#117: Candyfloss economics


Candyfloss – known as cotton candy in the United States – is a long-established confectionary product, much enjoyed by young and not-so-young visitors to fairgrounds and the seaside. Traditionally sold on a stick, it consists (apart from some flavouring and colouring) entirely of sugar. It is made by spinning a relatively small amount of sugar into a much larger confection of very low density. It is, then, a fluffy, largely hollow product whose apparent volume far exceeds its substance.

The resemblance between candyfloss and the modern developed economy is a lot closer than you might think. Using the United States as a representative example, this analysis takes readers through a deconstruction of reported growth in GDP. As you’ll see, Western economies, in particular, look increasingly like candyfloss, with an ever larger volume of fluff disguising a remarkably small kernel of solid value.

Some numbers and some caveats

Let’s start with the headline numbers, and two important caveats.

American GDP was $18.6tbn in 2016, which compares with $13.9tn in 2006. Adjusted to constant (2016) dollars, the 2006 number equates to $16.3tn, so the economy expanded by 14% over the decade to 2016. Over the same period, the population of America increased by 8%, leaving reported GDP per capita ahead by 5.8%.

Regular visitors to this site will be familiar with a number of critical caveats around economic “growth”. For starters, the $2.3tn (14%) increase in American GDP between 2006 and 2016 was accompanied by an $11.1tn (31%) rise in debt over the same period, so each $1 of reported growth came at a cost of $4.75 in net new borrowing.

Meanwhile – and primarily because of the collapse in returns on invested capital in an era of ZIRP (zero interest rate policy) – huge pension deficiencies have emerged right across the world economy. In its recent report warning of a “global pension timebomb”, the usually-conservative World Economic Forum (WEF) identified a shortfall in pension provision in the United States of $28tn in 2015, adding that this number is worsening by $3tn (about 17% of GDP) each year.

Back in 2006, before returns on investment were crushed by ZIRP, the equivalent shortfall was very small. Between 2006 and 2016, the gap in American pension provision increased by about $22tn. For each $1 of growth over ten years, that’s a further $9.50 in balance sheet damage, on top of the aforementioned $4.75 increase in net indebtedness.

Two types of activity, differently priced

These debt and pension caveats, of course, are familiar fare to regular readers. When all is said and done, Americans are still left with growth of 14% in their economy, aren’t they?

Well, no.

Deconstruction of the numbers suggests that even this recorded growth number is extremely questionable.

To understand why this is, we need to divide the economy into two broad streams of activity. The first of these streams is termed here globally marketable output (GMO). This consists of output traded at prices set on world markets. Agricultural and extractive products are examples of world pricing. Even if sold at home, wheat, oil and copper are still bought and sold at prices set globally.

The same is true of manufactured goods, because the customer isn’t going to buy a home-produced car or refrigerator if he or she can get better value from an imported alternative. Services which are exported are also, by definition, globally-priced – customers in, say, Europe, aren’t going to buy American financial services if the equivalent, supplied at home, or imported from a third country, is better value.

The second economic stream is known here as internally consumed services (ICS), and is the difference in amounts between GDP, on the one hand, and GMO, on the other.

Critically, these services are priced locally, not globally. A customer in Boston might very well purchase a German-made car, or a refrigerator manufactured in Romania. But he isn’t going to book a taxi from Berlin, or go to a dentist in Bucharest. ICS, then, is priced locally, which is very different from pricing in the full rigour of global competition.

Moreover, these internally consumed services are a residual. Customers’ primary requirements are for purchases which are priced globally, including food, energy, manufactured goods, and anything requiring components and materials, which themselves are priced on world markets. Customers buy these things first, before spending what they have left on discretionary purchases such as taxi rides, meals out, cinema visits and trips to the hairdresser. These discretionary purchases are priced locally, by the interplay of domestic supply and residual spending capacity.

These services then, are residually priced and, in a very real sense, are “soft”-priced, too, compared to the “hard” pricing characterising globally-competitive price-setting.

Additionally, GMO and ICS have very different value-additive characteristics. Building a new car plant in a given location has very substantial knock-on benefits in terms of components supply, materials, distribution and ancillary services. The same isn’t true of setting up a lot of hairdressing salons, estate agencies and government administrative offices, even if their annual turnover matches that of the car plant.

Whilst it’s true that 100kg of feathers weighs the same as 100kg of lead, $100 generated by a car plant is not the same as $100 generated by a pedicurist. The difference lies partly in how the underlying pricing is determined, and partly in the much higher value-additive characteristics of the globally-priced activity than the locally- and residually-priced alternative.

Governments, historically, haven’t grasped this point, which is why relocating activities like tax and benefits administration to depressed locations turns out to be a lot less beneficial than is often anticipated.

The implications of differential pricing

The distinction between GMO and ICS gives very important insights into changes in economic activity. In the United States, globally-marketable output contributed $160bn, or just 7%, to the $2,340bn increase in GDP between 2006 and 2016. All of the rest came from services which can only be sold internally.

Equally tellingly, the whole of the modest GMO contribution to growth came from increased exports of services. Together, agriculture, energy, extractive industries, construction and manufacturing contributed nothing at all to growth over the decade – their aggregate output actually declined, to $3,414bn in 2016, compared with $3,501bn in 2006.

With GMO deducted, the remaining 93% of all growth – totalling $2,180bn – came entirely from internally-consumed services. These services themselves richly repay further analysis.

For starters, a full 15% of all growth over the decade – $342bn – came from “imputations”, which, it is strongly arguable, do not really exist at all. Imputations are values attached by statisticians to services for which no charge is actually made. One of the biggest is “owner equivalent rent”, a notional sum which, the statisticians say, a home owner would have paid in rent (presumably, to himself) if he didn’t own his home. Other examples of imputations include banking services and employee benefits supplied free of charge. All of these are services for which no money changes hands, so nobody earns anything out of them, or pays any tax on them. Yet these imputations account for 16% of all American GDP.

Who needs farmers, miners or factory workers, when statisticians can add so much more to economic output?

Then there’s the FIRE sector, comprising finance, insurance and real estate. These are worthwhile services, but we are entitled to wonder quite how much value is actually created by selling houses to each other, paying each other rent, or moving money around. This activity looks a lot like “doing each others’ washing”. Yet increases in FIRE sector activity accounted for more than a quarter (27%) of all growth in the American economy between 2006 and 2016, adding $628bn to GDP. As of 2016, FIRE activities accounted for 21% of the American economy, contributing far more than manufacturing (12%) and construction (4%) put together. Of course, a significant proportion of imputations arise in real estate and finance, which means that these sectors overlap.

Government, of course, is also a major component (in America, about 13%) of GDP, but its activity really amounts to recycling taxpayers’ money. This 13% component isn’t the same as total public expenditures, by the way, because those include a lot of activity which simply transfers money between taxpayers and the recipients of benefits. Actual activity by government increased by $272bn between 2006 and 2016, accounting for 12% of all growth between those years. This alone is telling since, together, activity in manufacturing, construction, farming and the extractive industries added nothing at all to GDP over that period.

Before we move on from the numbers, the following table summarises contributions to growth in American GDP between 2006 and 2016.

#117 US GMO and ICS 2006-16jpg_Page1

A misleading confection

As we’ve seen, then, almost all (93%) of growth in the GDP of the United States over the last decade has come from services which Americans can sell only to each other.  It must be stressed that the US is by no means unique in this. Rather, America has been used here as an example, because of the importance of its economy, and because of the exceptional availability of economic data.

The picture in other developed economies is pretty similar, with ICS activities (such as finance, real estate and government) contributing even more to growth in Britain, where manufacturing output is barely 9% of output, compared with 12% in the United States, and almost 18% in the Euro area.

What emerges is an economy which produces very little that can be offered to overseas customers at world market prices. The bulk of the economy – in the United States, 80% – consists of services which people provide to each other, either privately or through the government. Within this ICS component there are further question-marks, most notably over “imputed” output dreamed up by statisticians, and over financial and real estate services which, whilst dwarfing activities like manufacturing, are of limited value-adding capability.

Together with this goes the important observation that there are two distinctive pricing mechanisms at work. One-fifth of American output is “hard” priced by international markets, whilst the remaining four-fifths are priced locally, in a way that is both “soft” and residual. In an era of ultra-cheap money, we are entitled to question the relationship between hard and soft pricing.

All of this, of course, is on top of our understanding that “growth” is being created by spending borrowed money, and by unwinding (through ZIRP) collective provision for the future.

We can summarise the situation like this. Essentially, we in the West are deluding ourselves about how much value our economies are really adding, because much of what we do is residual activity, delivering output that cannot be marketed at prices set by world markets.

Even as they grow – courtesy of mortgaging the future – Western economies are taking themselves ever further down the gradient of added value.

You might think, considering this, that we are in a self-delusional state that isn’t sustainable. If you did think that, you’d be right.




61 thoughts on “#117: Candyfloss economics

  1. Hi Tim another excellent and informative post. I like your use of the term ‘added value’ because that’s how I was described in 1998 managerial jargon – Donald has come to us and will add value to the section. (They promptly made someone redundant and my workload doubled)

    Putting the distorted growth figures on side at least – regarding ICS – these services are giving people things to do and keeping them off the streets. However – if current trends continue – it seems like these services may have to be given for free as they’ll be no money available – after paying for essentials – to pay for them. Bartering can only last for so long before your home is empty.

    We’ll then see community spirit tested to its limits.

    • Thank you, Donald.

      The figures used here are taken from official sources, so it’s not clear why others don’t seem to make similar interpretations.

      A lot of our economic behaviour looks increasingly like displacement activity. In Britain, for instance, one job in eight now has the word “manager” in its title – managing what, one wonders….

  2. That’s a huge percentage – I do know that in a previous employer ‘manager’ was just a title given out as they weren’t actually managing anyone – but the job they were doing in terms of its complexity and benefit to the bank was deemed worthy of a title and its salary.

    The same went to the titles of deputy manager – assistant manager and deputy to the assistant manager. Really just stepping stones to make you feel as though you were achieving something. They were eventually scrapped.

    Regarding the figures – it’s a bit of a mystery why they’re not being interpreted in the same way. Perhaps they’re all too busy enjoying the candyfloss.

    • About the numbers, there’s a lot of “head in the sand” stuff around the real nature of the economy. GDP data is based on transactions at the price they take place at (plus the “imputed” transactions that don’t take place at all).

      The assumption is that all pricing is comparable. But this isn’t the case. Prices set by global competition are different from prices set locally, whilst the pricing effects of monopoly, oligopoly, monopsony or regulated activities are different again. It seems remarkable that this receives little or no attention.

  3. Does all of this show up as huge trade deficits (ie. a nation losing its wealth to others)?

    Also, how about the contribution to GDP from war, natural disasters, and other destruction (something JFK pointed out)? Growth in GDP could possibly be 100% bad!

  4. Excellent article.

    Recall that the US started including ‘hookers and blow’ in GDP numbers a few years back … that would have a whopping impact!

    • And the EIA/IEA will soon be adding baby oil and scotch whiskey in its “All Liquids” oil production totals….

    • Well, before petroleum there was a huge business in whale oil (for lamps and similar), which hit a peak as the whale population started to collapse. Petroleum was first marketed as an alternative to whale oil.

  5. Dr Tim has brilliantly articulated in economic terms so much of what makes me feel uneasy about modern life. I see the buses of which none are built on a British made chassis anymore. The cars are all foreign made as are many utility providers. The councils and Police ‘service’ have ample money for ‘gender and equality targets’ but not enough to mend potholes or attend a burglary. Not only is their a lack of real wealth being generated – the wealth we have is being misallocated on a grand scale by a system that has become far more self serving.

    I see plans to build millions of new homes to cope with a booming population – but no thought given to what the newcomers are going to do to add real value to the economy.
    Why bother to run a factory when the land it sits on is worth a fortune because of the population growth Ponzi scheme the government have adopted out of sheer desperation..
    It’s regarded as a miracle if a coal mine or steelworks can remain open despite it being under foreign control . Then there is the sense that the often motley crew I see down the pub or at the airport returning from holiday aren’t the practical hard working people they used to be. They are in part spoilt by a soggy diet of easy money, cheap goods from China and a welfare system that has morphed into a way of life from the safety net it started out as. Brainwashed by political correctness, lacking in the skills and fortitude we used to take for granted we are totally unprepared for what is to come.

    • Thanks.

      If you take into account the analysis I set out here, plus observations about debt and pensions, it starts to look a lot like never-never-land. The Eagles song-line “we’re partying fools in the autumn of our heyday” springs to mind.

    • Hi Ken – I think like you. Yet, I’m becoming aware that there’s a human tendency to just not like change, and to catastrophize around that. Are you a male age 45-60? Should I be able to guess that?

      Here’s a challenging book: The Rational Optimist. I’m reading it because it’s not what I believe, but it’s changing my mind, slightly, about some things. Not at a fundamental level – because physics bats last – but I may have taken on some stereotypical grumpy old-guy beliefs that are not correct.

    • Here is the article

      Global growth appears to have peaked, with demographics, a lack of investment, a slowing in productivity gains and tightening monetary policy placing limits on economic expansion, the World Bank said.

      The world’s economic output grew 3 per cent last year as more than half of economies accelerated, thanks to a rebound in investment, manufacturing activity and trade, bank economists said. The global economy is expected to maintain that rough growth level through 2020.

      But that may be as good as it gets, according to the bank’s annual report on the state of the global economy. The problem facing the world is that after years of recovery from the 2008 financial crisis, most advanced and developing economies have closed the output gap between actual and potential economic growth.

      Moreover, it is hard to see that changing unless governments embrace the sort of reforms and investment drives that the bank and other institutions have been demanding for years.

      “If you step out of the [current] snapshot [of strong growth] and look at . . . the historical progression . . . what you actually observe is that, while the growth is real and welcome, the potential growth of the global economy is going to be somewhat limited in the future,” Shantayanan Devarajan, the bank’s senior director for development economics, said on Tuesday.

      As a group, advanced economies are expected to slow in the coming years as they run up against full employment and as central bankers raise rates to contain inflation, according to the World Bank. Already, the bank said, it expected growth in advanced economies to slow from 2.3 per cent last year to 2.2 per cent this year and 1.7 per cent by 2020.

      But emerging and developing economies, which grew by 4.3 per cent as a group last year, are also likely to hit ceilings and contribute less to global growth.
      In many of the major emerging economies that have for years fuelled global expansion the underlying potential growth has fallen considerably over the past decade. It is likely to continue doing so over the next 10 years, the bank said.

      The weaponisation of the language of trade Has Donald Trump’s trade war with China already begun? A protectionist advance is far from inevitable That reality, the bank’s economists say, is the result mainly of long-term demographic changes. Countries such as China are seeing their labour forces shrink as populations age. That has coincided with slowing productivity growth.
      Either could be addressed with investment and innovation and the case for encouraging both was now “absolutely critical”, Mr Devarajan said.
      The concerns over the long-term future of the global economy also coincide with fears in the short term.

      Ayhan Kose, one of the authors of the new report, said “downside risks continue to dominate” for the global economy this year.
      Among those risks is a sudden rise in the now-low borrowing costs that have helped fuel much of the recovery in recent years, either from quicker than anticipated rate rises from the US Federal Reserve and other central banks, or because of growing concerns about soaring capital markets.

      Protectionism and a resulting slowdown in global trade also remained a risk, especially as the 4.3 per cent increase in the volume of goods and services traded last year had been so important as an engine for broader growth.
      Moreover, Mr Kose said the slowdown in the world’s potential growth had also made it more vulnerable to future shocks.

      Short of an unexpected surge in productivity gains, the world economy looked as if it faced a “mediocre future”, he said. “This is the time to undertake responsible forward-looking policies.”

    • So if I’m reading that right, the growth rate of the growth rate has peaked? The economy “only” grew by 3% last year? So, a doubling of the economy will “only” be every 24 years instead of more frequently?


  6. Note:

    It should perhaps be explained that this article was one of several in preparation, and ‘jumped the queue’ to publication because the data makes the situation ultra-clear, and, it is hoped, provides important insights.

    Three others are in progress, though this doesn’t guarantee their appearance here;

    – Renewables and EVs – the data is making this investigation favourable to renewables, but not to EVs

    – Ownership (which, some readers might think, has been made even more timely by the collapse of Carillion and renewed question-marks over private financing of the public sector)

    – A summary of the theory of the surplus energy economy

  7. Tim

    Even more fascinating than usual – thanks.

    Unfortunately, if the percentages of GMO/ICS are anywhere near correct (and I’m sure you’re right here) then we are going to have extreme difficulty in extracting ourselves from this and forging anything approaching a sustainable path; the “spiv” economy has too much of a hold and creating something worthwhile would take far better human resources than we have at our disposal. The implication of your analysis is that the economy has been on the wrong track for a long time and the whole education/training/career system is now totally inappropriate for our actual needs.

    Yet again I come to the depressing conclusion that we will have to let the system blow up and then hope for something new to take its place; reform seems out of the question.

    • Thanks Bob

      The figures used here are taken directly from official sources, which makes it all the more surprising that others can’t (or do not want to) see what is happening.

      What’s described here for the US is probably very similar for the UK, but perhaps less so for Europe – so it may be that it’s the “Anglo-American economic model” which is most at fault.

  8. I have decided to mow my own lawn twice as often and pay myself twice as much, so that I can increase GDP and therefore the wealth of the nation (according to economists and politicians). Everyone has to do their bit!

  9. Brilliant article Tim – Thanks.

    It is always nice to have evidence and reasoned arguments to support what we’ve suspected for a long time, to help convince others, or at least to confirm to ourselves that we’re not going crazy).

    • Thank you, Kevin

      Some of this stuff seems so obvious, and so referenced by official data, that widespread (and official) misunderstanding appears baffling.

    • Four hypotheses on the apparent official bafflement:

      1) A lack of understanding, resulting in an inability to model, forecast, and attempt to resolve issues.

      2) A sufficient understanding, but a lack of willingness to tackle the questions and develop responses.

      3) A sufficient understanding and willingness, but a lack of capability to respond.

      4) A sufficient understanding and capability, but a decision not to attempt to respond.

      I suspect it is case 1.

      However, in either of the cases the officials/authorities are collectively unqualified, irresponsible, incapable, or unwilling – which by my reckoning always strips them of their legitimacy as a governing institution.

    • Hi Kevin

      I’m not sure I agree with your conclusion.

      There is quite a lot of heterodox opinion on the Web and if you are in the slightest bit curious 9one of the main hallmarks of intelligence) you don’t have far to look for it; places like this are from unusual these days although the analysis and prescriptions differ; Tim did an awful lot of good stuff when he was with Tullet Prebon and Terry Smith, who ran that firm, was also very unorthodox in his views. I believe it is wilful; the solutions and disruptions to vested interests is just too much. The perfectly sensible argument that it’s better to have a small explosion now to avoid a larger one later is trumped by kick the can.

    • There are actually experimenting with trolley style lorries –


      Instead of building the ridiculously expense HS2 system we could construct e-highway lanes on or next to existing motorways. The lorries could then reach their exact destinations using a hybrid engine – or perhaps just batteries.

      Remaining oil resources could then be used for shipping and air transport.

      This of course will never happen sadly.

    • My only thought on this is that electric trains work because they have direct feed – I doubt if they’d have got anywhere if battery-powered. Also, electrification of railway lines is very expensive.

      Any rational future transport plan, it seems to me, has to de-emphasise car ownership, emphasise public transport, and involve redesigning living patterns away from “suburbia and commute”.

      This still makes HS2 a daft choice. Nowadays, with Wi-Fi, passengers don’t really need a few minutes shaved off journey times 30 years’ hence. They need more capacity, reliability and comfort – now!

    • Hi I can’t disagree with you regarding the railways – I could have easily done my work from home a few years ago but the bank wouldn’t have it. Instead I was having to fork out £3600 a year (including parking).

      Regarding trucks I guess you’re referring to setting up the overhead wire infrastructure (not the electrification of railways – although this is costly). Yes it would be initially expensive and then you would of course need the extra generating capacity to power it.

      However as oil is running out we do need to find some alternative forms of power to keep goods moving.

  10. Tim,

    First, thanks for this article, it is really informative in the way it deconstructs the growth in GDP.

    I send this post, though, because I am confused whether your analysis of the proportion of GMO and ICS shows anything beyond that. Or stated otherwise, I don’t understand how or what it does, if it does.

    I understand that GMO is basically stuff that we need to live – food, energy, etc., and that ICS is basically discretionary services on top of that, luxurious or not. But I don’t see how the simple proportion of GMO or ICS within total GDP, on its own, is sufficiently revealing about the health or resilience of an economy. It’s not like there is some ideal or correct proportion, or is there? Yes, maybe if most of your growth is ICS, you are not adding a lot of value to the world at large, or for your own citizenry. But in terms of having a viable economy, isn’t the real question, how much GMO stuff does an economy need to import to sustain itself? If GMO produced in-country is large enough to supply in-country needs, and keeps up with population growth, does it matter if it is a relatively small proportion of the overall economy? IOW, does the proportion that constitutes GMO have to be evaluated against GMO used internally versus surplus GMO available for export in return for other GMO items or “luxuries” in order to reveal how “healthy” or relatively self-sufficient the economy is?

    For example, Uruguay is an agricultural country that generates more than enough food to feed itself, and exports premium grass fed beef. It can then use the dollars received from beef exports to purchase oil (a GMO it can’t produce itself) or electronic gizmos manufactured elsewhere. From a food perspective, Uruguay is self-sufficient. This makes it more stable and its economy more resilient than a lot of other countries.

    In this regard, maybe the US is not in great shape because the GMO for export is isn’t sufficient to cover the GMO we need to sustain ourselves, and if it weren’t for the fact that the dollar is the reserve currency, we’d be toast because we do not produce much (except entertainment and military hardware) that the ROW wants. In this sense, the GMO proportion of the overall economy is not just not growing, it is too low for viability.

    • My overly simple understanding is that achieving a level of relative societal wealth and prosperity is only possible through the following methods:

      1) Having easy access to all you need and want at home.

      2) Having abundance in few things and trading with that for the other things you need or want.

      3) Taking what you need or want from others, through the use or threat of violence (or the withdrawal of protection from the violence of others)

      Uruguay seems to be category 2.

      US was 2, after its local peak oil it subtly implemented method 3 via the petrodollar system.

      The British Empire employed methods 2 and 3 for some time.

      However you can ‘fake it’ temporarily by exporting fiat currency, and/or borrowing on the promise of paying back with interest from your assumed future wealth, or through raising investment in ponzi schemes.

      I am uncertain about the US, since I think it is still employing method 2 and boosts its prosperity 3 with and some ‘faking it’. But I think the UK has been mainly faking it for a long time. There is no future wealth. When others who send us their real stuff realise, we are in for a drastic decrease in wealth and prosperity.

    • Kevin

      The UK seems to be faking it, beyond a doubt – the question is, do those in charge realise this? If not, why not? And should they (or the public) be told?

      The US, too, seems to be faking it, with the significant (indeed, all-important) difference that anyone wishing to buy commodities has to buy USD first.

    • “Should the public be told?”

      Depends on the circumstances and agenda of the person with that information.

      If I was waiting for my investments to mature in the near future so I can harvest them before they collapse, then I certainly wouldn’t want to challenge the existing narrative until I have secured myself.

      If I wasn’t a stakeholder in UK Plc, wasn’t likely to have the opportunity to become one in the foreseeable future, and perceived myself to be working hard purely to enrich the rentiers. Then I would release it yesterday.

    • Hmm.

      Assuming that an informed electorate would demand responses and hence a development of political parties, manifestos, policies, and legislation to address or at least mitigate the effects of these issues – then I would say that informing the electorate of the situation would be the “correct” thing to do.

      is there an associated risk that an informed electorate stops spending, and investing, into exposed unsustainable schemes resulting in an undermining of the economy and tax revenues making it harder for the government to address issues – even if it eventually decides it wants to?

  11. My first boss (1968) made it clear that he thought there were two types of people, those who thought the economy ran on money and those who thought it ran on energy, an observation which helped focus my mind! At the time I was modelling traffic flows on future road and rail networks and spent much of my working life here in the 21st century. For the life of me I couldn’t see how on earth the economy of the UK would survive the end of N.Sea oil and it never occurred to me that it would be possible to replace very cheap energy with very cheap money, but as a 21 year old graduate engineer I didn’t know anything about the science of economics (falls off chair laughing).

    As someone who thought they had a good handle on our situation I found this article extremely thought provoking and probably should came with some sort of health warning.

    • We could see North Sea Oil and tracking in the North West go through on/off cycles smoothed by the liberal application of financial magic. This might provide a stop-gap to ease us into a post oil and post coal system and to allow us to adjust to our decreasing prosperity.

      Maybe that recently announced 25 year investment in creating a new forest between the Northern cities is to give people something to burn afterward?

  12. Fascinating Tim, thank you.

    Can I ask where does tourism fit within this ICS/GMO equation?

    E.g. taxis for tourists, or hotel rooms, or coffees and meals, or even haircuts and manicures?



  13. Another very interesting post, thank you.

    I’m reminded of the old adage (unfortunately I can’t find a source) that there are only three ways to create wealth: make something, grow something or dig something out the ground, everything else is just moving money around.

  14. Good article.
    It would be interesting to see the same numbers for the UK, Germany, China and possibly India … although I understand it might take a while to put them together.

    • I’ve just finished putting together the equivalent numbers for the UK. Most Eurozone countries can probably be done as well, though EuroStat isn’t the easiest source to work with. There are significant problems with data for emerging economies, so only approximations are likely.

      I’ve also been pondering an equation which puts together the following:

      – Growth, divided into GMO and ICS
      – Net movements in debt & pension provision
      – International flows
      – Access to surplus energy

  15. I find I read your articles slowly like Walden. So unlike most economic articles that are also ‘cotton candy’ or worse.
    As far as trying to get the message out that things are about to change I don’t think the audience is ready, willing or able to adapt. The momentum of our grand delusion is reinforced at every opportunity by those who seek to benefit.
    We collectively will suffer the consequences of the Indian saying ‘white man lives a lie’. I see messy collapse with large areas of land uninhabitable by our lunacy and negligence. Our treatment of the only planet capable of sustaining life as we know it is true testament to our lack of sapience. Human population will be reset at a lower level, not if, but when. If in the future there is enough energy to allow time to ponder the history of humans I ponder what they will think of us, but they will never know all that was lost.

  16. Hi Tim, let’s look at your figures from an MMT perspective. I’m not an expert so it’s just my thoughts. It doesn’t dent your basic argument but adds some detail as to how the money happens.
    When you say the 13% contribution to GDP is government recycling Taxpayers’ money that is not correct. It is all new spending. Tax is basically destroyed upon receipt, never reused.[ federally.] The fed has no need for it it has served its purposes.

    As far as the Federal government is concerned growth is not dependent on borrowed money, but in reality government projects are sent out for contractors to fund them with bank loans. According to Ellen Brown, this raises the costs of government works by a factor of 2, even 3 fold. A huge waste of money especially as it’s all sent to the FIRE sector. It really should not be anything but an ICS boondoggle.
    Same again with pensions and other entitlements. One of the main consequences of the economic shift to ICS from GMO is the increasing unpayable levels of debt attached to meeting pension obligations, debts the non government sector will and has found unpayable. General Motors became a pension fund primarily overriding its vehicle manufacturing industry. It needed a bail out. There is only one viable solution and that is for each monetary sovereign government to nationalise them. The alternative, to let them founder will cause civil strife. The thing is the government can always pay its debts forever, until resources run dry, by which time we’ll have a whole raft of other issues, existential ones.
    The upshot is that monetary sovereignty can keep economies afloat regardless of debt much longer than non MS economies. It will put off the evil days of reckoning. Pity is we are not making any plans to deal with it.

  17. Growth without substance isn’t growth, or is it?

    As soon as the intermediate of exchange, formerly known as money, diverts itself from reality, its nof if, but when, gravity sets in. The real fun starts when leverage turns its ugly head, looks you in the eyes and says; 7 billion people. Lets turn around the excel sheet and start drilling deep offshore so they cannot see us.

  18. Nice post Tim

    Hopefully readers get it. If the real economy of things flat lines or declines the only recourse to fabricate growth is financial. No limits to money printing. At a point right about now the disconnect becomes clear. The CBs can’t paper over the rotting reality.

  19. Excellent analysis Dr Tim. Thank you.

    The continuing demise of the UK’s (read: Anglo-american) economic model is illustrated quite powerfully by these two fairly recent stories: in 2013, not long after Angela Merkel visited China and signed multi-billion Euro trade deals involving high-tech, engineered products etc, Cameron visited Beijing with a cohort of British businessmen on a trade mission. They were primarily focused on trying to sell financial services, which being a ICS, was always going to be a non-starter. At the end of the trip, Cameron made a big play about a new trade deal they did do – selling GBP45m of pigs’ sperm to the Chinese!!
    Recall recently BoJo the clown went to Moscow and highlighted Britain’s increasing exports of ‘Kettle Crisps to Russia’ as well as 300 Bentleys – which isn’t even a British company!.

    That’s the reality of an ICS-based economy trading globally. I think the MMT comment by ejhr2015 is spot on – we (US, UK et al) will keep things afloat and our populations pacified until a bigger, existential problem arrives (or is created) when all previous promises can be disavowed, e.g. as in a war situation.

  20. Pingback: #118: Good idea, bad idea | Surplus Energy Economics

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