#146: Fire and ice, part three


The project entitled Fire & Ice has had two very definite objectives. One is to make a synopsis of the economic and financial situation. The other is to start a debate about what the most appropriate responses might be. By “responses”, I wasn’t thinking of what individuals might do in preparation, though suggestions on this could be most valuable. Rather, the focus is on how the authorities might react to circumstances as they develop.

Of course, who “the authorities” might be when the challenge arises is less obvious than it might once have seemed. After more than three decades in the ascendancy, the ‘liberal globalist’ elites are in retreat. Political insurgents – a term which I prefer to the more loaded “populist” label – are bringing fresh ideas and new energy to the debate.

But it is far from clear that these newcomers have a grasp of economic reality that is any better than that of their ‘establishment’ opponents. They’re good at knowing what the public doesn’t like, but sketchy, at best, about what can realistically be offered instead.

I like to think that energy-based analysis of the economy provides answers to questions which baffle ‘conventional’ economic interpretation. I also like to think that we have both a coherent narrative and an effective model.

But where do we go from here?

The best place to start might be with a short list of the issues most demanding current attention. Five subjects dominate this list, and these are:

– The almost tangible pace of economic deterioration, most obviously (though by no means exclusively) in China.

– The complete bafflement of ‘the powers that be’ about the processes that are dismantling the established economic, social and political world-view.

– The looming crisis of a financial structure built on reckless credit and monetary adventurism.

– The rising anger of ‘ordinary’ people who, without knowing exactly how or why, suspect that they’ve been ‘taken for a ride’ by ‘the establishment’.

– The impending revelation that’s likely to boost popular anger to levels dwarfing anything yet experienced.

The big one – ‘hidden in plain sight’

The latter, highly incendiary issue is the unfolding failure of the ability to provide pensions to any but a super-wealthy minority. The collapse of returns on investment has crippled the viability of most employer and individual savings provision. Meanwhile, Tier 1 provision (which is financed directly out of taxation, rather than funded like private schemes) is already well on the way to becoming unaffordable, not least because – as we’ve seen in a previous discussion – tax revenues are leveraged to the ongoing deterioration in prosperity in almost all Western economies.

The disintegration of pension provision is a crisis ‘hidden in plain sight’. Back in 2017, the World Economic Forum called attention to a “global pensions timebomb”, calculating that, for a group of eight countries, a gap already standing at $67 trillion was set to reach $428tn by 2050. (You can find the WEF press release here, and it links to the report itself. Both should be mandatory reading).

The WEF made various worthy suggestions – including delaying retirement ages, and enhancing popular understanding of pensions systems – but these can do no more than scratch the surface of a problem caused by a collapse in returns which is itself a direct consequence of deliberate (though not necessarily voluntary) economic policy.

Broadly speaking, people in Western countries have a long-established expectation, which is that they’ll retire in their early 60s, and then receive a pension equivalent to about 70% of their final in-work incomes. We’re close to a point at which retirement before the age of 70 will become impossible to finance and, even then, it’s unlikely that the 70%-of-income benchmark will be affordable.

We’ll return to this subject later in this discussion. But the critical point is that the anger that will erupt when the public finds out about this is likely to be extreme.

The central issue

The best way to impose a structure on these disparate issues is to start with their common cause – a deterioration in prosperity that’s becoming impossible to disguise, and which the authorities themselves seem wholly unable to comprehend.

If you’re a regular visitor to this site, you’ll know that the central contention here is that the economy is an energy system, not a financial one. This interpretation is so obviously in keeping with the facts that it can be hard to comprehend the inability of ‘conventional’ thinkers to understand it.

For example, anyone who thinks that energy is ‘just another input’ should try picturing what would happen if the supply of energy to an economy was cut off, just for a few days, let alone for several months. Even an outage lasting days would bring the economy to a halt – and a few months without energy would induce economic and social collapse.

Those who contend that energy is ‘just a small percentage’ of economic output might reflect, first, that the foundations are ‘just a small percentage’ of a tower-block, but we wouldn’t build one without them. They might also try to name anything within the gamut of goods and services that can be produced without energy. Moreover, if energy did absorb a large proportion of the economy, the obvious inference is that the non-energy remainder would have to have shrunk dramatically. Additionally, of course, it’s becoming ever harder to believe that GDP numbers swelled by the spending of borrowed money are any kind of realistic denominator for calculating the proportionate role played by energy.

To be sure, it’s highly unlikely that energy supply to an economy would be cut off in its entirety (though it’s rather less unlikely that an economy could lose the ability to pay for it). But the point here is the centrality of energy to literally all economic activity. Equally, it’s surely obvious that the energy which drives all economic activity (other than the supply of energy itself) is surplus energy – that is, the energy to which we have access after we’ve deducted the energy consumed in the access process.

That equation is measured here using ECoE (the energy cost of energy). It is no coincidence at all that an exponential rise in the trend ECoEs of fossil fuels has paralleled the increasing use of financial adventurism –  the less generous might call it ‘manipulation’ – in futile efforts to stave off economic stagnation.

Of course, you can’t fix the ECoE problem by pouring cheap credit and cheaper money into the system, but what you can achieve is the creation of enormous bubbles which are destined to burst, scattering debris right across the financial and economic landscape.

Optimists assert that we needn’t worry about the ECoE problem with oil, gas and coal, because we can transition to renewable energy sources. This claim might be a valid one, though the weight of evidence strongly suggests otherwise. Where the optimists do depart completely from reality is in the assertion that this transition can happen seamlessly, without any check to “growth”, without any noticeable disruption and, needless to say, without any hardship which might weaken the economic or social status quo.

Irrespective of where transition to renewables might take us in the future, the issues now are twofold. The first is that the rising trend in ECoEs is being reflected in a squeeze in prosperity, a process which is often labelled “secular stagnation”, but which is proving impossible to counter using the conventional tool of financial stimulus.

The second is that exercises in denial have created ever-growing imbalances within the financial system, imbalances which are manifesting themselves, not just in asset price bubbles and in excessive indebtedness, but in credit dependency, and in the destruction of pension provision.

These constitute specific risks, which are modeled by SEEDS, and might be addressed in a subsequent analysis. For now, though, here are the risk categories identified by the model:

Debt risk. This is calibrated by comparing debt with prosperity, rather than with the increasingly unrealistic GDP benchmark.

Credit dependency. This is a measure of annual rates of borrowing, and identifies exposure to any squeeze in, or cessation of, the continuity of credit.

Systemic exposure. This assesses contagion risk by measuring the scale of financial assets in proportion to prosperity.

Acquiescence risk. This measure looks at how rapidly personal prosperity has fallen, and is continuing to fall. The aim here is to assess the extent to which arduous ‘rescue plans’, which might be labelled ‘restorative austerity’, are likely to meet with popular opposition.

Primed to detonate

The pensions problem is critical here, for two quite distinct reasons. The first is that the creation of the pensions “timebomb” tells us a very great deal about economic abnormality, and the grotesque failure of policy.

The second is that this “timebomb” might detonate in the foundations of the current system of governance. It certainly has the potential to dwarf all other popular grievances.

According to the WEF study, the pensions gap in the United States stood at $27.8tn in 2015. It is growing at a real compound rate of about 4.7% annually, and is likely to have reached almost $32tn by the end of last year. In Britain, a number stated at $8tn (£5.25tn) for 2015 is growing by more than 4% each year, and is likely now to be well over £7tn. In both instances, the rate at which the gap is widening far exceeds any remotely realistic rate of growth in GDP.

As regular readers know, reported GDP is flattered by the spending of huge amounts of borrowed money, and ignores the critical issue of ECoE. For 2018, SEEDS estimates American aggregate prosperity at $14.7tn, significantly smaller than GDP of $20.5tn. British prosperity is calculated at £1.47tn last year, compared with GDP of £2tn.

This means that, in the United States, the pension gap has already reached 210% of prosperity (and 155% of GDP), and is likely to reach 300% of prosperity by 2026.

In Britain, it’s likely that the gap is already over 470% of prosperity, and will reach 660% by 2026. This financial ‘hostage to the future’ is in addition to debt put at 365% of prosperity. Moreover, financial assets (a measure of the size of the financial system) are estimated at close to 1600% of British prosperity (and about 1125% of GDP). This looks a potentially lethal cocktail for any economy founded on ultra-cheap credit and a fiat monetary system

There are two main reasons for the truly frightening rates at which pension gaps have emerged, and the equally worrying rates at which they are increasing. First, the ability to fund state-provided pensions is coming under tightening pressure because of the leveraged impact of adverse prosperity trends on the scope for taxation.

The second is the collapse of returns on invested capital. According to the WEF report, historic returns of 8.6% on US equities and 3.6% on bonds have now slumped to, respectively, 3.45% and just 0.15% on a forward basis. This makes it wholly impossible, not just in America but across the world, for private investment to fill any part of the widening chasm in state provision.

The collapse in rates of return is the clincher here, and is a direct consequence of the adoption of ZIRP (zero interest rate policy). Put simply, the pensions “timebomb” is something that we’ve wished on ourselves through monetary policy. Introduced back in 2008, the supposedly “temporary” and “emergency” policy expedient of ZIRP has already long-outlasted the duration of the Second World War, and there’s no prospect, now or later, of a return to “normal” rates (which can be thought of as rates exceeding inflation by at least 2.5%).

Policies like ZIRP need to be interpreted as economic signals, sometimes (as now) determined less by voluntary policy decision than by the force of circumstances. The ‘force of circumstances’ which dictated the adoption of ZIRP was a debt mountain which borrowers had become wholly unable to service at normal rates of interest.

It’s vital to note that ZIRP wasn’t something chosen capriciously by the authorities. Rather, it was an expedient forced upon them by economic conditions. Behind the apparent “borrow, don’t save” signal represented by ZIRP lies a structural signal, which is that “the economy can no longer afford saving”. When that happens, it’s the economic equivalent of the way in which some ships or aeroplanes can be kept operational by cannibalizing others.

Politically, there’s no way out of this which doesn’t inflame popular anger. Historically, as mentioned earlier, people in Western countries have assumed that they will retire in their early 60s, receiving, in retirement, roughly 70% of the income they earned at the close of their working lives. The sums here suggest that even raising retirement ages to 70 won’t keep the 70% target affordable.

I’ll leave you to reflect on what the reaction is likely to be when the plight of the “ordinary” person becomes known, and is contrasted with the circumstances of a privileged minority. However, any political establishment which supposes that, whilst pensions become unaffordable for most, a minority can continue retire on generous incomes, and with the cushion of substantial accumulated wealth, is guilty of very dangerous self-deception.

Crunch point

The harsh reality is that we’ve built systems – financial, economic, social and political – which can only function when prosperity is growing. These systems can survive recessions, or even depressions, presupposing that neither is unduly protracted, and is followed by a return to growth. When – as now – that doesn’t happen, the promises that we made to ourselves in order to weather the bad times rapidly become incapable of being honoured.

Ultimately, any financial system is a set of promises, and functions only if those promises can be kept.

It has to be glaringly obvious, too, that the historic cushion of growing prosperity has enabled us to indulge in luxuries that are now becoming unaffordable. The term “luxuries” doesn’t refer to trinkets like gadgets, expensive holidays and the two- or three-car family. Rather, it refers to assumptions and practices that can no longer be afforded.

High on this list lies the indulgence of ideological extremism in economic organisation. If there was ever a time when society could afford either the fanaticism of “nationalising everything”, or the contrary fanaticism of “privatising everything”, that time passed at least two decades ago. What is required now is the pragmatism which surely leads to the “horses for courses” preference for a mixed economy, in which both the state and private enterprise concentrate on what each does best.

Other luxuries that we can no longer afford include massive gaps between the poorest and the wealthiest. This was an affordable luxury when everyone was getting a little more prosperous with each passing year. When your own circumstances are improving, it’s not difficult to accept the extreme wealth of your neighbour – but this tolerance will dissolve very quickly indeed when exposed to the solvent of generally deteriorating prosperity.

This, through its direct link to political insurgency (aka “populism”), brings us back to the immediate situation. Public dissatisfaction has thus far been fueled by discontents likely to be dwarfed by anger yet to come, as inflated asset prices explode and the reality of deteriorating prosperity can no longer be disguised. The Chinese economy, which has accounted for 36% of all global growth since 2008, is now deteriorating markedly, the inevitable fate of any system founded on truly reckless rates of borrowing. “Growth” of 6-7% ceases to impress when you have to borrow about 25% of GDP each year to make it happen.

Few Western economies are in much better condition, yet politicians continue to promise “growth”, and remain in ignorance about the trends that are making such promises an absurdity. Perhaps the greatest risk of all is that lessons not learned in 2008 will be no better understood in the next (and much larger) crisis described here as GFC II.

Stir the pensions reality into that mix and the result is an inflammable cocktail. We may know that current incumbencies cannot adapt to the new realities, but the insurgents have yet to demonstrate a better grasp of reality.

Where we need to go next is to start helping craft a programme which, whilst it cannot remove impending challenges, might at least enable us to adjust to them.

= = = = =

#146 pensions returns 03


87 thoughts on “#146: Fire and ice, part three

  1. I fear that neither the populist or un-populists are listening, nor are they likely to. There’s no political capital to be made from bearing the bad news of a future best described as “managed decline” even if it didnt fly in the face of the immovable zeitgeist of endless growth.

    We’re essentially trapped in a game of inverse-musical-chairs, where the governing class ride the proverbial gravy train as long as they can – they may or may not know the train is transporting a nuclear warhead as well as gravy, but in any event their strategy will be to acquire as much gravy as possible and disembark before the nuke goes off.

    They might wake up if they realise that the station they get off at will have a horde of angry peasants waiting for them, but by then is will be too late.

    (Overdid the metaphors there i think, but you get the gist)

    • I sometimes wonder whether, after so many years of “spin”, the public might even find the harsh truth preferable to comforting lies – or maybe not!

      What has been striking in recent times has been the dumbing down of debate. Governments still claim “growth” even where it’s blindingly obvious, in the circumstances experienced by millions, that this is simply nonsense.

      The gravy train isn’t new, of course, but what does seem new is quite how blatant it’s become. Perhaps this is characteristic of the late stage in the cyclical rise and fall of elites, a cycle visible throughout history. As ever, when elites pass their sell-by date, the problem arises of how much damage they may cause before succumbing to the inevitable.

  2. Strategian just published 3 new videos on China today. Taken collectively his view of the China, the EU and the US along with Oz, NZ and Canada is bad enough but we can also add surplus energy problematics to that already gloomy view.

    What a lot of people also miss is the insane level of malinvestment and miss-allocation of capital that has taken place – Shale Oil, Tesla and Bitcoin mining being just three examples – and also the fact that Neoliberal de-regulation has directly led to the complete moral and ethical hollowing out of market and business ethical standards. Fraud is generally widespread among corporate entities who have taken on huge amounts of new debt and issued huge amounts of new equity based upon Non-GAAP accounting methodologies.

    This is exacerbated by the fact that there is a depletion of real world assets underpinning all these debts. In 1970 – 90% of assets of corporations in the S&P 500 were tangible assets and 10% were intangible. By 2015 we find a complete inversion of this asset base where 85% is now intangible and only 15% tangible.

    When MFI collapsed following the GFC I was amazed to see how there were no real assets to be sold and the goodwill and brand of the company name didn’t realize any recuperative values for creditors. How does one repossess intangible assets?

    This is made even more problematic in that all these supposedly blue chip corporate debts/assets are also rehypothecated as security for other debts and trades and we have no idea how many times the same debt is proliferated throughout the system as it can be subsequently marked down as a viable asset on someone else’s accounts.

    Taken collectively things are a lot worse than anyone has independently realized.

    • John Stuart Mill famously explained that the bursting of a bubble doesn’t destroy value – rather, it exposes the value already destroyed by malinvestment. Because malinvestment is visible, we should seldom be surprised when a bubble bursts – but, almost invariably, we are.

      Malinvestment is implicit in the current situation, where money and credit are cheap, but real returns on capital have been destroyed. When a tide of cheap money is poured into the system, asset prices inflate in ways wholly unrelated to underlying value. You end up with all sorts of irrationalities, such as “cash burners”, and companies which destroy value by loading up on debt to buy back stock.

    • Tim

      Taken together its a heady cocktail with far more at stake than GFC1 in that we have had over a decade of further systemic corruptions to which we should also include governments in the mix.

      In my view we have seen the death of power and governments in response to finding themselves in office but not apparently in power has been to manipulate statistics and concentrate solely on PR work protecting the administration’s image and generally covering up power’s disappearance. Of course the foolishness of all this is that if you manipulate the basic figures which influence policy directions then you have absolutely no hope whatsoever of achieving any objectives even if it were possible to actually understand an ‘economy’ based largely on subjective sample surveys – and then assume to control ‘it’ by the simple monthly micro-adjustment of base rates.

    • Indeed so. Essentially, the system broke down in GFC I, and the authorities have been ‘making it up as they go along’ ever since. There is little integrity and no logic to current policy on the economy. The principles of the market economy were abandoned in 2008, because market forces have a habit of wiping out those who take reckless risks, which in 2008 would have been – so to speak – inconvenient.

      This presents us with four types of risk, which might be the subject of the next article here. The first is simple debt risk, widely underestimated because it is measured customarily by reference to GDP, a figure itself inflated by the spending of cheap credit. The second is dependency on continuous infusions of cheap credit. The worst example of this is China. Then there’s systemic risk, caused by the sheer scale of the financial system. Finally there’s what I call “acquiescence risk”. This arises when the public refuses to go along with whatever kind of ‘rescue’ plan is put forward during GFC II.

      Britain is an example of acquiescence risk, though the situation in France and the Netherlands is even more acute. After tax, the average British person is now 24% poorer than he or she was in 2007. The voters have already dealt ‘the establishment’ a hefty blow over “Brexit”. Can you see them simply accepting another “rescue of the bankers?”

    • Tim

      Yet another aspect that needs to be considered is the astonishing amount of general complacency in market participants who think that central banks can keep all these plates spinning indefinitely. To be sure the system should have collapsed on a few occasions since 2008 during the Euro crisis and later with the HYC shale problems for instance. We saw highly coordinated responses from central banks around the world to keep the plates in the air but all they have done in endlessly deferring the next crisis is spin up new plates and raise and compound the general systemic risks which continue to grow larger and larger. This time it looks very much like the liquidity problems will start with corporate debt generally and NPLs and NPEs in Europe and then spread to the Eurozone PIIGS government debt. I see that the ECB is already touting another swathe of LTRO presumably to try and keep DB and other financial and corporate zombies alive a bit longer.

      China is so opaque that it’s a complete unknown as to where all the funny money there originates. A lot of this is further complicated in that we don’t really know what central banks are doing unannounced behind the scenes as this is covered by national financial security but its a safe bet to assume they’re doing a great deal to rig markets in the rightish direction.

      This article was pretty good at illustrating the level of market manipulation going on in the new year when we saw the latest highly suspicious rally.


    • I should also add the ‘fake’ news is yet another indicator or a general moral and ethical decline in journalism in the MSM where they are obsessed with the ‘power’ and responsibility of the media to put over the ‘right’ messages that they have no regard for reporting the truth as that would be economically and geopolitically ‘irresponsible’. The trouble is that the populous just doesn’t buy into the lies and cynically takes their news from multiple sources to try and get a real idea of what is really going on in terms of economics and geopolitics revolving largely around oil interests at the expense of the death and suffering of millions in the Middle East under the rigged presentation of ‘Humanitarian Interventionism’ which is just naked imperialism by another name.

  3. Dr. Morgan, thank you for your ‘warning’! I agree that the ‘pensions timebomb’ isn’t far off exploding. I’m a pensions adviser (amongst other things) and in 2015 ‘pension freedom’ was introduced into the UK. This removed the requirement to purchase a guaranteed income for life in the form of an annuity for the masses (the rich always had this option under previous ‘rules’). What has happened? Billions swept out of pension funds and spent on debt clearance, new cars and holidays – and who can blame them?

    If you had/have, say, £100,000 in a ‘private’ pension and use that to purchase an annuity linked to any increases in the RPI at the age of 65, you can only expect an income of about £3,000, rather neatly illustrating your point.

    Sure, you can buy a fixed income of at least double that, but such an income is soon diminished by inflation, even at today’s relatively low levels.

    Alternatively, you might stay invested and draw from the fund. Today, a UK equity tracker-type fund might yield 4.4% – so that’s just £4,400 a year ‘natural’ income. Not enough and is subject to severe downside risk.

    I have always thought of pension freedom as an austerity-driven ‘tax grab’ as, of course 75% of a pension fund is subject to income tax.

    The retirement process in the UK might ow be fairly described as ‘the nastiest, most difficult problem in personal finance’ and that, is I regret an accurate description.

    • I have said to my wife many times that given the fact the a vast (I.e majority of people) in the U.K. now have little or next to nothing saved for retirement. The howls of outrage for those who have saved (even modest amounts) which be deafening.

      The pensions freedom changes I see slightly differently. Yes it is a stealth tax but it also means people can remove funds if need be (creating in effect the equivalent of a bank run for pension funds). This has the effect of reducing but not removing the risk of a future government nationalising private pensions in an effort to shaw up the public and state pensions

      Me, I keep telling my wife now is the time to sell-up everything and look to depart these shores (hopefully somewhere out of the way where we can lead a simpler life for the years left to us). Proving quite difficult at the moment!

    • “Pensions freedom” seems to me more myth than substance. It’s not surprising, given the crushing of annuity rates, that people want to take their money out.

      The bigger problem, numerically, is the affordability of state and public sector pensions going forward. As prosperity deteriorates, so does the scope for tax revenue. If prosperity has – as my model indicates – passed its peak, then so has tax income, unless a government is prepared to bite ever more deeply into prosperity.

      In France, tax now takes 70% of average prosperity – and yet the authorities are surprised (!) that people are putting on yellow waistcoats. Their ‘surprise’ is caused by not understanding prosperity, and thinking it’s defined by GDP (of which the proportion taken in tax has been roughly flat).

      If the SEEDS risk model is correct, gilets jaunes should appear next in Holland, Britain, Australia, Italy and Canada (in that order). We’ll see.

  4. I think we also need to consider the geopolitical aspects of declining oil based energy. Five years after the US hit peak oil in 1970, In August 1975 the Special Committee on Investigations in the US published a paper “Oil Fields as Military Objectives – a Feasibility Study’. Fast forward to 2003 and we saw the Invasion of Iraq as an essential component in the US trying to secure its oil supply.

    This had already been mapped as policy by the Neocon PNAC as early as 1997 and they effectively were the US administration behind their puppet GW Bush. The invasion of Iraq was just the first of 7 countries mapped out for Neoliberal regime change as was reported by establishment insider General Wesley Clarke. Libya, Syria and Iran being the most obviously oil rich targets in addition to Iraq.

    When the new technology of shale drilling emerged around 2006 the US began to see the possibility of oil independence again and the imperialist expansion into the Middle East was put on hold again. In 2011 however, we saw the economic protests of the Arab Spring part of which was due to US and UK central banks policies reacting to the GFC. These economic protest provided an opportunity for the US to reactivate its imperialist neoliberalization of ME oil assets by hijacking economic protests and by processes of the ‘amplification’ of a tiny minority of moderate liberals in the ME via orchestrated sock puppet agents working fake social media accounts and also funding and staging demos and events which were disseminated via social media they reconstituted the protests in Libya and Syria as being democratic protests against what was portrayed in the western media as tyrannical ‘regimes’.

    Now we have reached the stage where the US administration has likely realized that the Shale boom was nothing but a Ponzi scheme and that US shale oil is far too expensive to extract. In this respect one can understand the sudden Neoliberal corporate interests in Venezuela’s vast oil supplies and also the recent attempts to generate a conflict with Iran and stirring up unrest in Iran in order to bring about more demands for imperialist neoliberal regime change hidden behind the excuses of humanitarian interventionism.

    For those who have not seen it the comedian Rob Newman did an excellent programme “The History of Oil” aired on Channel 4 in 2006 which covers many of these topics and more such as the significance of the petrodollar in all of this. Well worth a watch.

    • Tim

      Rob seems to have been strangely silent over developments since 2011 in the ME which are clearly part of the same ongoing agenda. Perhaps he is too depressed by it all? He clearly loves his history. I had never heard that the first troops deployed in WW1 were the Dorset regiment and they were deployed to Basra in Iraq. James Corbett recently released a series of videos about a WW1 conspiracy but he doesn’t include the securing of Iraq against the Berlin to Bagdhad railway as part of it. They are worth a watch anyway as no-one accepts the murder of an arch duke as a reasonable explanation. In many respects we are still in the grip of this very same phenomenon which under progressive Neoliberals such as Blair, Cameron, Clegg etc has morphed into a totalitarian globalist phenomenon which is even worse than the supranational EU superstate envisioned by the Nazis.

      All 3 videos are worth a watch and also his follow up Q&A which shows how extensively his historical reading have been.

  5. Hi,

    First time commenter here, but long-time fan of Dr. Morgan’s work.

    I have to agree with this assessment of the forthcoming pension crisis. Since I first entered the workplace, which was some decades ago now, I have held steadfastly to the view that both the public and private pension systems were obvious ponzi schemes and, as such, I have refused to participate in either insofar as possible.

    Since a young age, I have always understood at some instinctive level that the mathematics of the current system simply don’t add up. The very idea of placing a significant part of my life savings into such an inflexible and prescriptive structure, from which I cannot retrieve my funds easily, but the government most certainly will should they decide to do so ‘For the common good, you understand’, fills me with dread.

    It was always my view that when things got difficult and the authorities had tapped out all other easy sources of revenue that they would come after the biggest, juiciest prize of all – pension funds. I had always assumed that this would take the form of a mandatory tax on fund value, or confiscation of a percentage of each fund. That was clearly just excessively linear thinking on my behalf. The current strategy of using low-interest rates to prop up the economy at the cost of making even the best-run pension scheme non-viable is a much more subtle and cunning approach.

    As Tim alludes to in his piece, the theft has already been underway for nearly a decade, and yet few, if any, of the victims have realised it yet. Very cunning indeed. From the perspective of the authorities, it was probably a risk worth taking – there was always the possibility, in their minds, that growth would return and they could make everybody whole again, and if not – well, they’d buy the world a few more years of relative calm.

    I guess the plan now is to gradually lower pension expectations, in terms of reducing the eventual payoff and increasing the retirement age, to allow the public to adjust slowly to the ‘Old ways’, for example, grandparents moving back in with their children, no more retirements spend cruising the world and so on. If this ‘Boiling Frog’ approach fails, then I guess the Gilets Jaunes movement is going to go global.

    It pains me that even very intelligent friends and family cannot see what seems so obvious to me and continue to stick with the traditional pension-based approach to retirement funding.

    • Well, we have to work with what we have got and, just at the moment, it is possible to ‘retire’ in the UK with a reasonable income stream from a mixture of defined benefit (‘final salary’) pensions, annuities, flexi-access drawdown, etc. The tax relief on contributions and attractive tax environment for funds (in the main) still make pensions a viable saving mechanism.

      However, to kind of reinforce your point, the consequences of taking certain courses of action are poorly understood by ‘the man/woman in the street’. As an example, consider the ‘Money Purchase Annual Allowance’ (MPAA). Apparently, something like 1m people might find themselves ‘caught’ by this piece of legislation, because they have ‘cashed-in’ an old ‘defined contribution’ (DC) pension plan, often one they used to ‘contract-out’ of SERPS (remember that?). In a nutshell, should someone access a DC fund by using flexi-access (setting aside income tax on the fund for the moment), their allowable future contribution to pensions, by themselves or on their behalf is cut by 90% from £40,000 to £4,000.

      Now that won’t affect many people, you might think, but I beg to differ. I have just met someone who did just that. She has some ‘preserved’ DB pensions that will start in 7-8 years time, but she also had a small DC fund that she has recently ‘cashed-in’. The sum was around £60,000, of which the first £15,000 was paid tax-free, but she ended up (quite needlessly, in my opinion) paying about £18,000 in income tax on the rest. She was between jobs at the time of doing this (but made herself a higher-rate taxpayer) and, despite the pension plan providers best efforts, didn’t appreciate the consequences of her course of action.

      She now has a new job with an attendant DC pension fund, into which her new employer has offered to pay a very generous 20% of gross salary each year. Her salary is £88,600 per annum, so 20% of that is £17,720. Unfortunately, she is subject to the ‘MPAA’ of just £4,000 per annum. £17,720/£4,000 = £13,720.

      The £13,720 ‘excess’ payment will be taxed – even though she does not receive the money in her bank (because it goes into a pension fund) at 40%, and that works out to £5,488 per annum. She might work in her new job for 8 years, so has created herself and extra tax bill of about £43,904.

      That was a very expensive new Mini Cooper!

      I describe the entering into retirement ‘issue’ as ‘the nastiest, most difficult, problem in all of personal finance’ and I don’t think I’m wrong.

  6. Retirement, considered Systemically

    If we look at the retirement problem systemically, we find some interrelated issues:
    Chronic disease
    Medical interventions designed to prolong the lives of people with chronic disease, but not cure them
    The food and sedentary lifestyles coupled with chronic stress which produce the chronic diseases
    The exhaustion of fossil fuels as a way of powering a productive economy
    The climate change produced by the fossil fuels (as well as other factors such as the food we eat)
    The assumption in the West since about 1780 that our trajectory would always be upward
    Debts which will never be repaid
    Potential for global nuclear destruction
    How to make old people productive again
    The collapse of the extended family
    Legal entanglements, such as the US Constitution and the reams of laws enacted
    The psychopaths in charge

    Each of these issues has potential solutions. But it would take a book to do them justice. I have mentioned solutions to many of them previously, and won’t reiterate all that here. I will point to today’s post by Dmitry Orlov describing the demonstrated solution to electric power generation at Club Orlov. The second thing I will simply mention is that British talk about ‘punching above its weight’ is probably sheer delusion. Sizable segments of the British seem to want nuclear war with Russia. Building carriers will not win that war. Russia has apparently achieved a stable Mutually Assured Destruction capability, which includes the ability to destroy carriers anywhere on the globe. Britain should get about solving its own problems… and probably buy some Russian nuclear reactors.

    Don Stewart

    • Interesting points, Don, but I must say that I’ve never met a single British person who wanted war with Russia, nuclear or otherwise. It would, after all, be stark staring madness for anyone to start a nuclear war. With conventional war, the danger is that whichever side was losing might reach for the nuclear codes. Every British service person I’ve ever discussed this with has hated nuclear weapons, likewise chemical and biological.

      The main division in the UK, for as long as I can remember, has been between outright pacifists and advocates of deterrence.

      Most would agree, too, that British involvement in the Iraq war was madness. It was extremely unpopular at the time, despite being supported by both major political parties.

    • Don

      Perhaps like you I was around at the time of the Cuban missile crisis in 1962. I was scared and subsequent information would have made me even more scared.

      I believe it was assumed by the US that there were 10,000 Russian troops in Cuba when in fact there were 43,000. Also the Russians had tactical nuclear weapons under local control.

      In addition I believe that there were Russian submarines patrolling Cuba at the time and one was going to use a nuclear torpedo on an American vessel during the blockade, believing itself under attack. Everyone agreed to launch, except the political officer who said “No!”. As unanimity was required to launch there was no launch.If that man had said yes would we be here today? It’s an open question.


    • The Cuban crisis fascinates me, because of what my late father said about it. As it happened, he knew both leading protagonists – he had only one private meeting with the then-Senator Kennedy, but knew Nikita Kruschev quite well.

      He felt, because of their atheist (or at least agnostic) beliefs, that the Russians would be unlikely to push the button first. To be sure, Russia might act through sheer bungling incompetence, but that was equally true, he believed, of the Americans.

      From other conversations, I’ve gathered that the nearest we ever came to a nuclear conflagration wasn’t Cuba, but the Korean airliner crisis. I believe that the Russian leader was extremely ill, perhaps even on a life-support machine. The Americans didn’t know this, apparently, but the Russians thought they did. That made it seem possible that the US was exploiting the leadership hiatus in the Kremlin. Apparently it was only the icy coolness of the Soviet defence minister which prevented Russia from launching a first strike.

      If true, that’s really chilling.

    • Tim

      Have you seen the film”Thirteen Days”, based on Robert Kennedy’s book of the crisis?

      The gung ho of the US military was really scary. At one point Curtis LeMay, head of the USAF, said to Kennedy: “you’re in a pretty bad fix here Mr President” to which Kennedy replied: “well, you’re in it with me general!”

    • No, I wasn’t aware of this, nor that Robert Kennedy had written a book about it.

      My impression is that Bobby Kennedy could have been a much better president than JFK, making it even more of a tragedy (if that were possible) that he was murdered.

  7. Thanks for this illuminating essay. I would argue that even the concept of “surplus energy” is partly or wholly an illusion. It appears to be surplus energy because producers are able to transfer the obligation to supply many of the necessary energy inputs to other people, other places, and other times. These hidden energy inputs are often not recognized at the discovery and early production stage, but become apparent during the life cycle of an energy producing activity. Examples of these externalities include mitigation of waste dumping (atmospheric carbon, spent nuclear fuel), provision and maintenance of necessary infrastructure, river restoration after dam collapse, etc. I think a similar statement could be made about business “profit”. It is only a profit if you are allowed to ignore costs that are not apparent at the time of the sale.

    I guess this is just a suggestion that the economy is not only an energy system, it is an energy system with assets and liabilities which must be tracked over long intervals of time and space. Are we up to this task? Obviously the answer is no.

    • Those are very interesting points, and certainly we’ve always struggled with externalities more generally. What I think it means is that we need to extend the ‘capture’ of the cost side of the equation. It would mean that ECoE now is higher than we think it is, though it also means that ECoEs in the past were higher, too.

      Assets, I think, can be thought of as ‘sunk energy’ – that is, the energy that went into creating them. I think of liabilities as ‘claims on future (surplus) energy’. Money is ‘a claim on output’, thus ‘a claim on energy’. So, if a liability is ‘a claim on future money’, then by the same token it is ‘a claim on future energy’. My interpretation now is that we’ve created huge such claims, which the energy of the future won’t be able to honour.

      In business generally, there are huge externalities. If you’re running a company, you rely on ‘societal goods’ which you’re not charged for directly – education of your employees, roads, law and order, the environment – the list is probably endless. In theory, of course, businesses pay taxes, intended to charge an appropriate share of ‘societal goods’.

      This is particularly helpful now, because I’m trying to put together an article on what do ‘we’ – individuals, businesses, governments – do next.

  8. Thank you yet again for stating what is obvious to only a few. Or do our current crop of governors know but choose to ignore the terrible prospect/

    My only question is when?No doubt when it does happen it will be the fault of someone else or something else. Lying is too ingrained for any of them to own up.

    The worst aspect is the feeling of complete helplessness.

    • Thanks. I suspect that decision-makers don’t ‘get it’, yet, but might ‘suspect’ it. The exception to this, that I’ve suggested before, is that the US may understand it. The US has access to tremendous intellectual assets, and it wouldn’t surprise me if one or more US think-tanks was at least investigating some of the themes we discuss here.

      As for ‘when?’, we can’t know. Anything unsustainable must, by definition, reach an end. Keynes said that “markets can remain irrational longer than you can remain solvent”. But my hunch is that we now know ‘where’ (China) and have a steer on ‘when’ (soon). I might explore this in a forthcoming article.

  9. I think that’s why we are hearing so much about MMT

    The beneficiaries of Government largesse (public and welfare sectors in the main) are hoping against good this will solve the Ponzi nature of their schemes

    They will get paid the nominal sums promised whether the fiat will buy anything is another matter

    As I said earlier it’s time to plow ones own furrow and not follow the herd

    • “whether the fiat will buy anything is another matter”

      There is a big problem with public sector benefits in the UK. Most are indexed-linked and so, in theory, inflation does not eat away the benefits! Obviously, tweaks can be made such as fiddling the way the RPI is calculated but the index-linking remains a problem for any government to erode these highly generous benefits – particularly those related to pensions.

    • During and after the 2008-09 crisis, a lot of truly crazy ideas surfaced as the authorities cast around for something – anything – that might work as a ‘fix’. As GFC II looms, we can expect more of the same. It’s being hinted that the Fed might adopt QE as a standard (rather than an ’emergency’) monetary tool.

      Though frightening, this is essentially what Japan has long been doing. The BoJ already owns half of all JGBs (government bonds) in existence, and annual QE far exceeds the fiscal deficit. It’s arguable that there’s no longer a functioning market in JGBs because there’s only one buyer, which has (through QE) limitless resources.

      We are well advanced on the road to discrediting money.

  10. I follow your every essay religiously, and learn a lot. Just a small quibble though – some time ago you said you would give a SEEDS analysis of Canada, but I did not see it. Being a Canuck, I would certainly like to read that.

  11. Pensioners are unlikely to take to the streets in a Gilet Jeunes rage !
    Governments, pension fund managers and politicians know this.
    That is why pensioners will be the first to get screwed.

    Capitalism as we know it has now failed, and our western economies are being propped up like a corpse at an Irish Wake, while life around it appears to go on as normal.
    We now live in a planned economy, where governments fund spending directly and buy public order through welfare. As this constitutes the spending of money which is created ex-nihilo, this would appear to be the final phase of decline because there is now no way back.
    The only real question is “How much longer can this go on for ?”
    The system cannot go on for ever.
    It will eventually fail.
    There will be no controlled descent, quite simply because nobody wants a managed decline.
    Nobody actually wants a decline at all, but they are going to get it whether they want it or not.
    Pensioners will be the first to get stiffed, we can look forward to a great many poor destitute old people. Many will be left to die in “care” homes and hospices. There will be a culling of the aged population. There will be few complaints because if you do complain then you will be called to task to care for your aged relatives on your own.

    As Margaret Thatcher famously said, “There is no such thing as society”.
    So here we are, it is every man and woman for himself / herself.
    . . . but as you get older, that gets harder and harder to do.

    • That partial quote from Margaret Thatcher must be the single most (deliberately) misinterpreted string of words in human history – used by leftists of all colours to ‘Prove’ that Mrs. T was an uncaring sociopath.

      The full quote – in context is as follows… “And, you know, there is no such thing as society. There are individual men and women and there are families. And no governments can do anything except through people, and people must look to themselves first. It is our duty to look after ourselves and then, also, to look after our neighbours.”

      I don’t think many people would disagree with the concept that there is no amorphous entity called ‘Society’ that is somehow separate from the men and women that make up the population. I also can’t see how any self-respecting person could take issue with the idea that we should take individual responsibility to look out for ourselves, our families and (as the Bible suggests) our neighbours rather than waiting passively for somebody else (‘Society’) to do it for us.

    • Hello FDM512,
      The most misinterpreted string of words in human history is this :
      “Doing the same thing over and over, yet expecting to get a different result, is a sign of madness.”
      ( A. Einstein. Thought out relativity, but did not understand Quantum Mechanics. )

      Sorry to have attacked your heroine, it was not deliberate. I am aware of the context in which the phrase was spoken, and I am sure in retrospect even she must have wished that she had formulated her words differently.
      My intent was to demonstrate that our society today is more fragmented than it was in the past.
      We no longer have that national bond that was evident for example during the war years, so there will be no solidarity within society once it crumbles.
      Whether or not Thatcher was instrumental in shaping this aspect of today’s society, is a much bigger debate and is outwith the scope of Dr. Tims blog.

    • I don’t want to get into the Mrs Thatcher debate, but she has indeed been misquoted on that point.

      With hindsight, Mrs T was a giant, and her successors have, by comparison, been midgets. Her integrity seems beyond question, which doesn’t mean that she was right about everything, but it does mean that her mistakes were honest ones.

      Her policies were appropriate to the extreme circumstances of 1979, when the UK was virtually broke. She is not responsible for the subsequent extremism of those who claim to follow her policies. Tellingly, she privatized businesses – many of which, arguably, should never have been state-owned in the first place – but not public services.

      She’d be the wrong person to be in charge now, but might have been the right one in 1979. In that sense one can say much the same about Winston Churchill – right in 1940, wrong in 1952-55.

  12. If the elite are indeed spooked by the populists, (not sure there’s any real difference between the two – witness Trump) it’s hard to tell given how they’re doubling down on austerity-for-all-but-them policies. The middle classes are now being wiped out, just as the workers were at the beginning of neoliberalism decades ago, through the dismantling of secure jobs, accommodation and pensions. But the party on the Titanic can rage on for another generation through a conveyor belt of distracting scapegoats and diversionary policies, right now we have unity in attacking anything foreign, then you can play the classes against each other, then regional divides, (north/south) ideological beliefs, (brexit) even tired old tropes like religion can still work in areas where traditional hatreds have ossified. (N. Ireland)

    The two things the Brit establishment may still be the best in the world at is divide-and-rule and bluff. Without a culture of unity, the elite can always pay one half of the poor to fight the other. At the last local election I voted in, the turnout was ~33%, yet people will take longer to gripe to a stranger in a queue about things they want improved in their borough. Equally, if they have no faith in the political process’s ability to bring about change, (a view easy to have sympathy with) then they wont try something else like boycotting antisocial corporations for not paying tax for instance. So apathy rules and they prefer to believe in unicorns because the alternative is scary.

  13. Externalities
    The Sonnenburgs at Stanford have been studying the microbiome for a decade. One of their experiments involved generations of mice. The mice at first have been eating a traditional mouse diet, and have a healthy, diverse microbiome. But then they substitute a ‘modern’ fiber-free diet. The mice begin to lose diversity. Change the diet back and the mice regain their diversity. HOWEVER, let the mice breed while they have low diversity and the pups can never regain the diversity of their parents. After about 4 generations, the pups are reduced to the diversity characteristic of modern Westerners.

    It cannot be simply a coincidence that the enormous increase in chronic disease happened when Western guts were losing microbial diversity. Is there no way to reverse the loss? We don’t know yet. But if there is a way to reverse the loss, we haven’t found it yet.

    Soil is composed of roughly 50 percent mineral content. Then, how can we claim that we are about to run out of minerals (see Kurt Cobb’s current post)? People are supposed to starve because we can’t mine enough minerals. Well, the natural minerals are not available to the plants we want to grow without the intervention of the microbes. We have not only warred against the microbes in our guts, but also in the soil. If we stop poisoning the microbes in the soil, and stop using rock phosphate and synthetic nitrogen, will the microbes come back and be as effective as Mother Nature designed them to be? Perhaps… there are hopeful signs.

    But the microbes in the soil are part of a circular economy. The plants provide for the microbes and the microbes provide for the plants. If we remove plants (e.g., take the grains to London to feed the hungry humans) and don’t recycle the waste, will we run out of nutrients? Also, we would like to sequester as much carbon in the soil as we can in order to offset our profligate burning of fossil fuels and also to increase the water holding capacity of the soil and many other desirable factors. Can we feed 10 billion while also marshaling the microbes to fix our carbon and soil degradation problems? I don’t think anyone is certain.

    So we have awarded Nobel Prizes to those who have invented these disastrous systems. We have counted trillions of dollars of ‘prosperity’ and sold gazillions of dollars of debt on the basis that there are no limits. Can any accounting actually be made of what we have done?

    Don Stewart

  14. I think we underestimate the interconnectedness of everything. A pension timebomb will trigger major political shifts, but before that, smart ‘money’ will smell the blood and make billions flee to other scams. Energy flows can (will) be disrupted in large societal upheavel.

    We can already hear the calling for a European army… to impose martial law on a EU scale?

    Bread and circuses, when the bread is gone, the circus goes full retard.

    Ever more rabbits out of the hat
    And lions freed of their cage
    The time comes we will regret
    Filled with anger and rage
    Our ignorance and greed
    As we will all grieve and bleed

    Current power base of the establishment, fiat currencies, is crumbling. Supression will be their next. Be careful. Local & low profile.

    • I cannot see it happening that way, Houtskool.
      The coming problems with Pensions will go largely unnoticed, other than by pensioners themselves. It will be sold to the public as “restructuring”.
      The old are an easy target, and they will receive no support from the young, especially if the young themselves are being squeezed.
      Private pension schemes will be the first to fall, along with the markets.
      Public pensions will last a bit longer, but will be eroded over time.

    • Possible Johan. Its a good thing to talk about several outcomes. I agree with you about the pension system. Trust in fiat currencies will vanish before that, and with it, the pension system.

      But again, the interconnectedness of everything can (will) bring us some very disturbing outcomes.

      ‘unknown unknowns’

    • Yes, Houtskool,
      inter-connectedness is a very important factor, and it is difficult to know which events will trigger some other event elsewhere. Nobody can see all these underlying relationships.
      Although I can see pensioners effectively being robbed blind, there will be unforeseen consequences to that too – eg. many pensioners may also be supporting young families, sons and daughters and grandchildren who cannot support themselves. Pensioners are consumers of other services like gardeners, so the losses that pensioners take will filter down.
      The only thing that I am sure of is that this will get very ugly indeed, and when I say there will be blood on the streets I am not being metaphoric.

    • Yes, Simon, but I think at the beginning it was contributions based, so there was some element of .
      The rot set in with awarding pensions to All & Sundry, and doing away with the link to contributions.
      Another of my big complaints was the overly generous pensions awarded to the Public sector.
      Sure, Teachers, Doctors Nurses and Ambulance drivers are all very necessary people, but are they more important than people who actually generate wealth by doing a tough job in the private sector ?

  15. On a much smaller scale than the retirement problems Dr. Morgan has described is the fake tax cut that was put through recently in the US.

    Mac10 describes it very well here: http://ponziworld.blogspot.com

    It will be well worth watching in the next few months. US taxpayers should start getting their smaller (probably much smaller) tax returns now through April with a peak sometime in March. Will they see what happened, or miss it entirely? If they see what happened what will they do?

  16. Many thanks for another gem of an article, Dr Morgan.

    As someone in the 55+ age group who has tried to make adequate provision for retirement, it makes quite sobering reading.
    I think it is also worthwhile remembering that one of the benefits of the oil (surplus energy) age is modern medicine and the accompanying longer life expectancies.

    In 1960, worldwide life expectancy was 52.5 years, in 2014 it was 71.5. Death rates over the same period decreased from 17.8/1000 to 7.8/1000, and birth rates decreased from 31.9/1000 to 19.4/1000.
    For high income countries: life expectancy increased from 68.5 to 80.6; death rates 9.8/1000 to 8.4/1000, and birth rates 21.6/1000 to 11/1000.
    For middle income countries: life expectancy increased from 47.7 to 70.6; death rates 20.1/1000 to 7.5/1000, and birth rates 34.4/1000 to 19.2/1000.
    For low income countries: life expectancy increased from 39.1 to 61.3; death rates 25.1/1000 to 8.9/1000, and birth rates 47.5/1000 to 36.3/1000.
    Between 1960 and 2014, whilst the world population more than doubled from 3 billion to 7.4 billion, the number of people 65+ nearly quadrupled from 151 million to 590 million.

    All figures taken from UN World Development Indicators, last updated 2/1/2017.

    When one considers overpopulation I guess in the future if you’re retired you will be considered part of the problem, certainly by a younger generation who feel they have been swindled out of their piece of the cake.

    Looking at the current situation, how does one adequately provide for a basic 15-20 year retirement (needs £300k?) on an average salary of £35k per year? Cornell University chemistry professor and economics pundit Dave Collum posits that ‘for most people, they’ll have to go back to working their fingers to the bone until they die. Only the lucky few will be able to afford to take some time off at the end of their lives’. And as our host says, when this becomes apparent the anger will be unimaginable. Also, the problem with ‘coming clean’ and telling people the way it is, is that all the political and financial shenanigans that the elites have been up and that have made the situation exponentially worse for the average person requires those same elites be held accountable, and they have no appetite for that.

    In my opinion, Michael Hudson is one of the few economists (including our host) that merit serious attention, and I was somewhat taken aback when he wrote that ‘the objective of financial capitalism is to establish a global neo-feudalism, where other countries pay their entire economic surplus to the US financial system. Air, water, food, health, communication systems, transportation: all are candidates for increasing privatisation (and rent-extraction) activities. The objective of neo-liberalism is to cut the world population by about 50% by starvation and suicide, while having secured all of the assets (natural and man-made). Once the objective of securing the asset-base is complete, the only people you need are ‘slaves’ who can do the menial, essential works that AI cannot do.’

    Initially, I felt this was hyperbole, but on reflection, when the debt and pensions disaster becomes apparent to all it is entirely plausible that this will indeed be the sad result.

  17. For example, anyone who thinks that energy is ‘just another input’ should try picturing what would happen if the supply of energy to an economy was cut off, just for a few days, let alone for several months. Even an outage lasting days would bring the economy to a halt – and a few months without energy would induce economic and social collapse.

    proof in the pudding NYC July 1977 … https://www.youtube.com/watch?v=4Xuham0nEfM

  18. In all fairness it’s worth pointing out that most ‘final salary’ schemes started to become unaffordable for employers as early as the 90’s, due to Norman Fowler’s tinkering throughout the 80s, in trying to give their members a fairer deal. Looking at the employment data today, it’s interesting to see the ever increasing number of people still working in their 60s and beyond. Prof Collum’s prediction is a reality for many in the UK now.

  19. Pensions

    In its early stages, this article was going to be wholly about the pensions “timebomb”, and the research for this, though time-consuming, was fascinating.

    The WEF report identifies six causes of the problem, but mentions only five solutions. The ’cause without a solution’ is what the WEF calls the “long-term, low-growth” environment. For me, this cause dwarfs all the others. It explains both (a) the problems with tax-financed Tier 1 provision (including public sector pensions), and (b) the broader problem reflected in the crushing of returns on capital.

    Under historic rates of return, $1000 invested now would have been worth $5908 (real) after 30 years. The number under current rates of return is just $1708. If you wanted $100,000 after 30- years, you used to have to invest $16,925 now – this figure has become $58,556.

    Essentially, any given savings ratio requirement has been multiplied by about 3.5:1.

    Incidentally, the 70% of income benchmark isn’t composed wholly of privately-funded pension income. Rather, it is state Tier 1 topped up with private pension.

    What economic signals are telling us is that the requirement to sustain consumption has eliminated any ability to save.

    The problem applies even to many of the wealthiest. For instance, the assets of the wealthiest are mostly in the form of stock. Say you have 50% of a company valued at $2bn by the market. You’re “a billionaire”. But what are you when the bubble bursts (apart from stunned)? And if you’ve borrowed $500m against your $1bn valuation, and asset prices fall by 60%?

    Politically, yes, the elderly are unlikely ‘giletes jaunes’. But this isn’t something that people will suddenly discover on their 63rd birthday. By 40, or even by 30, people will realise that the dream of retiring in their early 60s in to a relatively comfortable retirement isn’t there. It’s ‘gone’. Many will feel it’s been “stolen”.

    So I suspect that the pensions “timebomb” is going to have huge consequences.

  20. Is it possible to say to the average UK worker that if you’re younger that X then your wasting your money saving in a pension if you think it’s going to result in an adequate income in your early to mid sixties?

    It seems that some people over X could still be ok but those below X have a bigger problem.

    Or are we all screwed?

    • Whilst I can’t really answer that question, I’ve added a pair of charts showing returns on $1000 invested annually, over 30 years. You can see how current forward rates of return compare with historic averages……

  21. Thanks for the new post Tim.

    Just a few things I’ve read / watched in the last week or so. Firstly the HS2 project which we all know is a colossal waste of money. I watched the documentary on this subject as was appalled that commuters in the North were having to put up with two carriage Pacer trains which they simply couldn’t get on making them late for work so forcing some to use their cars to add to the already congested roads. A tiny fraction of the HS2 budget to provide some decent trains would surely solve this problem.

    There’s also talk of a massive reduction in ‘unprofitable’ bus services and Chris Grayling wants to rely more on hybrid diesel trains because electrification is too expensive.

    And in CapX they’ve said that the current World’s housing stock will double by 2060 – meaning the equivalent to one New Your City being built every month for 40 years. Well good luck with that one.


  22. When Retirement Became A Problem; Will GFC2 be like WW1?

    Some thoughts prompted by reading in The True and Only Heaven:
    *Ernest Hemingway wrote that WW1 discredited words like ‘honor’, ‘glory’, and ‘sacrifice’. In North Carolina, returning veterans refused to attend the compulsory chapel services at the University…so the old order was crippled.
    *The Left moved closer to the Right. Both deeply distrusted real democracy. ‘Progressivism’ was in conflict with ‘Progress’.
    *Walter Lippmann wrote that he had ‘come to the conclusion that the masses are ignorant and unteachable’. (Shades of ’the deplorables’, and the EU leadership chastising British politicians for ever chancing a referendum?)
    *A disillusioned educator recalled the heyday of ‘uplift and enlightenment’, when people believed in education as a ‘general religion’. As a young man he had been inspired by Santayana’s remark that ‘if a noble and civilized democracy is to subsist, the common man must be something of a saint and something of a hero.’ Based on his experiences in universities, he no longer found those words credible. The only thing ’that is really worth doing is to sit on the Boulevard in Paris’.
    *Before the War, only conservatives had disparaged popular intelligence and public opinion. By 1930 a Liberal wrote that ‘liberty was nearly dead’. Liberals were now ‘obliged to resist the majority, the great crowd.’
    *Journalistic objectivity had collapsed during the war and mainstream news was simply a mouthpiece for propaganda.
    *Lippman thought that ‘public opinion was unreliable because it could be united only by an appeal to slogans and symbolic gestures. In a society ruled by public opinion, government became the art of manipulation—the manufacture of consent….A political theory based on the expectation of self-denial and sacrifice by the run of men in any community would not be worth considering…such assumptions had to be relegated to the pre-industrial past (I’ll come back to this point).
    *John Dewey, the great progressive, admitted that Lippman’s basic analysis was sound: ‘relentless and realistic analysis—perhaps the most effective indictment of democracy ever penned.’
    *Dewey did not give up on progressivism, but ‘Dewey could not explain just how loyalty and responsibility would thrive in a world dominated by large-scale production and mass communications. He took for granted the disintegration of the family, church, and neighborhood.’

    How is all this relevant to our current prospects and problems and in particular ‘what to do with the old guys?’

    Old people were not really an insoluble problem in the pre-industrial world. Old people in the Blue Zones (those geographic areas recently identified where people routinely live to be centenarians) work virtually until the day they die. Dr. John Day from the US harvested crops with a woman who was over 100 living in a centenarian village in China. Dr. Valter Longo (The Longevity Diet) found centenarians taking care of ancient olive trees in Italy. As a minimum old people can watch the young children while the parents are working. So we can see that the ability of old people to contribute nothing was a conceit made possible by surplus energy. The ferment in terms of governance and social organization which had led to vigorous debate prior to WW1 was brought to an end by the war. Industrialism and atomistic social organization was unchallenged by the Left (Marx) or the Right. It was to further the cause of industrialism that Stalin agreed to the killing of so many peasants…in the US they were simply bankrupted and moved to California.

    If the Fall From Grace is as steep as I think it will be, then all those who are younger than I am (I’m 78) will need to rethink their retirement. While Industrialism may not disappear in one steep fall, rediscovery of the older patterns of social organization and the extended family are the only way I see to avoid real misery.

    The disillusionment with democracy should make us wary of the ability of democracies to deal with climate change or declining surplus energy. If Davos can figure out a way to socialize the costs and privatize the profits, then something may happen through the ‘manufacture of consent’.

    Don Stewart

  23. Hello Tim
    While reading your article I twigged something. These days we rarely pay the sticker price for something, most things are paid for using credit including weekly groceries. There is a hidden inflation/increased cost to goods hidden by interest payments which do not appear on the sticker price. What would the ECoE look like if all the consumer debt interest payments part of GDP were added to a societies energy costs and subtracted from the financial sector? My contention is that much of the additional debt is going towards paying for the increasing cost of energy. Everything has an energy cost to produce (including digital copies). During the 1970’s energy crisis there was a huge monetary inflation, but everybody shared in the costs of the inflation as it was in the sticker price. This time there has been a huge monetary debt inflation which is not in the sticker price but hidden in interest payments. The rich who can pay cash, in effect pay lower prices for goods compared to the rest of us. The huge rise in debt has enriched (for now) the already wealthy, while lowering their cost of living compared to the rest of us. The rich get us coming and going.

    Best regards Philip Hardy

  24. If you choose to modify your social and familial patterns of behavior in anticipation of significant changes brought about by declining Energy Surplus, then I suggest that two items need urgent attention:

    *Replace sedentary behavior with Dr. Zach Bush’s 4 Minute workout, three times per day.

    *Check out Dr. Valter Longo’s Fasting Mimicking Diet, and his long term Longevity Diet

    At present trends, unrestrained capitalism coupled with food science aimed at palatability and addiction and taking advantage of the gullibility of the masses, will result in nothing but sick people in the foreseeable future. For example, the current trend projected results in 1 in 3 children with autism in about 20 years. And half the adults and a lot of the children will have diabetes. The rate of mental illness has increased from 5 percent to 50 percent. No amount of ‘return to the extended family’ can deal with such catastrophes. So a good goal is to rid yourself and those you would like to spend your last years with of chronic diseases. Near the end of Dr. Longo’s interview, he gives you an update on the progress of clinical trials of his Fasting Mimicking Diet. He reports enthusiastic acceptance by the hospitals…while admitting that some doctors are entrenched in the drug model.

    Don Stewart
    PS If you like irony, try imagining yourself pitching a federal policy favoring fasting rather than ever more money shoveled into the drug business (a lot of which returns as political contributions).

    • Thanks, and I hope you get some positive responses.

      MMT cannot save the day, because no monetary policy or innovation can do this. Ultimately, the problems with the physical (energy) economy are the root cause of the broader financial problems.

  25. The coming pension fund disaster:

    IOU’s (paper assets, stock portfolios, bank accounts etc) cannot be used as protection.

    Hard assets, paid off house, farm land, gold and silver can. Watch your back because .gov can and will tax or confiscate it as a last resort.

    Forget about currencies and their interconnected brothers and sisters. They all depend on growth. They will, after our current globalist system of cooperating central banks fails, implode like a Hindenburg on steroids.

  26. Brexit; Middletown

    In the 1930s in the US, a sociologist named Robert Lynd wrote several books about his research on Muncie, Indiana (called Middletown in his books). The issues he discussed are quite similar to the issues around Brexit discussed in this blog:


    The UK is trying to implement three paradigm shifts at the same time, when the stakes are enormous:
    *From Parliamentary to Popular sovereignty
    *From expert opinion to popular opinion…Both major parties have promised to implement the referendum result. But this did not resolve the issue. Brexit requires a range of decisions. All of them tempt, or even force decision-makers to revisit the original question that splits both parties: Should we leave the EU or not?
    *Parliament vs. government control of treaty approval. Traditionally, the government negotiated the treaties, and parliament was relatively passive….Parliament voted down a treaty and government has to come to terms with the new role of Parliament, finding a way to include Parliament in treaty negotiations. Tragically, it has to do so under enormous time pressure with regard to a treaty that is vital for the country.

    The faith of U.S. Liberals in public opinion had been severely compromised by WW1 and its aftermath. So, whereas Progressives had once thought that direct ratification by the people was a good constitutional provision (e.g., western states such as California routinely vote on a whole raft of Propositions), by the time Lynd wrote his book in 1939, Lynd believed:
    *Liberal opinions are correlated with intelligence. Therefore, positive change must come from above.
    *The masses were creatures of habit, and modern society had become too complex to be governed by the rule of the majority. Many public issues today are of a highly technical character that should not be disposed of by a show of hands. (The ‘show of hands’ could be a reference to the time-honored New England Town Meetings…which did feature shows of hands.)
    *Lynd was well aware of the role of advertising and propaganda. WW1 had featured, perhaps for the first time in the U.S., government control of the media to insure that approved propaganda was disseminated. Lynd: Advertisers and political demagogues understood the importance of emotional appeals even if liberals did not.The ‘stark manipulative rightness of modern advertising lay in its skillful use of symbols, just as the tactics of a Hitler were profoundly right in recognizing the need of human beings for the constant dramatization of the feeling of common purpose. (Think of the Nazi rallies, or today’s broadcast of the Grammy awards for music in the U.S. with the cameras frequently turning to an enthralled audience.)

    I’m not sure what the solution is for Britain, or for the U.S. But I find it striking that so little has changed in terms of the basic problems. My initial reaction is that Brexit and something like military policies really are detailed questions which are not appropriate for a New England Town Meeting. On the other hand, the Liberal position that ‘we know what is good for you, and if you don’t cooperate we will call you a ‘deplorable’ and find a way to ignore you’, is not going to work. Faith in the System depends on its ability to produce what the public actually wants. With declining Surplus Energy, but with no acknowledgment that Surplus Energy is declining, it is hard to see how governments are supposed to supply what the public wants. Instead, I think we get the cynicism that is dominant in at least the U.S.

    I don’t think we can get back to the Divine Right of Kings, nor to an Infallible Church. My guess is we will tread the perilous path back to the New England Town Meeting, having lost the energy to deal with all those complex issues which troubled Lynd and which trouble Mrs. May.

    Don Stewart

  27. Dr Morgan, what do you make of this notion:
    Ben Bernanke famously referred to the notion of “helicopter money” as a response to a crash in consumption due to disappearance of “money” following massive debt defaults. QE did not work very well to stimulate consumption, because most of the money flowed into inflating financial assets rather than being spent into the economy.

    Helicopter money would cause public outcry due to unfairness. But what if the Pension Guarantee Fund nationalized all pension systems? The Fed could then monetize Treasury paper in order to make pension payouts as promised. This money would go mostly to people who will promptly spend most of it at the retail level. Social crisis is delayed, and debt deflation is reduced.

    • In my opinion, helicopter money or even more probably a Universal Basic Income will be the next patch that the financial / state powers use to keep things puttering along. And it should actually work for a little while, certainly to a better degree than QE because you’ll actually be stimulating demand for physical goods. Obviously this can only work for so long before you run into insurmountable resource depletion and costs of energy (and raw materials). But keeping up demand and inflating away some debt is a far sounder strategy to limp along until the day Damocles’ Sword finally drops.

    • No “helicopter money” plan solves the underlying problems but a debt jubilee is probably the most immediately politically straightforward.

  28. I haven’t read the whole article yet beyond ““timebomb” might detonate in the foundations of the current system of governance. It certainly has the potential to dwarf all other popular grievances.”, nor any of the comments except the first.
    But it seems to me, being the 58yo mother of an 18yo daughter who is, as are the all the world’s 18yo’s, just starting out on life, that the problem in most 1st & 2nd World countries is too many older people who are already or shortly to be an unaffordable, and unfair, liability for the young. In most ancient societies throughout history, the old/sick/economically-inactive/dependent people were a problem that the societies could not afford, and a burden which the old people themselves did not wish to impose on their children. This is also true in our modern, energy-strapped, societies.
    Therefore, answer is to offer everyone over the age of 65, max 70, or who is economically inactive and not bringing up children, a large lump sum for themselves, plus a second large sum (both, say, GBP250 000, for each of their children under, say, 25?, 30?, (double for each only child), to volunteer for voluntary euthanasia within the subsequent 5 years. Older people with needed skills for a post-oil world, who are ready, willing & able to teach those skills to 10-20 motivated learners, would get a reprieve until they were no longer effective.
    That gives the oldies 5 years to have a ball, and their children the wherewithal and skills to work out how to survive.
    This is just a rough idea, the details of who & how, etc, would need to be worked out, with safe-guards against nepotism & corruption – easier said than done, I know. But at least civilized and hopeful compared with millions of useless miserable pensioners destroying the future of the youngsters.

    • No, ZAG.
      You have got it all wrong.
      You are too focussed on the Western world, which is already in the process of sorting itself out.
      The real population “problem” is in SE Asia, Africa, Latin America, ( thanks to Feminism and Christian altruism. )
      What you are suggesting is just giving up modern life, and leaving the whole world to uneducated natives.
      Life is a challenge.
      You do not slit your own throat just because you hit an obstacle.

  29. @ Johan:
    I understood that the whole point of this blog is that the Western world is not in the process of sorting itself out, and doesn’t even realise it has a problem.
    Apart from being in the process of producing millions of poverty-stricken pensioners and similarly poverty-stricken young, how is the West making progress in avoiding or minimsing this scenario ?

    • @ZAG,
      thank you for your reply.
      I was suggesting that population decline has already set in in the western world, due to women having fewer children. Western countries are using immigration to keep up their populations so that their GDP does not fall.
      I see the major problem in the 3rd world, where populations are increasing exponentially in countries where there is no infrastructure to support it and not enough land to support it either. Just two generations ago my family were also subsistence farmers, but in a village of 300-400 people, because that is all that the land would support. Academically “uneducated people”, but with great ingenuity and a great deal of hard work they managed to live off it.
      Western medicine is thwarting nature in the 3rd world by allowing over-population.
      Look at Saudi Arabia – in 1945 it had a population of 3 Mio, today it has 30 Mio ! When the oil runs out, what are these people going to be living off ? Sand pies ?
      A mass culling of the over 65yr olds in the West is not going to offset the surge in places like Africa and SE Asia.
      Besides, I loved my old gran dearly and although as they say in England “she had a good innings” at 86, I was still greatly saddened to lose her. Your plan might get you a few points at the next Hitlerjugendtreff, but I don’t think the general population will be too enamoured by it.

  30. Look at Production…not Ideology
    This is going to be critical. No personal offense intended. The gist of many arguments here is that if the West if forced to change anything at all, the sky will fall…old people will be added to the stew pot and ‘uneducated natives’ will inherit the Earth.

    A recent study of Sustainable Intensified (SI) agriculture concluded that global agriculture may be at a tipping point. First, the facts:
    Having screened hundreds of SI projects/programs worldwide and selected those implemented at a large enough scale to benefit ecosystem services and agricultural objectives across whole landscapes, the authors estimate that 29% of all farms worldwide and 9% of agricultural land have crossed a transformative threshold in their use of SI methods.

    So a pretty high proportion of the farmers know how to sustainably intensify production (and many of those are bound to be ‘uneducated natives’). But the big commercial operations blithely continue on the path to destruction. But one thing that capitalism does, if government doesn’t interfere, is to award the resources to the parties making the most productive use of them. We may be about to see the implosion of corporate agriculture, to be replaced by smaller, more productive, and more ecologically balanced farms. If that happens, old people who can be helpful on a farm will be valuable. As someone said a long time ago in the discussion of Peak Oil…there will be plenty of work, just not many jobs.

    It is interesting that the Green New Deal in the US seems to have family farms, using SI methods, as something to be promoted.

    Don Stewart

  31. Soil Organic Matter: Global Warming; Sustainable Intensification; Microbes; Glyphosate

    Big Ag, K Street Lobbyists, and Big Government (e.g., Mitch McConnell ridiculing cow farts) are agreed that sterilizing soil and then dumping chemicals into it and growing genetically modified plants is the only way to avoid starvation. I recommend this relatively recent article in Science:

    ‘While our approach uses a model system without environmental constraints on microbial biomass production such as predation and nutrient limitations present in natural soil, it provides direct evidence that microbial biomass can produce an abundance of stable, chemically diverse SOM. (Soil Organic Matter) Moreover, we are able to identify the microbial community characteristics in these systems such as fungal abundances and CUE that influence SOM formation. Our results point to new approaches to rebuild soil C contents that emphasize the influence of substrate–microbe interactions on the synthesis of novel SOM constituents that become mineral-stabilized, and will also inform the necessary validation and parameterization of emerging microbial-explicit C models that stress the importance of microbial residues in SOM dynamics20,57. Most of our contemporary predictive models and management strategies for SOC are still based on traditional concepts of plant chemical recalcitrance, yet the processes that govern microbial-SOM accumulation and stabilization likely differ from those of plant-derived SOM18,19,22. For example, the effects of elevated temperatures and soil disturbance may stimulate the decomposition of plant-stabilized SOM but the consequences for microbial-stabilized residues are less clear. It is likely that environmental changes such as soil warming influence microbial-SOM, not necessarily by destabilizing it, but via alterations in the capacity of the microbial community for efficient residue production30. Moreover, our data provide critical empirical insights to advance new microbial-explicit biogeochemistry models, including how microbe–substrate interactions influence SOM dynamics. Thus, our results provide new perspectives on the origin of stable SOM that will help foster the progress needed to model and manage soils to promote enhanced SOM accumulation.’

    Briefly, the study proved that microbes, and particularly fungi, are able to produce significant amounts of soil organic matter in a matter of months, not years, in relatively inert substrates. David Johnson had previously shown that using fungi he could grow bumper crops in desert sand. This study is more ‘scientific’ in that it carefully measures a lot of parameters and controls the experiments more carefully. Johnson also showed that growing plants in fungally rich soil in high temperatures could show increased yields. This paper is careful not to claim that global warming is going to be a good thing for yields, but it does point to the tremendous reservoir of genetic material in microbes and their ability to thrive everywhere from thermal vents to buried under Antarctic ice.

    Is it not insane to base our future on the notion of sanitizing and killing? Yet most of the articles one reads lament that ‘we are about to run out of Haber-Bosch nitrogen’, or else that ‘mined phosphate rock is about to exhaust’. And, of course, the NeoLiberal faith claims that everyone will need to go to college to be able to cope with the ‘high tech’ jobs which are just over the hill, involving every more scientific sanitizing and killing.

    End of rant….Don Stewart

  32. Errol,

    The money printing has thus far been shunted into financial assets but contrary to popular opinion this is a sign of their increasing worthlessness not increasing value. Paying a multiple of 20+ times earnings to earn a 3% pa or less dividend return means hyperinflation has hit financial assets and that they are becoming worthless. It also means that there is no real growth or rentier income opportunities left. The rising ECOE has already made that effectively impossible.

    The unbelievable money printing and debt issuance far exceeding “growth” means we are cannibalizing existing accumulated wealth to sustain BAU. Helicopter money would be the next logical step in this process. It would further cannibalize accumulated wealth in a fairly hidden way and probably accelerate the use of available resources and the end of BAU (because more widespread than pouring money into the financial system), but it will buy short term and social peace, relatively speaking.

    It seems a safe bet that MMT and helicopter money are coming

  33. Update

    There are some fascinating comments here, and I’ll add some thoughts in the next couple of days. One interesting titbit is that the Fed might consider making QE part of its standard (not just emergency) tool kit.

    Right now I’m working on a big project to be summarised here in the next article – country-by-country risk, as measured by SEEDS.

    • Excuse me doc, but the “Fed might consider”?

      QE is just an extension of unsustainable debt on a finite planet.

      They’re against financial abortion. A stupid thing to do with 7 billion + people.

  34. I’ve found all of the videos I’ve watched so far on ‘China Uncensored’. Regarding Africa China certainly does appear to be in a win win situation as many of the countries they’ve lent to cannot repay the loans so China can come straight in and grab the assets they helped build.

    Remember that anyone that China gets involved with automatically becomes a very happy person…and if they don’t cameras are they to ensure they eventually do.


  35. Extract from an article in The daily Telegraph today by Anna Isaac –

    Three of the major credit ratings agencies are due to reassess Italy’s sovereign credit rating in the next two months, with potentially considerable fallout for the markets.

    Italian banks are massive holders of government debt. Should these bonds be downgraded, their borrowing costs will rise and balance sheets weaken, in what is known as the “doom loop”.

    Spanish, French and Portuguese banks are among the most exposed to a domino effect triggered by a downgrade to junk status for Italian sovereign bonds, the International Monetary Fund warned recently.

    Standard and Poor’s has already reiterated warnings on the level of toxic loans throughout the eurozone’s banking system.


    • It makes perfect sense, unfortunately. There was an important report recently from the NBER explaining how cheap money has made the market economy progressively less efficient.

  36. Small extract from the John Ward Blog

    After 40 years of neoliberal economics, the US stands (in world terms) 7th in literacy, 27th in maths, 22nd in science, 49th in life expectancy, and 178th in infant mortality. It leads the world in only three categories: number of imprisoned citizens per capita, the number of adults who believe angels are real, and defence spending. The US spends more than the next 26 countries combined……25 of whom are allies.


    • That list is somewhat subjective, though the general point seems valid. Neoliberalism hasn’t been unique to the US, and the consequences of its failure are visible in many other countries. Most criticisms that can be made of the US can also be made throughout much of the West. Could countries like the UK, France, Australia and Canada point to the US and say ‘we’ve managed things much better than you have’?

      We are, I think, at the confluence of three bad trends. The first is ideological madness in economics. We’ve got to the point where the only choice for decision-makers seems to have been to carry on compounding madness with insanity, because a solution ‘might just turn’ up, and the cost of turning back has become unthinkable.

      The second is rampant self-interest and the promotion of “greed is good”. We face a huge ‘ethical deficit’.

      The third, of course, is deteriorating prosperity. In the past, “growth” bailed us out. A society, just like an individual, can behave recklessly, and get away with it, so long as income keeps rising.

      I’m working on two projects now. One of them is a comparison of risk by country. The other is an effort to work out how, if at all, we can turn the next crisis into an opportunity.

    • Yes John does rant on a bit although his posts are never less than interesting / entertaining.

      I’ll look forward to your post on how to turn the next crisis into an opportunity as – having just read the Zerohedge article about the World being full of Zombie companies – we need some innovative thinking.


  37. Hi Tim

    Thanks for another insightful post.

    As a slight countervail to your views the declining birth rates in “rich” countries and a slowing in even poor countries may mean that the growth in populations will decrease – the golbal population will still increase but at a slower rate. Futhermore the growth in World demand is likely to be uneven. In wealthy nations demand will decline and it won’t be offset by growth in poorer countries. What this seems to presage is a slower growth of demand in the World.

    The implication of this is that energy use may slow and resources may be depleted over a longer period. The implications to the economic system will also be substantial also with reduced demand. How will the economic system cope? With some difficulty would be my answer.

    • Thanks Bob.

      The population (and migration) issues are difficult ones for me. There are issues here beyond coolly logical economic appraisal.

      The starting point is that there’s an almost total correlation between world population numbers and energy consumption. As energy use has exploded exponentially since about 1760, so have population numbers. There’s a chart in my book showing this over a 2000-year period.

      The implication is that, if the availability of surplus (and indeed gross) energy has stopped growing, and is going to turn down, far from pushing ahead with any further increases, we need, ideally, a declining population. Climate change considerations might point to a similar conclusion.

      As so often, conventional economic interpretation is clueless about this. The claim often made is that increased population numbers, for instance through net inwards migration, don’t dilute prosperity (which the conventional lot define as GDP per capita). The argument is that the dilutive effect of larger numbers is at least offset by the increased contribution to economic activity.

      Unfortunately, human labour accounts for less than 1% of energy use in the developed economy. Extra people does mean extra demand, but there are other ways of increasing demand, so it’s the output side that matters. Increased numbers can increase the ingenuity with which surplus energy is applied, but that’s not a numerical equation – obviously, increasing the population by 10% doesn’t automatically increase ingenuity by 10%.

      So Western countries ought to welcome any decrease in population numbers, and limit immigration to those with special skills and abilities.

      This is what I think of as a hard factual interpretation, but other, non-economic questions arise too. For instance, is there a case for accepting some dilution of individual prosperity – making a sacrifice, in other words – in return for easing the hardships of people coming from failed states or failing economies? Cold numbers cannot answer that.

      Lastly, the situation isn’t static, but dynamic. As prosperity erodes, more people are going to see the advantage – or, indeed, the necessity – of moving out of basket-case economies.

      This has to be part of a broader issue of managing diminishing prosperity. My hunch is that we should have tight, ‘abilities-only’ restrictions on immigration, but combine this with a quota for admitting those most in need of help, combining this, too, with overseas aid (in its broadest sense), and not interfering in countries where our actions are likely to make things worse.

  38. Dr. Morgan
    ‘how, if at all, we can turn the next crisis into an opportunity’
    ‘1 percent of energy is expended by human labor’

    I suggest that any solution must leverage the fact that 90 percent of the energy expended comes from the sun, with 10 percent from fossil fuels. And the second fact that the 90 percent and the 10 percent are both subject to enormous leverage by human brains, which account for about 20 percent of the 1 percent.

    For example, it IS possible for humans, in their political context, to shift from automobiles to motorcycles…or even electrified motorcycles as in India. That is using politics to get more ‘real’ work out of fossil fuels and nuclear.

    From the solar perspective, it IS possible for humans to take political action to kill industrial agriculture and substitute Sustainable Intensified agriculture…which uses the free energy from the sun more productively.

    I assume that your comment “I am baffled’ about the microbes creating soil means that you either don’t understand how microbes can create soil, or else that you don’t see the relevance. If either of those are true, then I suggest that you can’t figure out any solution to our current problems…either as individuals or families or communities or as larger societies. I suggest that one has to understand the principles of how microbial life creates the world we live in, if we hope to visualize a ‘better’ way for humans to inhabit that new world.

    Don Stewart

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