#129: Why, what, how?

SEEDS AND THE CHASM IN ECONOMIC UNDERSTANDING

Regular visitors will know that, since the recent completion of the development programme, SEEDS – the Surplus Energy Economics Data System – forms the basis of almost every subject that we discuss here. For anyone new to this site, though, what is SEEDS? What does it do, and how important might it be?

The aim in this longer-than-usual article is to explain SEEDS, starting with some of what it tells us before examining how it reaches these conclusions. The methodologies of the system are discussed here, with the exception of a small number of technical points of which detailed disclosure would be unwise.

Before we start, new visitors need to know that the divergence between SEEDS and “conventional” economics has now become so wide that it’s almost impossible to place equal faith in both. If SEEDS is right – and that’s for you to decide – then much of the conventional economics approach is simply wrong.

The question thus becomes that of which interpretation best fits what we see happening around us.

“Shocks” that are no surprise

A picture is supposed to be worth a thousand words, and the following charts demonstrate quite how radically SEEDS differs from conventional economic interpretation.

These charts set prosperity (as calculated by SEEDS) against published GDP per capita for the United Kingdom and the United States. With this information, you can see that, for SEEDS, the so-called “shocks” of the “Brexit” vote, and the election of Donald Trump, were no surprise at all.

Rather, popular discontent with the political establishment is to be expected when the prosperity of the average person has been declining relentlessly, and over an extended period. In Britain, the voters’ decision to leave the European Union reflected a deterioration of 9.7% (£2,380 per person) in prosperity since 2003. In the US, the decline in prosperity began later than in the UK, but the average American was still 7.3% ($3,520) poorer in 2016 than he or she had been back in 2005.

Brexit Trumpjpg_Page1

Obviously, economic hardship wasn’t the only issue at stake in either case. But it has to be highly likely that it tipped the balance. Similarly, recent events in Italy must in large part reflect a big (12.1%, or €3,300) slump in average prosperity per person since 2001 – which, coincidentally (or not?) was the year before Italy joined the euro.

In short, the SEEDS interpretation is that the rise of so-called “populism” across much of the West reflects a deterioration in prosperity which conventional economics is wholly unable to capture.

This means that policymakers are trying to make decisions in a context quite different from the information that they have to go on.

The main purpose of SEEDS isn’t political prediction, though the system’s track-record in this field is rather impressive. Rather, the aim is to calibrate prosperity – something which conventional economics has become increasingly unable to do – and to draw economic and financial conclusions on this basis.

China – some warning signs

The next pair of charts, which look at China, display SEEDS’ interpretative capability on an issue of current importance. The first chart illustrates that, whilst GDP per capita continues to grow at rates of over 6% per annum, prosperity is increasing at a much more sedate pace, trending higher at rates of around 2% annually.

China sustainablejpg_Page1

Meanwhile, and as shown in the second chart, China is paying a huge price for growth in GDP, having added RMB 4.30 of net new debt for each RMB 1.00 of reported growth over the last ten years. Put another way, a large proportion of “growth” in recorded GDP amounts to nothing more than the simple spending of borrowed money.

This is by no means unique to China, of course. Before 2008, pouring credit into the economy, and calling the result “growth”, was a practice largely confined to the West. Since GFC I, this practice has spread to much of the emerging world.

Meanwhile, the West has moved on to new follies. To the “credit adventurism” which preceded the first crash has been added the even more dangerous “monetary adventurism” which is likely to trigger the second.

Watching this progression, you might well conclude that those deciding policy are ‘making it up as they go along’. That, of course, is about all they can do, if the interpretations on which they base their thinking have ceased to be valid.

Risk recalibrated

Where China is concerned, SEEDS puts a wholly different slant on risk exposure. The ratio of debt to prosperity has climbed from 217% back in 2007 to 613% now, and is set to reach 660% by the end of this year. These compare with debt-to-GDP ratios of 162% in 2007, and 309% now.

You don’t need to be unduly pessimistic to appreciate that this trajectory has become wholly unsustainable – and by no means just in China. Yet this scale of risk is something that the preferred conventional measure – the ratio of debt to GDP – simply fails to capture. Much the same applies to the measurement of systemic risk in banking, where comparing financial assets with prosperity shows levels of risk far higher than are indicated by ratios based on GDP.

This is a subject for a future discussion, but we can observe here that countries whose banking systems are disproportionately large are living with exposure whose severity cannot be measured realistically with established techniques.

Debt mis-measured

The explanation for the mismatch in debt ratios, by the way, is pretty simple. Much of any increase in debt finds its way into expenditure, thus pushing up apparent GDP in a way which damps down the measured implications of debt escalation. As we’ll see, where SEEDS differs is that it uses underlying or “clean” output numbers, adjusted to exclude the way in which GDP is boosted by the simple spending of borrowed money.

Given the sheer scale of worldwide borrowing in recent years, understanding how the conventional debt-to-GDP measure is flawed helps us to appreciate why the next financial crisis (“GFC II”), when it comes, will doubtless be regarded as just as much of an ‘unpredictable’ event as the 2008 global financial crisis (GFC). Though there are many ‘popular misconceptions’ in this area (including the ‘safety’ supposedly conferred on the banking system by higher reserve ratios), the debt-to-GDP ratio remains one of the most misleading of the lot.

The reality is that, far from taking us by surprise, many events and trends are eminently predictable. Looking back at the British chart, for instance, you’ll readily appreciate why customer-facing sectors such as retailing, pubs and restaurants are going through a fire-storm of failures and closures. Contrary to ‘expert’ opinion, this melt-down owes very little to “Brexit” (yet, anyway), and almost everything to the erosion of customers’ ability to spend.

Globally, SEEDS reveals levels of risk exposure that are very different from anything you can glean from conventional econometrics. Taking debt as an example, the ratio of debt to world GDP now stands at 215% of GDP, a ratio not dramatically worse than it was in 2007 (179%). For SEEDS, though, the ratio of debt to prosperity is not only much higher (327%) than the conventional measure, but has worsened very markedly since 2007 (229%).

How, then, does SEEDS arrive at these conclusions?

“Something missing”

Put simply, SEEDS fills a gaping hole in how the economy is understood. It’s become increasingly clear, over an extended period, that the ability of conventional economics to provide interpretation and guidance has been breaking down. Policy levers that once worked pretty well seem now to have lost their effectiveness. This means that individuals and businesses, no less than governments, are unable to grasp what is really going on in the economy and finance.

Since the interpretive and predictive abilities of conventional economics are failing, it’s clear that “something is missing” from accepted thinking. Equally clearly, this missing component has now assumed greater importance than it had in the past. So what we’re for looking is a gap in understanding which is more important today than it was, say, twenty years ago.

The view taken here is that the missing ‘something’ is energy. There are at least two reasons why this ought to come as no surprise at all.

First, it’s observable, throughout history, that three data series have progressed in something very close to lock-step. These series are: energy consumption; population numbers; and the economic output that supports that population. From the late 1700s, when first we accessed the huge amounts of energy tied up in fossil fuels, all three series have become exponential. This is illustrated in the next chart, which compares population and energy consumption over two millenia. (For much of the early period, energy wasn’t traded, so we can’t quantify exactly how much was used, but we do know that the numbers were extremely small).

Population and energyjpg_Page1

Second, you only have to picture an economy suddenly starved of power to appreciate quite how utterly dependent all economic, financial, social and political systems are on the continuity of energy supply. Cut off this supply in its entirety for as little as 24 hours and chaos would ensue. It’s likely that a relatively short period without energy would be enough to turn chaos into collapse.

Both observations are so obvious that the absolute primacy of energy in the economy should be clear to everyone. The idea that energy is somehow ‘just another input’ is facile in the extreme. There is literally no service or commodity than can be supplied without it. Clearly, energy is much more important than just one a part of a sub-set of materials, itself one of the five inputs to economic activity (the others being labour, capital, knowledge and management).

What has changed?

We can be confident, then, that energy is the ‘something’ that is missing from the conventional understanding of the economy. Equally, though, if it’s missing now, then it was missing in the past, too – yet its absence has become more important over time.

So it’s not just energy itself that has been left out of the equation, but something dynamic (changing) within energy itself.

A long-standing interpretation of the energy economy has been scarcity. It’s logical that reserves of fossil fuels are finite; that consumption has increased exponentially over time; and that we’ve exploited the most economically attractive resources first, leaving less profitable alternatives for later. This process is known as depletion, and is the logic informing ‘peak oil’ – a thesis that ‘cornucopians’ dispute, but which may yet turn out to have been right all along.

The critical issue – cost

SEEDS, though, isn’t based on resource exhaustion. Where the critical role of energy is concerned, the alternative (though not necessarily conflicting) interpretation is that it’s cost, rather than quantity, which is critical.

Whenever we access energy, some of that energy is always consumed in the access process, and what remains – surplus energy – is the enabler of all economic activity, other than the supply of energy itself.

This relationship is often measured as a ratio known as EROEI (the Energy Return on Energy Invested, sometimes abbreviated EROI). The scientific argument supporting EROEI is compelling, and is stated superbly here.

SEEDS uses an alternative measure, ECoE (the Energy Cost of Energy), which expresses cost as a percentage of the gross energy accessed.

Because the world economy is a closed system, ECoE is not directly analogous to ‘cost’ in the usual financial sense. Rather, it is an economic rent, limiting the choice we exercise over any given quantity of energy. If we have 100 units of energy, and the ECoE is 5%, we exercise choice (or ‘discretion’) over 95 units. If ECoE rises to 10%, we now have discretion over only 90 units, even though the gross amount remains 100.

This is loosely analogous to personal prosperity. If someone’s income remains the same, but the cost of essentials rises, that person is worse off, even though income itself hasn’t changed.

Understanding ECoE

ECoE evolves over time. In the early stages of any given resource, ECoE is driven downwards by geographic reach, and by economies of scale. Once maturity is reached, depletion takes over as the driver, pushing ECoE upwards.

In the pre-maturity phase, technology accelerates the fall in ECoE driven by reach and scale. Post-maturity, technology acts to mitigate the rise caused by depletion. But – and this is often misunderstood – the capabilities of technology are limited to the envelope of the physical characteristics of the resource.

Over time, the trend in ECoE is parabolic (see illustration). Today, renewables remain on the downwards slope, but the ECoEs of fossil fuels are now emphatically on the upwards curve.

The same is true of overall ECoE, because fossil fuels still account for nearly 90% of energy supply, whilst renewables contribute less than 4%.

Parabolajpg_Page1

Even though renewables’ share of total energy supply is rising, it’s unlikely that this will stem, let alone reverse, the upwards trend in overall ECoE. Critically, technologies such as wind and solar power remain substantially dependent on inputs sourced from ‘legacy’ energy. We have yet to demonstrate that we can build solar panels, wind turbines or their associated infrastructure without recourse to energy from oil, gas or coal.

To this extent, the outlook for ECoEs in the renewables sector remains geared to the ECoEs of fossil fuels.

A critical point here is that, once on the upwards slope of the parabola, the rise in ECoE is exponential. According to SEEDS, global ECoE has risen from 3.5% in 1998 to 5.4% in 2008 and 8.0% now, and is projected to reach 10% by 2028.

For obvious reasons, details of the ECoE calculations used by SEEDS are not disclosed. This said, separate trajectories for fossil fuels and renewables are published, as are the global ECoE curve, and its national equivalents. (The aim is to give readers the maximum information consistent with not enabling any organisation to build a SEEDS-type system).

Some pointers, however, can be provided.

First, ECoEs are calculated on a fuel-by-fuel basis over time.

Second, and reflecting the nature of the main drivers, ECoEs evolve gradually, so SEEDS always cites trend ECoEs.

Third, the ECoE for any given country at any given moment, and the way in which this number changes over time, are determined by the mix of energy sources used, and by trade effects, where the country is a net importer or exporter of energy.

Relating ECoE to output – clean GDP

With ECoE established, it might appear that all we need to do now is deduct this number from GDP to arrive at prosperity, which is the corollary of surplus energy, expressed in monetary units.

Unfortunately, things are not this simple.

As we’ve seen, the tendency over an extended period has been to boost apparent GDP though processes known here as credit and monetary adventurism. The adoption of these policies can be seen, in part at least, as a response to a deterioration in rates of growth which began to take effect in or around the late 1990s, as rising ECoEs started to bite.

Comparing 2008 with 2000, reported “growth” of $26 trillion was accompanied by a $58tn increase in debt. The ratio between the two was thus $2.20 of new debt for each $1 of reported growth, though ratios were far higher than this in most Western economies.

Between 2008 and 2017, the ratio of borrowing to growth rose to 3.26:1, with $94tn of debt added alongside growth of $29tn. Furthermore, the latter period also witnessed the emergence of enormous shortfalls in the adequacy of pension provision, which have worsened by close to $100tn since 2008. This destruction of pension value is almost wholly attributable to a policy-induced collapse in returns on investment.

It almost defies credulity that we are asked to accept “growth” of $29tn as genuine whilst ignoring $94tn of net new debt, $28tn of newly-created QE liquidity and the destruction of almost $100tn of pension value.

According to SEEDS, real growth over that period wasn’t $29tn but $9.9tn, and even this calculation might be generous when set against the scale at which the aggregate balance sheet has been trashed over that period.

This calculation also means that GDP, reported at $127tn for 2017, falls to just $90tn on a clean, ex-manipulation basis – and even this, of course, is before we allow for ECoE, whose global cost has increased by 58%, from $4.5tn in 2008 to $6.9tn last year.

The following charts illustrate this situation, expressed in PPP-converted dollars at constant 2017 values. The left-hand chart shows GDP, both as reported and as adjusted by SEEDS to exclude the impact of the simple spending of borrowed money. The second chart shows debt, both as actual numbers and as the trend that would have occurred had debt grown at the same annual rates as reported GDP.

The difference between the red and black debt lines thus corresponds to debt growth in excess of percentage increases in GDP.

GDP & clean debtjpg_Page1

When examining these charts, it’s important to note the differences in the vertical axes, meaning that we’re dealing with movements at different orders of magnitude.

Between 2000 and 2017, GDP (as reported) increased by $55tn (76%) in real terms. But debt more than doubled, growing by 126%, or $152tn, from $121tn in 2000 to $273tn in 2017.

Borrowing $152tn to achieve growth of $55tn is not only unsustainable, but surely makes it clear beyond doubt that most of the supposed “growth” in GDP is simply the effect of pouring borrowed liquidity into the economy.

Implications of credit-fuelled GDP

From this, two things follow. The first is that a cessation of debt escalation would reduce growth dramatically – if debt ratios remained at current levels, no longer increasing, then GDP might continue to expand, but probably at rates of barely 1% annually, compared to the 3% and more claimed by reported numbers. Without continued increases in indebtedness, GDP could be expected to fall in most Western economies, whilst rates of growth in the emerging economies would slow markedly.

The second is that, if the excessive borrowing of recent years were to be reversed, GDP would slump, laying bare the extent to which the “growth” recorded since 2000 has been debt-inflated. On this latter point, debt stood at 168% of GDP in 2000, and now stands at 215%. Getting back to the 168% level would require deleveraging of almost $60tn, and the consequences of this for GDP are best left to the imagination.

If you put this $60tn figure alongside the scale of QE (about $28tn) – and add the massive (perhaps $100tn) of pension adequacy impairment, too – you’ll see how far out of reach any definition of financial ‘normality’ really is.

For all practical purposes, we are stuck with negative (sub-inflation) interest rates, ultra-cheap credit and negligible returns on invested capital until this combination of forces reaches its logical conclusion.

Corroboration

The calculation of ‘clean’ – ex-borrowing – output is undertaken using an algorithm which it would be folly to disclose, because to do so would be to hand an important methodology to those who don’t have an equivalent (though, pretty obviously, they need one).

But this doesn’t mean that we’re without at least three forms of corroborative evidence.

The first is to be found in the content of the “growth” reported in recent years. Data for the United States for the period between 2006 and 2016 illustrates this point.

Over that period, the American economy grew by $2.3tn at constant values. Of this growth, increases in the net export of services contributed 7%, or $159bn. The remaining 93% ($1.97tn) came from internally-consumed services (ICS), including finance and real estate (+$628bn) and government activity (+$272bn, excluding transfer payments).

Together, the combined contribution to this growth from globally-marketable output (GMO) – that is, manufacturing, construction, agriculture and the extractive industries, all of which are traded on a worldwide basis – was zero.

In other words, virtually all growth has occurred in activities where Americans pay each other for services that cannot be marketed to foreign customers. This is the classic profile of an economy relying for growth on ramping up its debt.

This has by no means been a phenomenon limited to the United States. Rather, it’s been visible across the West. In the emerging economies, and especially in China, the pattern has been different, with borrowed funds being channelled into the creation of capacity. But this borrowing, too, inflates consumption, because these activities act as conduits which push borrowed money into the pockets of those employed building capacity.

A second way of corroborating the debt-funded nature of reported “growth” is to examine the circumstances of the average person. If GDP growth (and, therefore, its per capita equivalent) was organic and sustainable, prosperity would be rising as well. That this isn’t the case is apparent in various metrics. One of these is real wages, and another is the comparison between incomes and the cost of essentials.

Critically, debt per person has risen by much more than per capita GDP, something which isn’t consistent with the improving prosperity implied by reported GDP. Again using the United States as an example, and stating all numbers at 2017 values, GDP per capita increased by 6.5%, or $3,620, between 2007 and 2017. But debt per capita was $22,400 (18%) higher at the end of 2017 than it had been ten years earlier.

Prosperity

To get from GDP to prosperity, then, two stages are involved. The first is to arrive at a ‘clean’ GDP number by removing the distortions introduced by pouring cheap credit into consumption. The second is to deduct ECoE from this underlying number.

The results show a deterioration in prosperity across all major Western economies other than Germany. Typically, Western citizens are getting poorer at rates of between 0.5% and 1% annually.

Moreover, the share of debt – personal, business and government – that these citizens are required to support on the back of dwindling prosperity has grown markedly. Because servicing this debt at normal (above-inflation) interest rates has become impossible, we are locked into monetary policies which are themselves destructive.

Though the citizens of emerging economies continue to enjoy increasing prosperity, their debt, too, is rising. For example, the average Chinese person is 41% more prosperous than he or she was back in 2007 – but the per capita equivalent of debt has quadrupled over the same period.

Worldwide, continued growth in EM prosperity has matched the deterioration in the developed West, meaning that average prosperity has flat-lined – but the ratio of debt to world prosperity has continued to rise markedly.

So, globally, we’re not getting richer, and we’re not getting poorer – but we are getting ever further into debt, whilst pension provision is falling ever further away from where it ought to be.

In short, SEEDS concludes that a string of observations often taken for granted are simply misleading. Output per capita isn’t growing, and most Westerners are getting poorer, not richer.

Take these observations on board and a lot of things that might have seemed inexplicable – including political outcomes, rising trade conflicts and many other stresses – all of a sudden fit into a logical pattern.

And it’s a pattern that‘s looking ever less sustainable.

 

= = = =

#129 stats annex 20062018

174 thoughts on “#129: Why, what, how?

  1. Tim – we’re simply going to have to redefine the meaning of wealth away from tangible products when non essentials become unaffordable.

    Thank you for the clear and concise post.

    • We could define wealth as ‘useful energy’ in keeping with the idea that energy cannot be created or destroyed but can be changed to and from useful states.

    • You’re welcome

      You’ll see that I’ve added a stats annex, giving some of the numbers for the UK, the US and China referenced in the text.

  2. Thank you for another very interesting post Dr Morgan.

    I’m reminded of the old adage quoted by Sir John Rose, then chief executive of Rolls-Royce, in 2006: “There are only three ways of creating wealth – you dig it up, grow it, or convert it to add value. Anything else is merely moving it about.”

    https://www.telegraph.co.uk/finance/2939400/Personal-view-Science-is-key-to-how-we-add-value-and-create-wealth.html

    If wealth is defined as ‘useful energy’ then SEEDS illustrates this very well. You’ve written much about the extractive industries (“dig it up”); do you have any plans to write about farming (“grow it”)?

    • I don’t have any plans to look at agriculture, because it’s not something I know enough about, so I’ll stick to energy, economics and closely related issues such as finance and politics.

  3. Great presentation by Steve Keen on the role of private debt in economic crisis:

    • Steve (what he calls MCT) and the MMT folks have nailed the debt issue – the problem with debt is destruction of (1) demand, and (2) productive capacity. The real issue is that consumers saddled with debt can’t continue to support aggregate demand, and economies which have too much “rentier” credit payments have too many people engaged in non-productive financial services.

      The issue is most certainly not about monetary sovereigns being unable to service debt. This results from mistaken moral reasoning by analogy – comparing nations to individuals.

  4. Very interesting analysis,Tim! MMT adds a few inputs as well, which you might like to weigh up.
    Depending on your definition of borrowing, it may just be in the non monetary sovereign sector that your figures apply to. In the Monetary Sovereign sector, [central governments], growth from government spending does not use borrowed money. It still uses energy but the measure will differ.
    Also we cannot have “unfunded liabilities” a common error in mainstream economics. The government pensions we pay today are not based on savings from yesterday. There can be no saving today to fund future pensions. Private pensions cannot do this so their costs have to be compared with savings, but in the future all private pensions will be taken over and paid by central governments, PAYG. Your $100 trillion figure will not be for private pension schemes. There can be no private business model that will satisfy that issue. General Motors is today not so much an auto manufacturer but a financial management company, it’s pension liabilities are so large.

    Like you, Debt/GDP ratios are spurned by MMT economists as useless. You have made a new one, debt/ prosperity which is useful.. Let’s hope the switch comes soon!

    • I think the “savings” angle is necessary for understanding, to get people out of the debt moralization trap. All those who say “you can’t print energy” need to be reminded that “you also can’t save it” in the form of money.

      Prices will rise as we shift to transparently to PAYG – but this is different from inflation. Increasing prices accurately reflect the increasing capital costs of energy as a share of input costs for GDP producing products. Wages will not go up, just prices – not inflation.

      I would argue in energy terms inflation should be looked at related to the amount of productive work (use of energy) which backs the created money. This relates to capacity and unemployment, but also technology, capital and productivity.

      The need for increased money supply reflects the destruction of the concept of savings. The percent of saved money used to purchase goods and services has to go down when there is declining surplus.

    • I’ve seen this, and I’m not wholly persuaded either way about oil prices.

      Back in the early 2000s, when oil prices had moved from $20 to just over $40, a colleague on our European desk told me prices would have to fall back, his argument being “can’t pay, won’t pay”, i.e. $40/b was unaffordable. But the obvious counter is “can’t pay, won’t pay – so go without?”

    • @Dr. Tim – I think the price will depend on the monetary response. Gail is spot-on about so much, but treats debt and money creation in a reified way. We can prop agregate demand with monetary adventurism, but it is ultimately extend and pretend. This would yield high prices.

      Letting ourselves walk into depression for lack of demand (and imagination) would result in low prices.

      It seems theoretically possible to ride the downward slope of prosperity. It may not, however, be practically (i.e. politically) possible.

  5. An aside to the 500 comments on the last blog:
    George Mobus, the Systems Scientist, has just published his latest epistle:
    http://questioneverything.typepad.com
    George now only writes on the calendar day when seasons change, plus April Fool’s day.

    His theory is, more or less, that humans are a cake not fully baked, consequently ill-adapted to the world as it actually exits.

    Don Stewart

    • My take on this is that evolution is of necessity a gradual process, so has been unable to keep pace with the speed of change in our circumstances since we started using fossil fuels. “Space age technology, stone age emotions” is, I think, how Don Henley put it.

  6. Although Tim has gone over many of the points covered it’s still interesting hearing Gail Tverberg. Depressingly she doesn’t see a way out of the coming crisis.

    Right I have to finish my Stepmum’s tax return before the World ends because if I go to Hell – that’s where all the tax inspectors will be.

    • I think the best we can hope for is to smoothly ride the declining prosperity curve in a way that avoids collapse. I think this is theoretically possible, but I do not believe it is practically possible given the limitations of human psychology.

    • I’m hoping for a smooth ride too – but it’s inevitable that there will be problems.

      The next decade is going to define the rest of the century but I can’t see the sensible people who are aware of the current economic dangers we face being listened to.

    • Thanks. I appreciate your comment because putting this one together was particularly hard work, but I wanted readers to have ‘the whole thing’ in a single article.

  7. Just FYI
    Dmitry Orlov reviews recent predictions of trouble from Krugman, Soros, and Lagarde and asserts that none of them understand the real problem: energy.
    It’s behind his Patreon pay wall.
    Don Stewart

    • More of these paywalls are going up on YouTube as Ads can’t be relied upon to pay people who spend their own time and money making informative videos.

    • I have a somewhat conflicted position on this.

      Personally, I greatly dislike ads, not least because, taken collectively, they are a form of propaganda for consumerism. Also, ad spending has, apparently, stopped growing, because of corporates’ increasing adoption of “zero-based budgeting”, which starts from the baseline of ‘we won’t spend more on anything than we did last year, unless there’s a compelling case’.

      Logically, therefore, since things do have to be paid for, I ought to favour direct rather than ad-funded payment. For the forseeable future, though, I want the public to have free access to what I do here.

      As I’ve said before, what won’t be free here is any request for comprehensive data for commercial or similar purposes.

  8. John Doyle said, “but in the future all private pensions will be taken over and paid by central governments, PAYG.” Blondebeast said, “Prices will rise as we shift to transparently to PAYG ”

    I am not so sanguine that these predictions or MMT remedies will actually be implemented. I believe they rely on the assumption (unsupported, unproven) that central governments are system managers (let’s not go so far as to say “prudent system managers”) rather than tools of, by and for oligarchy (the position which all of history thus far supports). Legitimacy is sold and garnered on the systems management theory, but it is not the reality.

    Perhaps the argument is that central governments will be driven to do these things in order to avoid absolute social chaos, out of oligarchic self-preservation. Again, apart from a few notable exceptions, like FDR’s New Deal, derided by business interests from Day 1 and still under assault for being too generous, the historical evidence is not too great for the position that oligarchs actually turn away from self-destruction before it is too late or have any idea how to keep their greed from completely destabilizing or destroying the entire system on which their wealth and social status depends. Looking at the years preceding the French Revolution, e.g., one might surmise that their attitude is, “how can we know if we’ve gone too far, how can we know if there’s not more to be had, if the people are not yet actually cutting off our heads? We won’t stop until we know we have hit the absolute limit. Oops, we found it!”

    In this respect, I fully concur with blondbeast’s assessment: “I think the best we can hope for is to smoothly ride the declining prosperity curve in a way that avoids collapse. I think this is theoretically possible, but I do not believe it is practically possible given the limitations of human psychology.”

    Be that as it may, a simpler way than taking over private pensions would be to let them collapse, reduce all those people to penury and consign them to a quicker death, and then, when the society is on the verge of massive revolt, institute guaranteed minimum incomes for the impoverished at a subsistence level sufficient to fund food, really crap shelter and mind-numbing entertainment via the telly and computer.

    Great new article, Tim!

    • I agree. It’s hard to differentiate between what something “is” vs what we think it “should” be.

      In decline, however, the interests of corporations don’t necessarily match the interests of finance. Corporations could become allies in opposing the short term interests of the financial sector. There are class struggle issues here, however, in that owners of stock are attached to their own gains.

      I think people are going to consume enough resources to stay alive or die trying. The best response to this seems to me to be to pay them to do something, even if it isn’t particularly productive. Prices will rise and wages won’t because it will become more expensive to produce everything. This is just a corollary of saying prosperity will decline. I.E. it takes more time, energy and capital for the energy sector to support everything we do.

      There are theoretical ways to support de-growth. I just think these will not be taken. I don’t think it is psychologically possible for people en-masse to face a pessimistic future without scrabbling for the best of what’s left.

    • Another way to say this is at the very least we don’t have to pretend that the monetary sovereign governments can’t “afford” something. This is not to say there won’t be consequences, or that some people think the government shouldn’t do certain things out of moral reasons (i.e. the government shouldn’t be a “charity”) – so let’s talk about those, would be my suggestion.

  9. Money is detached from reality. Recouple it and that part is solved. Its going to hurt though.

  10. Interestingly China’s demand for oil is about to soar as their own production has peaked and for the next 12 years they will be importing twice as much oil as they do today – and they intend to get it from Saudi Arabia. Clearly this will have ramifications for the rest of the World

    Source:

  11. Your analysis and conclusions seem intriguing, plausible, informative, and most importantly, useful. Prosperity seems exactly the right concept to illuminate the dismal trajectory that we find ourselves on. You gave a two sentence conceptual definition of prosperity, but what are your plans to publish the explicit formula(s) so that results can be replicated and defended? This could be a powerful means to bring the critical concept of surplus energy into the mainstream discussion. Not being an economist I haven’t a clue about which journals would be receptive to this, but I am guessing that they exist.

    • Thanks, and, as I think this is your first comment here, welcome.

      On formulae and so on, where I start from is that official and commercial users of conventional economics are basing their decisions on increasingly faulty analysis. Moreover, I think this serious problem is gradually gaining recognition.

      If I’m right, they’re going to need something new, – along SEEDS lines, at least in terms of certain core understandings – to overcome this deficiency. From personal experience, building this type of system is far from straightforward.

      This said, I don’t see why I or anyone would make a gift of the central formulae of this to, say, a government or an investment bank. Yes, making these formulae available would facilitate some external verification, but it would also hand the system to official or commercial interests to use for their own ends.

      So my position has been to “provide the maximum information to the public, consistent with not disclosing core methods” to these organisations. You’ll notice that in this article I point to “corroborative evidence” by which SEEDS interpretations can be assessed by generally-available benchmarks.

      Finally, it helps that I’m not a zealot, determined to ‘convince the world’ about anything. If I, and readers, benefit from this, that’s good enough for me.

  12. Dear Dr. Morgan
    There is no doubt that SEEDS is a major advance in terms of putting current events into a useful context. I congratulate you.

    However, I believe the energy part of the equation deserves a closer look. I particularly recommend this interview by Derrick Jensen with Alice Friedemann:

    I’ll summarize Alice: ‘Our current world is simply unimaginable without diesel powered trucks’.

    Now one of the operative phrases is ‘diesel powered’…not natural gas or fracked oil or biodiesel or electricity produced by wind or PV panels.

    I will not be presenting data showing that our ability to produce diesel is falling off the cliff (because I’m no expert), but I think there is room for serious concern. The fracked oil in the US is not capable of producing very much diesel…gasoline, but not diesel. And we know that gasoline cars move, in terms of human weight, only a tiny fraction of the weight moved by diesel trucks. In other words, almost all of the work, as defined by physics, is done by the diesel. We can also figure out that we simply can’t grow enough corn to replace the diesel produced from traditional oil fields We can pretty quickly figure out that battery powered trucks are going to be a lot less efficient than diesel trucks.

    I’m a little fuzzy on the very heavy oils in the tar sands and in Venezuela…but I believe that they are not very thermodynamically efficient in terms of producing diesel. In other words, the ECoE for diesel produced from those sources is a high fraction.

    So what we amateurs might suspect is that the ability of the world to produce diesel is about to go into serious decline. A serious decline in diesel will inevitably lead to a serious decline in our ability to do work. With dire consequences for the economy. If one combines a serious decline in diesel with demands to service all that debt, something has to break.

    Don Stewart

    • Don – the link I provided in my post just above yours stated that the fracked oil in the US (quite apart from ever being profitable) is not suitable for many types of product.

      Fracking in the US just appears to be one big con.

    • US shale in a nutshell.

      Without coal, no electricity, without electricity, no diesel. And without diesel, no coal.

    • I think from 2020, high sulphur shipping oil will be outlawed to be replaced by lighter diesel type fuels. This will be a game changer in terms of oil demand for brent type crudes.

    • Don – You also alluded to this in a comment in #129, and I agree. It is another dimension of “not all crude oil is the same”, and will contribute to the eventual price spike which will pop the present balloon.

  13. Tim, a very nice concise updated summary of your thesis. Perfect for sharing with people as an overview/introduction to the subject. Thanks again.

    A question I would be keen to get your view on – Does the concept of ‘investing in the future’ have validity in a post-growth situation?

    • Thanks Kevin – that was my aim, which is why I didn’t start with theory, but with the “surprises” of “Brexit” and Trump.

      The concept of investing for the future certainly has relevance – we live in a continuum, where each generation benefits from the legacy of its predecessors, and has an obligation to its successors.

      But whether investment for the future remains feasible post-growth is trickier – my feeling is we’ll probably maximise immediate consumption within constrained prosperity, and let future generations go hang. Depressingly, that’s what we are doing already to younger generations. I once wrote a piece called The Dick Turpin Generation about this.

  14. Tim

    Thanks for a very concise summary of the SEEDS system.

    As I’ve said before you concentrate on trends rather than the contemporary “snapshot” way of managing the economy and, to me, this is a huge missing element in the current set up. The political structure is all about managing the minutiae of monthly numbers but these really have no significance and the trends – which you highlight via SEEDS – are never addressed. It is therefore not just a question of getting your views across in the conceptual sense it’s a question of changing the political system to cope.

    In China you now have the “Belt and Road” initiative, a major move to place China at the epicentre of the World economy. This is the type of initiative we need to adopt in order to overcome our problems. However, China is not a democracy and can, at least for the time being, pursue this sort of strategic vision. Can we do the same with our fractious politics? I have my doubts.

    • Thanks Bob.

      I fully understand why politicians seize on latest snapshots – incumbents like them if they’re good, and oppositions if they’re bad – but how anyone expects to manage anything on any basis other than trends is baffling.

      As mentioned in this article, some of the numbers for China are pretty frightening. It’s true that China isn’t a democracy (though a fair number of Western countries are only quasi-democratic), but Beijing really needs to keep a close watch on public opinion, and I’m sure they do.

      As I’ve said before, I think there’s a “grand bargain” at the heart of Chinese government – the public surrender certain liberties in exchange for growing prosperity. The government would be in huge trouble if ever it couldn’t deliver on it’s side of that bargain.

      For practical purposes, it’s employment that is critical. That’s why China puts the focus on volumes, not – as in the West – on profits.

      My supposition is that the use of truly enormous debt has been necessary to the government keeping its volume/employment deal with the public. If I’m right, and if it’s logical that exponential growth in debt can’t go on forever, then big trouble looms.

      For these reasons, there might be a lot to commend publishing a SEEDS-based analysis of China. Without a doubt, it’s the one to watch.

    • Tim – with reference to an earlier post I made – what’s your view / concerns that China is going to double the amount of oil it imports – perhaps mainly from Saudi Arabia.

      My worry is the impact on other importers – including us.

      Thannks

    • As I’ve mentioned before, China seems to be planning to shift the emphasis from oil to coal. Also, it’s become easier for China to strike a deal with Iran, perhaps in RMB, than it was before the US tore up the deal with Tehran.

      But whether this can be done is a wholly different matter!

    • Tim – well coal or no coal – deal with Iran or no deal – China doubling their oil imports cannot be good news for the rest of the World.

    • Donald
      I’m not going to try to answer your question. Just point out some subtleties.

      China surpassed the US as the world’s largest oil importer in 2017. What’s that??? I thought we were all reading about the booming US oil EXPORTS? Well, it’s more complicated than simple numbers might lead you to believe. The US imports crude oil and exports refined products. Because the US has a readily accessible petroleum industry…think of the Gulf coast.

      So one question to ask is whether China intends to export refined products with the additional oil they want to import. I dimly remember something about Chinese refineries, but I can’t remember now what it was.

      If one deducts the exports from the imports, the US is still a net importer. (But the arithmetic isn’t simple, because the products are not measured in barrels.) Also, the US refineries need the tar sands heavy stuff to mix with the light stuff being supplied from shale in order to get a mix which can go through the refinery….as I understand it. I know China made some investments in Venezuela, but I don’t know if they envision doing something similar in terms of mixing heavy and light sources.

      Don Stewart

    • China doesn’t have the surplus energy to build it. And their space to increase debt is very limited as we speak.

  15. Donald
    Also as a matter of curiosity. I understand that the ‘free trade’ agreement between the US and Canada requires Canada to send certain amounts of heavy oil to the Gulf, and to maintain certain percentage relationships.

    Don Stewart

    • Thanks for your reply Don – so basically it’s not a straightforward doubling of oil in – there are other factors involved as well.

      If you go into YouTube there are a lot of postings regarding peak oil – US fracking being a Ponzi scheme yet it always seems to be business as usual in the World’s economies with no panic setting in.

      So there are many highly qualified analysts and economist who know that some sort of crunch is coming but very few are taking any real notice . I can only assume that many are in a constant state of denial.

      Even some of my former friends who I meet up for a reunion meal didn’t seem bothered – they just said their savings in banks are protected and that there’s unlikely to be a major crash.

      I think they were still thinking of the economy in monetary terms and not energy.

      As mentioned in a previous post I’m just hoping for a slow deterioration in living standards – although that in itself will be enough to spark social unrest – especially with those struggling to cope day by day at the moment.

    • Donald
      If you are interested in reading about a bubble gone bad, I recommend the book Cattle Kingdom, by Christopher Knowlton. The book traces the history of the cattle industry in the Western US from the end of the Civl War (1865) until ‘the big die-up’ in the winter of 1886-7. Briefly, Texas, where everyone was broke as a result of the Civil War, had a lot of wild, surplus cattle. Some enterprising people figured out that driving the cattle north toward the railroads or toward the open grasslands of Wyoming and Montana might make a lot of money. A cow was worth 10X as much in New York City as it was in Texas. And Delmonico’s, the NYC restaurant for the elite, was making steak famous. Cattle were replacing hogs as the customary meat eaten by Americans, and prices were rising. Meanwhile, the British aristocracy had a lot of money, but their returns were sinking rapidly. The aristocracy needed a way to make money….partly because they had such expensive tastes. The amount of salmon and deer hunting land in Scotland had increased from a few hundred thousand acres to 3.6 million acres by the time of WWI. Driving the peasants off the land so you could use it for fishing and hunting is a lot of fun, but it doesn’t actually generate any returns…except in terms of social connections to other wealthy people.

      By the early 1880s, Cheyenne, Wyoming, had the highest per capita income of any city in the world. It was crawling with, among others, British upper class people who thought that cattle could provide them with 25 percent per year returns. You get such high returns because bulls and cows do their thing and there is an unlimited amount of grass and ‘the weather is not a problem’ according to the brochures and newspaper and magazine articles you read in your club in London or Edinburgh. The book explores lots of topics, but one of them is how the British investors got so thoroughly skinned. The grass was not unlimited, the cow populations did not grow at the rate expected, and the grass turned out to be all too limited. The final disaster was the winter of 1886-7. Theodore Roosevelt had prophesized that the cattle empire would be brought down by ‘one bad winter’. During the winter in question, the temperature in the Dakotas hit 60 below zero. Worse, the newly invented barbed wire prevented the cattle from moving with the prevailing winds, and they ended up in suffocating piles, frozen to death.

      Even before the deadly winter, the British came to the US not to actually deal with cows, but to entertain royalty with hunting trips. The sight of British royalty in private railroad cars drinking champagne ignited bad feelings (the war of 1812, when the British burned Washington DC, was still in everyone’s rear view mirror). Finally, a bill was passed restricting foreign ownership. But by that time, the British had turned sour on anything that combined the notion of American West and Cattle.

      A lot of joint stock companies and other forms of ownership were essentially total losses.

      The best thing that came out of it was the notion of the Cowboy. The seminal novel was written in 1901, long after the open range had disappeared and the cowboy had been reduced to a cog in the wheels of an industrial enterprise. But Hollywood got an enduring legend to make movies about.

      History doesn’t repeat itself, but it is easy to see a lot of rhymes.

      Don Stewart

    • One more thing Don – Chris kristofferson is 82 today. I mention this because he starred in ‘Heaven’s Gate’ The 1980 film about cattle barons vs immigrant farmers (The Johnson county war).

      The war was actually in the 1890’s – after the period featured in the book you recommended – but it would still be of economic interest.

    • Donald
      The book does cover the Johnson County war. But by then the bubble had burst. It turned into a fight between factions. A woman accused one of the Cattle Barons of ‘murdering 30 people’. He said ‘Yes, I did it all by myself’. Which was not literally true, but he took credit for what he ordered or inspired.

      An early governor of Wyoming wore some boots which featured the skin of a lynch mob victim. (or so the story goes.)

      Another interesting fact is that, in the Kansas rail-head towns (such as Abilene and Dodge City), there were no apparent fatalities until the towns started hiring marshals. The 19 or 20 year old cowboys were rowdy after months on the dusty trail, and the saloons and brothels did a booming business, but few of the cowboys wore guns and fist-fights were the usual way to settle disputes. When the towns aspired to ‘respectability’ and hired a marshal to ‘clean things up’, it sometimes turned deadly.

      Don Stewart

    • Again thanks – very interesting. My current problem is that I’m six books behind on my reading but when I catch up (‘sadly’ no rainey days due where I live) it’s one I will buy.

  16. Donald
    Gail Tverberg analyzes the BP data for 2017, including a look at China and India:
    https://ourfiniteworld.com/2018/06/22/eight-insights-based-on-december-2017-energy-data/#more-42919

    When Gail shows a line for ‘consumption’, I do not know if she is counting consumption as ‘everything which was turned into products’ or ‘everything which was turned into products consumed domestically’. At least in the case of the US, those are not the same number.

    In Europe, there (at least used to be) a lot of refining capacity in the Dutch ports. So the Netherlands would show a whole lot of oil imported, with a whole lot of products exported. In such a situation, it is easy to get a distorted picture.

    Don Stewart

    • Thank you for the link. I agree that there are probably many distortions.

      This conundrum about wages not being high enough to afford oil at the a price high enough for new investment is interesting. Without massive increases in energy efficiency / productivity I’m not sure how it can be solved.

      If say bus drivers get a big pay rise then people might not be able to afford to travel on them. Same with low paid delivery drivers – in fact any industry I can think of. Wages basically cannot go up without the improvements in energy efficiency and productivity I mentioned.

      However I think I’ve watched too many doomladen videos. I would like some optimistic thoughts about the future.

      Perhaps a new Einstein will come along and we’ll get Nuclear Fusion working

    • Donald
      I’ve suggested this basis for optimism to many people. Can’t say I have convinced anyone…yet.

      I go back to the fundamental question that Adrian Bejan poses in The Physics of Life: What is Flowing? (I don’t think Bejan appreciates the way I twist his theory.)

      When a person gets in his Hummer and drives down the street, what is flowing? At a superficial level (engineering) it is embodied energy (the Hummer) plus the fuel (gasoline) plus the embodied cost of the gasoline (the energy cost of energy) plus the infrastructure required to permit the flow (e.g., the streets, the cops, the society which makes stuff available if one drives someplace in their Hummer). At a deeper level, it is the feeling of satisfaction that one is on top of the world with one’s magnificent Hummer. Perhaps the notion that one is going to be irresistible to the ladies. At a deeper level is the neurotransmitters and hormones.

      So…at the deepest level, we are talking about the flow of microscopic amounts of neurotransmitters and hormones flowing across microscopic synapses and the consumption of perhaps a few hundred calories per day in the brain. I haven’t calculated it, but perhaps we are spending a hundred thousand times more fossil fuel calories than what is required to actually move the brain chemicals.

      If you are an optimist, you begin to think about either psychoactive drugs or practices such as meditation or sex. Would you rather work for years to earn enough to buy a Hummer which you drive down to the Strip and fail to impress the ladies? Or would you rather give your honey a screaming orgasm? All of Civilization depends on your choosing the Hummer.

      Don Stewart

    • Hi very profound 🙂 Perhaps man should invest in an (energy efficient) orgasmatron for every home. (See Woody Allen’s film – Sleeper 1973)

      Sorry I’m going to pop out now because my neighbours (a youngish married couple with children) are having a massive row – screaming – shouting – threats – and I’ve had enough.

    • Donald
      Quote about the Johnson County War (perhaps relevant to Silicon Valley???)
      ‘The tough times in Cheyenne in the late 1880s had dire consequences. In the aftermath of the Big Die-Up, a group of lucky, high-living Cheyenne cattlemen who had briefly stood atop the business world in the West were left so drastically reduced in circumstances that many became deeply embittered. They we no longer young men. They had lost much, or all, of their personal fortunes. Their decades of effort had amounted to nothing. Furthermore, their popularity as community leaders was in steep decline, particularly among the smaller cattle ranchers, the cowboys (disgruntled over reduced wages), and the newly arrived settlers. Though they still wielded significant political power–cattle remained Wyoming’s only real industry–nonetheless they felt under siege.

      In a desperate attempt to reverse their fortunes, a band of these Cheyenne cattlemen made a series of rash decisions. They began to look for scapegoats and for ways to take revenge. They plotted to evict cowboys and homesteaders from the open range, launching what came to be known as the Johnson County War, the most famous of the range wars.’

      It all starts when the rich cattlemen lynch a husband and wife settler, who they perceived to be endangering a water supply. 2 of the Cheyenne newspapers promptly endorsed the lynching, while the third had problems with it. Then the owner called the editor and the editor wrote a scathing follow up making all sorts of scurrilous remarks about the lynched couple. All of which just proved which group controlled the newspapers. Having gotten away with one lynching, the cattlemen were emboldened, and thought they could get away with anything. The truth would be hidden until about 20 years ago, when two amateur historians put together detailed documentation revealing the awful truth.

      Fake News is not New.

      I don’t know whether you saw Ugo Bardi’s current post about Italy, but the government is blaming the gypsies!!! Some things don’t change.

      Don Stewart

    • Hi – again very interesting – and yes some things never change – perhaps like Trump blaming the Democrats for his child separation policy – and – as per you post – the Italian government blaming the Gypsies.

      By the way the husband of the my next door arguing couple jumped into his mercedes and drove away at high speed. I’m worried about their children.

      As economic pressures start to grow more families will start to suffer financially putting strain on relationships.

      Having read another of Gail Tverberg’s posts – she does imagine a steady state economy where we all accept and make do with less.

      My fear is the technological innovation could be affected but perhaps a flat economy will act as a spur for original thought to get things moving again. It might also make people think twice about having children limiting population growth.

      I’m going to be optimistic and forecast that by 2088 Europe will be energy rich having cracked Nuclear fusion. That’s another 20 years to get it working and 50 years to build all the reactors. A very long lead time as you can see – but I’m trying to be realistic.

      The remaining drops of oil will have been left in the ground and all new clean electrically powered industries and clever home 3D printers will produce most things that people need.

      The definition of work will have changed with more time being available for family life and study.

      Quantum computing will have revolutionised maths – physics and chemistry leading to all sorts of new inventions and materials.

      Now the pessimists will insist that this will never happen but we have to have something to look forward to.

      What are your thoughts on the chances of this happening?

    • Donald
      I make a point of associating with babies and dogs. They keep me hopeful.
      Don Stewart

  17. Thank you – the book looks very interesting and definitely worth a read.

    I watched a YouTube video where the accounts of one major fracking company were looked at – and all they’re doing is issuing dety well into the 2020’s to stop themselves going bust. But how will they meet these debt payments? They’re obviously hoping for a bailout similar to the ones the banks received or simply won’t care about any of the investors.

    Trump handed out some unbelievable tax breaks to fracking companies which have been greedly gobbled up by ‘not a care in the World’ CEO’s .

    Now the debt bubble must burst and when it does it could be worse than 2008

    Well as Tim and anyone else who have read my posts know that I have written to my MP who has then forwarded my letter on to the Treasury – but only one reply asking what the acronym EROIE stood for.

    https://www.desmogblog.com/2018/04/26/gop-tax-law-bails-out-fracking-companies-debt-eog-hamm

    • Thanks doc, but no. One was waiting for moderation, that one i can see now. The second is lost. I try again later and save it first before posting.

    • Thanks doc, but no. One was waiting for moderation, that one i can see now. The second is lost. I try again later and save it first before posting.

  18. Moderation

    I don’t control all the settings which decide whether a comment appears straight away, or is held for moderation.

    It seems, though, that any comment containing one or more links is put into the moderation queue automatically, whereas comments without links usually appear immediately.

    Also, any comment by anyone who hasn’t had a comment appear before is held for moderation.

    I mention this now because I’m going to be away for a few days. This means that any comments containing links are unlikely to appear until I return. Apologies in advance….

    • ‘I’m going to be away for a few days.’ Tim are you sure you haven’t found a self sufficient community in a remote part of the planet where you’re going to live permanently.

      We all know that there’s a huge correction on the way.

    • I have found such a place, strangely enough, but I’m not off there – yet, anyway! It is self-sufficient not just in energy and water but in cigars and wine – food is abundant, but one would soon become fed up with bananas……

    • Well sounds like paradise – sadly I don’t think there’s anywhere in the UK where I could go – I’ve often wondered about a remote place in Scotland – but they’ve been afflicted by a plague of midges of Biblical proportions.

    • A former boss once described the UK to me as “a banana republic without bananas”- it lodged in my memory somehow.

      I’ve often wondered if there are midges in the outer Hebrides, or Shetland.

    • There were in Inveraray, Argyll in early June – perhaps they’ve moved on – but I do know that there are a lot of ticks on some of the Islands. Not ideal for pets – or humans

  19. Chris Martenson from the Peak prosperity website has pointed out another problem we face – concrete reinforced with steel.

    Basically the steel rusts and ruins the durability of the concrete which leads to costly repairs. Now it’s not just buildings that use it but one of our hopes for the future – at least some wind turbines are supported on a base made up of reinforced concrete.

    So where is the energy going to come from to repair not only buildings but wind turbines?

    • One of the best-known buildiings constructed with steel rods through concrete is Lloyds – the irony being that, when this centre of world insurance was first completed, nobody would insure it…..

    • ‘Irony’ I’m not sure of that pun was intended. Not seen it go rusty yet – perhaps only its financial foundations.

    • Pun not intended – shows how much I need some time off.

      The big risk problem was lightning strike – all the metal rods would turn into globules, proving no support. So a lightning conductor was the answer. Still, a good anecdote all the same.

    • Sadly I can’t see any type of lightning conductor saving our economy. The pumping of money into the system has just been deflecting the real problems for a while.

  20. Coda to Johnson County War
    The wealthy Cheyenne cattlemen conceived the plan to drive the homesteaders and small ranchers out of the Powder River valley in Wyoming. Among other crimes, they recruited two dozen hired guns in Texas and brought them to Wyoming by train. In all, 50 gunmen set off from Cheyenne toward the town of Buffalo, carrying a list of people to be killed as ‘rustlers’. The list included the newly elected sheriff, who had defeated the long-serving sheriff who was in the pocket of the big ranchers. There was a Cavalry base not far away. The Governor of Wyoming sent word to the Cavalry that there was going to be some action against ‘rustlers’, and not to react to anything they heard.

    Things went badly for the 50 gunmen for a variety of reasons. They stopped to kill one of the men on their list, but this single man held off 50 hired guns all night. Two local men came upon the scene, figured out what was going on, and went to Buffalo to raise the alarm about the invasion from the south. The sheriff raised a very large number of men to go and fight the invaders. Meanwhile, the Governor and the two Senators (who were in the pockets of the wealthy ranchers) were alerted that things were not going well. They frantically tried to get the Cavalry to intervene, but messages were slow. The Governor sent word to the President of the US that an insurrection had broken out in Wyoming. But, the President was literally asleep. Finally, the two Senators went to the White House, woke the President up, and he hastily signed the document they had drawn up. Which caused the cavalry to ride up, as in a movie, just at the moment when the 50 gunmen were about to be utterly destroyed. Sadly, the heroic defender who held the gunmen at bay was killed.

    And so it became a legal issue. The cattlemen hired a sharp attorney in Cheyenne, who conceived the idea of forcing the small county of Johnson to pay for keeping the prisoners in jail. A little arithmetic showed that the county would soon run out of money and could not prosecute a legal case of this size. With delays and interminable legal maneuvering, the Cheyenne cattlemen got away with pre-meditated murder. One of the Texas gunmen was later hanged for killing his wife, who had nagged him about the killings in Wyoming. On the gallows, he confessed to the premeditated nature of the killings in Wyoming.

    The lawyer was placed on the federal Court of Appeals by Theodore Roosevelt, and promoted to the supreme court by President Taft. The lawyer NEVER in his career sided with anyone other than the rich. He was still on the court when Franklin Roosevelt tried to implement the New Deal, and was one of the reasons Roosevelt felt it necessary to ‘pack the court’ with new appointees.

    I am not a biographer of Theodore Roosevelt. But it seems to me that he saw two enemies. One was the lower class people who were small farmers and ranchers, and the other was the Trusts, such as the Meatpackers in Chicago and the Railroads and the Standard Oil Company. He saw the big ranchers as the self-made men, or the entrepreneurs from old, respectable families, who had gone out and created something valuable where nothing had existed before. The particular class that Roosevelt favored were, indeed, caught between the immigration of the ‘lower classes’ whose settlement patterns were dooming the open range, and the predatory practices of the Trusts. Roosevelt was not asked to participate in the premeditated murders and the lynchings, but he obviously wasn’t above rewarding the lawyers who made it possible.

    One other observation in the book. The actions of the Cheyenne cattlemen are not what our American mythology holds up as ‘good behavior’. But many of these ranchers had deep connections to Scotland and England and Ireland. And ‘clearing out the peasants’ had been a common practice in those countries for a long time. One can see some Scottish investors sitting in a club room in Edinburgh and nonchalantly drafting orders for the ranchers in Cheyenne to ‘clear out the riff-raff’. Especially since their earning had collapsed, by this point.

    Don Stewart

    • Donald
      I just finished reading the book. I recommend it to anyone looking for clues about how the world, and particularly the US and Britain, have got themselves into the situation that Dr. Morgan paints with his dark colors.
      *The willingness of Harvard men to engage in lynchings when their wealth is at stake.
      *The forging of a certain class consciousness which owed a lot to the clubs of the British Empire
      *Economics trumps personality, character, class, etc.
      *The role that Theodore Roosevelt played in turning the myth of the cowboy from a dissolute teenager who squandered everything he had in the saloons and brothels of the cowtowns, into a staunch upholder of ‘truth, justice, and the American Way’
      *The notion of ‘manifest destiny’ (although the book never uses that term)…which has justified America’s endless wars.
      *The role of Roosevelt’s friend the novelist Wister in laying the groundwork for vigilantes and fascism…the stern resolve of the ‘true’ Americans against the ineffectual legal process. I was shocked when I actually watched The Lion King, when my grandchildren were small. How did we get from Thomas Paine to the worship of kings?
      *The message that ‘timing is everything’. A few savvy people managed to escape and flourish. And a few cowboys came to their senses, married, and started farming. One wonders whether the ‘spying on people as a way to make a fortune’ theories of Silicon Valley are about to go the way of the Cattle Barons of Cheyenne.

      And, on the positive note you desire, the Hollywood ending which currently seems to be supporting Alan Savory’s notions of holistic grazing, against the ‘nattering nabobs of negativity’ in academia. Put David Johnson of New Mexico State together with Savory and maybe we actually can solve the carbon dioxide problem.

      Don Stewart

  21. Donald
    One more note on myth. Several years ago a local theater group put on a play by Thornton Wilder, written while WWII was in progress. I was shocked that men from the nearby military base were portrayed as threats to everything that civilization stood for…stealing, drinking, fighting, impregnating the local girls, etc.

    Immediately after the war, of course, there was a huge change. Our culture disavowed noir cinema (whose message was that ‘we are all complicit in evil’) and the communists who made High Noon were driven out of the industry and out of the United States. High Noon, by the way, displays some of the dynamics referenced in the book. The opening shot is Lee Van Cleef (in real life an accountant, but looking for all the world like a truly bad man) watching as one of the assembling gang comes riding over a hill at a breakneck speed. Now the engineer in you may ask:
    Are we supposed to believe that a knowledgable horseman would ride a horse for any distance at such a speed? Especially when there is no time pressure?

    And the answer, of course, is both in the book and also in cinematic signaling. In the book, the galloping cowboy symbolizes the utter freedom of the open grasslands. In movie language, the galloping bad man symbolizes to ‘fasten your seatbelts, danger is afoot…and we are about to see a morality tale in which the Good will, certainly, emerge triumphant’.

    Another message to ponder about High Noon is the contrast between Gary Cooper in his buggy with his new bride, the virginally white Grace Kelley, who I don’t believe ever rides a horse during the movie. The bad guys are the ones on horseback. Cooper has promised his new bride he will open a retail store in another town. But we also learn that the local Mexican woman has been sexually involved with not only Cooper but also the head Bad Man and also the feckless deputy.
    She is an expert business woman, who has loaned money intelligently and is now calling in her chips so she can get out of town before the shootout at high noon.

    And the hotel clerk who astonishes Grace Kelley by hoping that Cooper will be killed by the Bad Guy. Why? Because when the Bad Guy was in charge (the Cheyenne Cattlemen?), the town was jumping and people could make money.

    Don Stewart

    • Hi two enjoyable posts. I liked your analysis of High Noon and its relevance to the present day.

      I need to read more about Roosevelt and his manipulation of reality regarding cowboys.

      Concerning modern day media – its manipulation of reality and selling off of personal data for nefarious uses should have meant that Zuckerberg was sent to prison.

      I’ve never really understood why super rich individuals who can’t even spend all the money they have would want more at the expense of individuals. Power ego and control don’t seem enough to me.

      Trump will not get reelected because the financial bubble will have burst before 2022 and he and his team will be held responsible. However he will still try and blame Clinton.

  22. Constructal Law view of these issues
    https://constructal.org/2018/06/16/social-organization-emerges-by-physics/#comments

    The full article is behind a paywall. However, you can get the gist of the argument from the graphic. The argument is that, over time, a society will evolve to use more power to move an increasing amount of mass. The organization of the society likewise reflects the increasing use of power and the increase in mass moved.

    Adrian Bejan, the Duke University professor who invented the notion of the Constructal Law, argues that humanity never takes permanent steps backward. There are short-term setbacks, but the long term is always upward. My guess is that Dr. Morgan thinks humanity may be about to experience a setback equivalent to what happened when the Bronze Age gave way to the Iron Age. If we follow the graphic backward, we find devolution from the global to the national….which is consistent with Brexit and Italy and Trump’s trade wars. If one thinks that graphene and fusion are going to open new vistas with ever more power, then I suppose something beyond the communications revolution will reveal itself.

    The Constructal Law, in Bejan’s hands, is able to make some intricate predictions, such as the evolution of cooling designs for electronic circuits, the number of tributaries in a river basin, and the design of urban streets as transportation changes from walking through horse drawn vehicles to automobiles.

    Don Stewart

    • ‘If one thinks that graphene and fusion are going to open new vistas with ever more power, then I suppose something beyond the communications revolution will reveal itself’

      In other words Don you don’t think this is going to happen.

    • Donald
      I honestly don’t know about them.

      7 years ago Tim Lenton and Andrew Watson published Revolutions That Made the Earth. Their story is one of biology doing essentially the same thing as the picture portrayed in the Bejan diagram…from fermentation to photosynthesis and on through symbiotic relationships. When they wrote the book, Lenton and Watson thought that there is such an unimaginable amount of energy floating around that surely the innovations would continue and there would be no shortage of energy. Whether they still think that, and whether they think the process would be smooth or jagged, I don’t know.

      What I see happening in the 21st century is more consistent with Dr. Morgan’s ‘rising energy cost of energy’ scenario. Whether some deus ex machina is about to be revealed is beyond my pay grade to predict.

      Don Stewart

  23. Reblogged this on MUSO MUSINGS ON FATHERHOOD THEORY AND STUFF and commented:
    https://www.bloomberg.com/news/articles/2018-06-27/from-goldman-to-deutsche-bank-what-to-watch-for-in-stress-tests One to Watch

    Can large U.S. banks hand $170 billion to their shareholders in the next 12 months? Will a top European investment bank botch the first public stress test of its entire U.S. business?

    The Federal Reserve will answer those questions and more when it posts results from the second and final stage of its 2018 stress test Thursday at 4:30 p.m. While investors got hints during the first stage last week, the central bank has repeatedly found ways to surprise in past reviews of banks’ risk management and proposed cash payouts. #ConquestofDough

  24. https://www.bloomberg.com/news/articles/2018-06-27/from-goldman-to-deutsche-bank-what-to-watch-for-in-stress-tests One to Watch

    Can large U.S. banks hand $170 billion to their shareholders in the next 12 months? Will a top European investment bank botch the first public stress test of its entire U.S. business?

    The Federal Reserve will answer those questions and more when it posts results from the second and final stage of its 2018 stress test Thursday at 4:30 p.m. While investors got hints during the first stage last week, the central bank has repeatedly found ways to surprise in past reviews of banks’ risk management and proposed cash payouts.

    • Great Article, I particularly liked the explanation of ECOE
      “Because the world economy is a closed system, ECoE is not directly analogous to ‘cost’ in the usual financial sense. Rather, it is an economic rent, limiting the choice we exercise over any given quantity of energy. If we have 100 units of energy, and the ECoE is 5%, we exercise choice (or ‘discretion’) over 95 units. If ECoE rises to 10%, we now have discretion over only 90 units, even though the gross amount remains 100.”

      One great question ( Big, Inponerable) not I am asking a great question, Is, To what extent are different energy solutions Mutually exclusive? That is, If you choose one then, you can not have the other.
      Alluding to the long discussion on the previous Article, for instance, Are Thorium Based MSR mutually exclusive to Coal Fired and Gas Fired Power Stations.
      Is WInd Turbine, Tidal Lagoon and Solar PV/Concentrate Solar Lens technology mutually exclusive.
      As well as this idea of, are we resource restrained? as opposed to, are we Finance restrained? I am still slightly confused with Seeds and its approach to Debt, Money and the distinction between Productive Investment and Consumption Spending.

      “Prosperity

      To get from GDP to prosperity, then, two stages are involved. The first is to arrive at a ‘clean’ GDP number by removing the distortions introduced by pouring cheap credit into consumption. The second is to deduct ECoE from this underlying number.

      The results show a deterioration in prosperity across all major Western economies other than Germany. Typically, Western citizens are getting poorer at rates of between 0.5% and 1% annually.

      Moreover, the share of debt – personal, business and government – that these citizens are required to support on the back of dwindling prosperity has grown markedly. Because servicing this debt at normal (above-inflation) interest rates has become impossible, we are locked into monetary policies which are themselves destructive.”

      In the first part of the article, you refer to “The Seeds ECOE Algorithm” and maybe it is in that where my difficulties, following the reasoning lay?

      Another unresolved question is How big is the Final Real Output Pie and which proportion is Hoarded as Financial Wealth by “The elite” “Oligarchs” “The Ruling Class” “The Winners”, call them what you will. Are the people at the top deluding themselves into thinking that they are better off now than in 2007/8, we all know at whose expense this has been if they are better off either In Real terms or Relative terms to the Losers, i.e, real falling wages and the distribution of Wealth ( Oxfam publish that every year). Income distribution and Wealth distribution and Who are net payers of Interest are all intrinsic allocators of the Pie whether it is getting smaller or whether it is getting bigger, With positive Interest rates, it is mathematically certain that all Wealth migrates to the Very top leaving debt distributed with the Losers.
      As part of a SEEDS stocktaking of the Energy Wealth and Energy Potential of the Total Economy where there are resource restraints on providing an Optimal Energy Output ( This will be electro Magnetic in nature ) Electro Magnetism is present in all matter inert and organic and whilst we might run out of Crude oil and other natural stores of Hydro Carbons, we are only really in any trouble when we run out of electrons.

      The idea of our discretionary energy spending comes through in the article and I wonder if this is where we can really nail where our Energy Investment Challenges have been Failed.
      The Analysis in the article Gives us a Gross Energy and a Net Energy available for total use. I suspect that the Available energy will be dynamic and has always been so and perhaps always will be and therein lies the question.
      “Within the dynamic range of Net available energy for Use we meet political economy”. Discuss?

    • Hi looks interesting but I’m not sure what time zone the 4:30 broadcast is in. The money due to shareholders should not be paid out – simply taken out of the money system altogether.

      I know Deutsche bank has been in a lot of trouble for quite a while.

    • Thanks Roger.

      I think we can start with the observation that what conventional economics should measure – but doesn’t – is prosperity. The article explains how SEEDS calculates it.

      There are two points I’d make now. First, prosperity determines material satisfaction, not least because it reduces stress and worry, so this has political repercussions, and goes a long way to explain why the “unpopulists” are losing out.

      Second, prosperity decides how able people are to carry financial burdens, most obviously debt, but ‘social burdens’ too, such as health, education, care for the elderly and defence.

      From this, it follows that any school of economics which cannot measure prosperity effectively is of very little use. I think that recognition of this is now dawning on the ‘customers’ of economics – including government, businesses and finance.

      What I’m looking at now is the remarkable predicament of China. Countries like the US and the UK typically add to debt at rates of between 5% and 6% of GDP annually – not satisfactory, of course, and far higher than growth, so not a sustainable model. But China, albeit with growth in the range 6% to 7%, borrows more than 30% of GDP each year. That is totally unsustainable – and has been happening for ten years.

    • No particular thoughts on this, as $2bn annually is indeed peanuts to an economy of China’s size.

      But detailed analysis of an issue this small is of little interest to me, as I’m far more concerned with China’s quite extraordinary overall rate of borrowing. I’m trying – and, so far, failing – to see why China isn’t where GFC II starts.

      Remember, please, that China has accounted for 37% of all global “growth” since 2007. Protectionism from the US is one potential catalyst – and the energy squeeze, exacerbated by the peaking of domestic oil production, is another.

    • Yes $2bn is small – it was – to my mind – the complacency of the post which was worrying – no mention of the real problem.

      I’m looking forward to your analysis of China –

    • The Problem with Debt and GDP is that it does not capture anything scientifically falsifiable it is subjective in the truest sense.
      Both Debt and GDP in financial measures have no regard to actual resources and potential resource outputs from available energy and resource inputs.
      Debt in Energy terms would be borrowing future Energy and using it up so that it is not available in the future In a very great sense this Energy Future Budget is Unknown. We have Proven Reserves and so forth and existing known Generating and refining and conversion capacities but until a sensible measure of debt based upon known future energy resources and their rate of use are coupled with ideas of a Unit of Debt, in the sense of Using future supplies or reserves Now instead of at some point in the future the Notions of Debt in financial terms are meaningless.
      We do Know that all Debts and Credits do not sum to Zero in the existing system and this is due to the Principal Debt being issued without the Interest Element , it is from this simple fact that Money Scarcity exists as an idea and gives a notion then of a Time value of money expressed as a rate of Interest.
      At this point there are lots of political choices which can be made with respect to Energy as a Commons, Or Money as a Commons in much the same way that Henry George with the Single Land Tax showed how a use it or lose it approach to Land with his Single Land Tax proposals would lead to Land being used to its best capacity, can we look at Energy resources in a similar way, notwithstanding the Geo-Political implications in thinking in such a way? ( OPEQ anyone?).
      In one sense the Petro Dollar already is an energy-based unit of account although its per-view in its conception was to Provide a means of recycling Oil Revenue Surplusses of OPEC into Dollar claims on Hard Assets and Western Technology and COnsumer Goodies and of course Armements. Personally, I think the inherent narrow-mindedness of the Approach post-Nixon Shock is a Smoking Gun regarding decisions which could have been taken back then that were not for what I am sure seemed at the time eminently sensible geo Political reasons.
      Taking a Seeds Outlook even with the great need of OPEQ producers to exchange their Finite Resource for Longer term prosperity generators the short-term nature of Petro Dollar recycling must bring with it some regrets upon reflection some 45 years later?
      Two groups clearly emerge as Key to the process of some sort of Paradigm shift in thinking about Prosperity as Energy Based and Not Fiance based upon debt Based. These two groups are The International Bank of Settlements Debt based FIAT Currency System, and The Military Industrial Complex expressed as the US Military and NATO. , This then Ranged Against the BRICS and non-aligned States to the Washington Consensus.
      There are the Energy Sectors themselves and also the Pharmaceuticals and Agricultural Corporates to take into account but The Military Industrial Complex and the IBS FIAT Based FIance Model Rule the Roost in terms of the most threatened Vested interests from this sort of Thinking about Prosperity.

      “But China, albeit with growth in the range 6% to 7%, borrows more than 30% of GDP each year. That is totally unsustainable – and has been happening for ten years”.

      The Answer to this sustainability question is . Why So and under what boundary conditions.
      Without Resource constraints and In Yuan this is not true.
      With Resource Constraints but trading energy in YUAN this is only weakly true.
      How close is China to Energy Security? Coal in the equation, Coal Out of the Equation.
      Can China be self-sufficient outside of the Washington Consensus market? How close off is China from being circularly self-sustaining? Are China and Russia as a Unit Mutually Circularly self-sustaining?

      This begs the next question for a Modern Economy to be debt free in the sense that it is not robbing the Future Peter, to Pay Now (Robin). What are the objects of Peters thievery? Energy and Food.

      There is a question above regarding Agriculture? it is a very important aspect to making up a Debt Metric related to Resources and resource restraints to prosperity.

    • Roger – regarding China – I do know that they’re about the double their oil imports – why should tell you a lot about their energy security.

      Therefore as they are relying on outside sources do you still feel that their 30% borrowing of GDP is not a problem.

      If say they could be totally energy self sufficient with a growing base of energy then perhaps yes – but that doesn’t appear to be the case.

      Just interested in your thoughts

    • Hi Donald, I am formulating my thoughts the starting point for me are on this Blog and its links.
      https://letthemconfectsweeterlies.wordpress.com/2018/05/24/global-primary-energy-use-associated-with-production-consumption-and-international-trade/

      The debate between Bill Mitchell and Steve Keen on whether deficits in Trade are a good or bad thing is informative in that both hold heterodox views and are therefore freed from Orthodox in box thinking.

      My Second Task over the next few days is to take a Generalised Circuit Diagram one where the Store of e

    • (cont)::: Store of Energy in a Battery and the other with the same circuity but with the store of Available Energy accumulating in a Capacitor. A Battery gives a constant discharge of the available surplus energy and the Capacitor has to fully Charge and then Release its load and then Wait to recharge to Discharge.
      I think that this conceptual Model will be akin to the Capacitor as Minskys instability hypothesis but captured in Energy Terms.

      Finally, I have been pondering this Video for the past week and messing about with Euler’s Identity. I am thinking Elliptically and in Polyhedrons rather than in Idealised Circles.

      Euler’s number derived from the growth rate of interest on money and its ubiquity in various natural systems and phenomena that propagate according to an Exponential I think will allow a theoretical derivation Of e within boundary conditions provided from available surplus energy and available Food resources.

      made a cryptic reference to running out of electrons in an earlier post That electrical currents always propagate at Right angles to and Magnetic field I think tells us something deeply related to how we should be managing resources moving forward into a probabilistic future.

      Hypathia Was really quite the bomb too.

      These questions are very important regarding theoretical limits to growth and in a very real sense determine what out discretionary Energy Budget can be in any given time period. This Energy budget should form the basis for any sensible units for monetary exchange which should be developed for Spatially discrete Markets, Local, National, International and Global.

      Bernard Leitaers Terra has already done most of the Geo-Political reasoning I think I think a mathematically coherent theoretical model based upon realisable Energy potentials will grow out of Tims SEEDS thinking.
      http://www.lietaer.com/2010/01/terra/

      I am not exactly a Calculus whizz but from the above Ingredients, something tied together with Bale String is within even my compass I think.

    • 3.1. Energy use associated with production and consumption world economy consumes 5.63E+08 TJ of primary energy resources (BP, 2016; IEA, 2016c). In order to identify which region is responsible for the energy use, three different accounting principles as recorded by the indicators of EED (energy resources exploited directly), EEP (energy resources embodied in production) and EEC (energy resources embodied in final consumption), respectively, are adopted inFig. 2. According to EED, mainland China, the United States, Russia, Saudi Arabia and India are the 5 largest exploiters, and together they are responsible for 51% of global total energy use. In addition, mainland China is also the largest producer with 1.22E+08 TJ of energy resources embodied in its production, based on the results of EEP. It indicates that 1.22E+08 TJ of energy resources are used globally to sustain the final production activities in mainland China. The UnitedStates is the second largest producer, followed by Japan, India and Germany. When it comes to EEC, the United States surpasses mainlandChina as the largest consumer of embodied energy. The world total energy use is the same under different accounting principles, however, the three methods differ by which region is allocated the energy use. The difference between EEP and EEC is small at the regional level because the goods and services used for final consumption in one region are mainly produced in the same region.

      (PDF) Global primary energy use associated with production, consumption and international trade. Available from: https://www.researchgate.net/publication/320445428_Global_primary_energy_use_associated_with_production_consumption_and_international_trade [accessed Jun 28 2018].

      There is a massive amount of information to take in in this report the same authors have also published several other groundbreaking papers. EED (energy resources exploited directly), EEP (energy resources embodied in production) and EEC (energy resources embodied in final consumption), coupled with SEEDS Energy cost of Energy I think, point the way to a sensible Embodied energy cost of opportunity cost. WHich would be a true metric of decision making where resource constraints involve mutually exclusive investment decisions.

  25. I compare the debt bubble to the white balloon (Rover) from the TV series ‘The Prisoner’. Anyone who tries to escape from it meets a horrible end.

  26. China and energy
    Please see Alice Friedemann’s post on water shortages, and particularly the quoted very brief introduction Alice wrote this week:
    http://energyskeptic.com/2018/why-world-leaders-are-terrified-of-water-shortages/

    ‘About 75% of China’s remaining coal reserves are in water scarce regions that use 80 to 99% of their water for agriculture now. I question whether China will be able to shift water use to water intensive coal mining, coal generation of electricity, coal to chemicals, and eventually coal to liquids as governments become desperate to replace declining oil with a drop-in fuel. If China tries to develop their last coal reserves this will lead to civil war, chaos, mass migrations, riots, and so on, as it has in the Middle East. And where would the water come, from since already aquifers are being drained that won’t refill for tens of thousands of years.’

    So…China’s oil production has peaked and their remaining untapped coal deposits will compete directly with growing food through the link with water. Such linkages are, I suspect, what we should expect as the cycle turns toward higher ECoE.

    Don Stewart

    • Donald
      Why did Obama, who was presumably privy to the classified information on water in Yemen, claim that Yemen was an excellent example of what the US could accomplish under his stellar leadership?

      Governments in general, and politicians especially, have a way of turning a blind eye to what they do not wish to see.

      Don Stewart

    • I would guess that the ‘in the know experts’ in China are simply too afraid to tell the top people.

    • Donald
      Everyone who works in a bureaucracy learns a few lessons pretty quickly. One is that it is not wise to point out insoluble problems. And by ‘insoluble’ that means ‘no politically acceptable solution’. If a problem is actually insoluble, then what the leadership wants to hear from you are ideas for papering over the problem denying that the problem exists, figuring out how to get rid of pesky people who point at the problem, etc.

      Don Stewart

    • Hi – if you haven’t already – watch the 1985 film – ‘Brazil’ – Bureaucracy gone mad.

      Here are some lines:

      Sam Lowry: Excuse me, Dawson, can you put me through to Mr. Helpmann’s office?

      Dawson: I’m afraid I can’t sir. You have to go through the proper channels.

      Sam Lowry: And you can’t tell me what the proper channels are, because that’s classified information?

      Dawson: I’m glad to see the Ministry’s continuing its tradition of recruiting the brightest and best, sir.

      Sam Lowry: Thank you, Dawson.

    • I wouldn’t want to be an adviser to Kim Jong Un. Best advice? Give no advice – just smile – wave and jog merrily alongside his state car – and of course – if he tells a joke – laugh hysterically.

    • In the past, under hard-line communism, officials often told ministers what they wanted to hear. I understand this applied particularly to reserves of coal.

    • Yes indeed – when black gold has gone – sell electron gold. Imagine in 10 years time we have incredibly fast charging graphene capacitors.

      You could charge up at night to take away some of the grids excess capacity.

      Perhaps we won’t need as much oil as we think.

    • Let’s hope so. Getting from here to 10 years time is quite the trick though. Largely due to ignorance and rigid ideologies I suspect, rather than viable routes into a different set of priorities in our Political Economy. Whats that quote,? Seeing the obvious answer is never so hard as when one’s interests ( Or Salary) depend on not seeing it? something like that ?

    • Yes indeed. A few decades back both the UK and US did actually reduce their reliance on oil – but they should have gone further and perhaps invested in Thorium technology plus battery or hydrogen research.

      Perhap by now we could have had economies only using small amounts of oil for agriculture and heavy goods transport – not for cars or plastic bags for that matter.

      It seems like we just had to have one more mad oil party – and look where’s it’s got us. But we will survive – even with a steady reduction in our standard of living. I’ve even looking for a good pair of earmuffs for the inevitable bang when the debt bubble bursts

  27. Re Chinas Energy Security.
    Nearly forty per cent of the energy resources embodied in final use in China are found to be foreign resources, twice in magnitude the share of direct energy imports in total energy consumption reported by national statistics. China faces a more serious energy security challenge from the embodiment perspective. Therefore, the indirect dependency hidden in non-energy imports should be attached due importance, in order to enhance energy security. Not only the energy imports and exports, but also the energy-intensive commodity trade of the country needs to be controlled. The relationships between sectoral embodied intensities and the trade imbalance are discussed based on the comparative advantage theory. It suggests that the region with economic advantages may not show advantages in environmental conservation at the same time. For example, due to the low price, the manufacturing industry of computer in China is revealed with the largest trade surplus, but the energy use required to produce these computer exports in China is one-fifth more than the foreign average level. In view of the global benefit of resources conservation and environmental protection, such exports need to be reconsidered. Both the economic performance and the environmental impacts should be taken into account in trade structure adjustment for governments and administrators. Like ‘carbon leakage’and ‘resources grab related to international trade, the transfer of health costs along with the trade can also be witnessed. As the world’s leading merchandise exporter, China hasbenefited a lot from the trade expansion but has also paid a dear price for the polluted environment as evidenced by the increased mortality associated with air pollution. There is a connection between embodied energy in exports and national health expenses. In addition to direct energy consumption and trade, indirect ones are also worthy of attention given their remarkable impacts on the environment and resources. This embodiment analysis of energy use can contribute to recent efforts to better understand Chinese economy

    PDF | Energy use by Chinese economy: A systems cross-scale input-output analysis. Available from: https://www.researchgate.net/publication/317241300_Energy_use_by_Chinese_economy_A_systems_cross-scale_input-output_analysis [accessed Jun 28 2018].

  28. Tim, you are probably aware of this, but fears of Chinese bank debt levels may be overblown, or at any rate should not be evaluated in the same way as corresponding amounts in Western countries. A few weeks ago, on an interview on the Real News Network, the interviewer asked Dr. Michael Hudson something about china’s debt levels. I did not know this, but Dr. Hudson pointed out that Chinese banks are state banks, not private companies like here. It is therefore far easier for the Chinese government to simply eliminate the debts with a stroke of the pen, than here (where those debts are not someone else’s assets). Dr. Hudson noted that the Chinese bank debts are akin to the debts the peasantry owed to the Kings or to the temples in Biblical times, who would simply wipe it out in a jubilee to clear the slate for further activity when the debt burden became so high as to be significantly counterproductive to the King’s own interests. China therefore has far more flexibility in dealing with its debt levels than Western governments.

    • Firstly, thanks for another great article Dr. Tim – your blog is now one of my ‘go-to’ places for insightful analysis and comment. Also, thanks to the posters who comments add greatly to my understanding of the predicament we’re in.
      I’ve lived in China for the past decade and have done business here for the last 2 decades. As I understand, all the banks are government owned (or majority owned). Add to that all property is leasehold and that it is virtually impossible for a foreigner to buy property unless you’re married to a Chinese person – based on personal experience. You can begin to see how China operates a closed financial system – the Government lends money to citizens to buy (or more accurately, rent) property from the Government for a period of time (normally 70 years).
      In these circumstances, capital flight is an obvious problem and the government have really started cracking down on the amount of currency you can remit or take out of the country. A Chinese person wishing to exchange currency has to present a visa/travel document first. Foreigners are limited to just USD5000 per trip.
      Another phenomena which never ceases to amaze/scare me is the extent to which the economy is becoming cashless. Most people use their phones to pay for literally everything – from RMB1 to RMB10000+. The entire situation is firmly controlled, and I suspect that this model will be repeated elsewhere as rising ECoEs start to bite, in order to maintain some stability.

    • Thanks both.

      State ownership of banks is a significant difference, though of course Western countries could always nationalise their own banks if things became bad enough.

      The process really hinges on the value of the currency, I suspect. If China wrote off banks’ debts, this would be tantamount to creating enough RMB to monetise those debts, wouldn’t it? I’m certainly going to look into external debt before writing up the China situation.

      Japan has been getting away with monetising debt ever since GFC I, but this doesn’t make monetisation safe. The BoJ has bought up almost 50% of all JGBs in issue, most of this since 2008, using newly-created QE money to do so. They run QE at a scale (over JPY 50 tn) that far exceeds the fiscal deficit (less than JPY 20 tn) I’m pretty sure that if – for example – the UK tried any of this, GBP would crash. It is surprising, to put it mildly, that Japan has got away with this, the caveat being “so far”. If a currency slumps, the local value of debt in other currencies soars, and so do interest costs, and the cost of essential imports.

      I’m going to write up China – which I’m convinced is in the “high risk” group along with a number of others – and the article will have a SEEDS stats summary. Work in progresss…….

  29. As an interested layman, i would like to thank you for being the missing piece in the jigsaw. Economics always seemed like trying to learn an ancient language that has fallen out of use, the experts never quite agreeing which sounds each symbol or cryptic glyph actually produced when spoken. Your work is like finding 5000 year old dvd, and hearing the spoken word.

    They say that ignorance is bliss, but for those ordinary mortals now aware of our inevitable decline, do you have any thoughts on how they might insulate themselves from financial ruin? It seems like the usual asset classes one might flee to may not be safe this time around

    • Thank you, much appreciated.

      The challenge as I see it is to use available information, and then make sense of it in ways that conventional economics now seems unable to do. This is why SEEDS has taken more than four years to construct.

      I’ve been trying to identify a ‘safe haven’, without much success so far, but it’s easier to identify the un-safe, using this a process of elimination. It’s a slow process, and any contributions of ideas would be most welcome.

    • I think the challenge will be predicting how the thing plays out, which will influenced greatly by global politics. Clearly the west has been in kicking-the-can-down-the-road mode for some time, and will continue to do so. There have and will be flash points and they will continue to try and manage these, so given that no politician is ever going to speak truth about terminal decline, my suspicion is that we will let the pressure build such that the symptoms of the decline will manifest suddenly rather than gradually.

      One thing i think you may have overlooked in the role of technology, is that while you have rightly modelled the parabolic of technological evolution, you may not have allowed for revolution – that is an entirely new, disruptive technology. I’ll use an extreme example for illustration – nuclear fusion.

    • The other thought thats been gnawing at me along the lines of disruption, is the relationship between energy needs and population growth. You illustrate that the two trends are closely linked, and i think suggest that they are each, both cause and effect of the other.

      What i dont understand is how the two measures will develop as energy constraints become more influential -does the model predict this in any way?

      But my point about disruption was that there might be other self-limiting factors related to population growth, both physical limitations (food, space, competition and war, etc) and perhaps more interestingly biological – as population density increases so does the spread (and rate of evolution) of viruses and other diseases. We have seen some early signs of this already with SARs in high-density populations.

    • Hi Tim – by ‘safe haven’ do you mean somewhere to put any saving before the next crash – somewhere to live where you could be self sufficient – or any economy which won’t be unduly hurt by the next downturn which would of course cover the previous two questions.

      Thanks

    • I agree that politics will be critical. I also make the assumption that some in authority know that things economically and financially are going wrong, though they may not understand why this is happening.

      We are already seeing political signals that are unmistakeable confirmation of deteriorating prosperity. (1) Protectionism is a classic symptom of hard times, even more so if it becomes ‘trade war’. (2) So-called “populists” are making continued progress across much of the West. The incumbent (“unpopulist”) regimes seem to be trying to tighten controls. We can kick the can down the road financially, but we cannot hide deteriorating prosperity, because people experience this at first hand.

      Remember, too, that the deterioration in Western prosperity as SEEDS plots it looks relentless and irreversible. This isn’t a case of “tighten your belts till good times return”. The “emergency, temporary” (and inherently damaging) policies adopted in 2008 have already lasted a lot longer than the Second World War, and restoration of normality in monetary policy has become, in effect, impossible. Can anyone really envisage – ever – the return of interest rates of 5-6% (inflation plus 2%)? If not, then there is no road back to normality.

      The trouble with technology fixes are that they are limited by the envelope of physics. We can sometimes – for instance, find a higher law (aerodynamics) that over-rules an existing law (gravity) – but we’re unlikely to find one that over-rules the law of thermodynamics.

      We’ve known the theory of fusion since the 1920s, and are still miles away from achieving it, as you can see by the timescales (and spiralling costs) of the multinational ITER project.

      Already, certain political assumptions are unravelling, even if this isn’t yet apparent to the authorities. For instance, we can no longer assume popular acquiescence in rescue plans along 2008 lines.

      In the next crisis, the authorities will be like a golfer with only one club – QE. This inevitably becomes the monetisation of debt. This, sooner or later, destroys fiat currencies.

      This isn’t ‘end of the world’ stuff, but I do suspect it’s ‘end of growth’. That doesn’t just mean the end of rising prosperity, but implies an end to population growth (though I don’t know how that happens). With the growth assumption removed, systems built around that ssumption, which include the financial system, become unsustainable.

      So we’re going to need a fundamental change in ideas, as well as a fundamental redesign of systems.

    • Dear Dr. Morgan
      I recommend to your thinking the notion of heuristics. This was brought to my mind yesterday listening to a conversation on Jim Kunstler’s web site with Douglas Farr, who just wrote a book about urban design and sustainability. Farr mentions the behavioral economist Daniel Kahneman talking about how humans use heuristics. If we are confronted by a complex problem with no obvious solution, we tend to solve some other, simplified, problem instead. So, to my mind, the complex problem might be ‘living a good life full of meaning and joy’, but the heuristic we have chosen to try to solve is ‘ever more material goods’. If it turns out that we can no longer achieve ever more material goods, then we will have to either try to come up with a better solution to the original problem or else find a substitute heuristic.

      For government and military officials, unfortunately, the substitute heuristic may be just naked power.

      For ordinary citizens, it may be a return to some sort of religion.

      When Farr mentioned the heuristic principle, it suddenly struck me that it is a good way to think about our current dilemma.

      Don Stewart

    • Yes i agree that fusion is unlikely to be the magic bullet, but the thing about disruptive technology is that nobody sees it coming. I suppose what i’m getting at is the risk inherent in all models, even those that explain the past/present very well, they do so on the basis of the extrapolation of relationships.

      Take the assertion that the “end of growth implies the end of population growth” which is based on the past relationship between energy abundance and thence economic growth enabling population growth. In our global political pretence that none of this is happening, alongside acquiescence risk, human behaviour may not change, we might continue huge population growth for some time. In the absence of war/disease/famine to constrain it, that state would break the relationship between energy abundance and population.

    • I very much doubt whether we can break the relationship between energy and population numbers. It seems to me fundamental – we need a certain amount of inputs, and can’t function below this level.

      Taking nutrition, which is just one part of the equation, there is a relationship where energy in (as food) must exceed energy out (expended in obtaining that food).

      In pre-agrarian societies, that meant energy expended in finding or killing for food, but that requires very low population densities. In the agrarian era, population densities were greater, but nowhere near those of today, and ‘energy out’ was work expended in farming.

      In modern times, though, energy inputs have been used to leverage output, thereby enabling population densities unsustainable without those inputs. Over time, land might recover from the consequences of input-dependency, but couldn’t deliver anything like the output of intensive-input farming.

      Without energy inputs, I’ve heard that agricultural output might fall by around 90%.

    • Ah, so human behavioural inclination wont really matter, and the self-limiting factors i mentioned (war, famine, etc) are essentially symptoms or products of energy availability.

      This actually fits quite nicely with some of the thinking around climate change, which suggests that the only real solution to AGW is for there to be fewer humans, and that one way or another that is where we will end up

    • There are so many threads on this blog now it’s difficult to sort out a way through. However someone mentioned Michael Hudson. Perhaps in reference to “Junk Economics” a recent book. It gives clues to what has to be done to reset the banking world, which is utterly feral right now although the “Blob” as someone christened the deep state etc, will fight tooth and nail to keep it going. The blob is relentless but always loses the battles while still making the kind of mess it wants to keep everyone off balance, Libya, Honduras, Syria etc. The oil shortage will see a big drive from the USA to keep itself fed. Of that there can be no doubt. and also no doubt it will fail in the end.TINA.

      https://www.counterpunch.org/2016/03/23/junk-economics-and-the-parasites-of-global-finance/

    • Yes.

      My view is that the downturn in prosperity changes absolutely everything.

      Stage One is where Western prosperity turns down. That happened between 2000 and 2007.

      Stage Three is where this is recognised, and responses are made.

      We’re in the potentially very unstable Stage Two, where the downturn has started, but has not been recognized, with denial to the fore.

      At least most of us here recognise the problem, which ought to be some sort of advantage.

    • “Without energy inputs, I’ve heard that agricultural output might fall by around 90%.”

      That’s pretty alarming and strikes me as being unsupportable even in the back of a fag packet terms. Has anyone got any quantified data extrapolating to that sort of Collapse in yields?
      The idea brings to mind this wonderful documentary from a while back, Monty Don looking at Kitchen Gardens in Cuba.

      from 39 mins.

    • Viewed through this lens, using huge quantities of real energy in order to “mine” cryptocurrencies seems even more perverse. It has been suggested that the amount of electricity used on bitcoin mining globally is roughly equivalent to that used by the Republic of Ireland

    • Hi I raised this wicked waste of energy with Tim in terms of was it in his SEEDS calculations. I think his response was that if there was a crash any cryptocurrency would not be allowed.

      It’s a potentially disastrous waste of precious resources.

    • If you removed all agricultural energy inputs it might be worse than 90% field to fork

      Theres the obvious stuff like mechanisation of ploughing, harvesting and so forth. But also fertiliser, insecticide, herbicide is all high energy cost of production. If you include distribution efficiency, storage and preservation of produce, all of which is also high energy cost, you end up with huge reductions in land yield compounded with additional wastage, and the need to use human labour throughout.

    • marktee
      I believe your understanding of the agricultural situation is seriously flawed. See my comment below…currently last comment on this post.
      Don Stewart

    • Its an interesting read but i dont think it answers all of the questions. For example “nobody is going to stave if their bacon isnt vacuum packed” – but its shelf and transport life is reduced, and if transport is less effecient due to energy constraints then the wastage is increased. This wont effect the production yield from the land, but it will effect the farmtofork yield. To avoid this you would have to have a much more local distribution system, which itself would bring inefficiencies. The question isnt just about productivity of the land itself, its the entire process. I am by no means an expert but organic farming practices in this country at least, are still heavily dependent on energy.
      I

    • marktee
      ‘organic farming’ vs. ‘chemical farming’ is not a very relevant thing to worry about. ‘microbe leveraging farming’ vs. ‘chemical farming’ IS a very relevant thing to consider. Most organic farmers do NOT leverage microbes very well at all.

      The distinction is similar to that between ‘vegans’ and ‘meat eaters’. Studies DO NOT show that vegans are healthier and happier than meat eaters. There are several key points which neither ‘vegans’ nor ‘meat eaters’ actually get. Among them, again, is the critical importance of ‘microbe leveraging’. The sad state of the microbiome of American infants is evidence of criminal neglect of the microbes by just about all parties.

      To argue that farmers 10,000 years ago were ‘organic’ and didn’t produce enough food per hectare to feed the world is a sort of correct statement, but not relevant to the question of whether we now have enough information about microbe leveraging to feed the world.

      If we study humans as a microbe/ human proper system, we begin to understand that the notion of a stand-alone human is a ridiculous concept. It’s the same with plants and animals.

      You are exactly right about the dependency of cold storage on fossil fuel energy. If we break that down a little, we find that our calories and nutrients are packaged in very different forms. The great advantage of the grains is that they can be dried and shipped long distances and stored for several years. Vegetables (in the absence of cold storage) need to be consumed soon after harvesting. Or else fermented (as in kim chee or sauerkraut). Animals need to be consumed soon after harvesting, and present the additional problem of being too big for a single family to consume (bison, cows, etc.). Historically, the size problem was solved by having a communal feast (roasting the ox) or by drying into jerky.

      So…once we recognize that all the ink spilled debating ‘organic’ vs. ‘chemical’ is basically a waste of ink, then we can begin to look at the real problems. Which are daunting.

      Don Stewart

    • The problem with grains in the abscence of mechanical farming is that whilst they are easy to store, the land yield is highly sensitive to mechanisation. Sowing, harvesting and weeding are enormously labour intensive if you dont have tractors, combines and herbicides. Look at the vast tracts of land given over to grain farming, and imagine how many people and horses it would require to harvest, thresh, etc. Some of the land may not even remain viable at all without pumped irrigation.
      I’m not well informed enough to quantify this so i will defer to your better judgement, i guess being fairly new to Tim’s revelations i am still just coming to terms with the extent to which we all rely on energy systems

    • Marktee
      I don’t want to try to turn this into a deep discussion of agriculture. So just bullet points:
      *The great majority of the energy spent on food is spent AFTER the crop exits the farm gate. The most correct statement is that ‘industrial food is very energy intensive’.
      *It is true that labor-saving devices have greatly reduced the need for farm workers on grain farms. One of the tragedies of ‘civilization’ is that we chose to squander the fossil fuels on things like flying grapes from Chile to North America in January.
      *It is also true that ‘regenerative agriculture’ relies on fossil fuels. Here is a quote today from Geoff Lawton, the Australian permaculturist:

      ‘Or is it tech *and* nature: On the flip side are those who approach the question of technology from a position of optimism rather than cautious skepticism. Even if we consider *only* permaculture-related activities, consider: This Friday Five is being written on a computer and being read on your phone / laptop screen; we use big, earth-moving machinery in order to establish dams, swales, terraces, and access roads; and we use the internet and related technologies to educate thousands of people about permaculture online — far, far more than we could ever fit in a traditional classroom. Those who identify closer to this type of thinking will love this article published earlier this month: “How Technology Can Repair Our Broken Connection With Nature.” It begins with this observation, “the average human being can identify 430 corporate logos but can’t differentiate five different plants by looking at their leaves,” and then proceeds to detail how one company, Marshmallow Laser Feast, is using virtual reality and extended reality (a combination of real and virtual environments) to — among other things — help people see nature through the eyes of four different animals and insects.’

      Geoff is reporting on a discussion between two people about the Amish method for evaluating and accepting or rejecting new technologies. Closely related to George Mobus’ articles on humans and whether we have any sapience or not. The most interesting question is whether humans even now have the sapience to make good use of the power afforded by what remains of our fossil fuels.
      *A debate between the various schools of medical practice, or between chemical farmers and organic farmers, might be seen as harmless. But, in my view, both are evidence that humans really don’t understand the urgency of their situation. And for these two subjects, the explosive technology of the last 2 decades has been the microbes. To pretend that it is still about chemo or NPK fertilizers is criminally negligent, in my opinion.

      Don Stewart

    • Indeed so. Moreover, all of this human (and perhaps animal) labour has to be fed. This is ECoE compounded, in one of its bluntest forms. It’s also, as my book explains, why agriculture was a major but, in itself, very modest step forward when it succeeded hunter-gathering.

      If you take into account, not just the labour needed but also the nutrition required by this labour, you’ll see why any retreat from industrial farming (with its essential energy inputs) would drastically reduce global carrying capacity. I accept that organic farming can be effective, and I also accept that land drained of nutrients by monoculture can, in time, recover. But the ECoE equation is unbreakable.

      This is why, in pre-industrial times, about 19 out of every 20 working people were engaged in agriculture (remembering, also, the need to support children). So there’s an equation based on yield capacity and ECoE. That’s why the carrying capacity would be so drastically below current levels.

      We have, arguably, an ECoE collapse example with the Western Roman Empire, where population numbers fell by about 95%. Quoting from memory, James Lovelock projected future carrying capacity at 1 billion.

      You can also reference population numbers for the UK – a land-constrained country – to see that dramatic expansion in numbers only happened after 1800. This, too, was a country with access to food from its colonies, most obviously sugar and grain.

    • 1804 was the last time the World had a population of 1 billion. When I was born the UK had a population of approx 51.5m – by the time I pass it could well be 77m (unless the predicted future economic problems bring a complete halt to any growth in population)

      That’s a huge increase in one lifetime in a World of diminishing resources,

    • Dear Dr. Morgan
      Consider the symbiosis of a cell and a bacteria which became a mitochondria. As The Revolutions That Made the Earth explains, it is just these sorts of evolutionary changes which greatly multiplied the useful energy that life could harvest from the sun. I argue that David Johnson, a very late bloomer in the world of microbial science, and with a personal history of homesteading in Alaska, made a similar breakthrough in terms of partnering with microbes to produce food and fiber. The discussion about ‘nutrient depleted soils’ is from a time when we simply didn’t understand what fungi could do. Johnson is not using ANY mineral additives or nitrogen fertilizers or herbicides or pesticides. He DOES use irrigation water from a typical western US Corps of Engineers project, he does use mechanical devices to harvest, and he does use a tractor to plant and disk the soil. He does not plow. And, of course, the cotton he produces is utilized by industrial companies after it exits through the farm gate. His yields are multiples of what ‘certified organic’ or ‘conventional’ fields produce…because of the effective partnering with microbes.

      The ‘partnering with microbes’ part, if we use conventional agriculture as the base case, results in a very large increase in ERoE….similar to mitochondria and cells. BUT, so far as I know, ‘partnering with microbes’ has, so far, no effect at all on turning raw cotton into clothing sold in stores.

      So I am NOT arguing that all is well and good with fossil fuels, and we can all go back to sleep. I am simply saying that in terms of production of crops on farms, a REDUCTION in the use of fossil fuels combined with an effective strategy for partnering with microbes is entirely possible. Should fossil fuels disappear tomorrow, raw cotton in Las Cruces, NM, won’t be much good for most of us. Which should focus our attention on the real issues.

      Don Stewart

    • Don

      To be clear, I’m not against anything – microbes included – that can improve agricultural efficiency. I belong to a minority that recognises that the way we do things now isn’t sustainable, so I’m more open than most to using new ideas.

      Agriculture isn’t my field (no pun intended!). What I don’t see, however, is how we can change the energy equation about carrying capacity per sq km. The transition to agriculture multiplied that number through greater efficiency, which is good (though adopting agriculture had serious downsides). Industrial-era farming doesn’t change the equation, except in the quantitive sense of a dramatic increase in energy inputs.

      That it turn was made possible by one thing alone – access to low-cost fossil energy. Obviously this enabled mechanisation, and enabled us to extract, process and deliver inputs such as nitrogen. But it goes all the way up the food chain, “from farm to fork”, in processing, storage, delivery, refrigeration, distribution, where the common factor is the use of energy. Even building the agricultural machinery, processiing plants, trucks and so on requires energy inputs, so it’s a capital-and-depreciation/upkeep as well as an op-cost issue.

      What we come down to is an energy equation, because food itself is an energy form, so it’s ‘energy-in, energy-out’. Anything that can help us change that equation is welcome. By definition, because there are ways of doing things badly, there are ways of doing things better. So I’m not with (the original) Thomas Malthus in thinking we cannot learn and adapt our way out of this problem. But I see scant evidence even of recognition of the problem at official levels, let alone of openness to solutions.

      This issimilar to the position over cars. Instead of EV (etc), the real answer is fewer cars, with living, working and habitation patterns altered accordingly. But no policymaker is going to recognise that until there is absolutely no alternative.

    • Dr. Morgan
      David Johnson, despite what look like miraculous yield results with zeroed out inputs, has experienced the following:
      *refusal of publication because one reviewer ‘can’t understand how this is supposed to be happening’
      *refusal of federal funding, so he is spending mostly his own money…despite the explosion of research results in terms of the human microbiome.
      *being ignored when he starts quoting numbers on carbon sequestration…because all the powerful people are lined up behind very expensive alternatives which they hope will make them even richer…and because the ‘carbon farming’ establishment doesn’t want to believe it. Even people who have long championed ‘biological farming’ somehow fail to mention his name when they begin to, belatedly, recognize the essential role of the fungi. Big Oil sees a huge potential in carbon capture and storage…and they are not talking about the Liquid Carbon Pathway, which operates for free unless we screw it up with agriculture.

      His reception in the world of non-corporate agriculture is warmer. He has been invited to speak before quite a number of groups. But there is still a large presence at such meetings of people selling industrial ‘solutions’. Dr. Johnson thinks that, ultimately, farmers and ranchers will have to adopt a fungal-friendly approach to farming and ranching because they will have no alternative.

      The goal of my comments here has not been to persuade people to convert their acres to teaming with microbes, merely to bring some clarity to the nature of the challenges.

      Don Stewart

    • 2.4 The issue of the yield gap
      Two recently published meta-analyses contribute to the debate on the widely discussed issue of the
      “yield gap”. The first meta-analysis7
      shows how organic yields on average give 80% of conventional
      yields, but it also shows the significant variations (standard deviation 21%) between regions, systems
      and also between real farm data compared to data from experimental trials. Looking at the details of
      the study, the yield gap between conventional and organic agriculture appears to widen when
      conventional systems reach their maximum potential, using external inputs, and under favourable
      conditions.
      The second meta-analysis8
      shows an average 75% of organic productivity compared to conventional,
      but stresses the fact that good management practices, particular crop types and growing conditions,
      can bring organic systems to nearly the same yield as conventional.
      The studies provoked a lively debate as they reflect practitioners’ experiences. For instance the yield
      gap is larger for highly productive crops in areas with high production potentials and vocation: maize
      and soybean in Po Valley, wheat and sunflower in Central France, rape-seed and potatoes in Central
      Europe. On the contrary, in lower performing systems (extensive farming systems, developing
      countries, dry areas, low external input), the difference is limited or even counterbalanced by the fact
      that organic production can be more stable in the long term.

      Click to access fg1_organic_farming_final_report_2013_en.pdf


      again on
      “Without energy inputs, I’ve heard that agricultural output might fall by around 90%.”
      Based on this report You may have misinterpreted or the person who quoted the figure might have mis understood, Organic Yields can be down to ( tenths ) I.e 20 % below Industrialised Ag systems in other systems the Systems can actually be equivalent. Thats before one factors in other things like the Nutritional value and Taste improvements from organic seed stocks/varieties.

      Running farming machinery with Electric motors is totally feasible, there are of course options in any farming system to make BioDiesel from Hemp which can be planted on Marginal land or as a Fallow crop in any rotation system.
      As an old-fashioned Farm Boy, I look back fondly on my Bale carting and Livestock handling days, City Folk have always not really got us country Bumpkins, BAring a nuclear Winter or Volcanic Winter Farming can get by perfectly well in the Post-oil world some consumer fashions such as Bannans sans excessive curvature or Fruit and veg sans Blemishes, or indeed Baked Bean Colouring might need to change.

      Packaging is another matter, but again no one starves if their Bacon is not vacuum packed in Plastic with a pretty picture on the front.

      Cash crop Mono Culture is definitely a Corporate Financialised economy thing, even something as simple as eating what is in Season wherever it is that you are living is actually an eminently sensible thing to do vis domestic home budgeting.
      STrawberries are in season here in Sweden right now, soon the Forests will be swamped with natural Blueberries which we pick by the bucket load, our own Veg patch here provides us with fresh salad leaves now for the rest of the summer, our tomato crop is coming along great and our fruit trees ( Plumbs and Apples ) are fruiting this year we planted them 3 years ago,We have Raspberry canes and wild Smultron ( forest Strawberries) and our Chicken who range free across our Garde in the day and retire to their Coup at night have been laying profusely since February, its only really been January and February this year that they have layed for at least part of the other months. We have 32 Eggs in the incubator last year we hatched 32 Chicks from 32 Eggs and the Chickens hatched 3 chicks in their laying boxes, in that lot we had 4 cockerels who were culled at 6 months.

      Most of what we do here out in the forest can be done on a smaller scale in Urban environments but when the oil runs out DIgging for Victory as it were is not that hard to do. We do not even have a greenhouse I have been planning to build a Geo Deisic Dome with a heat sing deep water store in which you can farm Trout.

      http://geodomas.eu/portfolio/permaculture-solardomes/

      My Fater in law is a nurseryman and has some huge commercial greenhouses which he grows summer bedding and cut flowers in for the Market in Stockholm.
      He had a Photovoltaic Roof Installed on his Wood Barn a couple of summers ago and he now generates the larger part of his electricity requirements 6 months of the year or so.

      My Father in law who is a retired Combine Harvester and Agricultural Fitter for John Deere told me about the most amazing Barley growing operation in Umea, which is way up North in Sweden, I blogged about is a few years back
      http://letthemconfectsweeterlies.blogspot.com/2013/07/24-hours-of-daylight-farming-in-umea.html The winters are dark up there but in the summer there is almost 24 hours of Light so the Plants grow around the clock.

      The question of Oil in Farming is actually very diverse, the biggest problems farmers have are the monopolistic buying policies of Corporate Supermarket chains
      now that is a fact also predatory lending practices of Large Banks is also the next big problem. Then the monopoly practices of GMO seed monopolists public ignorance of what farming is is probably up there in the list and then Holiday cottage nimbies who price the young folk out of their own neighbourhoods. You can start to get the idea here I think, so I will not go on.

      An amusing Blog about an early meeting with my Father in Law when I started courting his Daughter.
      http://letthemconfectsweeterlies.blogspot.com/2014/07/big-car-small-dick.html

    • 2.4 The issue of the yield gap
      Two recently published meta-analyses contribute to the debate on the widely discussed issue of the
      “yield gap”. The first meta-analysis7
      shows how organic yields on average give 80% of conventional
      yields, but it also shows the significant variations (standard deviation 21%) between regions, systems
      and also between real farm data compared to data from experimental trials. Looking at the details of
      the study, the yield gap between conventional and organic agriculture appears to widen when
      conventional systems reach their maximum potential, using external inputs, and under favourable
      conditions.
      The second meta-analysis8
      shows an average 75% of organic productivity compared to conventional,
      but stresses the fact that good management practices, particular crop types and growing conditions,
      can bring organic systems to nearly the same yield as conventional.
      The studies provoked a lively debate as they reflect practitioners’ experiences. For instance the yield
      gap is larger for highly productive crops in areas with high production potentials and vocation: maize
      and soybean in Po Valley, wheat and sunflower in Central France, rape-seed and potatoes in Central
      Europe. On the contrary, in lower performing systems (extensive farming systems, developing
      countries, dry areas, low external input), the difference is limited or even counterbalanced by the fact
      that organic production can be more stable in the long term.

      Click to access fg1_organic_farming_final_report_2013_en.pdf


      again on
      “Without energy inputs, I’ve heard that agricultural output might fall by around 90%.”
      Based on this report You may have misinterpreted or the person who quoted the figure might have mis understood, Organic Yields can be down to ( tenths ) I.e 20 % below Industrialised Ag systems in other systems the Systems can actually be equivalent. Thats before one factors in other things like the Nutritional value and Taste improvements from organic seed stocks/varieties.

      Running farming machinery with Electric motors is totally feasible, there are of course options in any farming system to make BioDiesel from Hemp which can be planted on Marginal land or as a Fallow crop in any rotation system.
      As an old-fashioned Farm Boy, I look back fondly on my Bale carting and Livestock handling days, City Folk have always not really got us country Bumpkins, BAring a nuclear Winter or Volcanic Winter Farming can get by perfectly well in the Post-oil world some consumer fashions such as Bannans sans excessive curvature or Fruit and veg sans Blemishes, or indeed Baked Bean Colouring might need to change.

      Packaging is another matter, but again no one starves if their Bacon is not vacuum packed in Plastic with a pretty picture on the front.

      Cash crop Mono Culture is definitely a Corporate Financialised economy thing, even something as simple as eating what is in Season wherever it is that you are living is actually an eminently sensible thing to do vis domestic home budgeting.
      STrawberries are in season here in Sweden right now, soon the Forests will be swamped with natural Blueberries which we pick by the bucket load, our own Veg patch here provides us with fresh salad leaves now for the rest of the summer, our tomato crop is coming along great and our fruit trees ( Plumbs and Apples ) are fruiting this year we planted them 3 years ago,We have Raspberry canes and wild Smultron ( forest Strawberries) and our Chicken who range free across our Garde in the day and retire to their Coup at night have been laying profusely since February, its only really been January and February this year that they have layed for at least part of the other months. We have 32 Eggs in the incubator last year we hatched 32 Chicks from 32 Eggs and the Chickens hatched 3 chicks in their laying boxes, in that lot we had 4 cockerels who were culled at 6 months.

      Most of what we do here out in the forest can be done on a smaller scale in Urban environments but when the oil runs out DIgging for Victory as it were is not that hard to do. We do not even have a greenhouse I have been planning to build a Geo Deisic Dome with a heat sing deep water store in which you can farm Trout.

  30. The Odums
    Old timers will remember the Odums, and A Prosperous Way Down. (As contrasted to The End of the World Because Our Fiat Money Failed). Mary Odum has resumed writing in the tradition of the Odum family. Some of you may enjoy checking out her latest epistles:
    http://prosperouswaydown.com/energy-ethics-survival-people-nature/#more-3238

    It is sobering to think about how convincing the Odum’s writing was to some of us, and how much older we are now.

    Don Stewart

  31. http://orrery-software.webs.com/entropy-in-abms

    Agent Based Modelling and the Perpetual Motion Machine the work of Garvin H Boyle.
    “MY PMM IS THE ONLY COMPLETE MODEL OF A SUSTAINABLE ECONOMY EVER BUILT!

    To be clear, I have very specific definitions of “complete model” and of “sustainable economy” in mind. And I do understand that this looks like the vane boast of a lunatic. I am not saying my model is the best model, or even a good model. I am saying it is the only such model. That scares me! I have searched the web. I have searched the on-line libraries of agent-based models. I have searched through back issues of key journals. There simply does not appear to be any other complete economic models, by my definition. They all focus on some small part of economic issues and do not include the biophysical side of the economy – the so-called externalities. Nor do they consider issues affecting multiple generations. So neither holistic or long-term stability are modeled.

    If you think I am wrong (and I hope I am) then read my MABS presentation materials. If you still think I am wrong, send me an email and tell me which model you know about that proves me wrong. My address is orrery@rogers.com.

    I think this is an important point. If nobody has ever built even a most-simple complete model economy that demonstrates sustainability, how can we talk about ‘sustainable development’ in a real-world economic complex? We cannot even make a toy economy sustainable!”
    http://orrery-software.webs.com/apps/links/

    Click to access 140405%20ModEco%20Pricing%20Issues%20V2.04A%20R5.pdf


    and a model to play with, as an aside anyone who has not played with Steve Keens Minsky model is missing out on hours of endless fun.
    https://sourceforge.net/p/minsky/home/Home/

    The PPM Model in nlogo.
    http://orrery-software.webs.com/modeco-nlogo-version

    And Prof Yakowenko
    New Developments in the Statistical Mechanics of Money, Income, and Wealth

    Professor Victor M. Yakovenko
    Fellow of the Joint Quantum Institute (JQI)
    Member of the Center for Nanophysics and Advanced Materials (CNAM)
    University of Maryland

  32. Food and Health
    The question of the depletion of fossil fuels and our ability to produce food, and the larger question of promoting health, are not the simple questions that statements like ‘food production must go down 90 percent’ imply. Simple statements like that ignore what we are now learning about the role of microbes. I will give you three quick references, but you can do a lot more research on your own:

    Naveen Jain

    Naveen Jain is the billionaire funder of the Viome company, which matches some technology from the Los Alamos national laboratory, the technology behind the Watson project at IBM, and traditional reductionist science exploring metabolic pathways. The promise is ‘the end of chronic disease’.

    David Johnson
    http://ecofarmingdaily.com/compost-the-promise-of-microbes/
    David Johnson has demonstrated that current agricultural practices are not only NOT needed, but are instead counterproductive. The basis is, again, partnering with the microbes, this time in the soil rather than in the human gut.

    Infant Guts
    New York Times article on infant microbiome

    Now, of what conceivable relevance is this article. Are you ready to have the awful truth revealed? My secret sources in DC indicate that Donald Trump is separating out the illegal immigrant infants in order to harvest their poop. The poop will then be used to inoculate or do fecal transplants into 100 percent American infants. The goal is to ‘make America great again’ by ‘restoring our great poop’.

    Back to serious matters. If we have no fossil fuels, then the transportation of agricultural products to urban areas becomes a serious issue. As late as a couple of decades ago, big Chinese cities such as Shanghai were ringed by food producing farms. A century ago Paris was ringed by food producing farms, and New York was fed by ‘the garden state’…New Jersey. The big problems are:
    *training a new generation of farmers
    *using good land to produce food, not shopping centers
    *probably repopulating the rural areas by refugees from unsupportable urban areas
    *overcoming the political power of the lobbies supporting the status quo
    *overcoming the inertia which will keep most of the population in denial

    Don Stewart

  33. It is a quite natural instinct to look for a ‘safe haven’, as historically they have certainly existed: places of sufficient fertility, security and refuge; places to hide and play hide-and-seek with slavers, wandering mercenaries and empire builders. We are also animals who do not like the idea of being devoured.

    Sometimes they have been man-made fortresses, but these mostly fall to treachery, not force. They also require inputs to maintain, which might fail. One of my ancestors, Juan Remirez de Baquedano, had to surrender one of Spain’s greatest castles in 1512, as its walls hadn’t been maintained due to economic decline.

    Natural fortresses are far preferable. Places difficult of access – although it surprising to see where Alexander and the Mongols got to – and not worth conquering (ie requiring too much expenditure of energy for the likely loot, mostly slaves, and perhaps resources).

    The history of the Basques offers one fine example in Europe: I haven’t a clue about other continents, except perhaps for the places of refuge in High Asia – Afghanistan.

    Mobility was the safe haven of the Turkmen nomads who evaded Genghis when he conquered Persia.

    Even then, the Basques were regularly harvested by the Arabs and Berbers for slaves. The Caucasians also had to pay such a tax, to the Turks – and they deliberately bred too many children for just that purpose. For poor mountain dwellers, slavery in an advanced civilization could actually be seen as a step up……

    I’ve come to believe that there is only one certain ‘place of refuge’ in what we will face, and that is a clear conscience. Many will dirty their hands in the decline: propagandists, debt-collectors, pimps and gangsters, and it is important not be among them if you believe you have a soul.

    This is essentially a Stoic view, which will not appeal to many.

    • xabier, if you are not already familiar with it, you might find James Scott’s “The Art of Not Being Governed,” illuminating regarding what the characteristics of a robust redoubt are.

      From Amazon:
      “For two thousand years the disparate groups that now reside in Zomia (a mountainous region the size of Europe that consists of portions of seven Asian countries) have fled the projects of the organized state societies that surround them—slavery, conscription, taxes, corvée labor, epidemics, and warfare. This book, essentially an “anarchist history,” is the first-ever examination of the huge literature on state-making whose author evaluates why people would deliberately and reactively remain stateless. Among the strategies employed by the people of Zomia to remain stateless are physical dispersion in rugged terrain; agricultural practices that enhance mobility; pliable ethnic identities; devotion to prophetic, millenarian leaders; and maintenance of a largely oral culture that allows them to reinvent their histories and genealogies as they move between and around states.

      In accessible language, James Scott, recognized worldwide as an eminent authority in Southeast Asian, peasant, and agrarian studies, tells the story of the peoples of Zomia and their unlikely odyssey in search of self-determination. He redefines our views on Asian politics, history, demographics, and even our fundamental ideas about what constitutes civilization, and challenges us with a radically different approach to history that presents events from the perspective of stateless peoples and redefines state-making as a form of “internal colonialism.” This new perspective requires a radical reevaluation of the civilizational narratives of the lowland states. Scott’s work on Zomia represents a new way to think of area studies that will be applicable to other runaway, fugitive, and marooned communities, be they Gypsies, Cossacks, tribes fleeing slave raiders, Marsh Arabs, or San-Bushmen.”

      Scott’s “Against the Grain,” is also quite good.

  34. An analyses of China would be very welcome, to me that is. China created a boatload of debt to keep the worlds wheels of deception turning. The last frontier of growth through illusion?

    As soon as the wheels slow down, EVERYTHING gets its well deserved screeching halt. It aint funny, i know that. Thomas Maltus has, in my opinion, a very good point by ‘suggesting’ that central banks try to save the world. He doesn’t mention the point however that they destroyed it first by creating a too wide distance between ‘money’ and reality.

    China! Yes!

    Look at this beauty

    • BTW, dear doc, you do see your excellent blog is being dilluted by an overload of related and unrelated information by certain individuals?

      In currency terms it is called ‘the Fogs of Fiat’.

      On blogs it is called ‘trolling’.

      In this case, we have a rather advanced form of trolling. They will throw everything at you, including the kitchen sink.

      Pickpockers everywhere….

    • Thanks.

      First of all, I do notice that, increasingly, a number of comments are very long, and seem to go a long way off-topic. I’ll keep an eye on this.

      Second, I was using the term “safe haven” in financial terms, not geographically.

      Third, the next topic here is likely to be China, though there’s actually a series of countries at elevated levels of risk.

    • On Below the line ( BTL)commenting there are several schools of thought, I read comments and follow links avidly and all of the Blogs I have followed that are Successful and have a wide range of views have very active BTL activity.
      In times past the Guardian website was famed for its BTL community and many people would read the comments first.
      Censorship is the story of the decline of the guardian and its BTL decline, this gave rise to the excellent online website Off Guardian. The Guardian also spawned the Golem XIV Blog which was one of the most cited Financial Crisis blogs, particularly across the Pond on Zero Hedge and Jesses Cafe Americana.
      An active BTL leads to increase Web optimisation in search engines and brings more new readers to the Site it increased the Cross section through which googles algorithms compile search results, BTL commenting is actually symbiotic and not parasitic.
      The other way to keep BTL comments or to leverage them further is actually to have a discussion forum attached to a Blogs Back End, I am not sure if WordPress has a Forum capability but on a technical study area which ranges across several academic fields a simple forum can be very useful both in terms of SPecific Articles exposure but actually ongoing research and test-bedding of ideas.
      Forums can suffer hugely form Censorship and ideological in groups seeking to nursemaid theories and truth claims which are withering on their own intellectual vine as it were.
      In Pick Pockets Houtskool that is something from your own mind and says much more about your own worldview than it does about what others are motivated by in their own participation in discussion here.

    • I don’t want to be too restrictive, and we certainly should be able to discuss a broad range of subjects, but there do have to be some rules, or at least guidelines. I’m hoping these can be self-enforcing, as I don’t want to have to pre-moderate every comment.

      The first guideline is relevance. The subjects here are economics, energy, finance and related issues. That’s a broad area, but please try not to go too far beyond it.

      The second is courtesy. It’s fine to fell someone he/she is wrong, but it’s not OK to say he/she is an idiot (etc). As they used to say in some sport or other, “play the ball, but don’t play the man”. Put another way, we should always respect the opinions of others, even where we disagree 100%. Courtesy includes “bad language”, which has never been a problem here, but some sites are riddled with it. The term “swear-words” covers this.

      Lastly, I have a personal loathing for any form of racism or anti-semitism. At the start of my career, when the government still favoured “constructive engagement” with apartheid South Africa, I asked (and got) permission to have nothing to do with that country until the regime changed.

  35. It is unfortunate that one or two posters make following this blog impossible with irrelevant, verbose and uninteresting posts. One of them has even been drummed out of other blogs in the past. Like Facebook it would be wonderful if you could ‘snooze’ some of these characters for a week. Eventually they may get the message but I won’t hold my breath.

    • Thanks. I’m aware of this, share your concern, and will see what I can do about it. Moderation settings have been tightened to impose some delays.

    • I follow the comments by e-mail notifications, which makes it easier to filter out the posters I’m not interested in reading.

    • Hi Don – thanks for link – excellent article.

      Of course poor or zero growth won’t stop us from intellectual expansion (unless we can’t grow enough food to ‘power’ ourselves)

      I was interested by this line ‘And the UK Ministry of Defence (MoD) is taking notes’ – I’m not sure if he perhaps meant ‘note’

      However it seems that parts of the Government are beginning to wake up to the coming problems.

      The word is slowly getting out. The election of Trump looks like the very last throw of the dice for those who do not want to face up to economic reality.

    • Donald
      I’m certainly no insider, but it seems to me that the military think in terms of real things…how many tanks can we move across an ocean and put into action? Most everyone else thinks in terms of money…it’s all economics as taught in colleges.

      So when people like Morgan and Jackson come along talking real stuff, the militaries tend to listen. Politicians, to quote one of the G.W. Bush officials, think that ‘we make our own reality’.

      Don Stewart

  36. Dear Dr. Morgan
    I am wondering what you make of the Trump Administration’s maneuvering on energy. They are apparently preparing some ‘liberation’ of Iran, asking Saudi to produce more oil, and trying to increase US coal production and consumption under cover of ‘national security’.

    Candidate Trump said ‘if they have oil we need, we will just take it’.

    Don Stewart

    • I start with why Mr Trump was elected (apart from having a useless opponent, that is). These factors were (a) deteriorating average prosperity, and (b) anger at the (apparent or real) enrichment of a tiny minority. There’s also the everyday friction of how people are treated, as customers and as employees. “Make America Great Again” translates for me as ‘make average Americans prosperous again’.

      Energy is critical to that, and is one of two reasons why he can’t deliver on prosperity. ECoE is rising, and debt is soaring. I can’t see the cash-burning shale industry solving the problem, nor does the answer lie in coal. China’s problems are strikingly similar.

      So this is starting to look like a global bun-fight over remaining low-ECoE energy. I dread the idea of the US “liberating” anyone – decades ago, Tom Lehrer nailed it with Send the Marines – and taking on Iran militarily could make Vietnam look like a picnic.

      Is Mr Trump daft or desperate enough to go for it? He tends to make off-the-cuff remarks which – thankfully – he often doesn’t follow through on. I think the opinions of the military might swing this. As I understand it, they thought Iraq was a bad idea, so normally I wouldn’t see them backing “liberating” Iran. But they seem to be well aware of the energy issue, which might swing it.

    • ‘I can’t see the cash-burning shale industry solving the problem’

      Tim I would guess you’ve seen the debt issuance of some of these shale companies – huge amounts stretching into the 2020’s. I’m just wondering what’s going to happen on repayment day? Pretty ugly scenes I would guess unless there’s a Government bailout by money printing.

      Although unlikely I think a war in Iraq would definitely bring about a World crash to end all crashes.

      I’m still reading about the High street being ravaged – but undaunted by this the local council in a nearby town has announced a massive high street rejuvenation project. I wonder where they think the customers are going to come from?

      On a happier note the World cup seems to have stopped all the rhetoric and sabre rattling between ourselves and Russia – although I hope we don’t meet them in the final.

    • Thanks. On cash burning, please see the new article.

      I’m quite enjoying the World Cup (even if Spain are out, and Wales didn’t get in!) At least England cannot play Germany, prompting a media barrage of Fawlty Towers quotes about “don’t mention the war….prawn goebbels”. Those who said holding a World Cup in Russia was a bad idea have become noticeably muted.

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