#123: Quantum of risk, part one


More than four years in the making, SEEDS – the Surplus Energy Economics Data Systemis complete.

Though geographical coverage may be extended further (with Indonesia, Iran and Turkey as possible additions), the system itself is complete. This, under the circumstances, is just as well, because evidence is mounting that GFC II, the sequel to the global financial crisis of 2008 (GFC I), is drawing nearer. So we’re likely to need whatever insights SEEDS may provide.

This discussion sets the scene for what SEEDS can tell us about risk. Future articles will investigate national economies in groups, with the Euro Area countries likely to be addressed first. Each of the succeeding articles is likely to include downloadable summaries of the most important data.

SEEDS – capturing the surplus energy dimension

For those unfamiliar with the project, the ambition for SEEDS was to recalibrate economic measurement – and interpretation and forecasting, too – on the understanding that the real economy of goods and services is an energy system, and not, primarily, a financial one.

For practical purposes, achieving this means that we can use prosperity, instead of GDP, as the denominator for calibrating risk.

Aside from purely methodological issues, GDP has two grave handicaps where economic interpretation and prediction are concerned.

First, it fails to discriminate between organic growth, on the one hand, and, on the other, the simple spending of borrowed money. Though a very important recent report, by BIS luminaries Hervé Hannoun and Peter Dittus, highlights precisely this issue in its description of “the debt driven growth model”, conventional economics still fails to connect debt (stock) and GDP (flow) to the point where the effects of artificial, debt-induced activity can be factored in to interpretations.

For reference, and expressed in PPP-converted dollars at constant 2017 values, SEEDS puts world GDP growth since 2007 at $29.8 trillion, but notes that this was accompanied by a $103tn increase in debt, meaning that $3.50 was borrowed for each dollar of “growth”.

In the absence of this simple spending of borrowed money, growth over the decade since 2007 is estimated by SEEDS at just $10.3tn, with the remaining $19.5tn of reported increments to GDP ascribed to the debt effect.

Moreover, the debt-growth sleight of hand did not begin in 2007. Over time, the gap between GDP and prosperity has widened markedly. Last year, according to SEEDS, ‘clean’ GDP was $90.4tn, a long way (29%) below the reported $127tn.

Second, conventional economics ignores the energy basis of all economic activity. The reality is that everything we do requires energy, and energy can never be accessed free of charge – whenever we tap any form of energy, we always consume energy in the process.

In SEEDS, this cost is known as ECoE (the energy cost of energy), which is measured as a trend, and applied as an economic rent. For reasons discussed here, trend ECoE is rising exponentially, and is acting as an increasingly important obstacle to growth.

The British experience – prosperity versus GDP

Here’s a simple worked example of how SEEDS calibrates prosperity. Between 2007 and 2017, the GDP of the United Kingdom increased from £1.83tn to £2.0tn, a rise of 11%, or 3.3% in per capita terms.

But the increase in GDP between those years (of £206bn) was far exceeded by a £1.13tn surge in aggregate debt. Adjustment for this reduces growth to just £30bn, and puts clean GDP for 2017 at £1.6tn.

Over the same period, according to SEEDS, the UK’s overall ECoE increased from 4.8% to 8.6%, a sharp rise which, in part, reflects energy issues specific to Britain.

Aggregate prosperity, therefore, was barely changed in 2017 (£1,462bn) from 2007 (£1,494bn). But the population did increase between those years, by 7.7%.

In per capita terms, then, the average British citizen was 9.2% less prosperous in 2017 (at £22,300) than he or she had been back in 2007 (£24,370). Apparent growth in GDP per capita was much more than cancelled out by higher debt, and by the rising trend cost of energy.

This is why people feel poorer – whatever assurances they are given to the contrary.

Prosperity, policy and risk

This deterioration in prosperity is by no means unique to the United Kingdom, of course – Greece and Italy have fared worse, and prosperity has eroded since 2007 in every major developed economy with the solitary exception of Germany (+1.0%).

There are three main ways in which the divergence between GDP and prosperity is highly relevant to GFC II.

First, measurement of aggregate prosperity can be used to recalibrate ratios around risk categories such as debt, and exposure to financial asset toxicity. Debt may be ‘only’ 218% of world GDP, but it’s 336% of global prosperity, compared with 236% at the start of GFC I.

Second, prosperity analysis identifies dependency on incremental borrowing going forward, an extremely important consideration if there is any likelihood of access to new credit drying up.

Third, trends in individual prosperity have important implications for politics, and the scope for policy.

On this latter point, it’s worth noting what SEEDS can tell us about recent political trends.

When Donald Trump was elected in 2016, the average American was already 7.2% less prosperous than he or she had been ten years earlier. Also in 2016, the “Brexit” vote in Britain might have come as less of a shock to the “experts” if they’d known that voters were, on average, 8% poorer than they had been back in 2007.

The rejection of all established parties in the first round of the French presidential election might not have been unrelated to a peaking of per capita prosperity in France as long ago as 2000.

The high point of prosperity was more recent in Italy (2007) than in France, but the decline since then has been particularly pronounced (-10%), helping to explain the appeal of populism to Italian voters.

Looking ahead, then, one of the criteria SEEDS can help us to measure is the likelihood, or otherwise, of voters acquiescing in any repeat ‘rescue plan’ along the lines of the response to GFC I.

For most Western countries, the conclusion from SEEDS analysis is that any government which tries to repeat the 2008 combination – rescues for the banks, monetary inflation for the owners of assets, and austerity for everyone else – is going to get short shrift from the voters.

And, given the outcome of the post-2008 policy prescription, this might be just as well…………


52 thoughts on “#123: Quantum of risk, part one

  1. Thanks for the new article! When you aggregate debt are you including public and private in the same manner?

    • Thank you.

      Yes, public and private – public of course being the sum owed by the government, not the market value of bonds. Inter-bank (‘financial sector’) debt is excluded, as is customary.

  2. Tim, congratulations. Very keen to see how SEEDs is applied and what questions it will help answer.

    It sounds like you would like SEEDs, including it’s economic model, to be used to help inform policy.

    In my previous experience developing models to be used to help inform and develop policy options (UK) I found that getting the model ‘verified’ and ‘validated’ (V&V) for official use was difficult especially in an environment of entrenched models with devout supporters. Consequently, analysts like myself, spent more time advocating for the model than using it and developing it.

    What type of organisations are you hoping will adopt SEEDs as one of their ‘approved’ tools?

    What sort of V&V process are you envisaging you will have to get through?

    • Thank you Kevin. I think we can be pretty sure that the output from SEEDS will be informative.

      This may seem quirky, but I’m not too concerned about whether SEEDS informs policy or not. Here are my thoughts.

      Call me cynical, but, in my experience, policymakers do what they want to do, or what the voters want. They’re likely to co-opt expertise where it suits their aims. “Perfect storm” and the energy economy was raised in the Lords – the reply was what you’d expect.

      SEEDS, on the other hand, was built “to see if it could be done” – could I combine the different ‘languages’ of energy and economics? It hasn’t been easy, but it seems to have worked. If SEEDS is correct, things will develop as it predicts, with recognition of new realities happening later. If SEEDS is wrong, that won’t happen.

      Meanwhile, SEEDS gives me insights, which are likely to be valuable, and which I can share with readers such as yourself. There’s something to be relished, I think, in knowing where things are going, before this is generally known.

      In terms of simple proof (in the objective, intellectual sense), I think the central points are already well on the way to being proven. People have not become more prosperous in recent years. We are infusing illogicality into our financial system in an effort to kid ourselves otherwise, and are likely to wreck the system as a result. Interest rates below inflation aren’t ‘normal’. We’re trying to operate ‘capitalism’ without +ve returns on capital. We’re destroying our ability to provide for the future.

      These are economic trends, predicted by SEEDS but denied by conventional interpretation. The energy factor is becoming clearer – energy was a major factor in GFC I (oil prices surged from $20 to $147 between 2001 and 2008). Politics and governance are being transformed (and not for the better) by the cessation of prosperity growth. Geopolitics are being distorted by similar factors.

      So – do I want to invest effort in trying to persaude policymakers? No, because I’m not a zealot. I didn’t leave Cambridge until I was nearly 25. I enjoy what I do, and I find fascination in it. I enjoy and benefit from sharing it with others.

      There are one or two exceptions that I’d make to this.

      First, I would, and might, work with like-minded think-tanks on this.

      Second, I would put SEEDS to use if it could help development, something that has interested me ever since student days. Over 1 bn people lack grid electricity – and this concerns me a lot more than whether some in the West can carry on owning 2, 3 or 4 homes, or cars. Relating to this, Priti Patel wrote a truly brilliant article recently (link below). This sort of thing does interest me – trying to persuade the talking-shops in DC, Westminster and elsewhere, frankly, doesn’t.


    • “So – do I want to invest effort in trying to persuade policymakers? No, because I’m not a zealot.”

      Nice answer. I think you have told me this before, in other words, but I struggled to appreciate it. You’re right of course, it would go down like a lead balloon, especially when it tells ministers something the don’t want to hear. Maybe I still have some small hope remaining that my fellow zealots can get their act together if given the right methods and tools 😉

      “First, I would, and might, work with like-minded think-tanks on this.
      Second, I would put SEEDS to use if it could help development, something that has interested me ever since student days.”

      When I read this article yesterday, the first potential interest group that came to mind was the New Economics Foundation (NEF). I thought your insights would really help with some of their research, particularly in supporting their arguments for a sustainable economic system, within the UK and globally.

      Do you have a view on NEF and their work, that you are willing to share?

    • Thanks Kevin. I don’t think I’ve heard of the NEF, but will look them up.

      The think-tank I had in mind (actually, think-tank is probably the wrong term) is an academic spin-off doing work in an area not unrelated to some of what I do. I’ve co-operated with them before, know their top man and, had diaries fitted, would have accepted their invitation to present a keynote speech at one of their events a few years back.

      Sharing is an easier question. I am willing to share SEEDS output if it is for a bona fide purpose, but will not disclose the core methodologies involved. A wise man once reminded me that the best way to keep something secret is not to tell anyone about it.

      The way I see this is that, if conventional interpretation keeps breaking down, SEEDS-type systems will have considerable commercial potential. In other words, if I disclose too much about how it works, somebody will try to build their own. The parts I don’t disclose are, I hope and believe, sufficient to prevent that from happening.

  3. Hi Tim

    Congratulations in getting the system up and running.

    To me one of the main advantages of this approach is that it gets the secular trends into the debate. An awful lot of economics is just noise and doesn’t really matter in the long run; the secular gets forgotten. I mentioned demography in the last post but your ECOE is vital if we are to understand the drivers of our situation and where this is taking us in the future. When we have a concatenation of secular issues: energy, demography, AI/Robotics added together there is a net effect which is significant but these issues rarely com up in any debate; significant drivers of the economy are invisible which in some ways negates a lot of what is written in the MSM.

    • Thanks Bob.

      Your point is an astute one – we do indeed need to get the secular trends put in place.

      Relecting on your comment – and on my reply to Kevin, above – there’s huge resistance to, and denial of, the implications of secular trends.

      For example, if we believe that prosperity has ceased growing and is in decline, the implications for government would be profound. We’d need to change our ambitions fundamentally, not least because ‘fairness’ or equity will become far more important in a post-growth society. This sort of society would need far greater cohesiveness than Western societies have now. We’d need to heal divisions, not least demographic divisions, to have a decent chance of making the best of it.

      But all this is a bit like the case for re-armament in 1935 – no-one is going to touch it until they have to………..

  4. Hello Tim – from what I understand of SEEDS you are looking at ECOE from the regional economies’ energy sector on the whole. Forgive me if I am incorrect. I’ve been trying to understand some work by Steve Keen recently where he is trying to incorporate energy into the cobb-douglas production function. Do you have any thoughts on the potential of this venture?

    Basically he has substituted “work” as the output of energy-using labor and capital for the separate variables alone – which previously implied energy could be zero.

    His original article: http://www.debtdeflation.com/blogs/2016/08/19/incorporating-energy-into-production-functions/

    A video on the subject: https://www.youtube.com/watch?v=sOjrTQZBmMM

    • ECoE is estimated by SEEDS by fuel type, and over time. Each country has a consumption ECoE based on its fuel mix, which is then adjusted for (a) domestic supply and (b) net trade. Obviously the global figure is simply consumption. Net trade is significant, because, at any given level of ECoE, it’s generally advantageous if costs are incurred at home rather than abroad.

      I’ve no useful comments on what Steve Keen is trying to do, but I applaud any effort to incorporate energy into economics. The all-too-frequent observation that energy is ‘just another commodity’ is wholly wrong, in my view – as the relationships between energy, population, food supply and economic activity surely prove beyond doubt.

      Money, meanwhile, is simply a claim on real goods and services. I’ve likened it to a hat-check at a reception – it’ll only keep you dry once you’ve exchanged it for a hat.

  5. Are there any actual policy changes that conceivably make a difference in extending stability in your model for countries that are post peak? Obviously what they are doing with infinite low interest credit for speculation is not sustainable or productive, but is there even anything suggested by SEEDs that would make a substantial difference?

    I wouldn’t expect any such policies to get implemented between public will and political hubris but I am curious. Obviously in a post-growth economy all of the familiar economic paradigms are out the window since basic things like high price increasing supply are mostly out the window and inverted to destroying demand.

    • You are right on both counts.

      Though the established trends towards lower prosperity in the advanced economies are not reversible, there are indeed policies that could mitigate what’s happening, and ameliorate the impact on individuals.

      But the chances of these policies being adopted must rank alongside the life expectancy of an ice cream on a gas-ring.

      At the moment I’m reviewing the economies of the UK, US, Canada, Australia and NZ and – perhaps to my own slight surprise – the leader nearest to getting policy right (‘right’ in SEEDS terms, that is) is Mrs May.

      Personally, she would not have been my choice to replace Cameron, but I’m happy to say I may have been wrong. This, alas, doesn’t overcome the UK’s deep structural problems. For instance, the size of the banking sector has to be of concern ahead of GFC II. Total financial assets are about 1140% of GDP, but are over 1550% when recalibrated from GDP to prosperity. The UK also has serious energy problems, and still depends far too much on borrowing to support GDP.

      The basic problems with declining prosperity are how to realign expectations, and address social cohesion. The latter is a grave problem in the US and the UK. The public, throughout the developed world, seem to feel that the settlement post-GFC I was loaded and biased, and I doubt if they’d back a repetition. Simply turning on the QE taps again would exacerbate perceptions of unfairness, quite apart from, very probably, crashing the system.

      I like to think I’m a pragmatist, but “fairness” has to be brought to the fore as prosperity erodes – because tolerance of material inequality is likely to nose-dive once “we’re all getting poorer”. I think Mrs May gets this, albeit not from a SEEDS point-of-departure, but perhaps instead from simple decency.

      In that spirit, I wish her luck. She’s going to need it.

    • I’ve long thought Canada is in the worst shape of any Western nation. I didn’t realize Ireland was worse than the UK though.

    • I think we’re on the same page on Canada.

      The Irish situation repays investigation. According to available stats, debt (private plus public) is about 340% of GDP (end-2017 numbers still pending), and financial assets (the size of financial sector exposure) was 1751% of GDP at end-2016, and is probably similar now. (For comparison, the UK, with its huge banking sector, is at about 1140%, the US at 485% and Germany at 469%).

      But Irish GDP is a huge overstatement of prosperity. In 2015, Ireland changed how it incorporated multinationals into GDP. Reflecting this, GDP jumped by 25% in a single year (this has been dubbed “leprechaun economics”).

      SEEDS doesn’t buy this, of course.

      For the UK, for example, prosperity is 28% less than reported GDP, about what you’d expect after adjustment for (a) pushing a lot of borrowed money into consumption, and (b) ECoE.

      For Ireland, though, prosperity is less than half (48%) of GDP.

      So, once you replace GDP with prosperity, these ratios double. This makes debt look dangerous, and financial asset exposure look lethal.

      At constant (2017) values, Irish debt is now about EUR 1 trillion, versus EUR 490bn at the end of 2007, and EUR 680bn at end-2009. So much for deleveraging.

      So you really need supposed huge “growth” since ’07 in order to make any sense of this. GDP was reported 50% bigger in 2017 than in 2007 – but this, remember, included +25% in 2015 alone.

      It might be worth writing this up – not least as a SEEDS demonstrator…..

    • Thank you, and I agree.

      My view is that the tolerance of inequality will diminish rapidly once collective prosperity becomes a zero-sum game (at best). I would add that we’re already seeing it happening, though the political establishment is failing to notice it, perhaps because it is human nature to see only what we want to see.

      On the link, yes, and they are very good indeed.

    • Hi Tim

      I agree with your prescription but I have difficulty with the mechanics. Most folk, and this is not a patronising comment, do not only have a limited understanding of some of these issues but are largely not interested. The MSM is continually pumping out anodyne messages which stop folk thinking about these issues and that of course is the intention.

      When you say people will not put up with another bout of bail outs I agree entirely but what do you think the reaction would be if May were to announce on a Sunday night (It’s always Sunday) that “sorry folks the banks are in trouble and we’re going to bail them out” – words to that effect? I think the reaction would be very mute; it would deserve pitchforks and barricades but that’s not what we’ll get. I think it has to get a lot worse and really begin to impinge on people’s everyday life and interests before we will get the type of action that will address these problems; the political system will not let radical ideas rise to the surface simply because they are just well, radical. It could be really serious falls in house prices or problems in the auto financing sector or more classical things like a huge rise in unemployment, something that affects people’s future and interests directly and shows starkly that the present system isn’t working but it will have to be something of this magnitude.

    • Thanks Bob. It amazes me (though it doesn’t surprise me) that people whose houses have doubled in value act as though it’s a virtuous achievement on their part, rather than, as it really is, an outcome of monetary policy. By the same token, youngsters who can’t afford a home are somehow feckless, and the idea that the fortunate should (as Mrs May proposed) contribute to their own care in old age is resented.

      BTL is a whole other story on top of this. There’s surely a case for treating BTL as a business, which implies Business Rates.

      The willingness of the public to tolerate this may well be over-estimated in government. I hope the model will be Gandhi, Mandela or Martin Luther King – three of my heroes – rather than pitchforks. But I say that more in hope than in confidence.

  6. Dr. Morgan,

    I look forward to your SEEDS on the US, in due time.

    Reading this post made me think of Jeffery Brown a poster on The Oil Drum as West Texas. He had developed an oil export model showing how the decline in exports would work in the rel world. His theory was that exports would drop faster than depletion due to increased internal consumption in oil exporting countries.

    I don’t know how all this would tie together with SEEDS but it just popped out at me as another factor.

    Thanks for all your work and I agree with not wasting time with policy makers as a practical matter.

    David M

    • Thank you. With SEEDS now complete, I have the data on the US, so it’s just a matter of writing it up.

      I think you might be referring to something called the Land Export Model. If so, Indonesia is a very good example. Back in the 1990s, Indonesia was a big net exporter of oil, but production declined whilst consumption increased, which is the kind of leveraged equation described by the LME. Indonesia is now a big net importer of oil – and is no longer a member of OPEC.

  7. Indeed I have tried to raise these issues with friends and colleagues – the response has ranged from disinterest to scepticism to outright hostility. Most people are afraid to hold or even consider opinions that are unfashionable. I suppose there is an element of self preservation – it’s comforting to pretend that the new German car on the drive and the holidays in Barbados are attributable to ones own brilliance rather than monetary manipulation and the spending of borrowed money. Agreed it will take something very bold to occur before reality is reconnected with.

    • The proof is in the pudding, as the saying goes. Look at car sales, retailing, restaurants, manufacturing, and now even the service sector. You could ask the same people if, taking everything into account – income, cost of essentials, debt – they really feel more prosperous now than they did in 2007….

      This isn’t just the UK by any means, of course. But the UK predicament is visible in use of food banks, numbers struggling to get by, use of unsecured credit, homelessness and insecurity, especially amongst young adults. The NHS probably needs more money, and so, I’m certain, does defence. The UK looks, to my eye, a bit shabby, once you look past all the credit-funded new cars.

  8. As far as I can see the cracks are now widening appreciably in the UK.

    Here in Cambridge there are now many empty retail premises, vacated in the New Year – prime locations in the very centre and by market square; in the newish, more up-market ,Grand Arcade mall, and also the old, thoroughly working-class Grafton Centre (which also offers open-air street culture for the drugged classes – another reason for decline ).

    That’s pretty much across the board.

    Now, this didn’t happen even in the doldrums of 2008-2010 – one wouldn’t have noticed that the GFC had happened as far as this city was concerned.

    I’ve noticed that houses sell a little more slowly, too.

    An old working class two-up, two-down cottage, £425k, superbly located for the train to London failed to sell after no less than 4 months on the market -unprecedented. I knew the owner and it can’t be a condition problem.

    Market peak? A house which would have sold for about £120k in 2000 now fetches £550k – the surreal nature of this hardly needs comment. That people regard this as real wealth is laughable. New builds are over-priced, obviously skimped, cramped, rubbish.

    So, much appears to be amiss – despite the traffic jams of bright and shiny new cars, despite The Ivy opening a branch (packed).

    I would say all lights are indeed flashing red, and it’s time to fasten seat belts rather than wait for the announcement.

    And, maybe, time to get a job in debt collection?

    • If I could do the career choice over again I would be a bankruptcy attorney.

    • These are indeed red lights flashing, and I’d put them amongst “late late signs”.

      “Late signs” is my term for froth – new estate agencies popping up like mushrooms; property prices pushing for the final crazy highs; and a last bout of heady frivolity (described by one writer – I paraphrase – as ‘shop-girls hiring a stretch limo for a night out, lads going for a beano in Bucharest’). This is when the final laggards join the party.

      “Late late signs” are when this last burst ends.

      If this has reached Cambridge, then things must be bad.

      Inflated property prices aren’t real value, because they cannot be monetised – we cannot all sell our houses to each other and turn them into cash at the same time.

      Debt collection might be an interesting career choice – but will it actually be possible to collect debt?

  9. Might the system be rebalancing the surpluses of yesteryear with today’s deficits related to the expected life style?

    The infrastructure of the 20s-70s have a low initial cost because of the high EROEI of that period. So the accumulation of value was high. This has been the source of leverage for the last 50 years. Now we are at break even levels.

    Just like you’ve shown debt can’t push GDP hard enough. Basically a heat death not enough differential to drive the system. 101 thermodynamics. As the efficiency of the system declined stocks of value have been expended to make up the difference.

    A good example is public property being privatized to make up spending gaps. The public property had been an asset of the community it served. Curiously much of it has been built with perpetual bonds since its rolled over and over. But any residual value is released once privatized. Like squeezing out a sponge with a steam roller.

    So if you take global debt and compare it with the surplus we had up until 1980 we see a match. We balanced the books while leaving the illusion of wealth. Super neutrality of money on a macro scale. It seems that no one understands that zero and infinite have the same effective value. It’s only in between the two that activity can continue. When you win in monopoly the game is over.

    What capitalist will never understand is that the accumulation of wealth isn’t wealth. What builds the economy is the activity enabled by the system. So it is a function of economy of scale and affordability. A few Lear jets don’t build any wealth but commercial carriers enable wealth.

    In any event it boils down to surplus which is access. Depletion ends the cycle at all levels and has exponential feed backs.

    • And how do you get to the other side? Politicians, crypto currencies and prayers won’t help.

      I, personally, won’t give up without a fight. What’s your plan? Don’t dissapoint me.

    • And don’t give me the crap there’s no other side. There is. Just not within our current population.

    • Great comment, JT, on which I’ll reflect.

      As things start going wrong, I’d expect cryptos to be banned, and there’s a precedent for outlawing the private ownership of physical gold.

    • I cannot see how we get to the other side with population numbers at current levels – but I cannot (or maybe don’t want to) see how we address this.

    • Once we pass the break even point and have no surplus to share around and invest for growth for all actors in a system then strategies at all levels of abstraction need to change.

      We seem to be have already moved a to predator-prey situation. Predatory actors with resources and agility using those strengths to extract more from a weakened herd, which is slowly running out of grass to eat (credit).

      We will no doubt reach a point at which the predatory actors will not be able to gain more, but will be maintaining previous gains and minimising losses, still this will come at a cost to the weakening herd.

      Could we change this? Maybe. In any predator-prey system the number of predatory actors is always far smaller than the prey. This means we can focus efforts on changing the behaviour of a few predators to make life easier for the prey.

      Culling the herd also allows for regeneration.

      This can ultimately only mitigate the catabolism of industrial civilisation. So is a delaying strategy. We won’t be able to maintain it forever. Maybe giving people more time to adapt is all we can realistically achieve. This still seems like a worth while task.

      Apologies for the zoological analogues, but I think they humble us by giving perspective. This pattern of behaviour is timeless. I find that comforting in a strange way.

      In a thousand years we’ll have Atlantean style myths about this time. That is pretty cool.


    • I’m no biologist, but think these points are well made. It reminds that, apparently, the locust starts out as the amiable grasshopper, until resource pressures and over-crowding change, not just his behaviour, but his physical characteristics as well.

      If, as I believe, we’re moving from a “growth for everyone” to a “zero-sum” situation, we need to beware of Adam’s Smith”s “vile maxim” – one of the bits his self-declared supporters tend not to mention – of “all for ourselves, and nothing for other people”.

      Over time, my rejection of the neo-liberal position has shifted from emphasising its incompetence to disliking its promotion of the selfish. That becomes a bigger problem when gains for some may no longer harmonise with gains for others, but can only come at others’ expense.

      Back in ’97, “New” Labour made a virtue of being “intensely relaxed” about some people becoming “filthy rich”. The fundamental problem here was that it should have been “becoming very rich by delivering valuable benefits to society, and being rewarded accordingly“, and “becoming very rich in ways that are not to the detriment of others“.

    • Hi Tim

      Re your penultimate para the neoliberal might argue that the outcome you mention is not a characteristic of the free market system; in that the crooks would be driven out of the market by the good guys. Probably like you I’m not convinced about that and believe that the “rip off” mentality is pretty widespread.

      The problem is that we have a top down type of democracy, especially in the EU, and dissent is effectively only allowed within narrow limits, backed up by a supine media whose functions are to distract and misinform.

      As regards your final para we are drifting towards a Benthamite felicific calculus and all the difficulties that that may cause.

      There is one other factor that I would mention but only that as it is outside the guidelines of the blog. I’m just reading Mark Steyn’s book:”America Alone the end of the World as we know it” in which he discusses the Islamisation of Europe and the way that we are headed towards an Islamic takeover. The point I’m making is that you may well get your way in terms of a revised morality but it may be based on Sharia law if Steyn is anywhere near correct.

    • Bob, thanks.

      There’s a problem there for neoliberalism (as I’m using the term, anyway), though it wouldn’t be a problem for any genuine disciple of Adam Smith.

      For Smith, market economics was never a free-for-all – his thesis is that markets are free and fair, the implication being that regulation is necessary, as markets won’t stay free, fair or honest on their own. He also emphasises competition, and the prevention of excessive concentration, which in itself means that some form of regulation is necessary. Moreover, the implication is that the state must provide this regulation.

      What we have now isn’t Smith-style market economics. If it were, many banks and bankers would have gone bust in 2008, and we’d be operating ‘sound’ money, not monetary adventurism. We would also be in a climate where there were real returns on capital, a fundamental aspect of capitalism, whilst big players in any given sector would be dismantled, as America did with Standard Oil and AT&T, but doesn’t seem to do nowadays.

      Rather than offend anyone by using the term ‘neoliberal’ I’d say that what we have now is “junglenomics” – the law of the jungle – and Smith was never an advocate of that…..

  10. “When you win in monopoly the game is over” – that’s an excellent metaphor in the present circumstances. The winner has no one to play with, so the “winnings” are worthless.

    “…how we get to the other side with population numbers at current levels …”. – We don’t.

    Plenty of other species have been through that. To their advantage they had no frontal lobe to foresee it and worry about it.

    Looking forward to seeing those SEEDS-NZ numbers Tim.

    • The game of Monopoly was invented as a propaganda tool by a socialist wanting to influence players into disliking capitalism plutocrats and monopoly. It didn’t turn out that way, of course.

      The NZ numbers look pretty good, though that’s partly a relative observation, necessarily.

  11. Tim, in SEEDS, is prosperity a relative or absolute value?

    Can you have zero prosperity?

    If you did, what would that mean?

    (Should probably go back and read the pdf)

    • Absolute, though one can always make relative comparisons with other countries and other times.

      Zero prosperity is certainly possible – as, indeed, is negative prosperity.

    • How would you interpret zero and negative prosperity values?

      Would that mean that the average person is at subsistence level, or lower? No disposable income?

    • Zero and negative prosperity are not merely possible, but endemic. People who need credit to pay for essentials, or who use food banks, or who cannot afford (so do not have) essentials such as satisfactory housing, are all in this position.

      Basically, negative current prosperity means you cannot afford a realistic level of essentials. Negative temporal (over time) prosperity is where you can afford these things, but only by racking up future liabilities. In Britain alone there are millions in one or both of these categories – as, of course, there are in most other comparable economies.

      Though SEEDS doesn’t go back that far, similar negative prosperity no doubt existed in 1780s France. Add rentiers and stir….

  12. It amazes me (though it doesn’t surprise me) that people whose houses have doubled in value act as though it’s a virtuous achievement on their part, rather than, as it really is, an outcome of monetary policy. By the same token, youngsters who can’t afford a home are somehow feckless, and the idea that the fortunate should (as Mrs May proposed) contribute to their own care in old age is resented.


    I encounter this regularly by people in Hong Kong… I smelled that 2008 crash coming and went into cash and gold big time…. planning to go hard into HK property …

    Lehman happened… the market started to tank (just like it did in 1997 – a time when I did not have the means to take advantage of what turned out to be a 70% crash)….. it dropped about 25%… I held my powered dry expecting a much bigger fall…

    Then the Fed announced QE1…. blow this up to see the exact point when the market began to sky-rocket:

    Now if these clowns who believe their are investing geniuses were actually prescient … why is it that not a single one of them stated at the time : The Fed is going to flood the global economy with many trillions of dollars — that is going to drive all asset prices up — China is also going to follow the mega stimulus path — a lot of this cash is going to end up in the HK property market — go long HK property….

    Not a single person predicted this.

    Nassim Taleb has a few things to say about such people in Black Swan….

    The downside of all this ‘brilliance’ is that unless the winners are taking the cash off the table and blowing it on bucket-listing activities… they are never going to realize the benefits of the ephemeral gains on their property assets…

    Cuz this thing is going to hell in a handbasket…. and those properties are going to be worth absolute zero in the not too distant future.

    So enjoy reading the headlines about how the property market hit a record high again in 2018….

    • Everyone I know who is approaching or is over 60 is planning on “selling their house in a few years” because all ‘their money’ is tied up in housing and they want to release it so they can fund a comfortable, globe trotting, retirement. They also tell me that their friends are planning to do the same. Only one has a private pension, the rest seem to be banking on the house being sold.

      I have asked them who they think is going to buy all these houses. They provide anecdotes of houses selling, so assume theirs will too. The type of people buying these houses are serious commuters who work in the cities, but can’t afford their so live in the towns. But local young people have no chance, even if they have a job in the first place, and are frugal savers. The factories that employed everyone in my area are in Vietnam now. Is their enough demand purely from ‘city exiles’ to realise these sales? I don’t know.

      Do we have an over expectant aging population who are going to be severely disappointed when they realise they aren’t as wealthy as they think?

      I wonder what political effect that disappointment could have?

    • Kevin

      We do have an aging population but it is going up; by some reasonable estimates the UK will be the largest country by population in 2050. In this respect they might have a chance, or at least some might have a chance, of realizing their dream.

      However, all these population projections are contingent on significant net migration and, post Brexit, there has to be at least some doubt about this; the birth rate is currently below what is regarded as replacement rate of 2.1 children per woman so there has to be immigration to reach most of these projected numbers.

      Notwithstanding this, and like you, I have my doubts about whether they will succeed but the propensity to deny things is quite powerful and people are very reluctant to face up to difficult situations ( I don’t exempt myself from this either) so this could go on for years.

      What I do believe is that there will be significant changes in the EU in the next twenty years which will severely impact us. Their demographics are generally much worse than ours and the Euro is a disaster in waiting and the implications surrounding these two issues alone are enough to set the cat amongst the pigeons and, effectively, mean that all bets are off.

    • Kevin

      I have been saying – for years – that aggregate property values are meaningless, because the only people to whom they could be sold are the same people to whom they already belong.

      It’s a bit like “today’s fall in the FTSE100 wiped £xxxxbn off share values” – which it didn’t, unless we could have sold all companies, at their market cap, to Martians.

      Obvious though this is, the culprits who use or publish aggregate property “values” include economists, banks, the government, and even – in its national balance sheets – the Office for National Statistics.

  13. Its all rather comical, truly – one really shouldn’t, for the sake of remaining sane, take this life too seriously. Everyone’s embarked on a Ship of Fools. For instance:

    Those with grossly inflated assets believe that they will be easy to liquidate and will fund sunset cruises, holidays and drinking themselves to death…..

    Their middle-aged children believe that a property inheritance will set right their over-extended lifestyles and consumer debts…..

    Clueless politicians believe they can relieve some problems by taxing the ‘vast wealth tied up in property’….

    Millennials reading the The Guardian are told that the elderly – all of them – are ‘the new rich’, and that they are victims of inequality because at the age of 25 with an arts degree and a gig job they can’t buy a detached house at a bubble valuation….

    The young are quite as foolish and deluded as the old: civilizational dementia?

    An awful lot of people are going to feel rather sorry for themselves, but will deserve tears of laughter and derision, not commiseration.

    • This is a great comment, and sums up “the human condition, 2018” very well.

      I’ve told this story before, but, sitting at a Spanish restaurant two or three years ago I couldn’t help overhearing a ghastly teenage boy (English) telling his parents, and his older brother, how he’d got it made – when his first grandmother died, he’d inherit £X, and then £Y when his other grandmother passed away. It didn’t seem to occur to him that his parents, who were listening, might have to die first………and they said absolutely nothing!

    • A story worth repeating.

      Not only that, but he was clearly reckoning on his elder brother exiting the scene, too.

      So much charm, and so young – the Good Fairy must have attended his cradle!

  14. Tim
    Your absolutely right that crypto and gold will be confiscated. Governments are stupid but not insane. They can’t exist with unregulated alternative currency floating around. As a matter of fact they thrive on money creation.

    A way to look at is the 3% inflation rate is an additional direct tax since the money to meet the rate should be created by government issue.

    The government needs the central bank to be able to operate they can’t allow competitive currency they just can’t it’s impossible. They will use the military to enforce it they have no choice it’s survival.

    Same is true of the global reserve currency.

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