#143: Fire and ice, part one

TRAUMA FOR THE TAX-MAN

Is 2019 the year when everything starts falling apart?

It certainly feels that way.

The analogy I’m going to use in this and subsequent discussions is ‘fire and ice’.

Ice, in the potent form of glaciers, grinds slowly, but completely, crushing everything in its path. Whole landscapes have been shaped by these icy juggernauts.

Fire, on the other hand, can cause almost instantaneous devastation, most obviously when volcanoes erupt. Back in 1815, the explosion of Mount Tambora in the Dutch East Indies (now Indonesia) poured into the atmosphere quantities of volcanic ash on such a vast scale that, in much of the world, the sun literally ceased to shine. As a result, 1816 became known as “the year without a summer”. As low temperatures and heavy rain destroyed harvests and killed livestock, famine gripped much of Europe, Asia and North America, bringing with it soaring food prices, looting, riots, rebellions, disease and high mortality. Even art and literature seem to have been influenced by the lack of a summer.

The economic themes we’ll be exploring here have characteristics both of fire and of ice. The decline in prosperity is glacial, both in its gradual pace and its ability to grind assumptions, and systems, into the ground. Other events are likelier to behave like wild-fires or volcanoes, given to rapid and devastating outbursts, with little or no prior warning.

Fiscal issues, examined in this first instalment of ‘fire and ice’, have the characteristics of both. The scope for taxing the public is going to be subjected to gradual but crushing force, whilst the hard choices made inevitable by this process are highly likely to provoke extremely heated debate and resistance.

Let’s state the fiscal issue in the starkest terms:

– Massive credit and monetary adventurism have inflated GDP to the point where it bears little or no resemblance to the prosperity experienced by the public.

– But governments continue to set taxation as a percentage of GDP.

– As GDP and prosperity diverge, this results in taxation exacting a relentlessly rising share of prosperity.

– Governments then fail to understand the ensuing popular anger.

France illustrates this process to dramatic effect. Taxation is still at 54% of GDP, roughly where it’s been for many years. This no doubt persuades the authorities that they’ve not increased the burden of taxation. But tax now absorbs 70% of French prosperity, leading to the results that we’ve witnessed on the streets of Paris and other French towns and cities.

Few certainties

It’s been said that the two certainties in life are “death and taxes”, but ‘debt and taxes’ hold the key to fiscal challenges understood improperly – if at all – by most governments. The connection here is that debt (or rather, the process of borrowing) affects recorded GDP in ways which provide false comfort about the affordability of taxation – and therefore, of course, about the affordability of public services.

The subject of taxation, seen in terms of prosperity, leads straight to popular discontent, though that has other causes too. In order to have a clear-eyed understanding of public anger, by the way, we need to stick to what the facts tell us. I’ve never been keen on excuses like “the dog ate my homework” or “a space-man from Mars stole my wallet” – likewise, we should ignore any narrative which portrays voter dissatisfaction as wholly the product of “populism”, or of “fake news”, or even of machinations in Moscow or Beijing. All of these things might exist – but they don’t explain what’s happening to public attitudes.

The harsh reality is that, because prosperity has deteriorated right across the advanced economies of the West, we’re facing an upswell of popular resentment, at the same time as having to grapple with huge debt and monetary risk.

If you wanted to go anywhere encouraging, you wouldn’t start from here.

The public certainly has reasons enough for discontent. In the Western world, prosperity has been deteriorating for a long time, a process exacerbated by higher taxation. The economic system has been brought into disrepute, mutating from something at least resembling ‘the market economy’ into something seemingly serving only the richest. As debt has risen, working conditions, and other forms of security, have been eroded. We can count ourselves fortunate that the public doesn’t know – yet – that the pensions system has been sacrificed as a financial ‘human shield’ to prop up the debt edifice.

This at least sets an agenda, whether for 2019 or beyond. The current economic paradigm is on borrowed time, whilst public support can be expected to swing behind parties promoting redistribution, economic nationalism and curtailment of migration. Politicians who insist on clinging on to ‘globalised liberalism’ are likely to sink with it. The tax base is shrinking, requiring new priorities in public expenditure.

If you had to tackle this at all, you wouldn’t choose to do it with the “everything bubble” likely to burst, bringing in its wake both debt defaults and currency crises. But this process looks inescapable. With its modest incremental rate rises, so derided by Wall Street and the White House, the Fed may be trying to manage a gradual deflation of bubbles. If so, its intentions are worthy, but its chances of success are poor.

And, when America’s treasury chief asks banks to reassure the markets about liquidity and margin debt, you know (if you didn’t know already) that things are coming to the boil.

Tax – leveraging the pain

If it seems a little odd to start this series with fiscal affairs, please be assured that these are very far from mundane – indeed, they’re likely to shape much of the political and economic agenda going forward. The biggest single reason for upsets is simply stated – where prosperity and the ability to pay tax are concerned, policymakers haven’t a clue about what’s already happening.

Here’s an illustration of what that reality is. Expressed at constant values, personal prosperity in France decreased by €2,060, or 7.5%, between 2001 (€29,315) and 2017 (€27,250).

At first glance, you might be surprised that this has led to such extreme public anger, something not witnessed in countries where prosperity has fallen further. Over the same period, though, taxation per person in France has increased by €2,980. When we look at how much prosperity per person has been left with the individual, to spend as he or she chooses, we find that this “discretionary” prosperity has fallen from €13,210 in 2001 to just €8,230 in 2017.

That’s a huge fall, of €4,980, or 38%. Nobody else in Europe has suffered quite such a sharp slump in discretionary prosperity – and tax rises are responsible for more than half of it.

This chart shows how increases in taxation have leveraged the deterioration in personal prosperity in eight Western economies. The blue bars show the change in overall prosperity per capita between 2001 and 2017. Increases in taxation per person are shown in red.

#143 01

In the United Kingdom, for example, economic prosperity has deteriorated by 9.8% since 2001, but higher taxation has translated this into a 29.5% slump in discretionary prosperity. Interestingly, economic prosperity in Germany actually increased (by 8.2%) over the period, but higher taxes translated into a fall at the level of discretionary prosperity per person.

Prosperity and tax – Scylla and Charybdis

The next pair of charts, which use the United Kingdom to illustrate a pan-Western issue, show a problem which is already being experienced by the tax authorities, but is not understood by them.

The left-hand chart (expressed in sterling at constant 2017 values) shows a phenomenon familiar to any regular visitor to this site, but not understood within conventional economics. Essentially, GDP (in blue) and prosperity (in red) are diverging.

This is happening for two main reasons. One is the underlying uptrend in the energy cost of energy (ECoE). The second is the use of credit and monetary adventurism to create apparent “growth” in GDP in the face of secular stagnation. This, of course, helps explain why people are feeling poorer despite apparent increases in GDP per capita. Total taxation is shown in black, to illustrate the role of tax within the prosperity picture.

The right-hand chart shows taxation as percentages of GDP (in blue) and prosperity (in red). In Britain, taxation has remained at a relatively stable level in relation to GDP, staying within a 34-35% band ever since 1998, before rising to 36% in 2016 and 37% in 2017.

Measured as a percentage of prosperity, however, the tax burden has risen relentlessly, from 35% in 1998, and 44% in 2008, to 51% in 2017.

#143 02

Simply put, the authorities seem to be keeping taxation at an approximately constant level against GDP, not realising that this pushes the tax incidence upwards when measured against prosperity. The individual, however, understands this all too well, even if its causes remain obscure.

What this means, in aggregate and at the individual level, are illustrated in the next set of charts. These show the aggregate position in billions, and the per capita equivalent in thousands, of pounds sterling at 2017 values.

#143 03

As taxation rises roughly in line with GDP – but grows much more rapidly in terms of prosperity – discretionary prosperity, shown here in pink, becomes squeezed between the Scylla of falling prosperity and the Charybdis of rising taxation. The charts which follow are annotated to highlight how this ‘wedge effect’ is undermining discretionary prosperity.

#143 04

Finally, where the numbers are concerned, here’s the equivalent situation in France. As far back as 1998, tax was an appreciably larger proportion of GDP in France (51%) than in the United Kingdom (34%). By 2017, tax was absorbing 54% of GDP in France, compared with 37% in Britain.

This means that taxation in France already equates to 70% of prosperity, up from 53% in 1998. Even though the squeeze on overall prosperity (the pink triangle) has been comparatively modest so far (since 2001, a fall of 7.5%), the impact on discretionary prosperity (the blue triangle) has been extremely severe (39%). This is why so many French people are angry – and why their anger has crystallised around taxation.

#143 05

The political fall-out

When you understand taxation in relation to prosperity, you appreciate a challenge which the authorities in Western countries (and beyond) have yet to comprehend. Most of them probably think that, going forward, they can carry on pushing up taxation roughly in line with supposed “growth” in GDP. Presumably, they also assume that the public will accept this fiscal trajectory.

If they do make these assumptions, they’re in for a very rude awakening. The modest tax tinkering implemented in France, for instance, is most unlikely to quell the anger, even though it’s set to widen the deficit appreciably.

Politically, the leveraging effect of rising taxation feeds into a broader agenda which, so far, is either misinterpreted, or just not recognised at all, by the governing establishment.

Here, simply stated, are some of the issues with which governments are confronted:

Prosperity per person is continuing to deteriorate, typically at annual rates of between 0.5% and 1.1%, across the Western economies.

Rising taxation is worsening this trend, leading increasingly to popular resistance.

– The public believes (and not without reason) that immigration is exacerbating the decline in prosperity, both at the total and at the discretionary levels.

– Perceptions are that a small minority of “the rich” are getting wealthier whilst almost everyone else is getting poorer.

Politicians are seen as both heedless of the majority predicament and complicit in the enrichment of a minority.

The popular demands which follow from this are pretty clear.

Voters are going to be angered by the decline in their prosperity, and will become increasingly resistant to taxation. The greatest resentment will centre around “regressive” taxes, such as sales taxes and flat-rate levies, which hit poorest taxpayers hardest.

They’re going to demand more redistribution, meaning higher taxes on “the rich”, not just where income taxes are concerned, but also extending to taxes on wealth, capital gains and transactions.

Popular opposition to immigration is likely to intensify, as prosperity deteriorates and tax bites harder.

Finally, public anger about former ministers and administrators retiring into very lucrative employment is going to go on mounting.

A challenge – and an opportunity?

In terms of electoral politics, most established parties are singularly ill-equipped to confront these issues. Some on “the Left” do embrace the need for redistribution, but almost invariably think this is going to fund increases in public expenditures, which simply isn’t going to be possible.

Others oppose increasing taxes on the wealthiest, and fail to appreciate that fiscal mathematics, quite apart from public sentiment, are making this process inescapable.

On both sides of the conventional political divide there is, as yet, no awareness that economic trends are going to exert glacier-style downwards pressure on public spending. Nowhere within the political spectrum is there recognition of the consequent need to set new, more stringent priorities. In areas such as health and policing, declining real budgets mean that policymakers face hard choices between which activities can continue to be funded, and those which will have quietly to be dropped.

It seems almost inconceivable that established parties are going to recognise what faces them, and adapt accordingly. The “Left” is likely to cling to dreams of higher public expenditures, whilst the “Right” will try to fend off higher taxation of the wealthiest. Even insurgent (aka “populist”) parties probably have no idea about the tightening squeeze on what they can afford to offer to the voters. It’s likely that very few people in senior positions yet realise that an ultra-lucrative retirement into “consultancies” and “the lecture circuit” is set to become electorally toxic.

Politically, of course, problems for some can be opportunities for others. It wouldn’t be all that hard to craft an agenda which capitalises on these trends, promising, for example, much greater redistribution, ultra-tight limits on immigration, and capping the retirement earnings of the policy elite.

If you did promise these things, you’d probably be elected. Unfortunately, though, that’s the easy bit. The hard part is going to be grappling with the continuing decline in prosperity at the same time as fending off a financial crash.

How, having been voted into power, are you going to tell the voters that we’re all getting poorer, and that some public services are ceasing to be affordable within an ever more rigorous setting of priorities? And are they going to believe you when you tell them that the destruction of pensions is entirely the work of your predecessors? Finally, what are you going to do when one of the big endangered economies fails?

 

165 thoughts on “#143: Fire and ice, part one

  1. Pingback: #143: Fire and ice, part one, In Search of real Aggregate demand in the Economy try the Surplus Energy Blog. – RogersLongHairBlog

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  3. Hi Tim,
    Just a quick question, what do you think the response of “the people” will be if the representative of the people, in parliament manage to subvert the will of the people as shown in the referendum?

    I watched the Speaker go on about how he was ensuring that Parliaments voice was heard and it got me thinking who was ensuring that the voters who voted to leave the European Union’s voice was being heard.

    • Whilst I take no view on the wisdom or otherwise of the voters’ decision, it concerns me that so many politicians fail to respect the decision to the full. Calls for a second referendum seem to smack of “let’s see if you voters can get it right this time”.

      More broadly, we’re seeing an increasing division between governing and governed right across the West. In this context, I note with concern French plans to crack down on the yellow jacket protestors. I’m not sure how a democratically elected government can take this line against a movement which seems to have majority support.

      My guess is that, in Britain as in France, voters will sink into sullen discontent until they get the chance to vote out the incumbent governments. In France, that probably means an insurgent (“populist”) government after the next election. Britain’s FPTP system makes this outcome harder, with the implication that Labour will win the next election – because Jeremy Corbyn will be the nearest equivalent to an anti-establishment option on the ballot-paper.

    • I disagree Tim. Corbyn is not especially anti-establishment (any more than Trump) and he has ruled out a no deal Brexit which is a big mistake. If Corbyn was elected then its odds on that the progressive fascists in the labour party will have a coup and have him replaced which means that the Blairite EU Neoliberals would be in charge again.

      As I said before there is a massive opportunity for the birth of an entirely new party here without the baggage of the left, right or Ukip that simply wants to get the Brexit job done and restore the possibility of democracy itself. I sometimes think that you don’t really get what is at stake in all of this.

    • I agree that there’s a big opportunity for a new party – but I’m not sure how it makes progress in a system which buttresses the two established parties.

      By suggesting that Mr Corbyn may win the next election, I’m not saying I support him – I’m neutral and objective about this. But he’s the nearest thing to populism within the two established parties.

    • Unfortunately, ‘the will of the British people’ is mere rhetoric, as the result was so very close.

      If the British truly had voted to leave en masse and decisively, it would be so much simpler, and I doubt the EU would have imagined they could have got away with their stone-walling tactics for two years, seeking to over-turn the result and, it seems, topple the UK government.

      It’s reminiscent of Catalonia where, if roughly half the people are in favour of independence from Madrid, the rest aren’t, and nationalists are being simply dishonest to talk about ‘the will of the our people’. Same in the Basque Country.

    • Tim.

      Have you read Michael Burrage’s research on the membership benefits of the EU? No-one has actually bothered recording and documenting the ‘benefits’ certainly no the EU themselves. Below is part of the summary but its well worth reading the 178 pages in full.

      “The image of the EU’s Single Market as an economically successful project, and as ‘a vital national interest’ for the UK, has rested on the hopes and repeated assurances of leading politicians, on a sympathetic media, and on the occasional endorsements of individual companies, rather than on any credible evidence about its benefits for the UK economy as a whole.

      No UK government over the past 23 years has sought to monitor its impact until the rushed analysis of HM Treasury published just before the referendum. On many counts, this was an unreliable and untrustworthy document. There is, therefore, no authoritative evidence to enable one to assess the economic consequences of the government’s decision to leave the Single Market, or of any future agreement it might negotiate, or of a decision to leave with no deal and to trade with the EU under World Trade Organization (WTO) rules.

      Seven international databases are used in this report to assess the benefits of the Single Market for the UK, and to compare its performance with that of other EU members, and with non-members who have traded with the EU either as members of the European Economic Area (EEA), or under bilateral agreements or as WTO members.

      The key metric in this report is the growth of exports, since that is what the Single Market was expected to deliver for the UK, and is often thought to have delivered. The data presented shows, by multiple measures, that this has not happened. By comparison with the Common Market decades from 1973 to 1992, the Single Market years from 1993 to 2015 have been an era of declining UK export growth to the EU. When ranked among the top 40 fastest-growing exporters to the other founder members of the Single Market the UK comes 36th. It has been surpassed by numerous countries trading with the EU under WTO rules. Moreover, the growth of UK exports to the 111 countries, with which it has itself traded under WTO rules since 1993, has been four times greater than that of its exports to the EU.

      Over the 43 years of EU membership, UK exports of goods to 11 long-standing members of the EU have grown just two per cent more, and at a compound annual growth rate (CAGR) just 0.02 percentage points higher, than 14 countries trading under WTO rules. EU12 exports to each other have grown just 1 per cent more than the exports of these 14 countries. In other words, the growth of goods exports of the UK to 11 long-standing members of the EU over these 43 years are barely distinguishable from those of 14 countries exporting under WTO rules, and they of course have not incurred any of the costs of EU membership…..

      Overall, the evidence shows that the disadvantages of non-membership of the EU and Single Market have been vastly exaggerated and that the supposed benefits of membership, whether for exports of goods and services, for productivity, for world-wide trade, or for employment, are largely imaginary. The Government appears to have decided to leave the Single Market on the basis that we should return full control of UK laws to the UK, but trade data also offers strong support for the decision, and provides comfort for those worried about relying on WTO rules if no deal emerges. The benefits of EU and Single Market membership have been illusory, while its costs are real, onerous, and unacceptable to a majority of the British people.”

      http://civitas.org.uk/content/files/itsquiteoktowalkaway.pdf

      I find this report very reasonable and would have been a good guide going forward. In this respect I find it somewhat sinister that reasonable debate about these issues has been marginalized or side-lined. Most people do not realize that the EU is effectively a Neoliberal superstate and that democracy itself is at threat as ultimately we are going to have to submit our political sovereignty to Neoliberal markets, technocrats and an un-elected and unaccountable elite. Politicians as such have abdicated from decision making and government is becoming progressively less and less accountable.

      Another good read from MMT that situates the EU project in historical context is below as it shows how much of the project and its arguments had been outlined at the turn of the 20th century and later particularly in Nazi Germany between 1939 – 1943.

      https://www.plutobooks.com/blog/national-sovereignty-supranationalism-brexit/

    • @Simon Hodges

      Thanks for the Michael Burrage report; I thought it was very informative.

      I also agree that there’s a massive opportunity to start a new party based on the principles you mention.

      I also agree that reasonable debate has been sidelined in all of this from the very beginning. To me there is some asymmetry here; if you vote Remain you vote for the status quo and, if you’re satisfied with that, you need no further argument; in a sense that’s the end of the matter. If you vote leave you actually have to think about an alternative and why you are voting to end an international treaty of forty five years’ standing. Now there may be different views on what leave means but the principle is I think intact.

    • @Bob J

      Looking at the phenomenon of Brexit, Trump, the Yellow Vests and even Bitcoin, then it is clear that people feel that the political parties with their traditional warring tribal ideologies do not serve our best collective interests. Perhaps they never did and it is only now that this is becoming more obvious. If everyone doesn’t mind I would like to offer a starting point for thinking about a new politics which I start to reason below.

      I think a new politics needs to centralise itself around core concerns of morality, ethics, sympathy and compassion all thought within a general sense of community and inter-dependencies. I believe that we can improve the world when we think of all our institutions as communities that recognise everyone’s shared obligations and responsibilities.

      A business owes respect, obligation and responsibilities to its staff just as its staff are equally obligated to the company. The company is also obligated and responsible to its customers in that it should try and offer them the best products at reasonable prices with reasonable guarantees. Everyone should feel collectively motivated to do their best jobs and create the best products. Collectively the company also hold obligations and responsibilities to its immediate community and environment and the community equally should have obligations to support and show loyalty to the company in return.

      To my mind we need to develop political and economic systems that take a single principle to its heart and that principle is that if we are going to make any changes or developments – that every single interested party should derive benefits from them and we should never make changes which only suit one particular agenda as communities function best when they take everyone’s best interests to heart. I think most decent people would instinctively agree with all of this.

      I believe we should think of government in these terms also. We need to think of the UK as a morally and ethically responsible community not as a Neoliberal PLC purely designed to make as much profit as possible (and failing dismally at the job).

      We should also note here that we need to think in terms of ethical production and ethical consumption and that such thinking can only take place outside of the demands of unlimited production and consumption growth with all that entails. Many productive practices such as built in obsolescence and its variants are unethical. Consumption is also unethical when we fail to actually use the things we end up acquiring as its just a tragic and avoidable waste of limited resources. In a world of production consuming limited resources should we not be ethically bound to justify our exploitation of them by putting everything to its best possible use?

      I believe in equality, in justice and its equitable functioning but most of what I witness in the functioning of judicial systems is an general injustice in how they actually function in the real world. We need to stop taking idealised views of our political, economic and judicial systems and expose their corruptions and fallacies in order to be able to correct them and actually make them fair, ethical and just.

      Again all of these things should not be part of any political ideology but rather they are more appropriately civilised principles of a generally respectful humanity. In this respect I think the first step in a new politics is to research and expose the actual level of corruptions that have been present in our systems all along.

      One of the most startling aspects of the Brexit phenomenon in my mind was the degree to which project fear was so thoroughly and cynically orchestrated between governmental institutions, business groups such as the CBI etc. and the great majority of the mass media. I for one would like to be able to have full access to documents and communications between these parties in order to see precisely how this propaganda operated and was disseminated in the real world.

      There will be a communications audit trail that confirms all of this and a great number of other very disturbing things once we have the elected authority to access it and expose the truth about corruption and our unrepresentative, undemocratic parliaments.

      In this respect I think the first principles of a new political party that we need to establish is one that seeks the truth as to how government and all our institutions have actually un-democratically functioned in practice and precisely identify whose interests that they have actually been serving if they have not been serving the best interest of their people and that this urgent requirement is a global one and not specifically related to the case of the UK and Brexit.

      We need moral government, we need more ethical government and we also need completely transparent government that hides no secrets from its peoples. We currently have none of these things, but we do have democracy in principle and we can democratically establish the right to investigate and establish all of these things in order to see and determine what systemic changes and regulations need to be put in place to mitigate against the corruptibility of government and our political and economic institutions in general.

      We can make government fully accountable. We can rule out power as a useful concept and admit that government is a very difficult task, but that does not mean that we rule out the need for even better and tighter rules and regulations where they are morally, ethically or systemically important (not to be confused with pointless bureaucratic red tape). No one believes that sporting regulations are totalitarian. They are there to ensure as fair and level a playing field as possible and so it should be in government and public life in general that gives everyone an equal sporting chance. Perhaps we need to endow politics with the best characteristics of amateur sportsmen and women as part of this?

      To all of these ends, I ironically advocate the establishment of a ‘Deplorable Party’ that investigates our systems in order to democratically advance the interests of moral, ethical and decent ordinary men, women and children around the world. This will initially be a party not of politicians, but of dedicated researchers prepared to put in the work of researching the truth about our systems and how they operate. If our systems are as faulty as they appear, then we need to fully research and fully recognise those faults in order to remedy them. This is all a practical possibility should we elect to do so.

      Can we all agree this set of principles and this initial approach as a valid starting point? Do not even journalists in the MSM equally desire to find these things out once and for all?

    • @Bob J

      “…if you vote Remain you vote for the status quo and, if you’re satisfied with that, you need no further argument; in a sense that’s the end of the matter.”

      The EU is constantly changing and so the Remain option was little better defined than the near-infinite range of possibilities encompassed within the Leave option.

    • @Simon Hodges

      An excellent summary and I agree wholeheartedly with what you say.

      The odd thing is that, although at most times your principles would be regarded as utopian and quite impracticable, I’m not at all sure this is the case now. We are beset by huge economic and political issues (and I refer to the World not just the UK) that there is a distinct feeling in many places that things do indeed need to change radically along the lines you suggest and that the time is probably more propitious now than at any time since the end of WW11 when the Attlee government took over.

    • @Will!

      Yes you do have a point here. It’s my view that the EU is on the cusp of major changes and we are in the early stages of a move away from the United States of Europe towards a Europe of Nations. The Pluto Books article posted by Simon Hodges is very interesting in looking at some of the antecedents of the current supranational ideas.

  4. Combination of Dr. Morgan, Tyler Volk, and Zach Bush to predict future

    Dr. Morgan offers evidence that convinces me that the continuation of Business as Usual is not an option. Neither is resettling humans on Mars. Tyler Volk, in Quarks to Culture, offers evidence that ‘Nothing human makes sense except in the light of cultural evolution’. Volk seems to think that the cultural evolution, being subject to the Darwinian pressure of selection, is basically headed in the right direction.

    Volk asserts that nature offers up something like 100 million genes. But let’s do a little arithmetic. Humans have about 20,000 ‘human’ genes, something like 1 in 5000 of the genes available to nature. Volk, however, early in his book asserts that he is not going to talk about the microbiome. So Volk is pinning everything on the functioning of 1 gene in 5000. Zach Bush, in contrast, emphasizes that ALL of the genes available in nature impact us as humans. Humans can actually accomplish very little, and certainly cannot support life, without all those other genes. Which means that Bush takes an ecological view of human flourishing or decline.

    Bush develops the numbers of people, particularly in the US, who are declining because they have a chronic disease…and all these chronic diseases are associated with malfunctioning relative to smooth partnering with those other genes. You can consult Bush’s various talks for the specifics on the rate of malfunctioning. The declines are of such magnitude that he predicts the demise of humans within 60 years, on our present course.

    The answer is to restore our partnerships with the environmental genes and the critters who carry those genes, from gut microbes to honey-bees. To that end, Bush is partnering with a group of regenerative farmers in the US, promoting dietary changes, and advocating against environmental toxins such as Round-Up and its replacement. Bush puts the cost of conversion to regenerative agriculture at 100 dollars per acre (roughly half a hectare), and 3 years time. He also thinks that such conversion will sequester vast amounts of carbon, solving our climate problem.

    How does Round-Up fit into the picture? Round-Up was patented as an anti-microbial. When sprayed on a farm field, or when consumed on food, or breathed in air, or drunk in water, it kills the microbes it comes in contact with. It also kills earthworms directly. The microbes carry many of those environmental genes that we depend upon, and the fertility of our soil depends upon the earthworms making air passages into the soil. (This is a vast oversimplification, but you get the idea.) Monsanto promoted the idea that Round-Up was ‘safer than water’ because the metabolic pathway used by the microbes (the Shikimate pathway) is not used by humans. But just as Volk makes an error by failing to look beyond the narrow confines of the human genome, Monsanto and all of the regulatory agencies made an error by failing to consider Round-Up in its ecological context.

    The net result is that 86 percent of the medical care budget in the US is now devoted to treating chronic disease. President Jimmy Carter commissioned a task force to look at prospects for the US beyond the end of his administration. They got a lot of things very right, but they completely missed the fact that chronic disease would expand from 4 percent of the population to well over 50 percent.

    Even if Bush is insanely successful, and governments and the eating population turn on a dime, we still have to deal with all of those with chronic disease. Just as 30 years of UN meetings on climate change have permitted a 60 percent increase in carbon dioxide emissions (See Kevin Anderson’s current article), the most likely scenario is that the governments of the world (possible exception: Russia) will continue to support the notion that everyone will starve without Bayer’s replacement for Round-Up.

    Here is what I consider to be a realistic scenario:

    *75 percent of humans with chronic diseases will die from lack of treatment.

    *The lack of treatment due to the failure of the energy system as outlined by Dr. Morgan, and exacerbated by the political and social friction which will inevitably accompany it.

    *Perhaps 10 to 25 percent of the people will move to a relocalized regenerative agriculture and sustain a reasonably civilized existence. Probably no jet airplanes, and few motorized vehicles.

    What about Russia. Russia has made a decision to ban GMO’s. With no spraying of antimicrobials, Russian soil has the potential to get more productive each year. But there are other ways to destroy soil. Will Russia adopt regenerative agriculture? I don’t know.

    Don Stewart

    • Get some facts right Don. Round Up is primarily a herbicide not an anti microbal.

      Glyphosate (IUPAC name: N-(phosphonomethyl)glycine) is a broad-spectrum systemic herbicide and crop desiccant. It is an organophosphorus compound, specifically a phosphonate, which acts by inhibiting the plant enzyme 5-enolpyruvylshikimate-3-phosphate synthase. It is used to kill weeds, especially annual broadleaf weeds and grasses that compete with crops. It was discovered to be an herbicide by Monsanto chemist John E. Franz in 1970.[3] Monsanto brought it to market for agricultural use in 1974 under the trade name Roundup. Monsanto’s last commercially relevant United States patent expired in 2000.

      I am not suggesting it is good, just highlighting its initial purpose.

  5. Addendum
    Report from Manitoba, Canada, on a recent regenerative agriculture conference:
    https://www.manitobacooperator.ca/news-opinion/news/regenerative-agriculture-creates-a-sprawling-road-map/

    This will not please academics, who want a cookbook which can be tested on a bench. Zach Bush comments frequently that doing experiments on cancer cells in petri dishes really doesn’t tell you much about cancer in a human body. So we run into the problems of trying to apply CERN style experiments to subjects which are inherently at the mercy of the vagaries of the environment. But at the end of the day, there is more carbon in the soil, water infiltration rates are higher, there are more fungi to scavenge nutrients, drought resistance is higher, etc.

    Don Stewart

    • Encouraging stuff: will the politicians and agri-giants allow the soil regenerators to do their stuff?

      The error in the advanced (decay) economies, which haven’t known famine outside of war for some 70 yeas or so, is that it is always assumed that adequate food stocks will be available for purchase and import if the rest of he economy flourishes – those who know about erosion and soil-degradation know this is not true.

  6. I’m still not convinced that energy is the main driver of falling prosperity. Poor governance based on the doctrine of political correctness is the root of the problem. In this context, energy is a proxy for political correctness, the global warming hoax, all must have prizes, fairness , western guilt politics , debt cancellation, and a host of other policies to transfer power and wealth to the developing world. Since the millennium, PC has gathered pace in step with falling real prosperity.

    Look at how Brexit has been mishandled – trucks running empty in Kent to prepare the ports for a ‘no deal Brexit’. A company with no fleet being hired to run a ferry service. Leaving crucial decisions to the 11th hour relying on back room arm twisting. This is no way to run an advanced economy!. Such behaviour would shame a banana republic!
    Western governments can no longer process the factually correct truth since they only speak and think the politically correct truth. They by default, favour the interests of minorities or what we used to call ‘foreigners’ or those perceived as being weak or oppressed – never their own people.
    Rising energy costs are significant but orders of magnitude less important than political correctness and poor governance.

    If governments were being honest they would give is us a choice :do you want to maintain your standard of living..or do you want to save the world ?

    • “Poor governance based on the doctrine of political correctness is the root of the problem.”
      But what is the root of poor governance then?

      “Since the millennium, PC has gathered pace in step with falling real prosperity.”
      So what is the horse and what is the cart here? This is actually a deeply philosophical question. According to materialism, the material conditions are the cause, and ideas (such as political correctness or whatever) are consequences. Marxism is one example of materialst view of history… The opposite approach is called idealism (and note that “idealism” in phylosophy doesn’t mean “naivete” or anything like that). Christianity is an example of idealism (“In the beginning was the Word”…)

      Of course, it is possible that there is a feedback loop, but, since there was a time when resources (per capita) were more abundant and political correctness nonexistent, something must be the cause, if there is any causal relationship between these things.

      Deciding which philosophy is more correct is maybe outside the scope of this blog. Dr.Morgan’s point of view is definitely materialist. No surprise here – he’s an economist and, to the extent that economics is science (or “tries” to be science), it’s a materialist approach.

    • You’re right in the sense that the aim here is to stick to economics, which is necessarily materialist though not necessarily a science.

      More broadly, though, I make frequent reference to non-materialist values, which I think are critical – and am fascinated by philosophy.

      Incidentally, I think “word” was a poor translation from a Greek text. The word was logos – so “in the beginning was the design” makes more sense.

    • A couple of points, Ken.

      First, though surplus energy determines prosperity, nothing says that we can’t use a small amount of prosperity wisely, or a large amount foolishly. Historically, the prosperity supplied by cheap and abundant fossil fuels made us wasteful, indulging in luxuries such as extreme ideologies.

      As for PC, you’ll notice that it puts the focus on all forms of equality except equality of wealth and income. There’s a clue in that.

    • My hunch is PC governance is driving down living standards. Energy cost is a headwind but not of first order significance.
      It’s incisive to look at the political failings of the doctrine of political correctness. PC is not only morally dubious it is causing terrible economic (self) harm.

      Where are those that were loudly complaining about white rule in South Africa – why don’t they apply the same standards to the Black ruling party. We really are in very deep trouble if we no longer can be honest with ourselves and each other. If we cannot stand up for our own values or say some cultures are better than others….

      Johannesburg – EFF leader Julius Malema….
      ‘These people, when you want to hit them hard – go after a white man. They feel a terrible pain, because you have touched a white man.”

      He said this did not mean that the EFF would not target Mashaba and Msimanga.
      “They will be touched – don’t worry. But we are starting with this whiteness. We are cutting the throat of whiteness’.

      I don’t hear any calls to boycott South Africa back in March when Malema said this ??..violence is fine if the PC eyes sees the oppressed oppressing a former oppressor. That’s bone headed stupidity of the highest order but that’s what passes for rationale debate in our present time.

      Or think about the right on BBC journalists and Westminster elite glorified by the ‘Arab spring’…Arab bloodbath or orgy of violence would have been a more accurate description. Of course they were all going to start playing cricket and hold David Cameron aloft on their shoulders..

      So on it goes from foolish foreign interventions in a vain attempt to impose our elites supposed moral superiority on other cultures to the abolition of personal responsibility and borders. These have massively expensive and unaffordable consequences. ..
      Energy ECOE concerns me in the long term but for now it is a problem dwarfed by bad governance following the PC doctrine.

  7. One way of looking at the lunacies of PC, gender and race politics, and above all radical feminism (so neatly skewered by distinguished old-school feminists) is that we are witnessing another facet of the struggle for diminishing resources, a power-play – all subconscious of course.

    I can’t really see that our societies are any more prone to extremism and nonsense than those of the past.: pre- FF man was quite as nuts, and very violent indeed. Look at the pro and anti-icon riots and persecutions of old Byzantium for instance.

    Another delicious example, the Roman had a habit of setting up a ‘Someone’s been playing about with the Vestal virgins’ panic when politics went wrong, a battle was lost or the crops failed, usually resulting in the walling up alive of a ‘virgin’ or two and some beheadings of their playmates.

    Man is neither a rational nor very sensible ad far-sighted animal, prone to delusions and hypocrisy, and our societies are not rational creations.

    On the whole, mankind ‘sleepwalks’ in the traditional mystical phrase, and modern brain science confirms the mechanisms of this.

    What are offered as rationalisations – ‘fighting injustice and inequality,’ etc, are usually far from the whole story.

    So, don’t expect any sense at all going forward, as times get tough……..

  8. The tragi-comic political stalemate in the here and now, that is reducing the UK to a laughing stock world-wide, is directly correlated to the socio-economic trend as you say. As such, the convenient duopoly of possible ruling parties can change nothing whoever is in power, given that they will be funded and instructed by the same bankogarchy.

    The immediate future therefore is inevitable decline as the two sides of the struggle are so evenly balanced,equating more-or-less to the middle vs working classes. Like two fighting stags with horns in a deadlock, they will slowly waste away until the scavengers pick them off or they die of exhaustion. The choices are between 100 shades of stagnation and decline given the electorate don’t even understand what is going on, both those who want a continuation of an unachievable status quo or those who want a return to the sepia-hued past in those yellowed museum photos.

  9. @nikoB
    You can listen to Dr. Bush describe in detail the early discovery of glyphosate in Japan, Monsanto’s purchase of the rights, their initial experiments using it as a pipe-cleaner, their discovery that it killed plants, and how the inhibition of plant enzymes also translates into inhibiting microbes. It is the damage to microbes that is primarily concerning to Dr. Bush. Back to the ecological view of genes versus the human-centric view of genes.

    Don Stewart

    • I agree with all its issues. I was just pointing out that it’s use was primarily as a herbicide. The intention was not to use as an antimicrobial on crops. Either way it is definitely a problem to healthy environments. Keep up the good work Don.
      No

  10. First post. Been reading for a long time and very interested in the discussion around EROI, surpluss energy, prosperity, limits to growth etc.. University educated in Agriculture economics, worked in the industry for a few years and now I farm for my main source of income. Here are a few thoughts on Glyphosate and agriculture production.

    Glyphosate is a chelator. Glyphosate ties up micronutrients in the plant particularly Mn which is vital for the plants immune system. Most typically the plant succumbs to root pathogens over a period of up to 10 to 14 days depending on growing conditions.

    Glyphosate is/was a powerful substance in modern industrial agriculture. Glyphosate is very important in the adoption of no till seeding practices which has been widely adapted around the world. In the Canadian prairies the vast majority of soils are farmed with no till practices and the mention of tillage in some areas is near blasphemy. The adoption of no till practices started in the mid 1980’s and gained critical mass by the mid to late 90’s likely due to a few key components including progressive experience and extension of that experience amongst the farming community, improvements in no till seeding implements and subsequent pools of used equipment, the introduction of glyphosate tolerant canola but largely due to the expiration of the patent on glyphosate which saw its cost fall substantially.

    Fast forward to today. The no till seeding system provided time saving and improved profit potential due to increased moisture conservation and crop establishment. It has now been supersized and industrialized.
    farm size has increased from say a 2000 acre farm as a large/good sized farm to where anything less than 10,000 acres is run of the mill.
    seeding widths would be 35 to 40 ft now 76 feet are commonly purchased by only the largest of operations.
    Tractor size and combines would be 200 to 250 hp are now 500 plus
    sprayer passes over the field would be 1 to 3 per season now could be 3 or more.
    Summerfallow area has been greatly reduced.

    Glypohosate resistance in the weed population is such that glyphosate may no longer effective by itself and requires a tank mix partner effectively doubling the cost of burnoff weed control. Canola makes up close to half the acres in prairies largely due to the simplicity and profit potential (oil demand for processed foods and hybrid yields) of it however rotations are being tightened and diseases like club root and pest infestations are of increasing concern. Ironic in a way that the simplicity and effectiveness of a system or a tool may lead to ineffectiveness an demise.

    Regenerative agriculture definitely has potential and no till agriculture is one of the first steps. I suspect the adoption rate of more advanced states of regenerative agriculture will happen not because of human health concerns over glypohsate but because of farmer profits or lack their of with the current paradigm. The initial adopters of no till in the prairies were faced with a crisis including drought, low output prices and high debt loads and it was change or exit. I also think that glyphosate is an important cost effective tool in a farmers tool kit and as such should be used appropriately/sparingly much like a torque wrench shouldn’t be used as a hammer or a punch.

    I do hope that energy/financial/ societal circumstances allow an orderly transition for humanity and the planet.

  11. word versus design

    I will not be able to do this subject justice here because it would take a whole book. I will simply suggest that Tyler Volk’s book Quarks to Culture offers plenty to think about. I will offer a few quotes from the concluding chapters in the book, and you can follow up if you are interested. As I previously noted, I think Volk is making a mistake by excluding the vast realm of genes which are not peculiar to humans in his discussions. His framework does not fit easily into an ecological model, and I do not see how his framework ‘explains’ how Zach Bush and others can say that the labels ‘good bacteria’ and ‘bad bacteria’ are not useful and distract us from our real challenges.

    That said, Volk’s entire book could be labeled as an exploration into design.
    *the sum of the masses of the types of quarks that make up a proton…seem roughly optimized for the existence of the largest number of stable nuclei’…In this way, this base levels seems like a lucky break for us, one that deserves our wonder and thanks for how it works and that there is something rather than nothing.
    *The origin of life and thus of all living cells is thought to have been singular. Evidence includes the universal genetic code, the universal set of amino acids as elements of an alphabet, universal phosphorus-based energy molecules, and many other universals across all living things.
    *the anthropologists are searching for an understanding that describes a primal structure of human sociality, trying out words with the prefixes meta-, mega-, hyper-, ultra-, super-, and so the questions are not just about brain size or tools.
    *Jonas Salk developed a concept using what he called ’non manifest order’. We should somehow think about and take as real the non manifest, the adjacent possible, the metaphysical things of of possibility space….I suggest, as creatures of possibility that came into existence multiple times.
    *to seek for new ways of making a living
    *’When the bureaucratic decision-making design is adapted by an organization—whether governmental, for-profit, or non-profit—we should not be surprised if it engages in predatory behavior.

    A few words from me. Volk is asking ‘what comes after the nation state and the corporation?’ I have recently commented here that the nation states seem to be incorporating internet companies as extensions of their power. We can no longer claim that Facebook and Google are independent of the US government. This is a big disappointment to many of the visionaries who built the internet.

    I saw a headline a couple of days ago: US pressures Israel to stop Chinese investment in Israel. The US, of course, is a major funder of what would otherwise be a bankrupt state. And the US clearly sees ‘Chinese headquartered corporations’ as completely unlike ‘US headquartered corporations’. So the dreams of the globalists, whether in Europe, or China, or Russia, or the US, seem not to be faring very well. Tyler Volk notes that the fundamental revolutions were accompanied by fundamental changes in the control of increased energy. If globalization is now seen as a suboptimal way to control energy, are we on our way back to the Age of Empires? When Winston Churchill took command in Britain, his speech emphasized the threat to ‘our Empire’. Britain had an Empire which controlled energy in ways which were advantageous to England, especially. Germany and Italy and Japan wanted such empires. And thus was born WWII. Nobody said Tyler Volk’s Grand Sequence can’t go into reverse.

    Don Stewart

  12. Disking with Microbes vs. Conventional Agriculture
    Here, in a two minute video, is a compelling demonstration of what is wrong with conventional agriculture. It was seeing such soils in the Mississippi valley that was at least partially responsible for persuading Zach Bush, MD, to get involved with farmers.

    Don Stewart

  13. Valuable post, thank you: there is, as you say, not a little irony in the simplest and most effective method carrying the seed of its own destruction.

    I tend to feel that the great problem going forward must be not only the clearly accelerating financial and ecological disaster we face, which may well pull the rug out from under our feet as we attempt to respond, but the sheer under-valuing of agriculture – Minister of Agriculture is never a post endowed with much glamour.

  14. In today’s Telegraph – can it be believed? I’ve not copied all the article – just sections

    Saudi Arabia has finally silenced its peak-oil critics and simultaneously revived interest in its stalled $2 trillion (£1.6 trillion) plan for a stock market float of state-owned producer Aramco.

    The kingdom revealed this week it has enough crude to pump at current rates for at least another 70 years. At the end of 2017, Saudi oil reserves stood at an eye-watering 268bn barrels, up from previous estimates of 266bn.

    By comparison, the UK’s remaining cache of retrievable oil under the seabed of the North Sea will be almost completely drained, probably after another couple of decades.

    The updated figures were no surprise for many experts. BP’s highly respected statistical review of world energy lists Saudi oil reserves at just over 266bn barrels and Rystad Energy estimates that 276bn barrels remain under its Arabian deserts. However, not everyone has been convinced by either the longevity, or scale, of Saudi’s remaining oil riches.

    In his critically acclaimed 2005 book Twilight in the Desert, the then-prominent oil economist Matthew R Simmons predicted that Saudi Arabia’s oil wells were about to run dry. His theory was based on the ageing status of several gigantic oilfields, which still provide the bulk of the kingdom’s near-11m-barrel-per-day output.

    Al-Falih said Aramco’s oil costs just $4 per barrel to produce. It’s a key figure for potential investors, which could make its $2 trillion valuation more believable. Suddenly, the IPO looks plausible again.

    The fact is oil markets are more likely to dry up before Aramco’s reserves of crude run out. Demand for oil remains robust despite the growing popularity of electric vehicles and the pressure of climate change forcing consumers to search for cleaner transportation fuels.

    Last year, the world consumed 100m barrels per day for the first time in history and consumption is expected to continue rising at least through to 2040. However, beyond this date the outlook is harder to predict.

    Unless it wants to flood the market and send oil prices tumbling, Saudi Arabia’s best option if it wants to maximise its vast remaining hydrocarbon reserves could be to sell off increasingly larger shares of Aramco to international investors no later than 2021. Otherwise it runs the risk of having to leave much of its wealth stuck in the ground.

  15. On the subject of glyphosate, if I recall correctly its first patented use was for cleaning the insides of industrial boilers, its chelating action breaks up the klinker that get burned onto the walls of the furnace. Nasty stuff, and some people want to spray it onto food!

    On yellow vests, if they succeed in over throwing Macron and his party in government, will the new revolutionary government be recognized by the EU? Will other EU countries intervene to prop up Macron? Will Macron lead a government in exile, recognized by the EU and the international establishment as representing France, but ignoring the REAL government of France in Paris? Would the EU survive if France was in effect expelled from the EU? We live in interesting times!

    Regards Philip Hardy

  16. Two items from Charles Smith this weekend. He is responding to the January issue of Scientific American.

    2. Life is much more complex than our often simplified models. A leading example is the microbiome, the immensely complex ecosystem of micro-organisms in our gut (digestive system). It turns out this complex system is in effect a second brain, affecting every aspect of our life as it communicates with the brain in our head.
    (“How the Brain Listens to the Gut,” same issue, page 46)

    The microbiome and its synergistic dynamic with the second brain (the gut) turn out to be far more consequential than we thought, as it is now being linked to auto-immune diseases and even autism and dementia. (I’ll have more to say on this in future Musings.)

    [My comment. Researchers have known this for about a decade. Some of them changed the way they raised their children long before they were able to achieve publication. When it finally makes the Scientific American, I suppose it has arrived. Even my local ‘advertising newspaper’ is saying that a big trend in restaurants in 2019 will be ‘gut friendly food’. Now, perhaps, those of you who were skeptics about my critique of Tyler Volk’s book, which simply dismissed the gut microbes from consideration, was wide of the mark. Or those who might have thought that Zach Bush was a raving lunatic for connecting a microbe killing herbicide to neurological disease. Or those who thought that David Johnson beating some Ag School soil with a hammer was only evidence that he didn’t understand the many benefits of the Nobel winning Green Revolution….and doubted that farming WITH microbes could solve many problems. Maybe the imprimatur of the Scientific American makes a space for people to think these thoughts.]

    4. Human organizations undergo a very similar process when stressed by rapid, drastic change: those that fail to generate a wide array of variations and put all the variations to the test will fail to evolve. This is the core message of my latest book: only societies and economies that retain the capacity to generate dissent, variation and flexibility can successfully adapt in eras of non-linear change.

    The same is true of households, communities and enterprises. Evolutionary dynamics are scale-invariant, meaning they work the same way regardless of the size or scale of the entity.

    [My comment. It is a valuable and necessary process to go through the proofs that BAU cannot continue. Whether it be Green Revolution farming or fossil fuel dependence or debt or, maybe, financial capitalism itself. But as Charles concludes, the real test is what our society chooses to do next. At the present time, our society seems strongly bent on quashing dissent and stifling independent journalism. Barack Obama was elected on a platform of ‘openness’, and prosecuted more whistleblowers than any previous president. Seymour Hersh, our star investigative reporter, can’t find a job in corporate dominated media. (Although I have to admit he is probably old and cranky. And NSA spying has likely dried up many of his sources.)

    Don Stewart

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