightened, or as nuts as you are!

      Tim – I am keen to understand your experience of being an interdisciplinary researcher and if you have encountered similar challenges, and what you think could be done to appreciate and encourage this sort of practice more widely.

      At the moment I don’t have the time for school run, day job, and saving civilisation from itself at the same time. Priorities y’know! 😉

    • Tim – You mentioned a couple of things earlier:

      “What I think I’m saying is that long-assumed certainties are rocking.”

      “In short, this may be a moment of fracture, or at least of tilt – new conditions, new rules, and everything to play for.”

      I think that what you think may be happening, is probably happening.

      Its ‘sh*t your pants scary’ – like the first drop at the start of a rollercoaster – but probably the most exciting time to be alive. The peak of the Golden Age!

  5. Dr Morgan
    Soil and Food: spotting the red herrings; historical perspective; recent advances; what we know and what we don’t know

    Let’s begin with a factoid: One ton of applied nitrogen results in nitrogen-feeding bacteria consuming 30 tons of carbon (1) And that carbon is quickly released to the atmosphere as the bacteria get eaten.

    So a reasonable conclusion is that the Green Revolution, powered by synthetic nitrogen, is responsible for a lot of the carbon dioxide in the air and sea, and the soil at the agricultural college which has to be busted with a hammer.

    In contrast to synthetic nitrogen applied in amounts plants cannot use, and subsequently pollutes waterways, David Johnson demonstrates that plants and microbes in healthy soil make nitrogen to meet the needs of the ecosystem. In other words, there is some surplus but not enough to create pollution problems. And the plants and microbe ecosystem is ‘smart’ enough to partition the carbon and nitrogen and other nutrients to maximize productivity. Humans really can’t do that.

    ‘Conventional agriculture broaches the physical and mineral—you plow, you fertilize, you reap. Organic methods focus on natural inputs and begin to incorporate the biological realm with cover crops and compost (ideally, but not required for organic certification). Biological farming puts yet greater emphasis on feeding microbes and surface decomposition. Permaculture seeks to bring everything round through diversity. Utilizing principles from all camps can have merit on the journey toward plant health and productivity. The only thing the fungi ask is that we make mycelial choices as best as we are able.’ (2)

    Before trying to put the history into perspective, we need to understand glomalin, which was discovered in the 1990s and is slowly being incorporated into our view of how plants and microbes and the soil food web interact.

    ‘Fungal hyphae are fundamentally open conduits transporting water and dissolved minerals back to host plants. The cellular coating of these hairlike filaments needs to be relatively leak-proof. Accordingly, arbuscular mycorrhizae secrete a gooey glycoprotein known as clomalin to seal off intercellular spaces and give hyphae some rigidity to push onward through air spaces between soil particles. The carbon-rich glomalin gets left behind in the surrounding soil when the mycelium attunes to new horizons. There it will stay for anywhere from 7 to 42 years, depending on conditions, as the superglue that holds soil aggregates together.’ (3)

    So the first thing we can note about the history is that, until about the turn of the 21st century, nobody knew about glomalin. And glomalin accounts for a third of carbon storage in soils worldwide. (4) Glomalin is the long-lived carbon in the soil, and so is especially important in terms of increasing soil health and also sequestering carbon because of concerns about global warming. As recently as 5 years ago, what I was hearing at agricultural meetings might include a mention of glomalin, but there was little explanation of the connection between plowing under cover crops and the destruction of glomalin, or of how perennial grasses could be so successful in Australia with the soil scientist Christine Jones’ demonstration of just how quickly cows and grass could grow topsoil.

    Consequently, statements such as ‘the Irish potato famine farmers were organic’ means virtually nothing in terms of giving us guidance today. When Lady Eve Balfour and Sir Albert Howard started talking about ‘law of return’, they had some historical precedents, but did not understand the biology. Similarly, when FH King went to eastern Asia a little over a hundred years ago looking for answers to soil degradation in the US, he was able to observe (very human labor intensive) methods which had been used for centuries. For example, King observed the Chinese taking mud from the rivers and canals which had washed down from the mountains in spring floods and spreading it on crop land. This is similar to the historic flooding of the delta by the Nile. But nobody understood the biology, and Americans could not easily be persuaded to wade into water and harvest mud by hand and hoist it up onto the bank and then haul it to the crop land.

    Similarly, when Bill Mollison and David Holmgren were developing Permaculture in the 1980s, they spent time studying historical practices which had been less destructive of soil than conventional agriculture, but they did not understand glomalin.

    Up until now, the ‘state of the art’ is demonstrated in one of David Johnson’s slides. He shows a conventional cotton plant next to a cotton plant raised with his fungally based agriculture (BEAM). The BEAM cotton plant is much healthier and produces a lot more cotton with essentially zero inputs. The Green Revolution and all the government propaganda about how the herbicides and pesticides don’t really harm humans springs from the conviction that Johnson really couldn’t produce all that cotton using microbes. And Johnson presents statistics that the yield from ‘certified organic’ cotton is considerably less than conventionally farmed cotton. (I’ll leave to as an exercise for the reader to explain government actions in terms of greed and corruption…or simple stupidity.)

    Trying to sort out what each of the participants in the ten thousand year history of agriculture did right and did wrong might interest historians, but our pressing need right now is to do the right thing for agricultural production, carbon sequestration, and biodiversity. The takeaway is to ignore those who feel a need to throw stones at straw-man predecessors and get on with the business at hand.

    So if Johnson’s Fungally Based BEAM system is good, what are some of the remaining questions:
    *Johnson demonstrates that a healthy biological system can mine the minerals the plants need from the soil on a ‘just in time’ basis. This probably puts the kibosh on Leibig’s Law of the Minimum, as it has been historically interpreted. That is, sending a soil sample to your Ag Extension office and having them measure soluble elements doesn’t tell you anything useful. What you really need to know is whether your eco-system is functioning well so that the fungi will mine the nutrients as they are needed. Phillips considers this answer, but hedges his bets by continuing to supply some rock dust. My guess is that rock dust should be no more than a transitional measure…sort of like sending food to countries which have struggling farmers.
    *If carbon in the soil is hugely dependent on the manufacture of glomalin, what should a farmer do to maximize glomalin? And the broad answer is to maximize photosynthesis and minimize soil disturbance to allow maximum growth of fungal hyphae. But there are myriad details which need to be worked out. For example, some prominent vegetable crops do not form mycorrhizal associations…how should we treat those plants in our rotations?
    *Manufacturing nitrogen requires a lot of carbon. We would like to conserve carbon, (and not spend fossil fuels manufacturing nitrogen), so how do we supply nitrogen to plants just-in-time? The answer seems to be to grow cover crops which are either disked into the soil or lain on top of the soil as a mulch. Exactly what the right procedures are, and the exact best choices for a given field and climate and circumstance, remains to be identified.
    *What about root crops, such as potatoes and sweet potatoes? Digging up roots seems to be an inherent ‘disturbance to the soil’. How best to manage it.
    *What about cows and pigs? As David Johnson shows, Gabe Brown in North Dakota saw his soil carbon take off exponentially when he integrated animals and row crops (which takes us back to Howard and Balfour). Yet the Powers That Be have made it harder and harder for farmers to integrate animals and row crops…pushing farmers toward the synthetic chemicals which destroy the soil. And we have a vociferous ‘vegetarian humanitarian’ lobby which fundamentally rejects the eating of animals and finds lots of statistics to back up their story about how animals should all be killed and replaced with grains. What to do?
    *Johnson’s BEAM system works with inoculated seeds. But thousands of acres of grassland aren’t easily treated with home-inoculated seeds. What is the best way of bringing fungal dominance back to degraded range land?
    *Similarly for forests. Perhaps due to a history of bad treatment, many forests have relatively impoverished soil. Can Johnson’s principles be applied to forests to increase photosynthesis and production and carbon sequestration in both soil and wood?

    Not everything you might want to know, but perhaps enough to indicate some pathways.

    Don Stewart

    (1) Mycorrhizal Planet by Michael Phillips, page 65
    (2) Phillips, page 67
    (3) Phillips, page 70
    (4) Phillips, page 70

  6. Fascinating to read about the application of Tainter to the UK!

    I believe someone from the Cabinet Office is on record as saying that during the turmoil of the 1970’s they found the regular round involving those antiquated ministerial red boxes to be very comforting – it was all holding together, civilisation saved for another day! Maybe one role of government is to reassure the civil servants?

    Less flippantly, the merchants of the 1st century AD welcomed the establishment of the rule of Augustus, securing civic order and killing pirates, as it enabled them to trade in comparative safety: similarly, when Prince of Wales, the future Edward I toured England with his knights putting down bandits. The East India Company dealt with their bandit problem in the early 1800’s by recruiting them all into the Company army. And so on throughout history, which is why monarchs known as the ‘Strong ‘and ‘Just’ always got a good press from their grateful subjects.

    Only those who have lived in very stable and prosperous societies are prone to forget this cardinal fact; the ubiquity of extreme violence and disorder without orderly government, at least in more complex societies.

    The problem that the Turks and Arabs – previously mentioned – had was that their governments were essentially despotic, and any rich man might be robbed of everything and killed at the whim of the ruler, at any time. One might indeed trade, but it was never safe. In fact, wealth invited such treatment.

    A little bit like Russia ( and China?) today: as a Russian friend explained, ‘If someone connected wants to buy your company, house,whatever, you sell: they will pay, perhaps not as much as you’d like, but if you were to refuse, bad things would happen.’

    Regrettably, to the complacent, drawing attention to reality will always seem ‘alarmist’, and a certain falsity has to enter any discussion and colour somewhat the drawing of conclusions.

    Britain is, surely, and quite unjustifiably, positively embalmed in complacency.

    But Cassandra, ‘alarmist’ or not, was right….

    • ‘Only those who have lived in very stable and prosperous societies are prone to forget this cardinal fact; the ubiquity of extreme violence and disorder without orderly government, at least in more complex societies.’

      Imagine what would happen if the UK government announced tomorrow morning that due to budget limitations… all police forces in the country were to be immediately disbanded.


      That is what is going to happen when BAU goes offline.

      If anyone wants to know what that looks like … Afghanistan provided a glimpse when the Americans left after the Russians were defeated…. every street was controlled by a different gang…. who demanded payment to pass….

      It was out of this lawless situation that the Taleban emerged …. they were embraced — because they brought stability ….

  7. I see our host was called ‘terrifying Tim’ and said to ‘thunder’ by the Telegraph, with appropriate Apocalyptic imagery. Oh dear, journalists…..

  8. Regarding “decline studies” by UK officialdom, there is a scientific model developed at Anglia Ruskin University’s Global Sustainability Institute (GSI) – through a project called the ‘Global Resource Observatory’ (GRO). The GRO is chiefly funded by the Dawe Charitable Trust, but its partners include the British government’s Foreign & Commonwealth Office (FCO); British specialist insurance market, Lloyds of London; the Aldersgate Group, the environment coalition of leaders from business, politics and civil society; the Institute and Faculty of Actuaries; Africa Development Bank, Asian Development Bank, and the University of Wisconsin.

    The scenario was developed for Lloyds of London by the Anglia Ruskin University team with the British Foreign Office’s UK/US Task Force on Resilience of the Global Food Supply Chain to Extreme Events. Lloyds produced a report in June 2015, about which Nafeez Ahmed wrote an article:

    View at Medium.com

    • Gavin,

      This is interesting thanks. I will take a further look at the model and it’s use.

      I my time in ‘officialdom’ I never came across any group at the Foreign Office that was actively investigating the viability of BAU long term.

      I suspect Nafeez’s use of the phrase “supported by UK government” is a bit of a misrepresentation. My previous experience with HMG research programmes showed that they are often reactionary rather than anticipative (excepting specific areas such as chemical, biological, and nuclear threat research which seems well governed and prioritised – probably because the risk can be easily envisaged and is terrifying). However, I have seen alot of things being funded purely to get the research money spent within the financial year, so it wouldn’t surprise me if the HMG support for this model was purely to get rid of some money and doesn’t have any HMG involvement, even from a review perspective.

      It is a was initially a very mindbending experience to stand in front of an HMG research programme quarterly review panel and be asked to justify my projects lack of spending on research rather than the value of the research. The fact they assigned me double the funds I requested didn’t help me to get the pot spent. So money was redirected from my proposed “decline studies” into a badly governed project that seemed to eat money and never deliver. Which was exactly the criteria the funding authority liked, although they wouldn’t say that officially. 😉

  9. Thomas:

    By beginning from what might be called the Standard American Prepper Scenario of instantaneous and apocalyptic collapse – complete with starving hordes rampaging out from the cities – you are setting up a strawman argument based on assumptions which I simply do not share.


    Your crash scenarios (continued from the previous page, sorry) contain so many unexamined presuppositions that, even should we grant your multiple and unsupported premises, they lack even self consistency.

    Let’s begin with just some of these:

    “Even the prepper pr permaculture types who see themselves as living ‘the good life’ would be completely lost without their BAU comforts — do they wash clothes by hand? – do they buy stuff? – do they cut and haul firewood by hand? – do they live in a comfortable house? — do they use the medical system? — do they grow everything they eat — without any outside inputs? … the list goes on and on and on…. ”

    Wash clothes by hand?

    Yes. Throughout my daughter’s primary school years we washed all our clothes by hand. It’s not hard.

    Buy stuff.

    Of course. Trade predates BAU and will continue in however limited a form.

    Cut and haul firewood.

    What on earth do you imagine I need all that wood for?

    Perhaps if you live in a Mc Mansion in Alaska that you need to heat to shirtsleeve temperatures in mid winter you might have your work cut out.

    Here in the south of the UK it’s pretty rare for the temperature to go below zero centigrade in the night – let alone in the day.

    I’ve lived unheated in winter – the occasional social fire aside – for most of my life.

    Comfortable house.

    Well, define comfort. If it’s naked and unroofed vs a tent – the tent wins!

    You need to get some real world experience of hardship, Thomas. You did say something about some third world experience once, I think, but you have obviously failed to take it on board.

    Medical system.

    Yes, we’ll miss that.

    Grow everything they eat.

    No. But my point is that there are more people than just you or me. And I’ll have some tobacco (yes – it grows quite well in the UK; did it even occur to you to try out a cash crop in your scenario? Let alone just to save or make yourself some extra cash even now?).

    I also have eggs, muscovies and chickens for meat, root veg and even homebrew to trade.

    Sure – you could kill me now and take it all – but then who would you trade with next week; next month; next year? Why leave a trail of ruin behind you when you could bring a girl or a few friends back for a good time instead?

    You think like a victim, Thomas! Raise your sights!

    Outside inputs.

    Look, Thomas! My chickens and Ducks free range over the whole local area and shit themselves silly in their shed overnight.

    I have more Jerusalem Artichokes than I can eat over winter and I have to actively limit their spread.

    Your assumptions on just these few things are so wildly removed from my lived experience that I seriously encourage you to examine your assumptions for your whole collapse scenario.

    The world ain’t gonna collapse from BAU to anarchy and dog eat dog in one go, Thomas.

    And it might even benefit from you making a more serious effort to improve it.

    I just don’t get the whole snowflake ‘real life might get really hard so let’s just all give up without even making the slightest effort’ thing.

    But I suppose Darwinian evolution is all about the survival of the fittest after all.

    Over to you +_-

    • I will only engage you on this if you actually give it a dry run.

      Now turn off the power … and I will look forward to hearing how it went in 7 days. Perhaps you could keep a diary – pen and paper.

      Enjoy your time out of the bubble.

    • You’re not listening Thomas.

      I’m talking about how I have really lived like this for most of my life.

      It’s not a challenge – it’s been just plain ordinary daily life.

    • Really?

      You have not used electricity – or petrol — you don’t by stuff in the Mall…. you don’t use sealed roads? You grow everything you eat? You don’t use tap water? You don’t go to the doctor – nor the dentist? You don’t live in a house that has any man made materials?

      I have only been to one place where I did not see anything that had been produced by BAU – not even a plastic bottle — it was a 10 day trek into the heart of darkness in Irian Jaya…. very few people go to this place — sometimes none in a given year…. because it is a very difficult journey — up the mountain into the cold — then down into the fetid malarial swamps — then up again – then down — with frequent heavy rains…. mud… mosquitoes…. that sort of thing.

      When did you leave for civilization? Because I don’t recall there being an internet connection ….

    • Come to think about it, God forbid, I actually enjoyed much of it!

      I do enjoy the Internet and discussions like these now – and I would miss them.

      I did actually keep a ‘pen and paper’ diary for a couple of years when I was on the road in the early ’90s – a trawl of the wayback machine / Internet archive might find something that I put online

      I just tried a search and came up with nothing.

      I’ve got my diaries for those years here in hard copy though.

      If you’re really interested and are down in or around Hampshire I’d be happy to meet you and show you.

      Chin up, Thomas.

    • Thomas,

      You have not used electricity – or petrol — you don’t by stuff in the Mall…. you don’t use sealed roads? You grow everything you eat? You don’t use tap water? You don’t go to the doctor – nor the dentist? You don’t live in a house that has any man made materials?”

      You really haven’t managed to read and try to understand anything that I’ve said, have you?

      There’s little point in debating this further with you.

      I wish you well.

    • In the English winter – all 7 or so months of it! – being in a good tent would be warmer than trying to live in an unheated house – which turns into an ice-box in my experience – if uninsulated it is much colder than the outside temperature!

      I once lived 3 years without heating, by the way, electricity or mains running water (all carried by hand) and I have been described as a ‘hard’ man.

      Brick and plaster are very hard to warm up once they drop below a certain point.I am insulating everything heavily with a view to likely future events (being broke, if nothing else).

      We won’t just miss modern medicine: epidemics will return, TB, cholera and typhus reappear. New diseases will emerge with the end of antibiotic repression, and they will make great headway as all such usually do.

      These things destroy even the strongest constitution, although they will make headway most among the ill-fed and dispirited. Scarlet fever anyone?

      Prolonged malnutrition, or a very unbalanced diet, is another prime consideration.

      Time it took to break a prisoner’s constitution through nutrition that was inadequate for the level of physical labour being performed in the Gulag: 3 weeks. Without fail.

      A few unlucky hours of exposure can lead to pneumonia which kills in a few days, and if you survive you will be much weaker in the lungs permanently (been there, done that!).

      If there is a real collapse of governance and the economy, then property rights will more or less disappear: they are a product of wealth stability alone.

      The police and army will very quickly become corrupt and associate with organised crime – as in Latin America, Asia and Africa, where the distinction between the forces of law and order and the crime gangs are at best notional.

      ‘Past resilience is no guide to future performance.’ Which of course is not an ‘argument for giving up’: but the world is what it is , and we live on a cruel, if often beautiful, planet, not in Paradise.

    • Said with supreme eloquence….

      I have said it before — I will say it again — anyone who is still alive within a couple of months of the end of BAU … will wish they were dead.

      It will be kinda like The Road — except that there will be no happy ending…

  10. Re: your 2:44 am post.

    You didn’t read what I said and you’re still setting me up as a straw man.

    If you want to come meet me and see what I’m talking about in real life – you’re most welcome.

  11. I think the main ‘takeaway’ from my last exchange with Thomas is that the ‘fast collapse’ camp have a great deal of unexamined assumptions about the way business as usual might go down – and how we might (or might not) deal with it.

    Whatever the priorities of ‘the authorities’ might be – I see no reason not to do the best that I can to just keep on keeping on!

    It’ll collapse at some stage – but their vested interests are, to some extent, the same as ours.

    And I’m sure that they will do ‘whatever it takes’ to preserve the status quo.

    This is not necessarily a good thing!

    • That’s exactly what they are doing — ‘whatever it takes’ means… absolutely anything will be tried … if it is expected to add some days to the calendar.

  12. Dr. Morgan
    Some food for thought. Google search on
    michael phillips mycorrhizal planet law of demand

    and you will get a copy of a page in Michael Phillips book. In the right hand column you will see his description of how the mycelial network apportions nutrients in a field of plants: the Law of Demand and the Law of Supply
    michael phillips mycorrhizal planet law of demand

    Couple of notes:
    *Phillips does not support his description with a reference. I’ve never heard this from anyone else, so some caution is in order. He did spend a lot of time with Dr. Kristine Nichols at the Rodale Institute, and perhaps she is the origin of the story.
    *Phillips is describing a negative feedback loop. The better a plant is doing, the more it costs the plant to get nutrients from the fungi. The worse a plant is doing, the less it costs the plant to get nutrients from the fungi. This is the opposite of the way our economy operates, and the description in the Bible: to him that has, more will be given; to him that has little, even what he has will be taken away.

    The use of gradients as signals is universal in the world of biology. Arguably, our political process should be building in more negative feedback loops.

    If Phillips’ description is accurate, then perhaps you could shame the rich and powerful as being ‘dumber than a fungus’???

    Don Stewart

    • Thanks. Its obvious to me. Economics only works in growth environments. After that, its back to fundamentals. Real fundamentals. We could have a chat at the table of consequences though. I’ll bring you a chicken.

  13. Pingback: #115: Paradigms lost | Surplus Energy Economics

  14. Dr Morgan,

    Your analysis reminds me very much of Michael Hudson’s work into the FIRE (Finance, Insurance, Real Estate) sector’s parasitic relationship with the real economy. In his analysis, it seems the main hurdle to achieving a paradigmatic shift is the fact the FIRE sector has captured, by lobbying and other insidious means, the political arena thereby ensuring that they will continue to advance their interests via tax breaks and capital gains etc (e.g. by funnelling borrowings into the stock market, housing market). This allows the TPTB to maintain the illusion of ‘growth’ (only in the FIRE sector). Like another poster has already stated, this might not necessarily be a bad thing, at least while it lasts.

    A weakness in Hudson’s thesis, I think, is that he doesn’t acknowledge EROEI and ECoE. Ultimately, even if the FIRE sector were to take second fiddle to the real economy, and we had a new deal relating to innovation and productivity, the limits imposed by falling surplus energy will constrain the country’s ability to even maintain current living standards let alone improve them.

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