#169. At the zenith of complexity


In the previous article, we examined the scope for tangible value destruction in the global financial system. In some future discussion, we might look at the very substantial empowerment that is being handed to environmental causes by some of the direct and indirect consequences of the Wuhan coronavirus crisis.

Here, though, the issue is the economy itself, and readers will understand that this interpretation is framed by the understanding that the economy is an energy dynamic, and not a financial one.

For those who like their conclusions up front, the single most important takeaway from what follows is that the crisis caused by the coronavirus pandemic has triggered two fundamental changes that were, in reality, due to happen anyway.

One of these is a systemic financial crisis, and the other is the realisation that an era of increasingly-cosmetic economic “growth” has come to a decisive end.

The term which best describes what happens from here on is “de-growth”. This is a concept that some have advocated as a positive choice, but it is, in fact, being forced upon us by a relentless deterioration in the energy-driven equation which determines prosperity.

At its simplest, this means that the near-universal expectation of a future “economy of more” has been invalidated. We’re not, for example – and as so much planning has hitherto assumed – going to be driving more cars on yet more roads, and taking more flights between yet more airports. A seemingly-assured future of more consumption, more leisure, more travel, more wealth, more gadgets and more automation has, almost at a stroke, ceased to exist.  Economic considerations aside, the energy supply outlook alone has long since ceased to support any such assumptions.

More fundamentally, an economy which is shrinking is also one that will become progressively less complex. Whole sectors of activity will disappear through processes of simplification and de-layering. The pace of economic deterioration, and the rate at which the system de-complexifies, will be determined by identifiable factors which include falling utilization rates and the loss of critical mass in economic activities.

The inevitable arrives

Seen from the perspective of the energy-driven economy, the crisis is unveiling much that we already understood. Essentially, relentless increases in the Energy Cost of Energy (ECoE) are the constant in an economic (and financial) narrative that has been unfolding ever since the 1990s, and which has long pointed, unequivocally, towards both falling prosperity and a “GFC II” sequel to the 2008 global financial crisis (GFC).

Between 1990 and 2000, global trend ECoE rose from 2.6% to 4.1%, entering a level (between 3.5% and 5%) at which prior growth in the prosperity of the western Advanced Economies started to go into reverse. By 2008, when the world banking system was taken to the brink by the GFC, ECoE had already reached 5.6%.

The next critical point occurred during 2018-19, when trend ECoEs entered a higher band (between 8% and 10%) at which less complex, less ECoE-sensitive emerging market (EM) nations, too, start to experience a reversal of prior growth in prosperity. This latter event has confirmed that, after a remarkably long plateau, the prosperity of the world’s average person has turned down.

The financial and economic ‘high command’ has never understood this energy-based interpretation, and this incomprehension has created a parallel narrative of futile (and increasingly dangerous) financial adventurism.

This is why we can expect a GFC II-type event to coincide with a decisive downturn in the economy. Though the coronavirus crisis is acting as a trigger for these events, we should be in no doubt that both of them were due to happen anyway.

Welcome to de-growth

The term which best describes a downwards trajectory in prosperity is “de-growth”. Many have advocated de-growth as something that society ought voluntarily to adopt in its own best environmental and broader interests.

The surplus energy interpretation, though is that de-growth isn’t a choice that we might or might not make, but an economic inevitability.

Critically, de-growth doesn’t simply mean that the economy will become quantitatively smaller. It also means that much of the complexity which has developed in parallel with past economic expansion will go into reverse.

This de-complexifying process will have profound consequences. As well as determining the pace at which the economy shrinks, the retreat from complexity will impose changes on the shape, as well as the size, of the economy of the future.

Where the rate of prosperity deterioration is concerned, the interplay of two factors is going to prove critical.

One of these is the utilization effect, which describes changes in the relationship between the fixed and variable costs of the supply of goods and services. As utilization rates fall, the per-user share of fixed costs rises, and any attempt to pass such increases on to consumers is likely to accelerate the pace at which utilization rates fall.

The second operative trend is the critical mass effect. This describes the way in which supply processes are undermined by the lack of access to critical inputs. To a certain extent, suppliers of goods and services can work around this effect, by altering (and, in general, simplifying) both their products and their processes. Even so, there are limits to the ability to circumvent critical mass effects, and the likelihood is that capacity will decline, resulting in a corresponding reduction in the range of goods and services on offer to consumers.

Both the utilization and the critical mass factors introduce considerable uncertainty into the rate at which prosperity will deteriorate, but an even bigger imponderable is the combined impact of utilization and critical mass effects. It is easy to picture how these are likely to interact, with, for example, falling utilization rates removing inputs in a way that accelerates the loss of critical mass.

The end of “more”

One of the practical implications of this interpretation is that the current consensus about our economic future – a consensus which we might call ‘the economy of more’ – is becoming ever less plausible.

Until now, virtually all planning assumptions have been framed by this expectation of continuous expansion. We’re assured, for example, that by 2040, there will have been be a billion-unit (75%) rise in the world’s vehicle fleet (requiring more roads), whilst aviation passenger miles will have increased by about 90% (so we’ll need a lot more airport capacity).

These and similar projections are based on assumptions that we can consume about 28% more energy in 2040 than we do now, with petroleum and natural gas supply rising by, respectively, 10-12% and 30-32%. All of these consensus projections seem extremely unlikely to be realised, not least because of the crumbling economics of energy supply itself.

The miss-match between, on the one hand, the assumption of extrapolatory expansion in virtually all economic activities and, on the other, the improbability of the requisite growth in energy supply, seems never to have occurred to those whose plans inform the economic consensus.

What all of this means in practice is that projected rates of prosperity deterioration are conjectural, with probabilities favouring an acceleration in the pace of decline.

With this caveat understood, the base-case generated by SEEDS (the Surplus Energy Economics Data System) provides a useful reference-point for discussion. The model indicates that the average person worldwide will be poorer by 9.5% in 2030, and by fully 20% by 2040, than he or she is today. It follows from this, of course, that his or her ability to carry debt and other financial burdens – and to pay taxes – will be correspondingly impaired.

Fig. 1:

#169 03 prosperity regional

Simplification and de-layering

Two further trends, both of which are of fundamental importance, can be anticipated as consequences of the de-complexifying process.

One of these is simplification, which describes a rolling contraction in the breadth of choice on offer to consumers, and a corresponding contraction in systems of supply.

The second is de-layering, meaning the removal of intermediate economic processes.

The de-layering effect can be illustrated using food supply as a comparatively simple example (though the issues involved extend right across the gamut of products and services).

The pre-industrial system for supplying food had few stages between farmer and ultimate consumer. There were, to be sure, millers, carters, coopers, green-grocers, butchers and a number of other trades operative between producer and customer, but there was nothing on the scale of today’s plethora of intervening layers, which run from fertilizer suppliers and agricultural consultants at one end of the spectrum through to packaging and marketing consultants at the other.

Looking ahead, the application of simplification and delayering to the chain of food supply suggests that, whilst product choices will narrow (ten sorts of breakfast cereal, perhaps, rather than fifty), some of the intervening layers will contract, whilst others will disappear altogether. Simpler products and simpler product ranges require fewer intermediate stages.

Extended across the economy as a whole, the implication is that we face what might be called a “great extinction” of trades, specialisations and, indeed, of whole sectors. As and when this forward trend gains recognition, it’s likely that businesses and individuals will endeavour to withdraw from activities which are at high risk of being de-layered out of existence.

Surveying new horizons

The economic processes described here are going to have far-reaching implications, most of which will be matters for subsequent discussion. First, though, it makes sense to recap the critical points of the foregoing.

The fundamental change now in prospect is that economic de-growth will set in, and will eliminate most of the expectations hitherto covered by the term “the economy of more”. The rate at which the economy shrinks (and the average person becomes less prosperous) will be influenced by a number of variables, of which critical mass and utilization effects are amongst the most important.

A reasonable working assumption, generated by SEEDS, is that people are going to get poorer at annual rates of about 1%, though there will, needless to say, be major regional and national variations around this trend.

This rate may not sound all that dramatic – though we need to bear in mind that it might worsen – but the shock effects of the onset of de-growth are likely to be profound, not just in the economic and financial spheres, but socially and politically as well.

As the economy gets smaller, it will also become less complex. Central strands here are likely to include both simplification (of products and of processes) and de-layering. The latter will involve contraction in some areas of activity, and the elimination of others.

The coronavirus crisis itself is providing us with a foretaste of some of these anticipated trends. In economic terms, the most important effect of the crisis is the hiatus in the cash flows of businesses and households. The consequent need to conserve cash (and to avoid going further into debt under circumstances of extreme uncertainty) is inducing conservatism into economic behaviour.

Companies and families alike are imposing new and tougher criteria on their expenditures, meaning that households are cutting back on “discretionary” (non-essential) spending, whilst businesses are minimising outgoings wherever they can. Companies are likely to make severe cuts in their marketing spend (because there’s not much point in advertising things that customers can’t or won’t buy), and will seek to renegotiate (meaning reduce) rents, outsourcing costs and other overhead expenses.

If – as seems very likely – this event marks (though it will not have caused) the onset of de-growth, it’s probable that newly conservative attitudes will continue. Consumers are unlikely to go back to “splashing the cash”, even when (or if) something nearer to “normality” is restored. Businesses which have, for example, downsized promotional expenditures and simplified their operations, are unlikely to revert to former spending patterns.

In short, this crisis may well have kick-started the processes of simplification and de-layering described above. Both of these processes can be expected to shrink some areas of economic activity and, in some cases, to eliminate them altogether.

Finally, these effects are highly likely to be reflected in other spheres, causing major attitudinal changes. Voters can, for example, be expected to be more supportive of essential public services, and less tolerant of perceived excesses in the private sector.

Governments themselves are likely, in due course, to recognise the risk of contraction in their tax bases and will, in any case, have gone much further into debt as a direct consequence of the crisis. Pressure for redistribution, and a generally heightened emphasis on economic issues, were pre-existing political consequences of deteriorating discretionary (“in your pocket”) prosperity.

At the same time, it is surely self-evident that governments cannot risk repeating policies which, rightly or wrongly, have been encapsulated into a popular post-GFC narrative of “rescue for the wealthiest, austerity for everyone else”.


227 thoughts on “#169. At the zenith of complexity

  1. Excellent as always, Dr Tim! We are seeing ‘de-layering’ in our village community here in Somerset during the ‘lock-down’, with people realising that they can obtain most of what they need from the community-owned village shop; OK, there is only one variety of tinned tomatoes, and one variety of porridge oats, but that’s just fine, really. Walk up my street and we see ‘The Old Bakery’, ‘The Old Butchers’, and ‘The Silent Forge’ – maybe to return one day?

    I was re-reading an old article (2005) by former investment banker Russell Taylor just now. This seems prescient in that he was describing the world just prior to 1914. That Edwardian afternoon was not quite as golden as we like to remember it. Terrorism was rife; it inspired the two great novelists of the time (Henry James with The Princess Casamassima and Joseph Conrad’s The Secret Agent), while also bagging at least one emperor, a king, an empress, two presidents (French and American) and two prime ministers together with hundreds of others before merging into the great bloodletting of August 1914.

    That anarchic terror was partly a reflection of the poverty and exploitation of the masses by the gilded few, but also the growing international tensions as world power began to shift. Politicians and economists alike believed in mercantilism (or that your nation’s prosperity is at my nation’s cost) and this theory left no room for the idea of a consumer society – with a demand for foreign goods that might result in an outflow of gold. An increasingly ill-tempered search for markets and colonies pitted the haves – Britain and France – against the have-nots, such as America and Germany, while these two latter also looked askance at the growing power of Russia and Japan.

    Newspapers, politicians and other rabble-rousers demanded ‘protection’ from those pesky foreigners dumping goods at the expense of our honest businessmen and their loyal workers but, on the whole, those years before 1914 saw a European and American middle class enjoying the fruits of prosperity. Rising share markets with investment returns protected against inflation by the gold exchange system, technical innovations such as the telephone and motor car and increased globalisation of trade brought about a desirable standard of living, much helped by low taxes and plenty of servants. There was little volatility in security prices, but a general Panglossian conviction that all was for the best in the best of all possible worlds.

    Only in July did investors understand that trade tensions had built into an uncontrollable level and that war was coming. Its outbreak closed world stock markets, and effectively bankrupted the City of London, half of whose assets were with Germany and Austria. London’s stock market did not reopen until the end of that year. Some say that had markets not been closed by the war, the ultimate crash would have dwarfed that of 1929.

    History repeating? Maybe so, but, You are right in that citizens are getting poorer, sometimes substantially so, as governments try and figure out a response to the current financial crisis catalysed by Covid-19.

    • Thanks Mark.

      A very influential British writer published a book in that period which explained that a war between Great Britain and Germany would be ruinous, economically, for both countries. This seems to have persuaded many that it wouldn’t happen, though that wasn’t, I think, the author’s intent.

      Shortly before the war began, Admiral Fisher recommended sinking the High Seas Fleet at its moorings, without a prior declaration of war. This pretty much what Nelson did at Copenhagen, and what was also done when three RN frigates captured a Spanish bullion convoy just before Spain was expected to declare war on Britain. In these instances, the Danes lost their fleet, and Spain was pretty much bankrupted, crippling both on the eve of war.

      In 1914, though, the King’s reply to Fisher was “you must be mad”.

      Espionage novels became much more realistic in the 1918-39 period, with most credit going to Eric Ambler for “humanising” spies into people with personalities, weaknesses and foibles. The book that realy shocked contemporary opinion though, was “Rogue Male”, Geoffrey Household’s novel about a failed plot to assassinate a thinly-veiled Hitler.

  2. Hi Tim,
    First thanks for all your work, a rare beacon of sanity and sense.
    On the radio this morning in Ireland the finance minister and key economic pundits were saying the downturn would be shorter that GFC1 and the recovery would be swift and Ireland is well placed in the world for the recovery (that is just around the corner, so implied).
    I say wow. Is this just sheeple fodder or do they really believe this stuff. Scary stuff.
    All best and thanks again. Richard

    • Thanks Richard

      I’ve heard that same line, and it’s either ignorance or a wish to provide false reassurance.

      It’s a while since I published an article on Ireland specifically, but Irish levels of financial exposure are truly horrendous (indeed, much the worst of the 30 countries covered by SEEDS).

      Unless GFC II stops far more quickly than most of us think it will, Ireland may have to throw herself on the generosity of the ECB, and of Germany.

  3. Thanks Tim, for this very thoughtful insight into the onset of de-growth. I fully concur with your views, but I’m sure that disbelief and denial will prevail for some time amongst the Davos club. I wonder at what point the stark realisation that BAU is finished, will actually register with the so called elites who shape policy?
    The theme of my response is to pose the following questions. Can the capitalist free market system work in a de-growth world, and should it be allowed to?
    I have been wrestling with the following thought for some time now. Once the realisation of de-growth enters mainstream consciousness and becomes the new economic paradigm, this could put the very viability of the free-market, capitalist economy, into question. The process of raising financial capital whether through equity or debt, could just freeze over. One of the basic underpinnings for most investments, is earnings growth (notwithstanding the unicorn cash burners, who will surely become extinct?), and in an economy of structural de-growth, there will probably be widespread breakdown of this model. I’m trying to imagine the absolute panic when Pension funds wrap their heads around the reality of de-growth. Even the economic winners, who have viable long-term markets, could find it difficult to raise investment funding. This in itself would hasten the demise of capacity that you refer to. The result could be that “supply destruction” runs ahead of demand destruction.
    When it comes to the erasing of whole sectors of the economy, let’s hope that they are the right ones for an energy constrained future. This brings me back to the nagging question of “can free market capitalism make the right choices”? Hitherto, rationing of resources in the vast majority of the world has been conducted through price discovery in free markets. But is that model fit for the future? It’s worked in a growth economy, albeit with some hideous instances of resource misallocation, but we have no experience of relying upon it in an economy of structural de-growth.
    Have we reached a point where the planned rationing of scarce resources, and in particular energy, is no longer something we ought to do, but something we MUST do, to maintain a civilised society?
    I find myself being repeatedly drawn towards the following thoughts. Scarce resources, and specifically primary energy, should be declared a global ”good”. Then, an agreed rationing method, based around resource conservation and “managed (economic) descent” should be signed up to, by world leaders. This might also involve the issuance of a new global currency, which would be backed by a basket of resources, such as precious metals, primary energy stocks, industrial metals and key soft commodities. Being backed by “Tangible resources” would avoid excess money printing, and the resultant excess claims on real resources. National governments would ensure that scarce resources were directed to the most necessary sectors, and companies in those sectors would be allowed to compete for business.
    As a businessman, and someone who’s always believed in free markets, I can hardly believe that I would utter such words, because it amounts to central planning on a grand scale. As we know, central planning has tended to be a very poor resource allocator in recent history. However, the times…they are a changing, and some new ideas are needed for sure. I welcome your critique on where I’m coming from.
    By the way, I doubt if governments of the world would actually get anywhere close to what I’m suggesting. More likely they will slug it out, and compete wastefully for dwindling resources. We could yet see energy wars.

    • My hunch would be that a lot of what I outline here is known to ‘Davos Man’, but they’re either in denial, terrified or simply trying to come up with workable solutions geared towards their own best interests.

      To be clear, the rich (if not the very richest), and the very poor, are most exposed here.

      By the poorest, I’m thinking of those in the world’s poorest countries, both in sub-Saharan Africa and in parts of Asia.

      For the wealthiest, the system that used to work so well for them is falling apart.

    • For the subsistence ‘farmer’, surely, not much changes. He was born with nowt – and will probably hang on to most of it.

    • It’s hard to see how capitalism along current lines could co-exist with de-growth. This said, what we have now isn’t capitalism.

      My view, even without de-growth being added into the mix, is that we need the benefits of the “mixed economy” – both public and private provision have their merits, and nationalising all plumbing firms would be a disaster, but so would privatising the police force.

      Within a mixed economy, we would benefit from a reset of private sector behaviour and incentives, with an increased emphasis on (a) competition and (b) ethics.

  4. Great piece, Tim. Unfortunately, it will not likely be broadcast far and wide anytime soon, as people seek hope under times of duress. The power elite seek to maintain relative advantage, and keeping things quiet is their strategy I think. Some academics might be among the first to grasp this change; and they can spread the memes slowly, not rocking the boat too hard at the risk of losing their jobs. The first two comments were excellent as well. It is not fun hunkering down, but at least some of us realize that there is no choice..not just because of COV, but because shrinkage is the new normal.

    • Thanks Steven, I agree.

      All I can do is analyse the situation using the systems and knowledge at my disposal, and present the results to you in, I hope, as objective and as readable a way as possible.

  5. Thanks for another thought provoking article. IMHO those areas with the highest energy consuption for the minimum gain and where there is a lower energy alternative will be the first to go. Right now companies across the world are making remote working actually function rather than being a sop to some half hearted notion that home working is a good thing. It’s now necessary that everyone in the company can work at home at the same time.. so the IT is creaking.. and being upgraded/fixed. The result at the end of the process will be we can all EXPECT customers, suppliers, employees and partners to have fully functional conferencing capabilities available at a moments notice rather than the “We’ll see if we can make it work” attutude we’ve had up to now, with few being prepared to go through the pain of getting things working. I wouldn’t want to be an airline selling business travel after this. (the 737max may never be needed)

    I also expect people to want to commute less often and less far. Why treck 100 miles into London if you can set up a local office for the 5 of you that commute in from your local town every day.

    I work in electronics R&D, specifically Radio Frequency electronics. I expect the UK to review the manufacturing base after this, I don’t think we’ll be wanting to be dependant on China manufacturing in the way we have been. The UK still has the engineering brains and capability, it’s just we’ve outsourced the final production of much of what we consume, the R&D, rapid prototype manufacture etc is still here, hence we can gear up rapidly to make respirators. In the same way that after Kobe (which took out the worlds supply of just the right material for integrated circuit packaging) we will be expecting to see diversification of supply, which could also mean localisation. It might be slightly more costly, but it will be more reliably available. We went half way down this road after the volcanic ash incident, pulling a lot of oursourcing back to Eastern Europe. I supect we’ll pull back further and start employing a lot of people made unemployed by your simplification in the returning manufacturing.

    • The UK has indeed reduced its manufacturing output, which has fallen in real terms, and is now less than 9% of the economy (it is over 17% in the EU).

      There has been a narrative of superb innovation and engineering offset by often atrocious management. Scope for revival certainly exists, and a combination of long-term capital, British engineering and the best management sourced from overseas could be highly effective. Developing a high-quality domestic management cadre would be difficult, though.

      On the other hand, though, the UK has become frighteningly exposed to the international financial system, with financial assets exceeding 11x GDP.

    • I’m not even working for pay, and I’m already feeling a strain to keep up with being expected “to have fully functional conferencing capabilities available at a moments notice”. Further, this is investment in hardware and software that needs to be made and re-made every couple of years. I live in an area where broadband service is not particularly broad, and where even cellphone service is iffy.

      I was alarmed to read of a parent reaching out on a local bulletin board seeking a very particular sort of Apple tablet and pen, so that his elementary-school-age child could submit drawings to the teache during our prison-planet lock-down. Hundreds (thousands?) of dollars of kit, when a pencil, paper, an envelope, and a stamp is all that would be required.

      What’s assumed by those envisioning increased reliance on digital technology is the continued health of the electrical grid and its primarily-fossil-fuel inputs.

    • The digitial/”tech” sector faces particular challenges, which I’m thinking through at the moment.

      In the longer term, of course, it’s going to struggle with worsening ECoE, de-growth and de-complexity. “Tech” is not alone in failing to recognise the implications of these trends.

      Nearer term, the coronavirus crisis poses problems to which I don’t think the tech sector is reacting very effectively so far. Several of its core business models are at risk of failure, and its responses so far look, at best, ineffective.

      I’m looking at a number of business sectors – including energy, travel/transport and tech – with a view to possibly publishing something in the not too distant future.

  6. Just more great stuff Tim! Amazingly the PTB are so blind to the heat engine that is the economy. Fewer middlemen will not be missed by the larger public. The efficiency of a system is proportionately inverse to its size, i.e. the more complex the less efficient.

  7. Although the article is a bit too heavy for me, being of simple mind, I’m all in favour of the ‘Simplification’ mentioned in it.

    I think we need to get rid of the ‘why use two when you can manage with four?’ mentality and see simplicity for the economic and other benefits it can provide.

    I grew up when there were only four kinds of bread – brown, white, large and small. Now you almost need a university degree to go round the supermarket bread aisles.

    As mentioned before, my design hero is Harry Beck – he who designed the original London Underground map by taking a relatively complex layout and simplifying it.

    We need more Harry Becks.

    • Thanks Eddy

      I know this one is complicated, having gone through several, ever-longer and more complicated drafts before starting again! This is a subject where some complexity is hard to avoid.

      Thanks for pointing this out, though – I’m pondering combining this (economic) and the previous (financial) articles into a short resume with a straightforward list of important conclusions.

      In the current crisis some firms are already finding that they can improve efficiencies and increase output by reducing the number of different products on offer – and the logistics of delivery are much easier with four types of loaf rather than fifty!

    • Thanks for the reply, Tim.

      My comment wasn’t aimed at your article but at much of life in general nowadays. Quite often, and the current situation illustrates this, the important things get lost in the welter of stuff heaped on us in our daily lives.

      We need to follow the example of the company whose Mission Statement was ‘Keep it Simple’. They became so successful that they had to move into smaller premises.

      Incidentally, I’ve just stumbled across this – https://goodgovernment.uk/

    • Agree about the need for a university degree to choose bread. But it is worse than that. I recently returned to live in UK from Portugal. In Portugal there is a more limited choice of fresh bread, but it is all different and tastes great. British bread all seems very similar to me and very poor. It is even advertised as ‘soft and fluffy’ (ugh!). It all seems to be similar, cheap, low quality bread, but with different things added – sun dried tomatoes, different seed toppings, 2% rye etc. I think that a lot of what we think is a wide choice is not really a true choice at all and this applies to many commodities.

    • To TrevorC.

      You’re right about an abundance of choice. I always seem to be the one staring at the supermarket shelves deciding what to get whilst they’re putting the cat out and locking up.

      I read the other day that there were 12 million people in the UK who weren’t ‘online’ and had expected the figure to be higher, such is the complexity of modern-day computing.

      Several years ago, a group of computer whizz-kids in the US recognised the complexity issue and attempted to get their idea to market. Unfortunately, it didn’t take off.

      The following video, part of their campaign, hit the head on the nail for me:

      [video src="https://ksr-video.imgix.net/projects/185158/video-148316-h264_high.mp4" /]

    • Trevor, British bread is made in industrial bakeries using the ‘Chorleywood’ method.
      This process was designed to bake bread using low quality English wheat, by adding large amounts of fat, ascorbic acid and yeast, and using a short proving / baking cycle of only a few hours. Eating it always gives me heartburn.
      When I come back from Germany, I always bring some bread with me, even though it is 6x the price of a loaf in the UK.

    • I’ve read that food producers are simplifying their ranges of products in the current emergency. That improves efficiency both in processing and in distribution.

      A lot of projects that we’re being told will change our future are in contravention of the two principles we need to be adopting now. First, we should forget about anything which would require more energy use. Second, we should avoid anything which introduces additional complications.

      I’d like to think that venture capitalists would grasp these principles, supporting companies whose proposed products and services conform to these priorities.

    • To Tim.

      I once read of the numerous inventions created during the last war, most out of necessity.

      I hope the current situation is the catalyst that sparks reviews of how things are done and how they can be done with less resources. Value Analysis as it was, all those years ago.

      In particular, I hope the UK can be ahead of the pack with new ideas before we have them forced upon us through necessity.

  8. Dear Tim,

    I am curious that you don’t seem to be mentioning the fact that many elements of the economy, or of infrastructure, will be difficult to operate at lower rates of consumption (a stadium built for 10 000 paying punters will find it difficult to operate with a regular crowd of only 5 000; a highway built for 10 000 cars per day cannot be maintained if daily traffic decreases to 2 000…etc.)

    Surely this not only means that degrowth cannot be managed, but also that degrowth is only possible through ‘accident’?

    Another point I would like to make, is about poorer countries. Not only will all of the factors in your piece above affect them greatly as well, but, because of their low levels of development, any backsliding will rapidly throw them into truly abject poverty. The West and China will be too busy to step, and may not have the ressources to do so anyhow.

    Not only that, but for countries in most of Subsaharan Africa, which continue to have rapid demographic growth, and a huge youth bulge, simplication, alas, is not an option. Here too, degrowth (if it can be called such in this context), is likely to be both unmanaged and unmanageable.

    • First, I think I do mention the ‘utilization effect’, whereby systems become non-viable where user numbers slump. De-growth isn’t something most people would choose, but something I believe we’re stuck with.

      In discussion of the previous article, I said how much I fear for poorer countries, especially in sub-Saharan Africa, and would love to add more of them to the SEEDS system, but the data simply isn’t available, or at least, I’ve not managed to find it.

    • Thanks Tim, I didn’t know the definition of the ‘utilization effect’… and therefore did not see/read it.

  9. Dr. Morgan
    As usual, a very good essay.

    A question for you. Trump has proposed a 2 trillion dollar program of ‘making America’s infrastructure great again’. Regardless of the details of where the 2 trillion might come from, the more urgent question is ‘what kind of infrastructure?’

    As you point out, it probably isn’t expansion of airports and cruise ship terminals. Jim Kunstler is always promoting the refurbishment of railroads and canals and river transport. I would like to see more money going into restoration of the productivity of farmland and forests. At a rate of decline of a percent per year, it seems to me that reliance on railroads and water transportation should serve us for a good 50 years. I also suspect that such restoration would involve the labor of a lot of young people who may well be needing a job. But I see a huge gap between the Spring Break exhibition of hedonism and fatalism and the reality of student loan burdens and my notions of what their future might look like.

    I think of the movie Ecstasy, which featured a young (and naked) Hedy Lamar from a hundred years ago. Hedy gets in predictable trouble when she sees a handsome engineer overseeing road work of a bunch of guys with picks and shovels. After emigrating to the US during WWII, she got a patent on some of the basic technology of cell phones. So we have gone from picks and shovels to apps in the last century. Now we are likely to experience something that is not identical, but surely will contain some rhymes.

    Do you have any suggestions for:
    *What parents and grandparents might do to assist their offspring’s transition (other than dying quietly and getting out of the way)?
    *What governments might do…how would you testify at a Congressional hearing on the 2 trillion dollars?

    Thanks….Don Stewart

    • Investing $2tn in infrastructure could make sense, and I agree with Jim about rail and other things that I’d call ‘cost-efficient, robust basics’. On the other hand, I see no point at all in ploughing money into, say, roads or airports.

      I know this takes me into US politics – where I don’t want to be! – but investment in healthcare for ‘middle America’ would make a lot of sense to me. Apart from the moral argument, a healthier population and a healthier workforce is of enormous national value.

    • We would have to maintain the roads a lot less if we put freight on rails and rivers. Trucks are hard on highway infrastructure. Encouraging movement of goods to rail delivery will drive people to those existing locations, which would be beneficial as sprawl is unaffordable as Kunstler knows. Making that transition would allow roads to decline at the same rate as private vehicle traffic while investing in more rail. We could begin to electrify the new rail lines, which would propel the public as the road systems were withdrawn from use.

      Farming would be mechanized and automated reducing the infrastructure costs. Cattle Ranching would die and the fences torn down, to let the Bison run around. As these herds increase and domestic cattle are reduced the management of this land could be less intrusive too. This receding could be managed as well as tourism and travel could still occur as long as the horse replaced the RICE.

      Society would have to be managed on a grand scale as Neill said, while the more likely outcome is resides in the historical echoes of Mark Meldon’s prose.

      The Energy is still there to do it worldwide and equitably but the easiest way to do it, the world will not do. Act like a Corporation and buy a US Senator or Congressman in each State that has these ideas about what to do. America could help negotiate a good plan with a good Congress. Corporations already know this, which is why our system is bought. Impossible I know, but I try.

      PS Tim – I linked to your article in a comment by a Michael Madden on WYOfile.org website and it would be interesting if anyone from an IP address other than mine made the attempt? I do not know if you can track that metric, but I thought I would ask?

    • There’s a great deal to be said for optimising efficiency, and moving freight from road to rail is one very good example.

      Two factors in the current situation favour such thinking.

      First, de-growth means that we can no longer afford what we might call ‘wasteful preferences’, and there needs to be a new emphasis on efficiency.

      Second, simplification (of product ranges, for example) suggests that distribution could be streamlined, heading back towards a ‘bulk’ shipment model which would favour rail.

  10. Complexity in Degrowth
    Humans are actually biological creatures, whether we like to think that way or not. So when we think about complexity, it is always wise to take a look at Nature. Here is a new article explaining how competing plants in the highlands of Britain can maintain high levels of complexity…i.e., species complexity:

    Briefly, different plants prefer different forms of phosphorus, and so complexity is maintained. In an industrial field, only one type of phosphorus is likely to be supplied, which leads to an impoverished ecosystem. So less reliance on industrial systems and more reliance on biological systems yields MORE complexity and more resilience and more productivity per hectare.

    A number of comments above refer to the re-establishment of local businesses and the shortening of supply chains and less reliance on super-factories located far away. That can be seen as re-establishing local complexity, similar to the re-establishment of complex grazing pastures.

    Don Stewart

    • Yes, the complexity=inefficiency equation doesn’t seem entirely right to me. Rather, I would imagine a sweet spot which might be overshot under certain conditions (as we are currently experiencing). In energy terms, I’m pretty sure industrial food systems (yielding 1 calorie per 10 fuel-calories input) are still more efficient than the $50 backyard tomato of which we probably have all heard.

      We have to ask the question, “efficient *at what*?”

      Remember, if we are dissipative structures, our contributions can’t be effectively contrary to that end: our collaborative superstructures must release more energy than we would release on our own, without them. Part of that energy release is then consumed by us and put back into the super-structure (when there is a surplus). Being more efficient only means more can go into the superstructure and/or the production of human biomass, eventually bringing it to the point of overshoot/exhaustion/collapse all the faster. Seems related to Jevon’s paradox.. or maybe it’s just very late at night.

    • @Lydia17

      I’ll try to respond with just some suggestive highlights.
      *Begin with Rebel Wisdom’s web site, featuring a series of thoughtful systems thinkers discussing systems failure:

      Featuring especially Nora Bateson and Joe Brewer. This is, as you might expect, a jumble of thoughts, each of which requires careful thinking when careful thinking is in very short supply. But a broad description might be: The world should have paid attention to systems thinkers long ago; when the connections between systems are ignored, really bad things happen; the world is about to change rather dramatically. (This is at the opposite end of the spectrum from the two psychologists I referenced a couple of days ago…”by mid-June, it will be party time again”
      *I make a distinction between ‘efficient’ and ‘effective’ because I too believe in the systems philosophy and especially the connection between systems. I was first influenced in this direction by the book The Effective Executive, published by Peter Drucker way back in 1966 when I was just beginning to make my way in family life and corporate life. The essence of the book, stated in Nora Bateson-like systems terms, is that an executive (or anybody trying to change the way something works) needs to stop trying to be efficient at unimportant tasks and start becoming effective on the tasks important to change. Thus, building an automobile which gets another mile per liter is, in my opinion, an unimportant task in terms of saving the world in the sense that that is understood by Nora Bateson and Joe Brewer. Figuring out ‘what comes next’ is the ‘effective’ question. You will see that determining ‘what are the effective questions’ depends very heavily on how we answer questions related to the question of future availability of fossil and nuclear energy…but also the difference between industrially processed energy and more passively processed energy arising free from Nature, such as sunlight and energy gradients and photosynthesis.
      *Dmitry Orlov has just posted one of his enlightening/ infuriating interviews. I recommend it:
      Just one of the points Dmitry makes, which derives directly from his Peak Oil in the Rearview Mirror conclusion, is that everyone needs to practice living simpler lives…get used to not having much money. The contrast with the bushels of money pouring out of the central banks could not be more enlightening. Either the Central Bankers OR Dmitry are taking an effective look at our options, but not both.
      *David Holmgren, the Australian co-founder of Permaculture, is a living example of the same sort of thinking Dmitry espouses. David long ago coined the term ‘collapse now and avoid the rush’. His latest book is a compendium of case studies of retrofitting suburban Australia to a much simpler life, which Dmitry would recognize. RetroSuburbia: The Downshifter’s Guide to a Resilient Future. David argues that retrofitting our existing infrastructure is the ‘effective’ solution…from which many ‘efficient’ corollaries can be derived.
      You can visit the website and get an electronic copy (which I am too old to actually use) for whatever you are willing to pay. Holmgren epitomizes the difference between efficiency and effectiveness. He begins with effectiveness as a product of the Energy Descent future, and only then zeroes in on efficiency.
      *The GDP First view of every politician and economists like William Nordhaus of Yale and the UN Development goals and the Gates Foundation is that the main thing is money changing hands, which is what GDP is. This consensus is quite willing to postpone any considerations of efficiency into the future when we have the leisure to look at such matters, and argues that effectiveness cannot even be defined because of some changes the economists put into their models 50 years ago using New Demand Theory…if the market buys it, it is by definition good. It is the opinion of Nora Bateson and Joe Brewer that the pandemic has severely undermined the GDP First view. The two psychologists I referenced earlier think the GDP First and Party-On view is just hiding in its burrow, and will soon come back to the surface and there won’t be a serious person in the bar.

      *To your points about the Jevons Effect. It all depends on what one is trying to maximize. It is quite possible for humans to live in groups in which Esteem is the currency. Some psychologists now believe that the underlying key to happiness or contentment or life satisfaction is the feeling that others in our group hold us in esteem. We are useful. One can see the current worship of celebrities as just about the opposite pole of a society which values people who are actually useful. Nora Bateson will know a lot about how we might go about getting from where we are to where we need to be.

      Don Stewart

  11. I’m all for simplification. But, in an era of de-growth, how do we avoid very high unemployment and the effects that follow, including hunger and social unrest?

    • De-growth isn’t something many would choose but, to me, it’s the situation we’re in, and we have to manage it as best we can.

      Redistribution – motivated by necessity, not by envy – is likely to be an important part of any effective response.

  12. Tim,

    I really enjoy (not sure that is the right word in the circumstances) your analysis.

    I tend to think we are at a watershed moment – I note that the President of the AA Edmund King is even advocating increasing money for Internet infrastructure. He feels people that are working from home, will stay working from home. Strange thoughts from the head of a motoring organisation.

    My thoughts (as a non economist) have been focused a bit of what may come next for the worlds economies. Are we going to see an increase in inflation due to Central Banks increasing money supply – and will we have jobs to pay for these higher priced products and services. I keep thinking Stagflation?

    Personally, I think we’re going to need a reset – so the cancellation of a lot of debt in the system (which is going to be painful for some) and a mass mobilisation of labour. I have a feeling though, they’ll just kick the can down the road a bit more.

    Time will tell…


    • Thanks.

      In the interests of (relative) brevity, I quite intentionally left the inflation question out of this.

      In the short term, increases in the quantity of money will be dwarfed by a collapse in the velocity of money (how quickly people spend it). This for me spells deflation.

      An inflation risk would only arise if the authorities went completely crazy, pouring in vast amounts of new money in an effort to restore the status quo.

    • “An inflation risk would only arise if the authorities went completely crazy, pouring in vast amounts of new money in an effort to restore the status quo.”

      I’ve read about possibly 4 tranches of 2 trillion. That might do the trick. It also might eventually break the back of the uber dollar.

    • Steven

      I think what we’re seeing now is a collapse in monetary velocity, with businesses and households turning ultra-cautious.

      Theory states that (Q) quantity increases could more than offset falling V, leading to inflation. But Japan is an interesting example of this seemingly not happening.

      What also matters is where liquidity is injected into the system. Hitherto, injection has been confined to the capital markets, where we have seen high inflation.

      Additionally, of course, inflation numbers are understated, which doesn’t help either assessment or policy. Shadowstats is particularly strong on this.

  13. In the short time since the dreadfulness erupted I have set up an email group in my scattered village of about 200 houses in the Welsh Marches. Over 100 subscribers so far. In the old days (a fortnight ago) we didn’t know each other. Now we are beginning to.

    I sent out a link to Tim’s latest, to the email group. One response was “Interesting article Barry…and replies. But, like many economists, he makes a complicated case for the relatively obvious idea that a) times may never be the same again, b) we Westerners can not expect life standards to grow & grow for ever.”

    He is a farmer.

    Which makes we think that maybe we are wasting our time trying to convince the top-down thinkers. Better to mingle amongst those whose mindsets and thinking is bottom-up?

    • I like the farmer’s attitude.

      Even with lockdown, most people don’t have the time to plough through even an iota of the daily barrage of information pumped out on the internet.

      In today’s world of information on steroids, messages need to be much simpler to get their key points across.

    • Thanks Barry

      Necessarily, this article had to be more complicated than most here, because that’s the only way of condensing a large amount of material into a short-ish piece. As I’m sure you know, I try at all times to use a relaxed, almost ‘conversational’ style, and keep jargon to a minimum.

      This said, point taken. But it’s not enough for me to summarise it as your farmer did, because we need to do our best to understand the processes that are shaping things.

      As I see it, these two articles – #168 on finance and #169 on the economy – set out the overview. From here on we can discuss parts of that, in a more approachable way, because we have the framework in place.

      ‘Conventional’ economics will, no doubt, assert that everything was fine until the virus came along. If that mistaken view is accepted, we’ll continue to make avoidable and costly mistakes.

  14. A very sobering read, Dr. Tim.
    While this virus scare is foremost in everybody’s minds, the economic severity of our situation is lost on most.
    Most people are convinced that we are experiencing a temporary blip, we all spend two weeks indoors, and then we all get back to normal.
    Get ready for a bucket of very cold water being poured over our collective heads !
    Others say that this is a wake-up call for the UK’s manufacturing sector, well – yes it is. The only problem there, is that there is no manufacturing sector in the UK to speak of. We no longer have the qualified engineers and technicians to do the manufacturing. Restarting manufacturing after it has been abandoned in favour of financial services is not possible – the skills are gone.
    UK manufacturing is not asleep, UK manufacturing is dead. Dead as in ‘This parrot is no more, it has ceased to be.’
    The De-Layering that you speak of is already evident, look at the airline business. How long will it be until countries re-open their borders to foreign visitors ? Austria demands a health certificate for non-nationals to enter the country. Where am I going to get a Health Certificate from ? Every health practice is working all the hours that God sends them to attend to the sick. Where are they going to get time to do health checks and issue bits of paper to everyone ?
    So the travel industry is effectively de-layered already, and with it all the duty free shops at the airports. (Thankfully the perfume industry will go down with it, – I suppose every cloud does have silver lining after all.)
    The environmentalists will be popping the champagne as perfectly serviceable aircraft are left to rust at disused airports. The Boeing B737-Max will probably never fly again now.
    I think that we will find more examples of jobs which have effectively been de-layered when the Virus scare is over, and when many jobs simply no longer need doing.

    • Johan,
      While I agree that manufacturing has been shamefully relegated in importance to financial services (and other “sexy” sectors), I don’t see it as being dead and buried. I have spent much of my career in the engineering/manufacturing sector, and I know that there are still some very good companies out there. Also, there are some very good engineers within manufacturing, but there’s most definitely been a skills shortage. Recruiting good engineers and managers has been problematic. Recruiting high calibre engineering apprentices, who actually finish an apprenticeship can be even more problematic. Too many young people want to develop apps, or do a degree in media studies. Maybe that will change. Government needs to promote the importance of indigenous manufacturing. Localisation and self-sustainability are important themes for the future economy.

      Regarding loss of the manufacturing base, I think one of the biggest issues, is that we have abdicated whole segments of the manufacturing base to global competition. Consumer electronics was largely abandoned during the 1980’s, along with ship building, textiles…. and so the list goes on. Many of these sectors were important contributors to GDP, paying good wages, and producing important stuff. My hope is that out of the wreckage of this crash, combined with the opportunity created by BREXIT (remember that?), we can see a revival for this important sector of the UK economy. We just need to make sure that we manufacture the right products, and avoid those market segments which are destined to wither as de-growth progresses.

    • Sorry Neill, a wee bit of hyperbole on my part, just for effect.
      As for attracting and keeping good apprentices, well that part is easy.
      Pay them great salaries, and stop all funding for Social “Science” departments at all universities.
      If we are ever going to get out of this, it will mean paying the people who actually do something, and letting the parasites go hungry.

    • Indeed, Johan, a lot of the stuff we’re discussing here was already becoming evident. After all, sales of smartphones had started falling, and car sales had plunged. Likewise, it was becoming apparent that the debt-fuelled “growth” model was running out of road, most visibly in China.

      Part of the problem is labelling – this crisis is labelled ‘medical’, so primacy is given to clinical expertise. That’s fair enough, in a way, but the economic dimension is critical, too, and therefore needs more prominence.

      Optimists might say that this situation will force us into new thinking about how the economy best meets the needs of everyone. Others might contend that BAU will try to spin this is a “one-off”, which doesn’t invalidate previous thinking and the previous system.

  15. Tim, another great article, containing very useful concepts and framing for understanding the process of degrowth.

    Don, as readers of my comments know, I am not very sanguine about the ability of government to get in front of the curve and use rational resource management and husbandry to effect a more beneficial transition. However, as long as we are dreaming about possibilities, while Kunstler is wise to recommend that we bolster railroads and canals while we can, I would think that re-localizing food production – and storage! – ought to be number 2 or 3 on the list.

    I am thinking particularly about cities and food supply. If you do a google earth view of Montevideo, UY, e.g., you will see that there is a large patchwork of small farms within a radius of 15 miles around the city center. UY is a country with 4 million people and 12 million cows. Beef is a principal export, so that’s going to take a big hit, but speaking purely from the perspective of possessing the physical means of support, Montevideo is better poised than many places to make a transition.

    The Eastern seaboard megalopolis in the U.S., not so much. The Hudson Valley is productive and is linked to NYC via the Hudson River, but supporting a population of the NYC metro region of about 16M is not in the cards. Plus, large amounts of infrastructure in NYC are already close to failure.

    Small cities, however, might be able to survive (or survive better) particularly if they begin providing for small plots or small farms within city limits. Apart from the small detail that cities don’t have any money and can’t print it, the cities could take property by eminent domain and re-purpose it. The mini-farms would be a source of employment as well. The cities will also have opportunities to do this as people lose properties for failure to pay taxes. Buildings could be razed and the plots re-purposed as community gardens.

    Neighborhoods could create food co-ops to purchase and store – for resale – grains and beans (which properly stored can last for about 10 years), nuts, over-winter staples like potatoes, squash and hard cheeses, and locally jarred (“canned”) fruit preserves and vegetables, all of which will become primary again as the food supply becomes seasonal again. ( I am old enough to remember my grandmother on my mother’s side canning tomatoes and making jams when I was very young, but by mother’s generation this was passé because – progress! The James Dean generation was too cool for school!) Creating local food co-ops is something people could actually start doing now without waiting for government to “lead”.

    • Out in the rural sticks we are getting our act together. In contrast our local authority has just asked for volunteers to help our communities. By filling a form in which includes our DBS approval (Disclosure and Barring Service) which I understand includes a police check.

    • Thank you.

      Governments are indeed behind the curve, not just of the pandemic itself but of economic trends, and necessary responses. There will need to be ‘inquests’ into this event, ideally by each country, so that we’re not stuck with a single view coming out of global organisations.

      My reason for laying out all of this in a single article about the economy was to set out a framework, into which new ideas can be located. Simplification and de-layering could indeed help make a strong case for localism. Excessive complexity – in everything from manufacturing, services and supply to infrastructure and government – has not helped us, and has tended towards greater centralization.

  16. Apparently the small business bailout program has already hit a significant snag. Turns out that you can’t apply for a forgivable loan unless you already had a lending relationship with a bank prior to mid-February. An article on Zerohhedge describes the unhappy discovery for many, many small businesses.

    “JPMorgan is even more draconian in its selectivity of whom it will hand out Treasury-guaranteed money to. As the bank notes in its ironically-named “CARES” website, “You must have a Chase Business checking account as of February 15, 2020.” Anyone who does not is straight out of luck.”

    “And as countless other banks follow suit, the question becomes is this how the banks that were bailed out by ordinary Americans in 2008 will treat those same Americans when they need a rescue too? Alternatively, what happens to these banks when millions of small business fail and America’s economy plunges into an even deeper depression. One final question: how is it logical for banks to only bailout those companies which already have debt and are by extension riskier, than to provide funds to their ordinary clients who only now, for the first time, need a helping hand.

    We eagerly await Steven Mnuchin’s answers to these questions.”

    The government seems almost entirely incapable of organizing bottom up support, it’s trickle down to the death.

    • In some ways this situation really needs new ideas, and perhaps new institutions.

      For example, and however generous the terms and however extensive the reach of such programmes, businesses are still being expected to go deeper into debt to survive this crisis. More debt is more debt, however you look at it, and certainly isn’t universally appropriate. It’s an out-dated kind of response to a problem without precedent in modern times.

    • The US scheme supposedly forgives part of the loans to small businesses (making them like grants) if payrolls are maintained for a period of time. I’ve not studied the details. There are “payroll” loans, and “Disaster” loans with different requirements and rules.

  17. Another excellent article Dr Tim! Thank you.

    I do wonder if the Coronavirus will result in making it more difficult for your ideas on ECoE to gain traction among the PTB? Unfortunately the economic downturn and the resultant GFC2 are likely to be blamed on the Coronavirus rather than the root cause being identified as (lack of) surplus energy. OK, this crisis has highlighted some additional factors such as the disadvantages of outsourcing and precarious overseas supply chains with a just-in-time system. Also, perhaps, the dead weight of debt hanging like the sword of Damocles over many individuals and companies.

    But I fear that the outcome will be just papering over the cracks – such as bringing some manufacturing back onshore and the attempt to pay down some debt. It doesn’t help that the NHS ‘religion’ makes politicians refer to almost anyone who doesn’t work for it as non-essential. Presumably we need neither engineers nor entrepreneurs to rebuild our industry and pay for all of the extra government expenditure?

    • Dr.Ian,
      Not to take anything away from the many hard working staff of the NHS, it is important to recognise that Healthcare is only one of many services that we use.
      To be frank, it is really not essential at all, in a Darwinian sort of way.
      It is the Farmers and the Miners and the Trawlermen who are essential. It is the Engineers and builders who make the tools who are essential.
      You point out entrepreneurs, quite right. We need people with ideas and who are willing to take quantified risks.
      In the rush to get back to BAU ( not happening btw ), as you say the cracks will just be papered over.
      However I do not see the cosmetic finish lasting very long. The avalanche has already been triggered. We are heading into a deep depression.

  18. Nice piece doc. Good to see you’re combining seeds with the blog input to come to conclusions. Cooperation….

    Compliments. Now that we all know we’re in decline, in financial terms that is, we will have to fend off the constant ‘Davos’ msm attacks on reality. As long as twitter posts rock oil prices with 20-30% upswings we can confirm critical mass is not breached. Yet.

    • Thank you. I do think that SEEDS is useful, at least in clarifying where we really were before this crisis started.

      BAU will hang on as much as it can, of course, and no sector is going to want to be de-layered out of existence.

      But the Davos types could serve their own interests – as well as ours – by getting used to the reality that has long been presented by those who understand the economy as an energy system. Historically, denial and deliberate ignorance have never been much of a strategy.

  19. Just a thought:

    Life on earth arose as a self organising system growing against the current of a declining energy gradient.

    Some things will actually grow against the current of this degrowth gradient too.

    Its all hopeless in the end though :/

  20. Excellent analysis Tim. How far will prosperity fall before we face what Joseph Tainter called a ‘Maintenance Crisis’? Presumably if tax revenues and disposable income continue to fall, we will eventually reach the point where essential systems begin to fail, like transportation infrastructure, reliable power production and the national grid infrastructure. Were this to occur, collapse would be rapid and there would cease to be a linear and predictable relationship between ECOE and prosperity. Do you have any thoughts on how far away that point may be?

    • You raise a very important subject here Tony. I’m sure that Tim will have an answer, but allow me add my thoughts too. With careful management and prioritisation, there should be more than enough surplus energy to maintain the national grid (power distribution) for the foreseeable future. Power generation faces challenges of existing capacity being retired (coal) or scheduled for retirement in the next decade or so (nuclear). At the same time, demand might be expected to fall as de-growth sets in. When it comes to prioritising, in my opinion, nothing is higher priority than the electrical supply system. Why? Well without it, our modern society would definitely collapse. The most basic of our survival requirements would be compromised. That is clean water. The water system, is completely interlinked with the power generation System. The water sector is one of the most energy intensive sectors in the UK, and accounts for about 3% of total energy use. Energy supply failure = water supply failure in the long run. The other side of the relationship is that power stations are a very big user of water. Linking back to my reply earlier in this posting; governments are going have to be on the ball and make prioritisation decisions over the allocation of scarce resources. I wouldn’t be at all surprised if we were to see re-nationalisation of key infrastructure including power generation & distribution, water and rail.

  21. Tim, I am writing regarding uk food production and the huge armies of Eastern Europeans imported to pick it who presumably will no longer be available to do so in future.
    I live in an area of the south east that is mainly fruit growing – fruit trees, berry bushes, strawberries, plus hops. Yes the garden of England. You still see lots of very old ladies walking around with deeply grooved faces from years in the sun picking fruit. They also have lots of back and shoulder problems from bending and repetitive actions. In the past (before import of foreign workers) who picked all the fruit and vegetables? Answer – women with their pre-school or on holiday children in tow, plus in the summer gypsies and travellers (Irish) and students (school age and university).
    Every one of those ladies agrees that the one thing that got us to the point where we despair of our lazy English who won’t work, or even no longer have it in them to work hard in the fields, is health and safety. As soon as new h&s laws stopped mothers from bringing their children into the fields, it was the beginning of the end for casual English workers. To make up the numbers, agencies went to foreign countries (I think around here it started with Russian students) and brought them back and created a summer work package for them that included caravans to live in, transport to get out and about, meals, social events etc. Years later, a lot of Eastern Europeans now live here all year round and not just on the farms of course.
    The permanent result has been to push out all the English casual workers. My niece now in her 30s was probably one of the last youngsters to have been able to earn casual money in the fields, picking strawberries. Now if a student rocks up to their local farm there is no job available as all the labour is ‘on a package’ and extra casual labour just does not fit into the current farm system.

    • Lilly, soon there will be boatloads of bankers and ‘migrants’ to fill the gap.

    • Hi houtskool
      Yes the mighty will fall, eventually.
      I am wondering how we get to unwind all the laws and legislation without making matters worse.

  22. How to make billions disappear down the rabbit hole

    This is an insightful article showing the details of how to defraud investors in the shale business. And also how to parlay one’s PR success in the process of personal profit amid corporate collapse into ‘alternate careers’ in the religion and higher education worlds (I didn’t call them rackets).

    At the present time in the US, the push is to re-legalize anything that was made illegal by the likes of Dodd-Frank. I don’t see many people in Washington interested in restricting financial debauchery.

    Don Stewart

  23. Example of Confusion in Washington
    “The API, many of whose members operate globally, has opposed the idea of an oil import tariff, which could hurt domestic refiners and complicate projects and business relationships across borders.”

    The first instinct of the Washington staffers who have been imposing tariffs around the world is to place a tariff on imported oil. Yet Art Berman has pointed out that the amount of oil produced in the US which has a density less than 35 is only 20 percent of the refining capacity in the US. The solution has been to import and blend higher density oils with the very low density US oils. The integrated majors understand this very well. It’s not understood at all by the ‘sound bite’ politicians. I think it goes some distance in explaining Washington’s desire to conquer Venezuela, which produces a lot of high density oil.

    I guess the point of this is that ‘oil’ is not ‘oil’…it is a mixture of different products with different physical requirements and use powers. As oil declines, it becomes probably more important to maintain a global oil market.

    Don Stewart

  24. Please note:

    As with #168. Polly and the sandwich-man: Scoping Financial Risk, I’m planning to convert this article into a downloadable PDF, this time with a short new introduction.

    This is going to keep me pretty busy, so I hope you’ll understand that it might be a couple of days before I can reply to the many excellent points that you’ve made here. I’ll do my best, though, to keep up with any moderation that may be necessary.

    Do please keep your comments coming!


    The PDF can now be downloaded here.

  25. One more comment on Trump and Oil
    Trump made a comment about being in competition with Saudi and Russia. Exxon-Mobil said ‘let the free market sort it out’.

    My comments is that petroleum and natural gas are like a family: a mixture of competition and cooperation. Leaving it alone is likely to yield the lowest cost solution for the delivery of a product…but not necessarily the most socially redeeming product. As one example, above I showed that the US refinery business is overwhelmingly dependent on global blends of inputs. While there is some competition in that, it is more accurately described as ‘cooperative’ or ‘the invisible hand of the market’. As for natural gas in the US, natural gas today is selling for historically very low prices. The reason in the US? Because the ‘oil’ wells drilled in the shale districts also yield a lot of natural gas. This ‘associated’ gas costs essentially nothing at the margin (assuming you can flare it) and so undercuts the natural gas wells in the big Appalachian fields.

    A company like Exxon-Mobil or Shell or Chevron think in terms of the totality. An ‘America First’ president doesn’t naturally think that way. We will see what happens.

    Don Stewart

    • The problem is that we’ve not managed (or understood) the implications of rising ECoEs. Energy costs us more in ECoE terms than it did ten or twenty years ago, which means that we have to go without other things in order to afford it.

      This extra cost may not, necessarily, come directly out of consumers’ pockets in the form of higher prices. Indeed, that’s not a high probability.

      One alternative is some form of subsidy.

      But another is that we, as societies, simply don’t pay up. If that’s what happens, energy supply shrinks, with obvious economic consequences.

  26. Tanking Economy; Covid 19
    Here is what I think is a very good interview featuring Ari Whitten and an experienced practicing doctor who has worked extensively on viral infections:

    He is an osteopath, as well as an MD. He points out that the osteopaths had much better outcomes during the Spanish flu epidemics because the osteopaths emphasized stuff like getting outside with some sunshine and sleeping well and exercising. It’s ironic that some Governors in the US try to prevent people from taking walks or riding their bicycles.

    There is so much stuff in this interview that I am not going to try to even list all the important points. I will suggest listening, about half-way through, when he recalls what his 10 years old daughter said about ‘people going crazy and unable to think’. And, near the beginning, when he states that he suspects people in the United States were experiencing the virus in December and January. What they were experiencing was mis-diagnosed as influenza.

    Don Stewart

  27. My personal view and situation.
    I’m in sales, currently working at home, with ‘sales’ not appropriate to many. So i took the initiative to provide better cash flow. Adaptation.
    Last december i terminated my financial assets into cash, phyz gold silver & home improvements. Many years ago i could have tied most of my financial assets to my mortgage, in that case i wouldn’t have to pay taxes on my net wealth (Holland), that’s the way it works in fiat country. I chose not to do that, about 15 years ago, so i would be free to act when the time comes. Lucky till now. Bought physical gold and silver for many years, but i’m not wealthy, so don’t think i could sink a boat with it. Extra effort in my job to make sure i’m not within the first 30% laid off. Adaptation.
    I’m looking to join a small local farming community to provide for some prime food and knowledge.
    Maybe i go door to door trying to move people to start little vegetable gardens and exchange the results between them. Adaptation.

    Bought biological seeds and tools. Have fun with such stuff while looking at the horizon. Don’t fear, enjoy. Don’t worry, adapt.

    We used poison against creatures we depend on, like bees.

    Adapt people. And use your f*cking brains.

    • “Repent and put your trust in Jesus Christ our Lord.”

      As they say in NYC, that and $3 will get you on the subway (metro).

    • Agree, your plan is excellent: it’s both a stimulating and useful experience if one approaches it in the right way.

      In the same way that many people rather enjoy war – a release from the day to day banalities, with a touch of real, but not constant, danger.

      Also in the same way, when this is over (or we are ‘on leave’ between waves of the pandemic) people will be crazy for some fun, which is something to look forward to…..

      Isolation can be seen as a spiritual retreat to be used well – if you don’t go bonkers.

      Accept everything with open hands and a sharp brain.

      I have lots of soldiers in my ancestry, and quite frankly rather enjoy the abnormality of this, the need for planning and foresight: and what most preoccupies a soldier?

      Not killing, but saving his own skin, and those around him.

      Dealing with an awful lot of boredom, too.

      Many people will be learning much about themselves and how things really work.

    • Thanks Xabier. We are all hospitalized and about to go out for the first time in our lives. Scary at first. We don’t belong in a circus.

  28. From Jeremy Warner in the Telegraph – basically the start of Degrowth by any other name

    Eventually, the coronavirus
    outbreak will subside, but with an economy that looks as if it has been nuked, and a workforce that has become so used to subsisting on what amounts to a state-provided “universal basic income” that it has lost all will to work. In any case, there may not be that many jobs to go back to.

    I’m told that when the Treasury modelled the lockdown, it assumed that something like 10pc of the economy would be removed. This now looks like an extreme underestimate. And even if this is in itself a reasonable guess at the direct impact, it seemingly fails to take account of spillover effects. Remove one part of the edifice and, like a game of Jenga, the whole thing can come tumbling down. When restaurants close their doors, for instance, pretty soon there will be closures right down the supply chain.

    There is also growing confusion, compounded by the mixed messaging of Government ministers and officials, about who should be working and who shouldn’t. Is all work deemed “non-essential” to cease, even among companies capable of enforcing recommended social distancing in the workplace? That indeed would seem to be the implication of the Government’s instruction. If all firms were to interpret it in that way, even “essential” work would soon be struggling, such is the economy’s degree of interconnectedness.

    Perhaps he’s been reading your blog Tim


  29. Regarding de-growth, what will be the effects for cities and rural areas?
    Will people tend to the country side or the contrary?

    • Logically, the emphasis needs to be on regenerating and reinventing cities. That’s how we can make best use of public transport, and well-designed logistics.

  30. “Corona” is a trigger, not a cause – four times “E”
    What can I say? I say – and that is certainly strong! simplified and very pictorial: four times “E”
    1. Ecology
    The ecological foundations on the planet we live on are gradually being ruined and losing vitality and “productivity”. What we make sick also makes us sick – logically. We are also far too many people. Every day there is about a city like Münster.
    An exponential population growth curve, like a hockey stick.
    Everything that cannot be continued forever ends at some point. Evolution takes care of that. The better way to limit population growth would be education and development in the weak countries.
    Just a few examples of the first “E”:
    Temperatures rise, the evolutionary adaptation does not come along.
    Soils are poisoned.
    Resources are squandered for a hypermobile fun society. Swarms and plants are overused. Usable things are thrown away.
    Almost all of us make our own fire in the combustion engine under the hood and drive around with it. Mostly unproductive, purely for pleasure.
    Air and water are becoming scarce and dirty.
    We cut down, dig and dig ever deeper, e.g. to extract oil:
    2. Energy
    Money makes the world go round? Money makes the world go round?
    Not correct! Oil, here as a synonym for fossil energy, is the magic potion that drives everything.
    Oil is everywhere. Sit on the floor in your house and think away everything that was not created with or with the help of oil. You are now sitting naked in the field. Now think what could only be retrieved through the use of renewable energy without the use of oil? You are still sitting there naked, because regenerative energies also require the use of oil to make them possible.
    Everything that moves and lives carries out energy dissipation (i.e. recovery) and causes entropy.
    A little vaguely described, entropy can be equated with the transformation of energy into a disorder that can no longer be used. For example, people destroy high-quality food and create entropy through their excretions.
    A hurricane consumes (dissipates) the temperature differences between the sea and the air layers for its vortex power. He dies gradually when the temperature differences disappear, because e.g. meets land or the sea cools down. It produces entropy when it whirls around.
    We’re celebrating a one-way party fueled by the magic potion of oil. The entire industrial civilization burns (dissipates) unique fossil fuels that have arisen over hundreds of millions of years, whereby the harvest factor (the ratio of energy expenditure for the production, processing and distribution of oil to energy yield for the economy) is constantly decreasing. This is called decreasing marginal benefit (the first cut is the deepest or the deep-hanging fruits are harvested first). In the 1950s, when, to put it simply, you only had to prick the sand and the oil gushed out, the harvest factor was around approx.. 1 in 100. (High net energy: one unit of energy in, 100 units of energy out as yield ). With this very effective magic potion, the infrastructure for industrial civilization was built. Today, with the use of e.g. Fracking, deep sea drilling and oil sands and due to the increased complexity, the harvest factor is around 1 to ?, and the trend is falling. The magic potion is watered down. Sinking net energy creates stress (uneven distribution of income), conflicts (bleeding middle class) wars (Middle East), separatism (Brexit), selfishness (America first) and it is difficult for us to maintain the infrastructure at all – why, that is explained in the next “E”. The “means” are lacking everywhere. All formulate claims. There is no longer enough soup for everyone (like in the game “Journey to Jerusalem”). The “keep it up” (BAU = business as ususal) can now only be achieved through a steadily increasing, escalating debt. What brought us to the third “E”:
    3. Economy
    Money is not just there. There is no state treasury from which it is taken to be used as a medium of exchange. Money comes from debt. Simplified again: Who e.g. want to build a small factory, go to the bank and get a loan for it. The factory serves as security. The bank transfers e.g. € 1 million into the borrower’s account and has a claim. The borrower has an equal liability. The money wasn’t there before! As long as such debt is used for productive investments, that’s not a problem. The central banks create money, e.g. through bond purchases from states or companies. A precise explanation would go too far here. It is important that through debt there is suddenly money that was not available before. So basically, money consists of promissory notes, which are made viable by state power and guarantees. Money is a right to the future use of energy and the resulting products and services.
    Interest may be charged as long as the future thanks to cheap energy and good ideas (technical progress and profitable business areas) can be used productively. However, the investor must find customers (debtors) who redeem him (also at fault and buy from him) so that he can pay interest and repayments. The same applies to these additional debtors, they have to generate income by going into debt and so on. A chain letter that must not end. This is how our system works, it has to grow, e.g. because of the interest and taxes for the greedy state. The complexity has to increase constantly. More complexity requires increased energy dissipation. We are dependent on global supply chains, cheap energy, growing debt and increasing complexity (e.g. the Internet, high-tech engines). The top, debt-based, mega-complicated level of complexity has to work, because the lower levels of complexity (faxes, horses) are no longer available.
    At some point there will be overindebtedness. The future cannot keep its promises because the harvest factor of oil (and other fuels and raw materials) is constantly decreasing and because the increasing complexity is no longer manageable and affordable. The central banks help with various “magic” (credit expansion, zero interest, grants, aid packages, quantitative easing, modern money theory …) so that the party continues. That has worked somewhat, especially since the 2008 financial crisis.
    You can initially, nominally, continue to burden the future with more and more debts but without real growth. But you cannot, in real terms, print cheap energy. The currencies will endanger sooner or later. Inflation threatens because there is not enough “real” money available.
    4. Engagement
    At some point, if the overindebtedness is obviously excessive and cannot be traced back, market participants lose confidence and no longer accept cheap loans, or excessively overindebted countries, companies and households no longer get credit. Who invests in a bottomless pit. Psychology is falling over. It’s better to exchange money for real assets, e.g. in concrete gold. Hence the construction boom of recent years and the so-called “crackup boom” with overheating and full employment. Bubbles appear in real estate, stocks, bonds, in the art market etc. until they burst.
    The central banks finally throw off money with the helicopter (helicopter money or unconditional basic income). Cash gifts are now announced. The nominal flood of money does not change the physics and the existing, real, productive possibilities on a limited planet. Prosperity can neither be printed nor voted into office. The currencies are “broken”. This happens again and again (ask Grandma or Granfather if he is still alive). The head is currently greater than ever. Public opinion is changing. People get scared and run to the exit at the same time at some point. The bubbles burst, avalanches fall, chains break. All of this can now be blamed on the Corona virus, which is certainly dangerous for our health. An avalanche can only trigger this treacherous virus because it has been built up layer by layer over decades, through excessive credit expansion and escalating complexity. At some point it is too much.
    Corona is a black swan, an unpredictable, triggering event. It could have been anything else. It is like Jenga, you do not know which stone is the last to cause the fragile tower to tip over due to mass psychological herd behavior. It is certain that there are responsible persons who up to a certain point, e.g. through the media.
    However, crisis means danger and opportunity and the most important word in the future is “less”. Hopefully connected with an orderly return to human measure.
    Less globalization, less senseless transportation, less flying, less driving, less frills and trash entertainment, less waste and pollution, less selfishness?
    Can we manage less without collapse?

    • Less = More: famines, disorder, riots, cynicism, wars, disruptions and shortages, unemployment, authoritarianism and violently-competing ideologies.

      ‘De-growth’: an innocuous term for an ugly phenomenon.

      Those dreaming of a Golden – ‘more human’ -Age, should realise they have in fact just lost it.

    • “Less globalization, less senseless transportation, less flying, less driving, less frills and trash entertainment, less waste and pollution, less selfishness?
      Can we manage less without collapse?”

      Well, we’re going to find out the answers sooner rather than later. On the environmental issues, it’s interesting that the Chinese lock-down is reckoned to have prevented at least 70,000 pollution-related deaths, whilst air quality has improved remarkably in many places.

      Globalization was in retreat well before the virus – it was a flawed model based on ever-rising consumer debt in the West.

      Also before the virus I had reached the conclusion that we were at or near “peak travel”.

      On other wasteful consumption, I expect most households (and businesses) to be far more cautious in the future, re. spending, debt and savings. I think the lessons (and the psychological effects) of this crisis will be long-lasting.

      I’ve been reflecting on a possible list of sectors likely to be rendered ex-growth by this crisis.

    • El mar, “can we manage less without collapse”?

      First we have to define “less”. To me, there’s too much, way too much of everything.

      I dream of less every night. I’m probably going to regret my dreams. But we blew it. In a major way.

      Everyone enjoys the world of ever more, no one can deal with reality. That is a beautiful thing in itself. The circus won’t feed you anymore. The lion will hunt you, but hundreds of clowns will stop shouting in your ear.

  31. Or as Marcus Aurelius might have observed:

    ‘What has always been and always will be; you are not the first to suffer these things, so why lament?’

    • We did until the elite/political class banned science as it added costs deemed unaffordable luxuries.

    • It’s been suggested that this event will trigger a ‘rehabilitation of the expert’. In recent years, there’s been growing public distrust of ‘experts’ in most fields, and this might be a trend reversed, at least in part, by this crisis.

      It seems to me that it’s likely to be more nuanced than this. The public will, I think, put more trust in medical and other scientific experts, but probably won’t (and certainly shouldn’t!) rehabilitate trust in practitioners of ‘conventional’ economics. It’s more of a mixed bag for politicians, who may be credited with resolution ‘under fire’, but blamed for obvious weaknesses in preparedness and response.

    • I saw a headline yesterday from an economic Xpert which said “the crisis shows just how vital it was to balance the books”.

      Obviously, being housebound, I’ve missed the balancing act.

  32. Jeremy Warner is wrong: most people will still want to get out and work.

    It’s the old Right-wing prejudice of ‘Pay them too well and they won’t work’.

    Tell you what, Jeremy, you are very inessential: here’s your notice to quit!

    50/50 as to whether Boris will go to meet his Maker now he’s reached hospital – that will be interesting.

    I hope he recovers: less smug and more compassionate.

    • I’m not an admirer of JW.

      You might know that he panned one of my TP reports about the energy economy and the end of growth etc.. The FT and The Economist gave it much more objective consideration, in my opinion.

      This aside, though, he’s really no different from others who accept the conventional interpretation of the economy as a financial system. My view, of course, is that we need to understand the economy as an energy system in order to interpret it effectively.

      I don’t know whether he’s right wing or not, as I don’t read his column.

      I very much hope that Mr Johnson makes a full and speedy recovery.

  33. Predicting the Future
    Ugo Bardi features an interesting guest article about, among other things, deaths in auto accidents vs. deaths from multiple causes, one of which is the coronavirus.

    You can read today that about 90 percent of the commercial passenger airline fleet is grounded, and that there are scant prospects for a resumption of travel in the next six months.

    My point in all this is that the public perception of risk, and the media attention devoted to risk, can be highly inaccurate. Cars are a lot more deadly than the virus, and young and healthy people have little chance of dying due to the virus, and public perceptions can change in a short period of time.

    Which brings us back to the awful prospect that our real issues at the present time are long term secular trends: issues such as debt coupled with increased ECoE, and the climate and broader ecological crisis. Just because they are long term doesn’t mean that they cannot cause a sudden collapse…as we can see most recently in the GFC and perhaps in the current collapse.

    So Mark Cuban can talk enthusiastically about America 2.0 while Jim Kunstler can confidently predict a world like the one portrayed in his novels. Who knows? Ben Bernanke is getting some press again, encouraging the Fed to print more money…bales of it if that is what is needed to restore an economy which is, according to Jay Powell, ‘basically sound’. Will the happy talk and the bales of money restore the ‘basically sound’ economy?

    My vote tends to go to a middle ground such as (I think) Dr. Morgan is predicting: a steady loss of one percent of prosperity each year. But the downside risk (Kunstler) is a lot greater than the nirvana potential (Cuban).

    Don Stewart

    • I’m glad you’ve asked this, because it gives me the opportunity to clarify the point about forecasts.

      Before the coronavirus crisis, the consensus line was that the world’s average person would carry on getting better off by about 2.5% annually.

      My view was that they would get poorer by about 1% annually, because, pending final numbers for last year, de-growth appears to have commenced during 2018-19.

      These pre-virus positions are miles apart.

      On the post-crisis outlook, nobody can make meaningful forecasts yet given the current lack of information and visibility. I’m not even trying to make forecasts yet.

      Rather, the pre-crisis projections – the consensus one, and my SEEDS version – are guidelines.

      Three questions then arising are:

      1. How bad will the immediate hit be?

      2. To what extent, and how rapidly, will the economy recover?

      3. What situation will exist after the crisis?

      The ‘consensus’ line on these three questions seems to be :

      1. ‘serious damage’
      2. ‘full recovery’
      3. ‘back to previous trend growth’.

      I agree with ‘serious damage’ on the first question.

      On the second, though, I don’t agree with ‘full recovery’ – I think there is systemic damage involved.

      On 3, I expect my pre-crisis guideline (-1% per annum) to worsen.

      So, I remain widely apart from the consensus. My projections are likely to show an accelerating rate of fall in prosperity.

      But we’re nowhere near able to put numbers on these as yet.

  34. Article in Foreign Affairs by economist Mark Blyth on various Western countries’ economic models and why the U.S. models is uniquely vulnerable to the coronavirus, well worth reading.

    “The United States typically opts to protect capital and to simply let labor adjust through unemployment. But this instinct—to protect the big players and let workers take the hit—is also a key reason why the coronavirus pandemic is a disaster amplifier for the U.S. growth model in a way that is not true for Germany or even the United Kingdom.
    “The U.S. growth model works well as long as there is little unemployment, wages are being earned and spent, and credit is being recycled to cover the difference between wages and costs by consumers and companies. But when markets freeze and cannot price assets correctly (no one knows how much United Airlines stock is worth because they don’t know when Americans will be flying again), the growth model collapses. Once that happens, it is hard to find a bottom. The Federal Reserve and Congress can try to put a floor on asset prices by bailing out companies, but there is no bottom for the broader crisis of consumption that occurs when a third of the labor market is laid off and the other two-thirds are locked at home for an extended period of time. In this world, bailing out capital and expecting labor to adjust through wage cuts and unemployment is simply impossible given the scale of the shutdown.

    The U.S. growth model is built in such a way that it simply cannot shut down without inflicting catastrophic damage on itself. Because the model is designed to adjust through reduced wages and employment rather than increased welfare outlays, political leaders can contemplate temporary unemployment benefits for a banking-induced shock, but not semipermanent cash transfers—which is what the British are doing—and a near-total collapse in asset values. The British solution is too politically toxic to be anything other than a short-term expedient in the American context.”

  35. Future of US Shale Oil

    In short, Exxon Mobil and the American Petroleum Institute would just as soon see all the independents drilling shale wells disappear. They appear to have stymied political efforts to subsidize shale.

    Now I will interject my conjecture:
    Exxon Mobil and Chevron, who are coming to dominate the shale space, are not dependent on shale. They are broadly diversified energy companies, producing everything from drilling to making chemicals from petroleum and natural gas. They are not ‘American’ companies in the sense that they would do anything patriotic which lost them money. If the swarm of small, narrowly focused drillers goes extinct, then Exxon and Chevron are left with some leases which can be used to produce light oil and liquids and natural gas WHEN THEIR MIX CAN USE IT PRODUCTIVELY. The cost of leases would likely decrease, and service company fees would remain depressed. Their goal would be minimizing input costs for the products they sell….not maximizing production of the output of shale wells.

    In other words, the Cowboys are retired to the bunkhouse and the 3 piece suits take over.

    Don Stewart
    PS. My guess is that the net result is higher prices for gasoline, as the implicit subsidy from investors dries up.

    • Follow Art Berman as he understands the power of petroleum as well as the mechanics and finance. He has come to the same conclusions as Dr. Morgon albeit from the energy industry. Whenever I mention Art’s work in Wyoming Energy conferences it goes over like the a f in church.

      The fracking boys are requesting the TRRC to clamp down on operators…. Seems like we could nationalize these industries and use that energy for the future instead of the return to cruising and flying.

  36. Tim, there is an article in the Telegraph about Ireland’s weakness in the current crisis, given its accumulated problems from 2008. This has spawned some vicious back and forth in the comments column with a number of the Irish claiming Ireland’s economy is strong and well-placed to weather the downturn……indeed better placed than the UK!! Ireland’s doctored GDP factors are of course taken as Gospel. It is always a marvel to witness the tenacity of the True Believer……unmoved by reason or fact. For those of us who remember the ludicrous hype surrounding the Celtic Tiger, this is groundhog day.

    • This is, without doubt, a very serious situation for Ireland. Debt is close to 300% of GDP, but GDP itself is hugely overstated, and debt/prosperity is at least 570% (pending final 2019 data). More importantly, financial assets are admitted to be 17x GDP (compared with 11x for the UK, which is bad enough), and about 33x prosperity!

      Stated at constant (2018) values, debt is more than E960bn (vs E521 in 2007, just before the GFC), and financial assets are more than E5,500bn (vs E2,116 in 2007).

      More broadly, the Euro Area is in a shambolic state. The recent meeting to decide financial responses reached no conclusion, and was deferred for two weeks (!). I hope Germans are feeling generous………….

    • Shambolic State
      The recent rant by the Secretary of the Navy to the crew of the aircraft carrier in the Pacific where the captain was fired for seeking help with the coronavirus epidemic reveals some of the Shambolic State of the US:
      *The story now is that Trump WOULD have done something to get ready EXCEPT that the wicked Chinese lied about their casualties, luring him into a false sense of security.
      *Of course, the Chinese were busily constructing temporary hospitals at the time he was telling everyone there was nothing to worry about. And his own security apparatus was writing warning documents.
      *Now China is supposedly conspiring to kill the world by refusing to ship Personal Protective Gear. While several countries have accused the US of ‘piracy’ for stealing PPFs destined for their respective countries.
      *The two political parties in the US are unable to field credible candidates. Why is this?

      My own guess, which is probably similar to Ireland, is that there is no ‘good and easy and clearly visible and painless’ way out of our predicaments. And those have all been pointers to success in politics. They no longer fit the predicaments.

      Don Stewart

  37. The Discussion We Should Be Having
    I know the internet is full of people talking about Covid-19. But I think that this talk lays out the facts which are most relevant to the group of people ‘sheltering in place’:

    He pretty quickly establishes that if you live in the US, you are likely to be infected by Covid-19 during the calendar year 2020. He then reinforces the advice to distance yourself from others…not as a way of avoiding the virus but as a way to avoid being in the first, and possibly most deadly, wave. But he also cautions that there are more supply chain problems than are usually talked about such as other supplies in the Emergency Rooms, so avoiding the first wave will not necessarily be most protective.

    So if we can’t avoid the virus, can we avoid encouraging it by working on the co-morbidities? He first gives the reasons why the US experience may be more deadly than the Chinese experience: they have some higher risks than we do, but we have, on balance, more than they do. So he thinks the US may experience a higher mortality rate than the Chinese. Within the US, the percentage obesity (one of the principal co-morbidities), varies widely between states. The co-morbidities are more important than simple chronological age. A 90 year old health nut may be better positioned than an obese teenager.

    In a nutshell, his advice is to use one’s time to ‘get healthier’. That includes getting at least 13,000 steps per day and eating a health-promoting diet. I’m sure he would also include stress reduction. The main point is that the individual and the group of people they are sheltering with or working with, have an enormous influence over whether the virus kills them.

    Don Stewart

  38. Surely the Germans have now reached the point of no return and their choices are unenviable. Option 1 (which I suspect is what Mutti Merkel and her cronies really want) is to go all in on Eurozone burden-sharing ……in which case ordinary German voters will have been totally misled and their savings destroyed. Already, there is much disquiet in Germany about the ECB’s nil/negative interest rate policy……which has crushed savings and stoked serious property price inflation. The latter is new and unwelcome in Germany, because most Germans are not rich and there is now a lot of in-work poverty and pensioner poverty.

    Option 2 is to ditch the Eurodogma and repudiate the Euro. That will presumably lead sooner rather than later to a major bail-out of the German banks….although that seems a foregone conclusion anyway.

    • Germany’s “establishment” politicians are, for the most part, solidly behind the Euro. But this position, already vulnerable, is at even greater risk now.

      The Euro system itself is dysfunctional, combining a single monetary policy with a multiplicity of sovereign budget processes. The system lacks the “automatic stabilisers” that operate in single currency areas like USD and GBP. This is one reason why decision-making is so slow and ineffective. In the absence of these stabilisers, redistribution has to be operated manually, which brings politics into the equation.

      The crisis has hit two southern countries hardest, and, between them, Italy and Spain already owed Germany getting on for EUR 1 trillion through Target2. Both countries’ banking systems are fragile. In short, both may need EA (meaning German) help. Then there’s Ireland, with its dangerous exposure to the world financial system, and further exposed to the effects of “Brexit”.

      Helping Greece was difficult enough – Italy + Spain + Ireland would be simply too much, especially with the French economy moribund. Politically, we shouldn’t forget the unpopularity of Mrs M’s immigration policies.

      Normally, Germany would not be fertile territory for insurgent (“populist”) parties. But these are very far from normal times. One can easily see how a combination of “don’t re-open borders” and “don’t subsidise other EA countries” could appeal to voters.

    • I am sorry to say, that the average German still does not understand what is going on. ( 90% of them still buy into the government narrative spouted forth on ARD or ZDF.) Most Germans have convinced themselves that they are intelligent and well-informed.
      Many if not most, put their own prosperity down to their hard work ethic, and most will refuse to acknowledge that the Euro has offered them an unfair trading advantage.
      If “Euro-Zone” burden sharing happens, then it will be the end of Merkel’s CDU, and it would open the door to the AfD. So it might not be such a bad thing.
      De-globalisation will have a profound effect on their export driven economy, so they really should not be so smug. They may be better placed than most to weather the approaching storm, but they will not emerge from it unscathed either.
      Just wait until they start losing their savings.
      We might see a bit more reaction from them then.

  39. Tad Patzek has a new article up on his LifeItself blog, on the effects of the coronavirus. His conclusion:
    “In summary, the COVID-19 epidemic is acting as a catalyst that speeds up the inevitable future. What was supposed to happen in 5-10 years from today, is unfolding now with a frightening speed. Whatever I wrote about in this blog over the last three years has come to pass, including the disastrous Brexit (remember that irrelevant tiny event?) and collapse of the oil industry”

    More interestingly, he quotes a statement by Gregory Bateson to the effect that it’s our own human destruction of, and encroachment on the natural world that creates the very conditions for things like Covid 19 to arrive and flourish.

    “”Think of traffic. There are too many cars on the roads and too many restless people; and too much pollution of the atmosphere by the cars. Altogether that makes up what the doctors call a ‘syndrome’, a nest of symptoms. Of course this syndrome has its roots in overpopulation and unwisely applied engineering skills, and in medical victories over epidemics. Public health, just like individual medicine, is symptom-activated. We all share in the pathology which we would blame on the doctors. At the social level, what happens is simple: Somebody gets paid to make the pathological trend more comfortable. We treat the symptoms – we make more roads for the more cars, and we make more and faster cars for the restless people; and when people [very properly] die of overeating or pollution, we try to strengthen their stomachs or their lungs. For overpopulation, we build more houses. And so on. That is the paradigm: Treat the symptom to make the world safe for the pathology. But, it’s a little worse than that: We even look into the future and try to see the symptoms and discomforts coming. We predict the jamming of traffic on the highways and invite bids for government contracts to enlarge the roads for cars that do not yet exist. In this way, millions of dollars get committed to the hypothesis of future increase in pathology.””

  40. Wuhan
    Have you seen the lights come back on in Wuhan as the last restriction was lifted? Say what you will about the Chinese, but they do know how to look spectacular.

    I notice that the people lined up at the train station are all wearing masks.

    Don Stewart

  41. Johan’s comments on Germany are interesting and to some extent I agree. However, I disagree on two points. First, even though the FT and the Economist think Merkel walks on water, an awful lot of Germans do not. However, that comes to the second point: the German political system is designed to maximise the influence of insiders and minimise the influence of voters. Referenda are seen as the devil’s work while Merkel and her clique have ridden roughshod over the voters for years, by forming various unstable coalitions with their nominal opponents. The media in Germany is also very tame and either blanks Merkel’s centre-right critics or smears them as Nazis, with the aid of the security services. Die Linke (the old East German communists) tend to get a free pass.

    Merkel, a former servant of the DDR, is clinging to power like grim death, while the SPD implodes. Hence she is trying to form a loose alliance with the Greens (see the latest goings on in Thüringen). The German Greens have an ultra-dogmatic commitment to the Euro and mass uncontrolled immigration. Hence their attractiveness to Frau M. In all this of course, ordinary voters come last…..including their savings.

    • Michael,
      your summation is quite accurate.
      Both CSU and SPD are on the way out. However, as Germany is a predominantly feminist controlled society, the Greens have now become the mainstream party of choice. The Greens and their Energy policies are the very party that have essentially destroyed Germany as an Industrial powerhouse. Nobody has woken up to that fact yet.
      Germany’s history also needs to be considered in all of this. Decades of vilification of anything even remotely right-wing has had a profound effect.
      If anybody is at all even right-leaning then they are always branded as “Rechts-Radikal” or as “Rechts-Extremismus”, there is no such thing as being just simply “Rechts” or even moderately right-leaning.
      This leads to a distortion of reality.
      What you do mention about opposition to Merkel’s immigration policy, well that is a smoldering heap that may well erupt into a ball of flames at the first sign of Wealth Confiscation. As a German myself living outside Germany, I do think that the Germans are a bunch of Pussies. .. but I am open to letting myself be surprised.

    • I defer to those who know more about Germany than I do, but here are some things to consider.

      1. Germany has been a huge beneficiary of the Euro system – so far. The EUR has been a softer currency than the DM would have been, boosting German exports, especially to other EA countries. Uniquely, German annual borrowing has tended to be less than annual growth (both measured in EUR billions). So Germany hasn’t been running a Ponzi economy. This is partly German caution, but mainly the benefit of EUR membership.

      2. But Germany is owed close to EUR 1 trillion through the Target2 clearing system. Essentially, this is owed by Italy and Spain. Even before the crisis, the chances of Germany recovering this money didn’t look good.

      3. In almost all other Advanced Economies,. prosperity per capita had turned down by 2007, if not earlier. German prosperity carried on rising until 2018. Though the German economy is efficient, the only way of accounting for this stark differential is the benefit of the EUR to the German economy.

      4. Payback for all of these benefits may be looming. Germany didn’t much like bailing out Greece – how about Italy + Spain + Ireland?

      5. Pro-immigration policies tend to be based on the view that dilution of output (through increased population numbers) is at least offset by the additional work contributed by migrants. But human physical labour is a very small part of the energy which drives prosperity.

      6. Across the world, both economic and social “liberalism” were already on the back-foot before this crisis. This trend is likely to accelerate (something that might be a worthwhile topic for discussion here). I don’t see why Germany should be an exception to this trend.

    • Excellent points Tim – makes you wonder why their Federal Ministry of Finance can’t see the damage that Green energy had done to their economy.

      Well of course they can but politics has come in the way of maths


  42. Tim and Johan, thank you both for your insights. Johan, I am not German but have close family who are and have spent a lot of time there. In many ways a wonderful country but like so many, its people are ill-served by their politicians. Yet there does seems to be a German tendency to cling to dogma to the bitter end….even in the teeth of evidence to the contrary. That does not bode well for the present or for the wellbeing of ordinary Germans, although I think they are often less dogmatic than their leaders. The UK is not immune from the same syndrome (uncritical veneration of the NHS, national myths about Winston Churchill and our role in the Second World War). However, we are at least “helped” by a much more irreverent press and a less aggressive insistence on conformity.

    • In fairness to the UK, the NHS is an excellent institution, for which there will be new public veneration (and, one imagines, increased resources) after this crisis. I suspect that the British healthcare system will have turned out to have handled this event better than the US healthcare model

      Memories of the Second World War are a mix of myth and fact but, of course, are now very dated. There was enormous courage and determination, but there were black-marketeers, and those who exploited the rationing system, whilst British warships had to be sent to US yards for refit because some British yards were on strike. Necessarily a very mixed picture.

      The second volume (Heart of Oak) of Tristan Jones’ autobiography is an interesting read on this (and the first volume, A Steady Trade, is a fascinating memoir of a byegone age).

    • I must concur with you Dr. Tim, that the NHS is indeed a fine institution, however I do not worship all those who are employed by it. They do a good job, but so do many other people. We also need to be thankful to those who create real wealth in other areas too, Real wealth – not just paper wealth, that allows us to pay for the NHS.
      As you say, history is a mixture of myth and fact.
      Although it is easy in the UK to put the past behind us, this is not possible in Germany. We have our “Kollektivschuld” ( Collective Blame ) hanging around our neck like an albatross. While the many war crimes committed by the UK the USA and the Soviet Union are confined to the dustbin of history, ( past crimes as well as on-going crimes ), the crimes of the German people will be neither forgotten nor forgiven – ever. Hollywood will make sure of that.
      Similarly the British obsession with the Poppy every November never seems to become ” dated” either.
      History cannot be eradicated from the German psyche, and will always need to be taken into account.

  43. Several things clear; Much foggy
    *If there is no pain-free solution to a situation, find a scapegoat.
    *If you have any common sense, get out of the house and walk in the woods. Work in your garden. If your political leader threatens to arrest anyone going outside, then make a voodoo doll and stick pins in it.
    *Dmitry Orlov thinks that countries with lots of manufacturing will get restarted relatively quickly. He thinks that service based countries will wither, since prosperity is declining and frills will be cut. I agree, but a lot of manufacturing is for ‘frills’.
    *I think that the societies (which is not the same as a country) which survive will be those that turn energy into useful products most efficiently and effectively.

    Which brings me around to David Holmgren and Permaculture. David has written a large book on building a home-based economy in a typical Australian suburb: RetroSuburbia. The book was initially published in a run of about 10,000 copies, at $85 each (I don’t know if US or Australian dollars). David has now used his savings to publish an additional 6,000 books. At the same time as publishing more books, he is making the book available on-line for ‘whatever you can pay’. (I wish I could give you a clear link, but I can’t…maybe in a day or two). You can check RetroSuburbia’s website.

    In this time of insanity and degrowth, I believe that what David is recommending is the solution of choice for many people. His book is filled with examples and pictures of many people in Australia who have adapted their homes and property to a ‘degrowth’ environment.

    Don Stewart

  44. This typifies the weaknesses of the EU that are being highlighted by the crisis. It follows an earlier deferral of any decision for two weeks.

    Basically, it’s estimated that it may cost EUR 1.5tn to help out the worst affected countries, which happen to be Italy and Spain, with their pre-existing economic and financial weaknesses.

    They and others argue for the issuance of bonds whose repayment is the responsibility of all Euro Area nations. But some northern countries, seemingly led by Holland, oppose shared responsibility. The Spanish PM has warned that the bloc could “fall apart” unless methods of shared response can be agreed.

    However you look at it, this is a shambles.

    • Maybe they could issue global perpetual bonds while we’re at it. Seems Zimbabwe could use some SDR liquidity.

    • ‘Shambles’: meat on the block, chop chop.

      Skinned, gutted and headless flesh (whose/)hung up for sale?

      Let’s hope not!

      The curtain has been drawn aside on European ‘brotherhood’, and it’s revealed an empty chamber: faint echoes and shifting shadows, but no substance……

    • well in 2008 Portugal, Italy, Greece & Spain were derided as the ‘PIGS’ and hung out to dry instead of aided,
      Greece suffered the most and after a national vote teetered on the edge of leaving the EU,
      my feeling at the time was that the EU needed to split into a North & South region with the South devaluing their currency and having their own Southern Euro Central Bank,
      it never quite happened then, it seems much more likely this time.

      the UK has now set a precedent that leaving the EU is a possibility,

      why shouldn’t the Pigs all leave the EU and create their own economic union, devalue & take advantage of being the fruit & vegetable basket of Europe and be the lower labour cost of manufacturing region of Europe whilst offering the cheapest and sunniest holiday destinations around and within easy travelling distance?

      why can’t the City of London focus on being the facilitator of this emerging market between SEU & NEU and channel investment into SEU?

      I’m also wondering if the last flurry of entrants to the EU, those former Soviet satellites, are now starting to wonder if joining the EU was such a good idea,

      I always thought it was in the best interests of all concerned that they had formed their own economic union and formed a transition zone between Europe & Russia, playing each side for who could give the best deal on what at any given time.

      the EU has got too big, too lumpen headed and too inflexible to serve the interests of all it’s member states at all times,

      if no one in Europe wakes up and starts handling this new emergent reality then the initiative is left open to China & Russia,

      frankly I’m becoming irritated about the West bitching about China & Russia each time they leave the stable door open and discover the horse has wandered off to greener pastures.

      for me the irony & soft politics of Russia & China airlifting medical supplies to Southern & Central Europe and the despatch of Cuban medical teams has not gone un-noticed.

    • Thus far, the EU is not responding at all well to the virus crisis. It’s “get back to you in a fortnight” response to financial stresses is shambolic.

      I should be clear that there are both pros and cons to the EU. It does good work in many areas, but is overly bureaucratic, and prone to micro-management through “directives” to member states. It made a complete mess of negotiating with the UK over “Brexit”, and the EU negotiators never looked up to the job.

      When it comes to the Euro Area, the system has severe in-built weaknesses. It tries to combine a single monetary policy with 19 different sovereign budgetary processes, and has a conspicuous lack of automatic stabilisers. Pooling monetary policy without pooling a lot of sovereignty was never a workable idea, and it’s now at severe risk of fracture.

  45. Thanks Tim. The NHS is of course a vast improvement on the US healthcare system but it seems to be performing rather less well in this crisis than the much more decentralised, social insurance-based German model. Germany is a significantly older society than ours, which makes their apparent achievement, and lack of hospital capacity problems, more impressive. Much dust has still to settle but that seems to be where we are at the moment …..although it is near-heresy in some quarters to say so. I also have no doubt that German medical staff are performing the same heroics as our own.

  46. Hello Dr Morgan

    Your reply to ‘Derek 6th April’ reminded me of an article from the Spectator from 25+ years ago. A one page piece at the back of the magazine where the editor had sent a young journalist around foreign own factories in the UK, with the purpose of getting the managers to rubbish their British work force. To be fair the editor published the piece though the journalist could get none of the foreign factory managers to rubbish their British work force (they would have be fool too have done so in public anyway), but the he finished with asking the German manager of a Bosch factory in the UK if his British workers were as good as German workers, the German manager said he thought that they were better, but finished with the reply “but its your management that’s rubbish”.

    Which brings me to my point on a reform desperately needed in UK management. Look at the qualifications of those who run the bigger companies, they are overwhelmingly from law, accountancy and finance, with a few from PR/marketing and HR thrown in. This is a problem, they have many years training to make them think like lawyers, accountants, and financiers not as managers, their training assumes that they will be lawyers, accountants, and financiers and not managers. When they enter management they usually do so from outside that businesses core activities, have very little technical knowledge of those activities or the experts who work in them, and usually enter at a high level. I think lawyers, accountants, and financiers have to be banned from being executives of non law, accountancy and finance businesses, by all means employ their specialist advice, but they should not be in charge. Businesses have to learn to train their managers, which starts with the manager learning the business from the bottom to the top.

    I will have ruffled some feathers today, but I have seen enough crap commercial management for one life time.

    Regards Philip

    • Philip,
      I would like to make a few remarks regarding your thoughts on UK management. It’s an important topic because it will have an important bearing on how we emerge from this crash and how we engage with de-growth.

      I have spent most of my career (over 40 years) working as a senior manager (including board level Director), and working with senior managers. Most of this has been within the manufacturing and engineering industries. During that time I’ve seen the good, the bad, and the ugly of management practice. I have many stories to tell, but will tell only one.

      Going back some years I was based in Germany, working for a large American first-tier automotive supplier. One day, with just a few hours’ notice, I was asked to pack a bag, and was parachuted into one of our suppliers manufacturing sites in Germany. They were in danger of stopping supply of several critical components, and that could have resulted in the stoppage of Ford assembly plants across Europe. What I found shocked me. The manufacturing facility was state of the art, but the management were far less so. The plant manager was German, and his second in command was French. It didn’t go down well that a “Brit” had been sent in to “Help” them (to say the least), but it was for a good reason. They were clueless about what the real problems were. I was amazed that some quite basic manufacturing controls were just completely absent, and as a result, the management team just didn’t have a finger on the pulse. Also, they were frightened to ask the workforce to “put themselves out a bit”, to ensure that customers weren’t let down. It took 2 weeks to turn things around enough for me to be pulled out, and I’m not sure who was more relieved; me or the “out of his depth” plant manager.

      Anyway, to the moral of the story: It’s not just the UK that has inadequate managers, and perhaps we shouldn’t generalise. Neither should we take for granted everything we read in the press. I would like to think that one day I could bump into the manager from Bosch you refer to, and tell him my story.

      That story relates to operational level management. Looking at the very top of the tree, I do share your views about C-suite executives too often coming from the wrong professions. Let’s face it, to climb the greasy pole to the top of a very large corporation, political skills are probably more a priority than managerial skills. I also think that a huge part of the poor leadership problem, is the way that these corporate executives are incentivised. I have met/worked with some of these people, and I can tell you that all too often they will do whatever it takes to get their annual bonus, irrespective of the damage that may do.

      I think the problem of a bad mix of professional backgrounds and skills is even more problematic in politics than it is in industry/commerce. Westminster is overpopulated with spin doctors, lawyers and journalists. The top levels of government always seem to be awash with these people. It’s easy to see why. Their professions equip them with the skills to “tell the people what they want to hear”, and they are equally adept at ducking and diving around the difficult issues. We really do need more representation for science, technology and small/medium business in government. Let’s have some anthropologists and ecological economists too. Then, we might have a chance of an honest discussion about de-growth.

    • Thank you Neil for your reply, and the time you took to make it.

      Yes, I over generalised a bit, the comment running away with me. I have dealt with companies with good management as well as poor and in many different places. The key difference from my perspective is that in well managed companies the managers have good technical knowledge of what the company does. Small and medium sized companies seem to be better at this, they are less prone to parachuting in managers from outside their trade. As for the executive level, I think it is worse than you state, as people from outside law, accountancy and finance are rarely considered for board status. The top suffers from like recruiting like, they speak the same language, they stick with what is familiar to themselves and they have the same very narrow educational back ground. These days to train as a lawyer, accountant or financier, you have to have the appropriate degree, and preferably A levels as well, a humanities or arts degree won’t get you past the CV AI even at the training level.

      Regards Philip

    • Excellent analysis about how mediocrity survives and rises in the corporate world. I could wax forever about a BS Geologist managing engineers and retired Colonels from the military all the while questioning upper management why my return to corporate (overhead) was so high? Greed and mismanagement by the ownership class must be made up by the worker class and when that goes bad the ownership class is either protected in bankruptcies or bailed out by government.

      The other aspect that seems to be prevalent is the ability for sales people (typically mediocre business students that are not rounded in college) to make much more money than say the technical worker that really made the product work. This rewarded cohort tends not to see how things work and seem to be influenced to vote for the worst type of politician. We, as a society, have rewarded mediocrity and we are finally seeing the results of this process.

      I will say the Corporate World has not learned how to reward technical people over sales people but I always used the sports model when I managed. I paid certain technical stars more money than I made as a manager, which my upper management really did not understand, nor did my administrative staff. I had to explain it to them like this – The reason you and I have jobs is because of these people. In essence I was the manager/sales guy that made my money on the stock options while encouraging my stars and staff that they needed each other. I grew tired of the corporate life and just sold my technical brain to those who were willing to satisfy my much lower financial expectations and my morality.

  47. This morning the Fed announced a new 2.3T program for supporting the economy. Under the parameters of this program, the Fed will be able to buy junk bonds at least as long as the issuer
    “was rated at least BBB-/Baa3 as of March 22, 2020, by a major nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020.

    An issuer that was rated at least BBB-/Baa3 as of March 22, 2020, but was subsequently downgraded, must be rated at least BB-/Ba3 as of the date on which the Facility makes a purchase. If rated by multiple major NRSROs, such an issuer must be rated at least BB-/Ba3 by two or more NRSROs at the time the Facility makes a purchase.”

    It appears that the program permits the Fed to purchase not only in the secondary market, bailing out pension funds that bought these bonds, but also directly from the issuers of the bonds. Stating the obvious here, but this will permit the Fed to bail out and support shale oil operations. Time will tell if it is used for this purpose.

    • Thanks, most useful and interesting.

      As you probably know, I made the case last summer for the US authorities intervening to support shalecos. I don’t think that view was taken seriously by many at that time.

      Of course, we didn’t know about the current crisis back then.

      But my argument was based on (a) the adverse and deteriorating economics of shalecos, and (b) the strategic importance of shale production to the US.

    • @Dr. Morgan
      My guess: This is about bailing out the investors who bought the junk bonds. The apparent promise by the US to OPEC+ is that shale companies will NOT be rescued, and shale oil production will decline rather rapidly. The US said its 2 million barrel decline is what is expected to happen without any quotas. Again, my guess is that Exxon-Mobil and Chevron are the ‘winners’ here in terms of companies, and the bond holders in terms of money invested.

      Don Stewart
      PS. Another big winner might be the ex-Mrs. Harold Hamm, who, being an attorney, seems to have split at the right time. Let’s hope she didn’t settle for stock and keep it.

    • Tagio, the system has lost its ability to support itself. The artificial support we are seeing now was foreseen by many. We are on an exponential road of monetary destruction.

      But it ain’t over until the fat lady sings. It’s complete and utter madness in financial markets. Bailing out failed systems with bits and bytes out of thin air is the moment the fat lady is coming out of the bathroom just before the show.

  48. Covid; Flu Season; Degrowth; Media
    Here are a couple of experts talking about the bell curves which underlie the pandemic, how the number of deaths this year from normal flu will exceed deaths from Covid-19, how the media manufacture scary numbers to boost viewership, and whether social distancing really works, and why the smaller Asian countries were smarter than the Europeans.

    One of the experts is currently writing a dissertation for Harvard on Political Science. She brings a useful perspective not only in terms of how the politicians and public have reacted to Covid-19, but also how politicians and the public will react to any talk of Degrowth.

    In particular, she analyzes humans (for her dissertation, presumably) with Stone Age Psychology. Humans have not changed materially since the Stone Age, and it turns out that in the Stone Age the foundation of a life well lived was respect from one’s village. From my perspective, our society at the present time gives far too much respect to shallow celebrities. I suspect that a Degrowth society will find much more fundamentally productive people to give respect to.


    Don Stewart

    • Dr Tim mentions space age technology & stone age emotions, quite so!

      he later on mentions conspiracy theories which he has no time for, again.. quite so,

      but the two seem connected, I’ve very little time for the conspiracy theories themselves but I do acknowledge they exist,

      when space age technology meets a stone age mind the emotions can generate a bizarre conspiracy theory that can shape actions,

      the distrust of 5G is through lack of understanding but may also be driven by western misinformation as the wests failure to invest in R&D over the last few decades has given the Chinese an open goal,
      much as the western elites don’t want to cede the 5G market to China they do still want 5G so that they can add yet another layer of complexity onto the layer cake of consumerism and data harvesting with the internet of things.

      I rather suspect conspiracy theories about 5G will hamper the take up in the West whilst declining prosperity will make the internet of things unaffordable for many,

      another emergent conspiracy theory is vaccines and the possibility of having to be vaccinated and chipped to be able to travel internationally,

      well it isn’t entirely beyond the realms of imagination that in the post corona world it might be neccessary to be certified as corona free and vaccinated before travelling,

      even today we are expected to take jabs before visiting yellow fever regions and start taking anti malarials before visiting malarial regions,
      surely this is a prime reason why neither region have taken off as a popular holiday destination, they remain on the fringe as vicarious destinations,

      if the entire planet is deemed a potential corona region then fears of vaccination and chips and aversion to the additional costs coupled with declining prosperity may well hamper or even kill off the restarting of the global tourist industry.

      international travel may have become to complex for many to bother with.

    • On travel specifically, I’ve expressed the view – well before the virus – that we were at or near ‘peak travel’.

      I know the consensus says that, by 2040, we’ll have c75% more vehicles, and fly c90% more miles by air, but my interpretation of economic and energy trends indicates that such targets are unattainable. Car sales had turned down long before this crisis, and converting a still-growing vehicle fleet to EV has never looked feasible, any more than running aircraft on batteries and biofuels ever made sense. These sectors were at or near to de-growth even before most people had ever heard of Wuhan.

      As for “tech” (broadly defined), I don’t think these industries have grasped the meaning of the economic changes which will be triggered by the pandemic crisis, but which were due to happen anyway. At least three of their business models are failing. I’ve not, as yet, taken a view on whether to write about this or not.

  49. @Dr. Morgan
    If you got all the way to the end of Lisle and Howk, you heard their prediction. that, psychologically, Americans will be ready to party by mid-June.

    What they are NOT considering is the possibility that the bazookas from the Fed are not effective and unemployment is still rising and people are being evicted to live on the streets and nobody wants to buy Treasuries so the Federal Government is out of money.

    I think this may qualify as the Black Swan of the Century as a call….or maybe prophecy?

    Don Stewart
    PS. I see that a Taleb advised hedge fund returned something over 4000 percent in recent months.

  50. I Could Be Completely Wrong
    But, as I have mentioned previously, I see a lot of parallels in the US between 2020 and 1933 at the inception of the Roosevelt New Deal. For example, the New Deal formed business association to try to stop the deflation. Many of the professional organizations featuring state licensing boards got their start in the Depression. So, for example, barbers and hairdressers became a licensed profession with limited numbers admitted into practice. New York City cab medallions probably came into being about the same time.

    My reasoning on shale and the purchase of the high yield bonds by the Fed assumes that the government would much rather deal with 2 dominant companies (Exxon-Mobil and Chevron) rather than a whole bunch of very independent and cussedly stubborn drillers…who think that dollars of debt are intended to drill wells, much as a hammer conceives of the purpose of a nail as being driven into a plank.

    The government can subtly steer the two giants into doing whatever the government wants them to do. Those who remember price and wage controls during the Nixon administration may recognize what the nightmare of trying to micro-manage hundreds of thousands of small businesses. Regulating Amazon’s prices and wages has to be a lot easier. If we are in for a round of capital destruction featuring inflation and the loss of purchasing power of wages, then a few big companies are easier to control than many small ones. And controlling the centralized media (which are owned by just a handful of billionaires) is a lot easier than controlling the proverbial small town crusading newspaper.

    As for the bonds, they are held by the very rich, including pension funds for people who are, globally speaking, in the top tier of wealth. Since protection of wealth always trumps the potential for future income, buying the bonds or putting a floor under their price gains political allies with mere fiat money.

    It may all fall apart…as much of Roosevelt’s programs fell apart. But this is the way I read the tea leaves.

    Don Stewart

    • And thank God Roosevelt’s programmes fell apart: it was an incipient totalitarian dictatorship as many perceptive observers from outside the US recognised at the time.

      His death was a blessing, as he had the stuff of tyranny in him without a doubt. Perhaps the line is a fine one between great leaders and despots?

      Although it has perhaps to be admitted that the logic of our own times is not a cosy tea and biscuits in the rectory village gossip kind of ‘De-growth’, which some seem to hope for as he bloated corporations ad fantastic unicorns fall , but a new, and inevitably highly corrupt, totalitarianism, which seeks to maintain the functioning of moribund structures for as long as possible.

      Now, who else feels that we are in a kind of deceptive lull in this locked-down world before the real storm – hunger, violent crime, civil disorder, ineradicable high unemployment (take your pick from Pandora’s Box ) – hits us with terrifying force?

    • Many people have high hopes that this crisis will usher in a better world. Many had similiar such hopes in the Paris of 1789, and we all know what happened then. The more meaningful example, no doubt, is 2008, when it seemed, fleetingly, that certain groups’ over-reach was going to rebound on them but which, for the most part, it didn’t.

      I don’t, yet anyway, feel qualified to comment on some of these themes. There will, beyond a doubt, be efforts made to preserve the status quo pre-Wuhan. I believe that their chances of success are amongst the many things on which we don’t yet have information enough to form a judgment.

      There are three things that, in general, I don’t buy in to – conspiracy theories, messianic ‘end of the world’ prophecies, and Pollyanna-style blind optimism.

      This leaves us – or me, anyway – with information and interpretation.

      First off, I believed it was important to interpret and present the financial and macroeconomic overview. That, in so far as possible, was the aim of this article and its predecessor (neither of which, I emphasise, contained forecasts, for which we have too little information).

      Next, the aim is to work through the industrial and political sides of the issues – which industries will shrink and/or disappear, how political aims and systems will change.

      I should perhaps add that I don’t see how the status quo can be preserved. As most readers will know, I’ve long believed in de-growth, de-complexity and a consequent financial crisis. The coronavirus crisis is highly likely to have triggered these things. But they had already become inevitable, and anyone who knows that is at least one step ahead of those to whom these things were unthinkable, and which have, therefore, not been thought about.

    • Tim,

      It is great that you aren’t pre-judging or predicting outcomes aside from the increasing ECoE. Barring some “cold fusion” like discovery, that seems fairly solid. Embracing uncertainty is not a trait embodied in most humans. That is one reason that religions are widespread. There are some “mutants” (maybe 15-20%) who are comfortable with uncertainty, and that makes it easier to alter contingent positions as new information is brought to light.

    • Steven

      Thank you. I’m not making economic forecasts as such, because I don’t have the necessary information, and neither does anyone else.

      Obviously energy is one of the industries that I’m assessing most of all. The rise in ECoEs will continue, informing the narrative of de-growth. I already believed that we can’t, and won’t, be using 10-12% more oil, and 30-32% more gas, by 2040, as the consensus assumes. But neither can we (if we ever could) put $95-110tn into a ‘big bang’ transition to renewables.

      This suggests that energy use won’t increase by the consensus 28% by 2040. That means a smaller economy than the consensus assumes – which has been my assumption all along, of course…..

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