#170. At the end of “new abnormality”


As soon as it became clear that the Wuhan coronavirus pandemic was going to have profound economic consequences, the aim here was to scope (since it is impossible for anyone to forecast) the implications for the financial system, and for the economy itself. Both have subsequently been converted into downloadable reports which can be accessed at the resources page of this site.

There’s no denying that both reports, stats-rich and based on the SEEDS model, are complex, even though every effort was made to combine clarity with a minimum of jargon. Indeed, ‘complicated’ might well define the whole situation with the coronavirus crisis.

Where once we might have said that ‘whole rainforests are being pulped’ to feed the appetite for comment and expression about the crisis, the 2020 equivalent is that the internet is becoming saturated with information-and-opinion overload.

The aim here is to take the issues ‘on the volley’, in hopes that this might tease out the nuggets of the important from the overburden of sprawl.

First, then, the pandemic itself. There seems no reason to doubt the severity of the health crisis, since neither governments nor businesses are prone to this kind of over-reaction – far from going out of their way to create panic, shake public confidence and cripple the economy, the political and economic ‘high command’ is likelier to promote false reassurance than to whip up unnecessary panic.

Neither do conspiracy theories seem particularly convincing. It seems pretty clear that the virus originated in China, but the idea of spill-over from dangerous experimentation seems far less plausible than the simpler explanation, which is that the virus jumped the species barrier in one of China’s dangerous, insanitary and, frankly, bizarre ‘wet markets’. Equally, it seems logical that an authoritarian, one-party state would react to an unknown threat with a habitual (rather than a pre-planned) denial, and with a bureaucratic, almost instinctive silencing of dissenting opinions.

Likewise, Mr Trump’s apparent belief that the World Health Organisation kowtowed to China by labelling the crisis ‘covid-19’ (rather than, say, ‘Wuhan flu’) seems less likely than the simpler explanation, which is that the WHO conformed to that same contemporary preference for euphemism which has presented the erosion of working conditions as the “gig economy”.

This isn’t to say, of course, that China isn’t looking for ‘the main chance’ where the pandemic is concerned. But it’s only fair to say that such opportunism is by no means a uniquely Chinese preserve. People from all shades of opinion, from every political persuasion and from all points of self-interest are trying to find their own silver linings in the coronavirus cloud. From calls for a world government to demands that “Brexit” be put on ice, we’re seeing hobbyhorses, even of the most irrelevant kind, being ridden to exhaustion.

By the same token, the use of lock-downs seems, on the whole, to have been a sensible response, because a distinguishing feature of the Wuhan virus is its rapidity of spread. The only real mystery about this is why, in an age of digital communication, a policy of physical separation is being mislabelled ‘social distancing’.

Of course, lock-downs come at a huge economic and broader cost, automatically prompting the public to wonder how much longer this situation will prevail. It’s a fair bet that governments around the world are contemplating ‘exit strategies’, but only the rash would insist on governments going public on what those strategies might be.

The priority now has to be to ensure that the public adheres to the principles of lock-down, and that resolve could only be weakened by premature speculation about how this might end.

For their part, economists and others are trying to gauge the possible or probable extent of the damage that the coronavirus and the consequent reductions in activity are going to inflict on the economy. Though Britain’s OBR has presciently warned of the risk of longer-term “scarring” of the economy, the general supposition seems to be that, whatever the severity and the duration of the crisis turn out to be, it will be followed by a “recovery”, involving both the eventual restoration of pre-crisis levels of activity, and a reinstatement of the belief in “growth”.

The view expressed here is that trust in a full economic “recovery” – irrespective of the time that is allowed for this to happen – owes more to obstinacy and wishful-thinking than it does to logic. The very word “recovery” presupposes that the economy pre-virus was robust, was continuing to deliver meaningful “growth”, and constituted some form of “normality”.

It’s worth remembering that, long before the crisis, world trade in goods, and sales of everything from cars and smartphones to chips and electronic components, had already turned down. Financially, extreme strains were already emerging right across the system. Investors had already started turning their backs on shale, and the “unicorn” absurdity – the bizarre delusion that any company combining an “app” with a cash incinerator must come good in the end – was already going the same way as the Emperor’s New Clothes.

There is, after all, precious little “normality” to be found in a system which pays people to borrow, and which places an almost mystical faith in the ability of central banks to ensure that asset prices only ever move upwards.

No apology need be made for saying that a lot of us had already realised that the “new normal” – of ever-rising asset prices, and of an unending tide of cheap credit and cheaper money – had become absurd to the point of the surreal. The best reason, in addition to simple observation, for questioning the validity of this “new normal” mindset was a recognition that the economy is an energy system, and that the energy equation driving prosperity had already turned against us.

Rather than going into the technicalities of the energy-based interpretation, we can simply state that the relentless rise in the Energy Cost of Energy (ECoE) was applying a tightening squeeze to the surplus energy which determines prosperity.

The very extent of the financial adventurism happening in plain sight attests to the scale of bafflement and denial being required of the adherents of the dogma of perpetual growth. It doesn’t help, of course, that our entire financial system is wholly predicated on the implausible proposition that there need be no limits to economic expansion on a finite planet.

The reality, then, is that an ending of growth – and a consequent destabilising of the financial system – were lying in wait for us, needing only a catalyst, which the coronavirus has now supplied.

What this means is that “de-growth” has now arrived. This is not something that we have chosen, however compelling may have been the environmental or the human case for kicking our growth addiction. There’s nothing noble, voluntary or selected about the onset of de-growth which, rather, is a straightforward consequence of the unwinding of an energy dynamic which, courtesy of fossil fuels, has powered dramatic expansion ever since the first efficient heat-engine was unveiled back in 1760.

The necessity now is to understand de-growth, and to make the best of it. Those who have considered this likelihood have started to understand processes such as loss of critical mass, the threat posed by falling utilization rates, the inevitability both of simplification and of de-layering, and the equal inevitability that, just as economies became more complex as they expanded, they will be subject to a process of de-complexification now that prior growth in prosperity has gone into reverse. As shown below, these components of de-growth give us an outline taxonomy of the very different economic world of the future.

It doesn’t require a Pollyanna approach to understand that, just as “growth” has been a mixed blessing, de-growth offers opportunities as well as threats.

If you really valued ‘business as usual’, were looking forward to a world of widening inequalities and worsening insecurity of employment, enjoyed the glitz of promotion-drenched consumerism, and were unconcerned about what a never-ending pursuit of “growth” might do to the environment, you might find the onset of de-growth a cause for lament.

If, on the other hand, you understand that our world is not defined by material values alone, you might see opportunities where others see only regrets.

Degrowth diagram

= = = = = = = = = = = = = = =

Shapes V Z ADG

Scatter transport

278 thoughts on “#170. At the end of “new abnormality”

  1. The negative price of WTI
    Here is one explanation, which I do not vouch for. It’s not easy to link to the place I read it, so you can search on these words for the entire article….Don Stewart

    What Really Caused the Epic WTI Meltdown?
    Speculative traders chasing scarce oil storage space to close out expiring paper positions were the main driver behind this week’s historic crash in US benchmark futures trade, according to an Energy Intelligence investigation.

    To be sure, dire fundamentals — overflowing storage and pipeline backups — were part of the problem that saw front-month West Texas Intermediate (WTI) prices plunge into negative territory for the first time.

    But Energy Intelligence understands that the catalyst involved at least two hedge funds, money managers of high net worth individuals and likely other parties — all financial traders with speculative positions but without assets — who were scouring the market for any storage available, desperate to close out long positions.

    • Could it be the result of ever chasing paper profits on a seemingly never ending physical planet Don?

      Isn’t this one of the last gasps? Like a Corona patient in one of the Chinese containment tents, wondering why his investments went wrong?

      Isn’t this the baboon that was caught f*cking a black swan?

      Isn’t this just stupid people think brain mass is an almost certain and never ending road to prosperity?

      Like we did for several hundreds of years?

      Do we really think we ate in the know?

      Decisions being made after the plebes understand and being able to act?

    • The Financial Times’ Alphaville has a very good series of articles by Izabella Kaminska on the delivery of West Texas Intermediate futures contracts, oil storage in Cushing, Oklahoma, and the effects of shorting the United States Oil Fund. To avoid links requiring moderation I’ll list the searchable titles here.

      Oil’s big storage problem
      More on that oil storage problem
      Oil goes sub-zero
      The United States Oil Fund mystery, revived
      Unprecedented oil commentary
      Can the USO fund collapse?
      More oil ETF shenanigans

      (Registration but not subscription required.)

  2. Greetings Dr Morgan. I read this sentence on this page http://www.surplusenergyeconomics.com/

    “Second, excess claims – not just debt, but other forms of supposed value that cannot be honoured – will need to be destroyed.”

    What are examples of “other forms of supposed value”.

    Thank you.

    • In terms of value destruction, I find it helps to draw a distinction between tangible and intangible value.

      – Tangible value refers to defined amounts. Debt, for example, is ‘defined’, as in ‘X promises to pay Y amount to Z on date D’.

      – Intangible value is typified by stock and property markets. The total value is notional, i.e. it could never be monetised in its entirety. It is calculated by multiplying current prices x total quantity.

      This isn’t a hard and fast definition. For instance, a pension scheme which promises to pay out ‘Y amount per month after retirement date D’ is tangible, whereas a scheme promising a monthly payment of ‘Y percent of fund value’ is intangible.

      Excess claims is a SEEDS definition. In Surplus Energy Economics, money is understood as a claim on economic output, the latter being determined by surplus energy. If we create money (claims) which exceed output (now or in the future), the result is excess claims. These, by definition, cannot be honoured, so must be destroyed. SEEDS calculates both annual and cumulative ‘excess claims’.

  3. Interesting to note comments from Pierre Andurand the hedgefund manager who has just made a small fortune betting against the Oil price, which seem to align with the view that energy is the real economy and money as something of no intrinsic value which can be manipulated:

    “Central banks can support bond prices and equities for some time, but it’s much more difficult for oil as it’s a real physical commodity.”

    • Indeed.

      The way I would put this is that:

      – Central banks can create demand for bonds and equities

      – Central banks can not create demand for oil

      Of course, the ‘demand’ they can create for stocks and bonds is artificial, but that’s another conversation……

  4. Machinations
    “U.S. oil firm Continental Resources halts shale output, seeks to cancel sales”

    I find this deliciously ironic. During the divorce, Harold Hamm used the ‘Jed Clampett’ defense…it was all just dumb luck that the family wealth had increased by tens of billions of dollars during the marriage…it was effectively just an act of God. The judge agreed, and poor Mrs. Hamm only got a billion dollars because Oklahoma law does not give the spouse rights to ‘passive gains’.

    Now the oil price collapse is another Act of God and Harold doesn’t want to honor some contracts which were apparently tied to spot prices. I can’t remember the exact quote from the Bible, but it is something like:
    Whom He elevates he also brings low.

    Don Stewart
    PS. Do you suppose that Harold will be rescued by his buddy Donald? If God is being spiteful, can a guy wearing a MAGA cap make it better?

  5. People need to be more mature, Xabier, come on don’t be silly. I’m happy to come here and debate issues with like minded people that others may currently regard as “fringe” but “People need to be more mature”! That’s not fringe that’s completely out of the park. 😊

    In the UK at least, my perception is that many if not most people are of the view that the impact on the economy is necessary to tackle the virus, some think the response should have been more dramatic and or earlier.

    I’m prepared to bet that many of those same people will have a different view in 12 or 18 months time and will completely deny having ever articulated there current opinion in 12 or 18 months time.

    It’s not at all clear to me, that many of the advocates of stopping the economy as being a price worth paying, had any idea what the price was going to be when they agreed that “we” should pay it.

    • For most people (perhaps for all of us) this has been a huge shock, and we all respond to it in our different ways – I’m sure these range all the way from panic and despair at one extreme to denial at the other. We might do better to learn from a certain long-ago (Victorian) politician of whom it was said (I paraphrase) that “the hotter the situation became, the icier his logic”.

      We’re seeing all sorts of wishful thinking at the moment. For instance, airlines seem to believe that their sector will start to get back to normal from July, and will be most of the way there by October. Some of Europe’s football leagues think games can resume in May, with match programmes finished by the end of June. Some investors think that, courtesy of the central banks, we’ve already seen the low point of the bear market. I’ve mentioned before the IMF view that the economy will be bigger in 2021 than it was in 2019.

      I’m no doomster, but these and similar stances make Pollyanna look like a pessimist.

    • And what if our managers decided it is time to reduce economic activity? Because they know about ECoE, just like us?
      Tariffs don’t work fast enough, workarounds being implemented in an eye blink.

      Now what? We must reduce economic activity and kill the platoon to save the army.

      Debt based growth is over. Our managers know that. We know that. Bit our managers cannot puke it on prime time, because we would have instant collapse. What would you do with interconnected systems and 7.5 billion users?

      Look honey, there’s a turd lying on the stove and you’re asking me where the smell comes from?

  6. a heads up that Michael Moore has released, on Earth Day, a new documentary he’s produced on his Youtube channel, in full, for free, for 30 days,
    it challenges the belief that we can switch to green energy and continue to grow indefinately,
    it highlights the reliance of green energy on existing fossil fuelled systems,
    it shows how ungreen most purported green energy actually is,
    it shows how green energy has been hijacked by big business motivated by profit,
    he’s released it early hoping there would be a large audience available during lockdown and also time for people to reflect on it’s content before we restart our respective economies,

    I thought it was pretty good and also a sign of shifting perceptions,
    I don’t think readers here will disapprove of what this documentary says,
    it’s already had 1.5 million views in a couple of days which is encouraging, there must be a receptive audience out there for this kind of message,
    maybe this sort of thing might break into mainstream discourse?

    • this summer could be fun!
      GFC 2.0 really kicking off, mass unemployment, loss of income for oil producing countries, possible second wave of corona virus exacerbated by early relaxation of lockdowns, record breaking heatwaves due to global dimming being cleared by a 70% drop in commercial airline traffic,
      throw in some food shortages, civil unrest, the US election descending into a farce, the Donalds inflammatory tweets and something else completely out of the blue that no one can as yet imagine!

      I’m thinking seriously about continuing to self isolate till christmas…. 2022

    • “Never a dull moment”, as the saying goes!

      Early relaxation of lockdowns worries me particularly at the moment. Airlines seem to think they can start flying again in July, and reach somewhere near normal by late autumn. The German and Italian football leagues seem to think they can re-start their seasons in May. This sort of thinking is dangerous. Governments need to proceed with extreme caution on this issue.

  7. planet of the humans.
    So far the COVID-19 situation has caused 6% decline in carbon emissions (approx) . We need at least a 10% reduction each year for ten years if we are to stay within 2 degrees(nobody actually knows what is needed). We need to work out what that is per person, allocate a ration to everyone. If you want more it will cost you more, and if you don’t need them you can sell them to those that want more plus cheap public transport or the equivalent- UBI. We need serious and just solutions urgently that everyone can get behind. No cheating on what is green energy. This film is worth the time to watch.

    • @Gordon Jackman
      I’m critical of the criticism because:
      *It’s true that time is of the essence
      *But greening electricity isn’t going to solve our planetary boundaries problem or our Limits to Growth problem.
      *The best example I know of a model solution is David Holmgren’s Retrosuburbia. It’s about living a good life with around 10 percent of our current consumption of industrial products. Forward thinkers have known this since at least the time of Limits to Growth. Whether any significant numbers of people are willing to do what needs to be done is the Elephant in the Room.

      As a scientific issue, I believe that Paul Davies’ book The Demon in the Machine offers guidance. A human consists of two systems which interact: a chemical system and an information system. The view of the genetic research up to the sequencing of the human genome was very strongly in the chemistry side of the equation. We now know that view was only partial. That view gave us concepts such as ‘selfish genes’, which don’t lead to anything productive. Davies, a physicist, explains how information is key to understanding how life works. The notion from Psychology that I alluded to here a couple of weeks ago regarding an Esteem based social and economic system is an example of the information system at work.

      The current Pandemic is symptomatic of our failure to understand the Information and Signaling side of Life. While we won’t get out of Lockdown by resolving the scientific questions in the next month, it seems to me important to at least salvage out of this debacle some sense about what we need to be doing.

      Don Stewart

  8. What’s concerning me at the moment is the seemingly complete lack of forward planning.

    Physical (a.k.a. “social”) distancing, though tough, was pretty simple to formulate. Relaxing these rules is much more complicated, and requires planning. But all we seem to be seeing is chaotic, ‘make it up as you go along’ stuff, when what we need is a clear plan, properly thought through, not this sort of haphazard ‘let’s reopen X, Y and Z’.

    The public have been pretty stoic about this, but self-interest seems to be driving the ‘exit strategy’ agenda. We need leaders who are prepared to say “no”.

    If we get this wrong, we risk a second wave.

    If that happens, we’re going to have to ask the public to go back into lock-down.

    But, if we make a total mess of exiting from “lockdown 1.0”, why would the public co-operate with “lock-down 2.0”?

    We need to reopen activities that (a) are very important, and (b) can be operated in ways consistent with continued distancing.

    • If I recall Tim, there was forward planning by some, there were some scientists who had, at the start of all this proposed an exit strategy to lock down. Didn’t it involve accepting that the only true exit strategy once you decide to go into lockdown is to have a vaccine for the majority of the population, anything else is management not exit.

      These scientists suggested “herd immunity”. As I understand it you still lock down 10 to 20% of the most vulnerable and allow those for whom you think infection will be mild to get the virus, with the hope that they are then immune.

      The public, pressed on by the media decided that the lockdown thing sounded better and governments went for that and here we are, back at the beginning.

      What have we achieved with our lockdown? A rise in domestic and child abuse, economies in decline, metal heath issues spiralling upwards and the only real exit is vaccination to the virus for the majority of the population. Everything else is still only management.

      As Xabier said earlier, “ people also need to be rather more mature and recognise that if they suffer, it is because they are human, not principally because the system – or someone did something to them – and that ‘man born of woman hath but a short time to live”

      We live in a world where the notion that people might suffer is “unacceptable”. Neither the covid-19 or nature is asking for our opinion!

    • Indeed, but I was thinking something more defined and graduated.

      It would start with essential or important activities, where physical distancing can be practised. Examples might include farming, livery stables, road haulage, builders’ merchants and that sort of thing.

      At the other end of the queue would be things like aviation, sports competitions and most forms of tourism.

      Some countries are being clear about these things. At least two have said that there can be no sports events until September at the earliest. Reading between the lines a bit, the Spanish government has said there’ll be virtually no tourism this year. Such positions make planning easier, and are better than the ‘maybes’ that we seem to be getting from many governments.

      Meanwhile, I see the Comic Relief, with M. Barnier (Europe’s answer to Tommy Cooper?) saying the UK ought to get its act together in negotiations with the EU (by which he means giving in to everything), when that same EU can’t work out how to help Italy and Spain.

    • The problem as I see it is that the science is not clear; there are multiple scientific opinions about what should be done going forward not a single opinion which is clearly politically inconvenient and therefore cannot be stated. It’s a question of ignorance not political convenience.

      Also, and as has been hinted, there are trade offs: we end the lockdown faster but that will result in more deaths. These trade offs are always there but rarely see the light of day and it brings to the surface an uncomfortable reality. If we had a person with a red flag walking in front of traffic the road death total would be nugatory but the economy would suffer hugely. It’s a trade off.

  9. I would argue for the spitfire pilot who usually flies over here when the weather is fine as being absolutely essential for my moral – and one could argue nationally:

    ‘Britain down, M. Barnier? Not at all, our spitfire is flying!’

    One of the great problems with ‘physical distancing’ is of course the commuter run: think of those horrible packed trains going into London, and the awful tube, every weekday.

    Physical distancing is simply not possible. Therefore, not at all feasible until masks on public transport are compulsory.

    None the less, the distinction between ‘essential’ and ‘inessential’ seems rather specious and essentially unworkable: Spain, etc, without tourism – an utter disaster! One can multiply examples.

    It ALL has to be got up and running simultaneously – perhaps excepting mass sports events and concerts.

    .That is the logic of a modern service economy.

    • As a real-life example of ‘exit by stages’ my cousins have been permitted to re-open their swimming pool business on the Catalan coast.

      Barely any customers: some orders for new pools and maintenance work, but most of their regular retail customers seem to have migrated to Amazon.

      Before being forced to close the shop, they were wearing masks (at my prompting) and limiting the number of customers in the shop -very responsible.

      Maybe the retail customers will come back when movement is even more normal – or maybe not? This could crush a 50-yr old business.

      Of course, there is the hope that their few competitors will go bust before them.

      Some might call that healthy capitalism, I’d call it an unnecessary disaster.

  10. What Can Be Done
    I will give myself a pat on the back for this accomplishment:

    The elderly farm couple gave this land to the Triangle Land Conservancy. It might have become just another preserve with a strictly controlled human footprint. I thought it could become a good example of how humans can use land in such a way that biological diversity and health are actually restored. Fate intervened. I was repaid a 3000 dollar loan that I had given to a beginning farmer, whose plans had been derailed by the fact that his wife was stricken and died from cancer. Since I had not expected to be repaid, I decided to look around for the best place to spend the money. I offered the TLC the 3000 dollars IF they would send a staffer to a Regenerative Agriculture meeting in California. They jumped at the chance. But one conference does not a convert make. So I took a couple of elementary tools and walked the property with them, as well as the commercial farm next door. I showed them that the former horse pasture had good soil (as measured by a soil core and a penetrometer…much to their surprise) while the former corn field was too compacted to grow much of anything. (Duh! manure is important). I showed them with the same two tools that all the topsoil was in the creek bottom, while the slopes were hopelessly compacted due to erosion…which is compelling evidence for water management. I showed them that there was about a half inch of uncompacted soil on the industrial farm.

    And now you see the emergence of a model piece of geography which sustains both humans and a healthy dose of ‘nature’. Except that the humans are using the free gifts of nature to grow food and fiber. I congratulate myself on bending the ‘information’ side of the equation in a hopeful direction.

    Don Stewart

  11. Ugo Bardi on Christian Drosten in Germany
    See Ugo Bardi’s blog today for a 4 minute explanation for the effective German response to the virus. Christian Drosten, the virologist who advises Angela Merkel, does not talk to the mainstream media. He insists on a 30 minute format which is unedited. He treats the audience like adults. The audience is also getting exactly the same information as Merkel.

    Can we resolve the world’s issues with Soundbites?

    Don Stewart

  12. New Zealand is about to start the process on Tuesday of coming out of lockdown, using much the process that Tim describes. Level 4 (the most strict) to level 3 requires all new economic activity to be “safe”. We will soon see how that works!

  13. from Art Berman’s tweet, but a quotation:
    Storage points aren’t physically full, but are off market. 30-40% “of storage in US is empty, but booked & in the hands of traders,” said S&P Global Platts. “We can probably say the same for all storage around the world. There is storage but not to rent.”

    My note: which indicates to me that the traders will manipulate the market to make as much money as they can. Speculating about the prices based on fundamentals of supply and demand is probably a fool’s errand at this point.

    Don Stewart

    • There are intricacies in the computation that I haven’t entirely worked out. But making an entire supply chain whole must be an enormous undertaking. And then he is using the analogy to 2008 in terms of how much money had to be created in order to restart things. For example, suppose a pizza place has gone bankrupt because their business has evaporated. A bank may not be very enthusiastic about loaning money to the owner to restart the business. So if one sets out to recreate the businesses that existed back in November, one may have to print an awful lot of money and also manage, somehow, to incent the banks to loan it. Basically, I saw the article as reinforcing your view that ‘everybody is going to be poorer’…the landlord, the workers, the owners, and even the consumers because their choices will not be as expansive.

      Don Stewart

    • All of these calculations tend to be based on a ‘V’ or ‘V+’ shaped recovery, in which activity returns to, or above (‘V+’), pre-crisis levels. If you believe that, then everything (capacity-wise) that we have now will be needed after the crisis, which would in turn make you ‘pro-rescue’ as a general proposition.

      I don’t buy ‘V’, let alone ‘V+’, as the probable shape. My scenario is ‘acccelerated de-growth’, which I’m calling ‘ADG’. On this scenario, there is a recovery after lockdown, but it’s not a full recovery, and then de-growth resumes, probably at an accelerated rate, after that.

      From that perspective, only some things are worth rescuing, and others should be left to their fate.

      Additionally, bankruptcy does not “destroy” large- or medium-sized companies – their assets do not disappear, but ownership simply moves from current shareholders to creditors. If, for instance, a company owning an airport or a shopping centre goes bust, the assets aren’t bulldozed, they just have new (and usually less indebted) owners.

      This means very different priorities for the authorities. Small businesses are worth rescuing, and so – in some cases – are larger ones which are essential to the economy. On this basis, you might rescue, say, a utility, but you wouldn’t rescue an airline, a fast food chain, a real estate firm or a baseball team.

      This way, the task becomes much less expensive. Being open to rescuing almost anything both (a) over-stretches limited financial resources, and (b) risks preserving things that we won’t need (= excess capacity) in the post-crisis economy.

    • I don’t know that the author would disagree with you. As I read him, he is just trying to put a dollar value on how much digital money would have to be created IF one set out to make up everyone’s losses.

      For example, suppose that the earnings are 100 dollars and the price of the stock (which is somebody’s asset) is 500 dollars. Then for every dollar lost in revenue (which I will assume flows to earnings), the Fed would have to print 5 dollars to prop up the stock market.

      I’m not sure my reasoning there is solid. Values are made at the margin, as you have frequently pointed out. Charles Smith had a nice article this week on the fragility of the value of exotics such as paintings and luxury boats and elaborate houses. His thesis is that just a small hiccup in earnings can quickly result in no bids for such items. So a ten percent decline in revenue can wipe them out as valuable assets.

      It’s tricky for me to try to figure it out because the leverage which can be achieved financially is so enormous. The Fed’s Plunge Protection Team quickly learned that a few millions adeptly deployed in thin markets could move the indicators in such a way as to attract the computers which led to a much leveraged upward move in the markets, which led analysts to invent reasons why everything was great, which led more people to buy.

      Don Stewart
      PS. And I basically agree with your expectations.

    • Thanks Don.

      I think there’s a useful analogy here.

      Let’s say a person’s income has fallen from $30,000 to $10,000, because of the crisis.

      Meanwhile, the value of his/her home has fallen from $300,000 to $200,000.

      If, within limited resources, we want to help this person, it does make sense to restore part of his/her income, but it does not make sense to try to boost the value of his/her house.

      Across the board, it makes sense to support incomes, but not to support asset prices – Fed etc please note.

  14. @Dr. Morgan
    Another complication is:
    ” the top 5% own roughly 2/3 of all wealth” in the U.S.

    If those assets begin to lose value, and there seems to be no end to it, then there will be an immense rush for the door among 5 percent of the population. Just passing out checks to the other 95 percent does not directly increase the value of the 5 percent’s financially leveraged assets. Suppose, for example, that there is surplus capacity and the increased cost of doing business (rising ECoE, trade restrictions, viruses, etc.) is increasing and wiping out margins. Is it even possible to print enough money to inflate the asset values to keep the 5 percent whole? Yet that is what the Fed seemingly wants to do.

    I can see this ending very badly.

    Don Stewart

  15. Interesting if true. COVID-19 could mark the end of the China centric global growth model, with the US and Europe alike either bringing production home, or locating it in other low income countries.

    I do find it interesting that the end of one-world globalization just happens to coincide with a peak in net energy. The main driver up to now is declining prosperity, resulting from declining net energy and global imbalance in manufacturing capabilities. A definite example of a negative feedback effect that should reduce the energy costs of manufactured goods, by reducing the need for transport fuels. And yet few outside of niche energy-economics circles really recognise that this hidden feedback effect even exists, even as it changes the world.

    • Interesting point: but it is surely more likely that the political and social chaos – disintegration, crime, corruption, infrastructure decay, even wars (international or civil) – resulting from the decay of the globalised model, and eco-system collapse, will far outweigh any such gains even if they are not illusory.

      History, and human nature itself, give us no reason to believe that the evils of life will not increase quite dramatically.

      When people grow poorer they become corrupt and commit crimes simply as a means to survive; when states do so, they disintegrate in civil wars or pick quarrels with their neighbours.

  16. Update: the fine English shoemaker I mentioned earlier has now gone straight to a 30% discount on their whole Spring/Summer stock, which they only announced as available some 4 days ago; 20% off all other models which are non-seasonal.

    I wonder what the idiot epidemiologists who are arguing for many more months of this level of lock-down in the UK, until daily new cases ‘are in the hundreds’ think will happen to truly excellent, and hitherto very successful, UK companies like this one if their recommendations are enacted?

    I am finding it more and more difficult to order online and get delivery across a range of goods, in less than several weeks – disintegration is palpably speeding up.

    Many more companies have also introduced daily order rationing.

    • I’d say that some businesses (such as shoemakers) could and should re-open shortly, with appropriate precautions (maybe masks, no more than X customers on the premises at a time, and so on).

      Others can’t re-open, because either (a) suitable precautions aren’t practical, and/or (b) their importance doesn’t outweigh the risks.

      Letting people go into shoe shops, garden centres etc seems reasonable. Cramming 50,000 into a sports stadium does not.

  17. Hi Tim,

    In terms of the subjects we discuss here can you say a little about your opinion of the research that comes out, I mean is published so as to be accessible to the general public and media, by the big banks, insurance companies and others in financial services and trading houses.

    Is it, in your opinion rigorous and independent or are they “talking their book” as I think the phrase goes?

    I would also be interested in hearing about what happens when such published research is proved to be wrong. Are there internal reviews etc? Some “experts” seem to be able to be invariably inaccurate for some time and yet retain their job.

    Finally, when you do publish something that is out with the current consensus of acceptable opinions, such as you did, how do your peers in research and analysis react both to your face, so to speak and as far as you know, behind your back?

    • Well, the consensus view, certainly amongst the ‘high command’ and seemingly in the markets, too, is that the economy will make a full recovery, even if this process proves protracted. The IMF typifies this, and its numbers for World GDP are instructive:

      2020 -3.0%
      2021 +5.8%
      2021 vs 2019 +2.6%

      This goes beyond a simple ‘V’-shaped recovery, and I call it ‘V+’.

      Of course, I don’t agree with this at all. First, I believe we’re already into “de-growth”. Second, we can restart some economic activities in ways reasonably consistent with safety precautions, but not others. We might, for instance, re-open garden centres and outdoor markets now, but I can’t envisage a safe way of re-opening concert halls, cinemas, sports events or passenger flights for a very, very long time. Third, the attitudes of consumers and businesses will have undergone fundamental change during this crisis, not least because the vast majority will have reduced cash/savings., much higher debt and impaired incomes.

      When I was head of research at TP, my papers on this theme got mixed reactions. One daily paper panned it as too gloomy, the FT and The Economist treated it in a much more balanced way, and people I knew in business circles thought it was (to quote one of them) “very important”.

      Latterly, I’ve no real way of knowing. “Doomsters” certainly think I’m far too optimistic, though the word I’d use is “cautious”.

      It seems to me that even most experts are in the dark. Conventional economic models don’t work in this situation and, I’d say, haven’t worked for at least ten years.

    • That I think is the point I’m trying to get to, “Conventional economic models don’t work in this situation and, I’d say, haven’t worked for at least ten years.” and yet “experts” cling to them.?

      Not only do they cling to them but they are essentially able to cling to them despite the apparent fact that they haven’t worked for a decade?

      Is a research department even aloud to doubt the view of the “‘high command’ and seemingly in the markets, too,”?

      Do we just march on to the cliff edge or when does someone in a research department point out that there’s a cliff ahead and that collectively jumping off might be a bad idea?

    • I was always allowed to express my own views, but I can’t speak for others.

      The assumption of a ‘V+’ recovery trajectory worries me, because it means that planning is likely to be based on false premises, albeit in good faith.

      Since we cannot – in the forseeable future – eliminate the virus, or protect people from it, it ought to be clear that exit from lockdown is bound to be partial, and that some activities cannot be resumed for a very long time. It would help if governments came out and said so.

    • I suppose they have to cling to conventional models, for want of anything else.

      I’m sticking to the unconventional, in my case SEEDS.

  18. Boris Johnson has said this morning that the UK lockdown must continue, that the country mustn’t risk a second peak of infections, and that it’s too soon to spell out how or when the easing of lockdowns is going to happen.

  19. OOOps may have spoken too soon;
    “Wall Street bank Morgan Stanley has warned that Europe’s recession will be even deeper than first feared.
    Morgan Stanley now expects eurozone GDP to shrink by 11% in 2020 — a desperate plunge — not the 5% previously forecast.
    It now expects Covid-19 lockdowns to last longer than previously thought, and to be relaxed more slowly (with large scale events banned for some time, and investment and consumption staying weak).

  20. In answer to Ladydog70’s query regarding consensus opinion. Consensus opinion is often wrong!

    The book:
    “Extraordinary Popular Delusions and The Madness of Crowds” explains this adequately.

    • Thanks Wally,

      I agree that the consensus is often wrong and I agree about the “madness of crowds”. But the book your refer to is very old so must be part of the learning in economics etc and must be know to the experts and still the experts seem to go with the flow of opinion.

    • The foundation of Neo-liberalism is that
      *each individual consumer is rational and has full information
      Behavioral economics, a relatively small group of researchers, looks at the irrational behavior. But many of them assume that, basically, humans are rational in terms of money.

      One has to go outside economics, I believe, to meet scientists who assume that humans really are rational, but it’s not like the system that the economists are looking at. It involves limited resources, particularly conscious, or rational, thinking, plus the heavy constraints of the context. What may be rational for a particular woman is heavily dependent on whether she is married and the characteristics of the husband, whether she has children, does she have enough money to pay the rent and buy food, whether she is living in a supportive social environment, and so forth and so on.

      Similarly, a Wall Street trader behaves rationally given the context in which his particular fish is swimming….but the overall system may be irrationally driving planetary and human extinction.

      When people are ‘doing the best they can’ given the context, but still sense that things are going badly, I believe that they grasp at straws…Chinese hoaxes or miracle cures or guns in the bunker or whatever.
      Don Stewart
      PS. In an interview I heard last evening, Team Sherzai, a husband and wife, talked about intervention in Afghanistan, where the two met. The most effective place to invest a little bit of money was improving the lot of the women. They said that at first the Taliban was opposed, but when they saw the great results from small effort, they supported it. This is the power of small changes in context. What Russian occupation and US bombing could not accomplish, a few well-invested dollars could do.

  21. Popular Delusions
    *Alice Friedemann today: Plans for hydrogen, wind, solar, wave and all the other re-buildable contraptions that use fossil fuels in every single step of their short 15-25 year life cycle and hence are non-renewable, are just as silly as the ideas below, yet these schemes with negative energy return that can’t make themselves without fossil fuels are written about in respectable scientific journals, unlike the proposals below. I’ve been writing about this since 2001, now Michael Moore has made a film called “Planet of the Humans” that explains this as well.
    *We can just disconnect from the Chinese and keep our industrial agricultural systems which feeds Confined Animal Feeding Operations (CAFOs) and ethanol from corn to blend with gasoline.
    *We can treat a virus without doing anything about the co-morbidities: high blood pressure; blood sugar dysregulation and insulin resistance; inflammatory foods and auto-immune disease; palatability science based manufactured franken- foods and obesity; and etc.
    *We can blame the victims (middle aged white men and recent college graduates with debilitating student loan debt) who have been badly treated by Neo-liberalism and ignore the public health debacle and do nothing to re-invent our economic and social system and continue onward toward the stars.
    *The key to re-igniting our great economy is more debt.

    From looking at the science, I am confident that there ARE opportunities. But we are choosing to pursue them weighed down by heavy burdens because we can’t face the delusions and bring about the necessary changes.

    Don Stewart

  22. When discussing the ending, phased or otherwise, of these lock-downs we must confront the profound ambiguity of the word ‘safe’.

    For the majority of the active population, under 60, it is now well-established that there is no very great risk of dying from infection with this virus, merely slightly elevated – therefore, almost all activities can be considered fairly or even more or less completely safe for the majority of those who are economically active.

    Mothers mustn’t try to wrap their sons in cotton wool, nor should we make the same mistake with the adult population.

    Safe enough should be good enough: I very much doubt that many businesses and families could take even another month of this, financially or psychologically, and quite enough damage has been done already in terms of the legacy of the policy so far.

    Many, all too many, will emerge form lock-down to find after a short while that they have become unemployed, and that unemployment will be very persistent -how could it be otherwise.

    The functioning of the whole must take priority over individual lives however much we might value the latter.

    All sane human communities follow this rule – without it, they are extinguished.

    Every sector which we believe should be shut down ‘for a long time’ represents employment and hope to many thousands, most of whom are at no substantial risk – this should not be forgotten.

    Those who consider this matter in the abstract perhaps have little idea how the economy is being wrecked – just try buying things and you will see how it is disintegrating!

    Ominous rumblings on the food supply horizon, I note…….

    • Obviously there’s a balance to be struck. If a sector is important, and/or is low risk, it should reopen. If it’s not all that important, and/or is high risk, then it should stay closed.

      We need to remember that trying to re-impose lockdown would be far more difficult than imposing the first one.

      Yes, some firms will go under, and a lot of jobs will be lost. But some of that was coming anyway, through de-growth and/or environmental issues.

    • Xabier,
      I fully agree with you.
      Also, when you say that “Mother’s should not wrap their sons in cotton wool”, you hit one of the key elements of the response to this “pandemic”.
      We live in Feminist controlled societies, and women being women, are very risk adverse. So basically our societies will not be re-opened until our female leaders and the beta males under them, can agree that it is 100% safe to do so.
      Thinking as a rational Engineer, I know that to strive for 100% in anything can be futile, that is why we have tolerances on dimensions. But what is an Engineer in today’s society . .
      Another aspect that must not be ignored, is that our leaders do not understand anything about wealth and wealth creation. It is now perfectly evident that they view essential services only as being Healthcare and Supermarkets, and that everyone else’s job is dispensable. Only these services are deemed essential, manufacturing or any kind of wealth creation is apparently not essential.
      This is true of course, but it is only true for as long as we can create wealth out of thin air.
      Services do actually need to be paid for at some point !

    • Besides it kills men at a much higher rate and when that occurs then societally male deaths do not matter. Out of the trenches and charge the gas! PS You can kiss my A$$!

      I do have a job that I can avoid crowds so I will got back when the jobs come in!

  23. One more comment on systems and context
    A small farmer contemplates the cycles of history and how his farm fits into the grand scheme of things. It’s a good, short read, and parallels my own experiences and thoughts, but I will focus on this sentence:
    “How does the larger population learn to live a life of reduced choices?”

    It’s a truism that art arises out of limitations. For example, the book Zen and the Art of Motorcycle maintenance has a scene where the father and son, on their cross-country motorcycle trip, are sitting in a small town in Montana. The father suggests that the boy write his mother, giving her information about what he is doing (what? no instagram??). The boy replies that he has nothing to say. The father zeroes in on specific topics and the boy keeps responding that it’s boring. Finally the father asks him to write about the brick wall on the building across the street. The boy studies it, and replies that it is too complicated…there is way too much to say about it.

    Such is the power of responding within limits. While our current society likes to think that there are ‘no limits’, that notion is, right at this moment, obviously delusional. So our first priority is to recognize the limits, and, second, to make art within those limits.

    Don Stewart

  24. Lockdown must end today. The NHS has capacity. 1 in 4 firms will close for good (according to Dailt Telegraph) Boris has blown it big time. Expect a huge second peak not of Covid deaths but those of cancer, heart and cancelled delayed operations. Thanks in large to the scare tactics used to ensure lockdown. The black swan was not Covid bu the response to it.

    Hector Drummond who used ONS stats and an ex -academic (James Delingpole interview is a must listen) Here’s his post for today:

    “I was going to add, in regards to my ‘Is Anything Worth Doing to Save a Life‘ post, that there is no doubt now that the lockdown is causing deaths. Objectors may say that it’s not causing many deaths, but it’s undoubtedly causing some. I suspect it’s causing a lot, but it’s almost inconceivable that it’s not causing at least some, given the gargantuan drops in A&E visits, the cancelled cancer treatments, the increased number of heart attack deaths that ambulance workers are getting to too late, the worried appeals by medical chiefs for people to start using medical services again, etc.

    Now if, anything is worth doing if it saves at least one life, then we have to end the lockdown, because that will save some lives. Thus this stupid rule leads us into contradiction. To save a life we must both enforce the lockdown, and end it. This is basically the impossible position the precautionary principle puts us in, and the ‘better safe than sorry’ view as well. These are fundamentally irrational principles, and they lead to incoherence.

    It would be more rational to say something like ‘Lockdown prevents more deaths than it will cause’. I don’t agree with that (because I think the lockdown is hardly saving anyone, and also because we have to take account of more than just deaths vs deaths, there are numerous other dimensions to this), but at least it’s a more grown-up position. It does seem to be more like the sort of view that the lockdown scientists have in mind. But they’ll never say anything like this explicitly, and nor will the government, and nor will most of the media, because they don’t want to even put the idea in people’s heads that the lockdown is causing deaths. But most likely it is. And if you say, ‘Where’s your hard evidence’, I’ll say in response, ‘Where’s your hard evidence that the lockdown is helping?’

    Update: When I talk about the ‘Better safe than sorry’ principle, I don’t mean what your Mum tells you when she tells you to take an umbrella when you go out. That’s fine. I mean when it becomes the basis of public policy and involves enormous spending and intrusions into people’s private lives, all over something improbable.”

    • Jonathan,
      this Lockdown is not saving any lives at all.
      The whole point of this Lockdown was supposedly to ” flatten the curve”, so that health services do not get swamped. However, by “flattening” the curve, we are also extending the curve.
      Quite probably the area under the “flattened” curve will be the same as the area under the peaked curve. So those who were condemned to die will die anyway.
      I agree fully that this lockdown will cause more deaths, and those deaths will be among the younger population. These deaths would have been avoidable, because they will be attributed directly to the Lockdown and not to any pathogen.
      Data coming out of Germany suggests that essentially Covid-19 is a “Very Bad” Flu year, targeting as all Flu’s do, primarily the elderly and the frail.
      This Lockdown of society has been an unmitigated disaster which has achieved nothing ( for us peasants anyway ) other than accelerating the onset of GFC-II.
      The life life we knew ante-Covid is gone. Big changes are underway, and I think the government has a plan. ( spoiler alert – You ain’t gonna like it !)
      I know that I am reading entrails here and this is thoroughly unscientific, but I am fully expecting something to be sprung upon us all in the coming weeks.

  25. It must be remembered that this is a novel virus capable of morphing and creating untold damage to humanity. We think, as humans, we are very clever at creating and devising virus and antivirus computers software, but we are mere amateurs compared to the creativity and destruction of nature.
    The Government are well aware of this and are treading very carefully. Even a vaccine devised by specialised virologists can produce unwanted side effects.

  26. Art Berman puts tweets together into a coherent analysis and projection

    The business about the necessity to produce gasoline in order to get the diesel we need to do the heavy work is interesting. Art tweeted about this a day or two ago, but I didn’t fully grasp it. Here is what I think after ruminating about it. If we need diesel, which we do, then we have to produce gasoline. Consequently, there is some ratio of gasoline to diesel which can perhaps be tweaked but not fundamentally changed in the refineries. But suppose the gasoline is in excessive supply, due to the characteristics of tight oil. Then the price of the gasoline will sink to zero. Which undermines the basic monetary equation of the oil industry. So the price of diesel would have to roughly double to keep the industry solvent. But that would make the cost of the energy used for heavy equipment, airplanes, and trucks double. Since gasoline is priced at zero, electric cars make no sense. Alternatively, refineries refuse to buy tight oil to avoid the gasoline surplus, wiping out the tight oil industry and creating a financial crisis in the US. US oil production declines precipitously, the trade deficit of the US grows rapidly, and the dollar loses its reserve status. The US standard of living falls by 50 percent. In short, chaos.

    Would an invasion of Venezuela to get heavy oil change anything? I’m not sure.

    What I have just written is my own interpretation…not Art’s necessarily.

    Don Stewart
    PS. I hesitate to blame all this on a microscopic arrangement of RNA. Maybe Divine Vengeance?

  27. you know I’ve much more confidence in Dr Tim’s assesment of the situation than anything I’ve seen coming from official channels,
    it rings true because it includes elements that I’ve seen appear across a wide range of independent expert opinion and it all makes sense,

    all the official information seems contradictory, changeable yet not evolving and dominated by wishful thinking and the imperatives of vested interests,

    I find myself imagining a not too distant future where the smash hit best seller is the new book by T Morgan titled ‘What We Should Have Done’
    it won’t be available as a paperback but on the back of old bits of paper, carefully hand copied from the master manuscript,
    for the more well heeled the hardback version will be exquisitely impressed into clay tablets and fired in kilns powered by salvaged motor car tyres,
    for the masses it will be available online, that is by joining a line queueing to read pages taped to the inside of an abandoned shop window.
    the popular thread of discourse amongst the general public will be ” it seems so obvious now, why is it that they never seemed to see this coming?”

    well things won’t seem so bad by then, especially since prices have finally stabilised and you can get a decent pint of beer for a chicken.

    well one has to laugh doesn’t one? I’m not sure if I can take anything seriously anymore!

  28. Around the net and the media in general, we’re seeing a polarisation of opinion around extreme and implausible views. It seems obvious to me that the reality lies somewhere in between.

    Starting with the economy itself, two extremes seem very, very implausible.

    One of these is ‘a complete, V-shaped recovery’. That is simply not going to happen.

    The other is ‘total collapse’. This might happen, but is less likely than ‘a smaller economy, stumbling on’.

    Perhaps the single most worrying macro event has been the collapse in oil prices. It was already impossible for the industry to develop alternative sources of supply at pre-crisis prices. The subsequent price collapse just makes this even worse. Yet – let me remind you – the ‘consensus’ interpretation is that we’ll be using 10-12% more oil in 2040 than we do now. We also need to remind ourselves that, without energy from oil and other fossil fuel sources, we cannot develop renewable energy supplies at the scale generally recognised as necessary.

    If we accept that the post-virus economy is going to be different from (as well as smaller than) the pre-virus one, we can make a case for easing the lockdown in partial ways. Some sectors should be restored to activity now, but others shouldn’t be. A lot of high street shops should reopen, as should most manufacturing, farming, food processing and most road and rail distribution. Other activities probably need to stay in lockdown. Cramming 50,000 people into a sports arena, or re-opening passenger aviation, seem to fail the risk/return test. Despite frequent government statements to the contrary, logic seems to suggest that the virus travelled by air – how else would it have got from, say, China to Italy in the time involved?

    The shape of the markets will change as well. People and businesses will be both financially impaired and psychologically much more cautious. Sales of ‘discretionary’ goods and services are unlikely to recover in full, and the same applies to the ad-based business model.

    Political opinions will have changed, too. I think we can see strong demands for tighter migration controls, and redistribution. The upswell of support for health and other public services is likely to continue. The crisis has been a PR disaster for some parts of the private sector.

    I don’t envy governments having to put this lot together. They probably know that imposing a “lockdown 2.0” would be extremely difficult.

    • I’m onboard with all of your analysis both on the macro and micro level,

      what’s unique about this event is that it’s happening in real time, all over the world and has an open ended duration,

      we do seem to be seeing the end of hyper globalisation, unignorable economic degrowth and the unavoidable neccessity to reorganise national economies and even the global financial system itself,

      I’m wondering if this degree of global disruption and uncertainty might even herald the end of the expansion of the global population, which has already slowed from the expansion rates of the 1960’s, the developed world has certainly been seeing population contraction for a few decades,

      economic growth has always shown a degree of linkage to population growth,

      as circumstances beyond our control impose economic de-growth could population de-growth start to become evident and maybe even become a self reinforcing feedback loop?

    • Population is an issue I’m reluctant to get into, but there has to be a strong likelihood that death rates will increase and birth rates decrease.

      I really fear for people in the poorer parts of the world, where the risk of food shortages seems greatest and medical care is already insufficient.

      My feeling is that the virus crisis has, thus far, hit the West hardest – in part because of our greater mobility (how many Somalians, vs how many Italians, returned home from trips to China?) This might (though I hope it doesn’t) mean that the worst is yet to come in poor countries.

    • I suspect you are right about the continual slowing of the rate of population growth. The drivers are likely to be unpleasant. Longevity has peaked in many developed countries. (US included). Food insecurity is likely to rise, antibiotic resistant diseases too. Also there probably will be increased violent conflicts over resources like water and land. Unfortunately the poor will not have adequate birth control, and child mortality will likely rise. And fundamentalists of many sects do competitive breeding seeking to outnumber others. All in all, not a lovely scenario.

  29. From the comments section of Art’s article:

    “I remember a discussion with the Chairman of the Amoco Board about 6 months before the company was bought by BP. We were talking about all the useless remedies and slogans that McKinsey and Booz-Allen had given us to improve our processes. He said, “We’re going out of business but we sure feel great about it.””

    My interpretation of that is that Art thinks he has identified a fundamental physical flaw in the current business model which dominates the oil business, and that no amount of sloganizing about ‘recoveries’ is going to fix that flaw.

    Let’s assume, just for the sake of a thought experiment, that, first, I am reading Art correctly, and, second, that Art HAS correctly identified a fundamental physical flaw. THEN I submit that we are in the scenario laid out by Alice Friedemann in When Trucks Stop Running. The incremental oil production from tight oil does nothing to keep the trucks running, and actually hastens their demise by effectively eliminating the cash flow from gasoline. I will note that nationalizing tight oil does nothing to change the physics.

    Many doubt that wind and solar can be valuable additions to our energy supply in the absence of fossil fuels. Art seems to be pointing to a similar conclusion:
    Gasoline can’t be a valuable addition to our energy supply in the absence of a concomitant growth in diesel supply. And the peaking of heavier oils implies a steady decline in diesel.

    Conceptually, if we consider ‘civilization’ as exemplified by the built environment, and the built environment was built by diesel and coal both of which are now in decline, then fuels such as gasoline and nuclear, which mostly just facilitate us moving around WITHIN the built environment, cannot save this civilization from decline. Best to get about Degrowth or Retrosuburbia or whatever is in your crystal ball.

    Don Stewart
    As a corollary, we can’t go back to steam shovels and steam locomotives and steam ships because we don’t have the surplus energy for such a huge investment. So coal will not be a way to keep civilization going at the metabolic rate it currently operates at. We MIGHT be able to prioritize certain critical functions (e.g., steam locomotives powered by coal rather than diesel) and construct a civilization operating at a recognizable but lower metabolic rate. Similarly, we might construct modern versions of the Titanic with men shoveling coal into boilers to replace all those graphics of oil tankers taking oil from the Middle East to global ports, but again we won’t have the surplus energy to construct a coal powered fleet of the size we have today.

  30. Not forgeting of course that “a smaller economy, stumbling on” would look to the vast majority of folk as “total collapse”.

    With all due respect with all this hard work you are putting in I suspect you don’t “get out” much. As one who gets out a lot I feel that I should let you know that farmers I know here in Gloucestershire, down on Exmoor and where my wife comes from in Co. Antrim have been preparing for some years for the hungry masses to decend on them from Birmingham, Bristol and Belfast respectively. They are all up to speed on topics such as Peak Diesel, and no, they will not expect any help from the Authorities, they know they will be on their own with the police far too busy elsewhere.

    I find it easy to see why people sagely repeat the mantra that forcasting is very difficult especially the future, like all mantras if repeated often enough you will come to belive it is true and that must be very comforting. My forcast is that a large number of people are about to become very uncomfotable in the very near future.

    • You are, sadly, quite correct in that surmise.

      I, too, am making preparations for a sudden upwelling of theft and violence – all legal, of course.

      Even without this fantastic screw-up of a response to a quite mild pandemic, and with high employment levels, I believe that theft of flocks and slaughter of animals in the fields were at a record high in 2019.

      We are certainly facing very high unemployment levels by the summer as lay-offs en masse begin, and real food shortages – not just hiccups caused by changes in demand patterns – begin.

      History rhymes, and the rhymes are invariably grim ones you would not tell to very young children.

    • I could reply that nobody gets out much during lockdown, but that’s flippant, and I get your point!

      This event has been a psychological as well as a simply financial shock to almost everyone. This may smoothe the transition to a world that is going to look very different indeed once this is over.

      It is possible, I believe, to reason our way through quite a lot of this. That’s what I’m trying to do with my ‘mosaic’. The ‘high command’ – in which I include business, finance and ‘opinion-formers’, as well as government – is not in a good position to do this. It’s being ‘led by the blind’.

      The ‘traditional’ economic model predicated on (a) ‘economics is the study of money’, and (b) ‘perpetual growth’, is finished. We need to understand economics in the context of energy and the environment – both of which impose limitations which were unknown to the ‘classical economists’ – but most decision-makers still rely on the tried-and-failed discipline of established economics. Their models don’t work. The society we live in has become dysfunctional. You can see this in many areas, not least in grotesque inequalities of wealth, income and opportunity.

      Yes, a ‘smaller economy stumbling on’ will look like collapse to many, but it won’t have hit them overnight. Lockdowns etc should have prepared people for something new. The economy post-lockdown is still going to be affected by physical distancing, and by all kinds of precautions, restrictions and safeguards.

      To give just one example, we’re going to be travelling less. People are unlikely to return to ‘floating petri-dishes‘ or ‘flying infection-tubes‘. I’ve just been reading about the good long-term outlook for Scottish tourism, where people are likely to prefer the open spaces of the Highlands and Islands to being crammed into resorts where physical distancing is tricky, and where even getting there feels risky.

      If your idea of normal is attending football matches (or watching them on TV), or taking a package tour to Marbella, yes, life is going to be very different without those things. So the question arising is how adaptable people are to new circumstances.

    • I’m comfortable with a lot of people starting to feel uncomfortable,
      for a long time they’ve lived in an ignorance which has been bliss,
      facing reality is an uncomfortable process,
      it may make them intolerant of the way things are but the intolerant man always demands change,
      in a changing world those that won’t change with it get left behind.

      any UK farmer who’s got through the last 30 years is likely to be smart, resourceful and independent minded enough to thrive in the emerging new normal.

    • Agreed.

      UK farmers can actually benefit from a general, worldwide trend towards greater national self-sufficiency. They’ll need to get their labour sourcing revised, though, away from overseas workers.

    • The hard reality is that many people are not just going to have to cope with something radically different and maybe ‘uncomfortable’,- for which these absurd and ill-advised seclusion policies have ‘prepared’ them – but with DESTITUTION, rising crime, and a sense of hopelessness.

      I saw about 20 or so people in town today, and they nearly all looked depressed and anxious.

      Wait until the waves of redundancies start – not far off I suspect.

      NB Food banks already cannot cope: how: does one ‘adjust’ to that I wonder? Or does one grow sick, despair and die prematurely? Which is most likely?

  31. Hi Tim,

    You say, “I’ve just been reading about the good long-term outlook for Scottish tourism, where people are likely to prefer the open spaces of the Highlands and Islands to being crammed into resorts where physical distancing is tricky, and where even getting there feels risky”

    Not the highlands but I’ve found reading some of the comments under articles about the cancellation of the Edinburgh Festivals this year in August. The local Council, tourist industry and arts industry laments how terrible it is. Many of the remaining locals who live I Edinburgh however seem quite pleased.

    • The article I mentioned said that the Scots tourist industry was going through a disaster right now, and saw no end in sight as yet, but was discussing the long-term, and seemed to make sense.

      Maybe it’s me, but on aircraft I feel as though I’m breathing the air of at 200+ people, some of whom, statistically, are almost bound to have bugs. Studies have shown ultra-high levels of particulates in aircraft during flight. I’ve heard (though this might be urban myth) that they stopped recirculating cabin air once smoking ceased. Temperatures do seem higher at the end of journeys, suggesting lower oxygen levels. Compared to that, and with the coronavirus added to the mix, I can see the attractions of travelling – by rail or road – to the Scots Highlands & Islands…..

    • Dr Tim, I see that last Friday, according to a news article forwarded to me by a client, of the S&P 500’s total market cap of $21.4tn, $5.377tn belonged to six companies. Those companies are all Silicon Valley tech firms in one sector: Facebook, Amazon, Apple, Netflix, Google & Microsoft.

      That was 25.13% of the S&P 500’s market cap last Friday. Back in 2000, the market capitalisation was also heavily concentrated in just five companies When the Dot Com bubble burst. At that time, the top five S&P 500 companies by market cap were Microsoft, General Electric, Cisco, Intel and Wal Mart. That was a dangerously lopsided allocation of equity, I’m sure you will agree.

      But the stock market is far more lopsided today than it was in 2000. Back then, the top fice companies made up 18% of the S&P 500’s market cap. Today if you exclude Netflix to compare only the top five, they comprise over 24% of the S&P 500. This allocation poses a significant threat to investors in 2020.

      As you have mentioned, ad spending has gone out of the window for many companies short on revenue. Investment bank Cowen & Co analysts estimate Facebook and Google will lose $44bn in ad revenue this year.

      So, the recent rally in markets seems very frail to me, because the stocks mentioned above have almost solely driven the uptick. I think the Bear will soon be back.

      I’ll pull out my copy of Benjamin Graham’s “The Intelligent Investor”, I think!

    • I don’t do investment advice here, but I think I can make some general comments, which are largely in line with your own.

      “Tech” divides into several sub-sectors, with the common feature that few are really “tech” in the way one might think of, say, life sciences or advanced electronics.

      One of these is online retail, likely to stay strong, subject to the caveat about falling consumer discretionary spending. They also need to avoid over-reach.

      Another is the manufacturing of consumer goods, where sales are likely to fall, but will probably stabilise/erode slightly going forward.

      The ad-based model is in big trouble, and I don’t think it will ever recover to its pre-virus level. No company dependent on ad revenues merits any kind of growth multiple. This applies equally to media and entertainment, where these are ad-supported.

      Cash-burners are toast, as indeed were ‘unicorns’ well before the crisis. The idea that one can IPO for billions a company with “an app and a cash-incinerator” has, hopefully, been consigned to the “dustbin of history”.

      Equity markets look dysfunctional. They seem to have bought into three things:

      1. A ‘V’ or ‘V+’ shaped economic recovery (very unlikely)

      2. Fed willingness to support markets (quite probable)

      3. A Fed ability to do this (improbable – how do you support the stock price of a battered or bankrupt company?)


  33. Unfortunately to get to the Scottish highlands the tourists will have to pass through some extensive areas of ghastly wind turbines which have been erected without consideration of the EcoE.
    A further 50 turbines agreed in today’s press release for the Ayrshire/Dumfriesshire area.

    Although I could recommend travel by the East coast route where the only small blot on the landscape is Torness ( Nuclear ) power station which occupies a very small site and produces much of the electrical energy required in Scotland.

    In a not unrelated matter , I viewed Michael Moore’s latest film ‘Planet of the Humans’ which backs up so much of what Tim Morgan has stated.
    Horrified to discover in today’s Guardian an article that “scientists and climate change activists”
    have attempted to have the film discredited.
    Suppose this is just a further indication of the extremely blinkered and irrational outlook of certain

    • Thanks. I’ve not seen the film yet, but I’d beware of any generalisation like “scientists and climate change activists” – which ones?

    • honestly Dr Tim, I think you’d be pleasantly suprised by this film!

      Jomelco.. great to hear it’s been panned by the Guardian, that’s an endorsement in itself,
      you should never fully believe anything until it’s been officially denied!

      the Grauniad smear job will probably generate more views, it’s up to 3.5 million now and it went up on YT on the 22nd.

    • Tim seems to think that a move to renewables is a possible for degrowth. The film points out that growing and chipping trees in Appalachia, shipping them to Yorkshire to burn and make electricity isn’t ‘green’. I’ve aĺways thought wind energy was ‘the sound of civilisation in the hills’.

    • That’s not exactly my position.

      First, I think we have no choice but to attempt a transition to renewables. This is because the ECoEs of fossil fuels are rising relentlessly. If we continue to depend on them for well over 80% of our energy supplies, the economy will collapse.

      But any such transition needs to be connected.

      We need to recognise two things here:

      1. The development of renewables capacity requires inputs that can only come from FFs. You can’t build solar panels using only solar energy, or wind turbines using only wind power.

      Those who advocate immediate abandonment of FFs simply don’t understand this.

      2. Renewables are not going to give us like-for-like replacement for FF energy. A transitioned economy will be a poorer one.

      Indeed, “de-growth” is not only inescapable, but has started happening. There’s huge misunderstanding around this point. We’re not going to have an economy ‘the same, or bigger’, post-FFs but, at best, ‘smaller and less complex’ – and that, I stress, is ‘at best’

      The example you cite certainly isn’t ‘green’ – the transport side alone is wasteful.

      As a general point, I’m an ultra-sceptic on bio energy – especially in a world with limited agricultural land, decreasing inputs, and 7+ billion mouths to feed.

    • Officially around 7.8B now. With uncounted people, maybe at 8B in reality.

  34. “And new research shows just how concerning disruptions in global trade are when it comes to food. A recent study, published in Nature Food and led by Finnish researchers, found that less than one third of the world’s population could feed itself using staple crops grown within a 62-mile radius.

    As a large percentage of the items sitting on supermarket shelves in many parts of the world are imported, researchers say that relying on locally grown crops to fulfil all food demands is not realistic for most places.

    Researchers looked at a variety of crops, and discovered just 27 percent of the world’s population had access to temperate cereal crops, such as wheat and barley, within a radius of less than 62 miles. This proportion was 22 percent for tropical cereals, 28 percent for rice and 27 percent for pulses. For maize and tropical roots, researchers calculated the amount ranged from 11 to 16 percent.

    Most areas in North America and Europe could satisfy their needs for temperate cereal crops within 310 miles, but in Sub-Saharan Africa, this distance increases up to 3,100 miles.”

    Modern Farmer Dot Com Apr. 27.

    I would simply note that the “having access to” standard in the above report is not the same as saying that there are sufficient sources of cereal crops to feed all the people within that 62 mile radius, so it’s hard to know how “happy” even that info is.

    • Areas like the US/Canada and Europe probably cannot become food self-sufficient, but I think they can do a lot to increase their proportionate self-sufficiency – and that could be good, on balance, for their domestic ag industries.

  35. In an entertaining video from Spain, ’14 Jotas for 14 Days’ – referring to the extension of the over-strict Spanish strict lock-down, one musician got it absolutely right:

    ‘ I ask myself, what is going to kill more people: the virus, the ‘confinamiento’, or financial ruin?’

    What indeed. Time to end this policy designed by imbeciles.

  36. If you pull out ‘The Intelligent Investor’, I’ll consult ‘The Desperate Survivor’, and we’ll see which applies best to circumstances! 🙂

  37. Staple Crops
    I’d like to add my two cents on ‘local staple crops’. Those boil down to cereal grains and dried beans. Since both are shipped dried, they can be stored for a long time and shipped great distances. As a practical matter, it makes little difference whether some oats are shipped 10 miles or 10,000 miles provided efficient shipment methods are available…e.g., water transport. When the Erie Canal opened in the 1820s in New York State, it opened New England to the grain produced in the Midwest, and spelled the end of the wheat belt around Lake Champlain on the border between Vermont and New York. There is no particular reason wheat grown in China cannot be sold in London.

    If the local transportation links are broken, it is a far more serious matter than long haul water transportation. In colonial America, goods from London were readily available in seaports, but practically unobtainable 25 miles inland.

    Fresh goods such as eggs or vegetables or fruit are a different matter. A few, such was bananas, are adaptable to ocean voyages, but most benefit from being as local as possible. And that is where kitchen gardens shine. The beneficial effects of eating kale begin to diminish the minute the kale is cut. So obviously, in terms of disease prevention, the fresher the better.

    Don Stewart

  38. Tim, thank you for some truly excellent articles. For quite a few people the financial and economic impacts of LockDown have been immediate while for others, perhaps, the impact is seemingly more distant or abstract. I am coming to the view that exit from LockDown is going to be a dual-world with some sectors returning close to their previous level while other sectors are facing a radically changed world. News of firms falling into receivership, firms announcing mass layoffs and redundancies and firms contracting sharply will eventually hit-home to the national commentariat revealing their assumption of a return to BAU to be outright delusion and fantasy. There are bound to be some positive changes, but as other posters have pointed out – we could be in for a really rough ride.

    • Thanks Kevin.

      Yesterday, as part of the ‘mosaic’ project, I was playing about with a chart which puts ascending risk on the vertical axis, and diminishing importance on the horizontal. So, something in the bottom left corner would be ‘low risk, high importance’, but something in the top right corner would be ‘high risk, low importance’. I applied this to nine forms of transport.

      This is based, I must stress, on subjective judgements of risk and importance. For risk, the question was ‘how far can individuals be spaced apart?’ For importance, it was ‘can we get by without this?’

      The interesting thing about this was the correlation between low risk and high importance. For instance, the transport of freight by sea and air was ‘low risk, high importance’ – we can’t manage without these freight deliveries (high importance), but we can operate them with relatively good spacing (low risk).

      At the other extreme was ‘Sea: cruising’ and ‘Aviation: passenger’. These are high risk, because they cannot operate without cramming people together. But they’re also at the low end of importance – we could get by without them, as we couldn’t get by without freight shipments.

      ‘Road: cars’ and ‘Rail: passengers’ were in the middle of the chart – medium-risk, medium-importance.

      This is, I must stress, a subjective exercise, applied only to transport. But it does suggest that there’s a correlation, which makes some things ‘low risk, high importance’, which we can free from lockdown early; others ‘high risk, low importance’, likely to be in lockdown for a very long time; and others, ‘medium risk, medium importance’, where gradual loosening seems appropriate.

  39. Please note:

    I’ve just added two charts at the end of this article:

    1. ‘Recovery shapes’ – V+, Z and Accelerated De-Growth

    2. Risk/importance – transport

  40. An interesting conceptual approach.

    But let’s apply this also to the hospitality industry: we might well argue that going out to a bar, pub or restaurant is not of any importance at all as we can all cook at home in some form.

    But subtract the jobs which this massive sector creates, and we have a real economic disaster – as well as a psychological one, I would argue. Crowded taverns and eating places have been an essential part of civilised life since the beginning and to be deprived of them no small matter.

    Returning to travel: tourism aviation is both high-risk and inessential, but to many economies and to the household budgets of tens of millions of ordinary people, absolutely vital – very much so in Spain, Italy, Greece, Portugal, many Asian countries, in fcat nearly everywhere one can think of.

    It has so developed since the 1950’s that I doubt many countries except the most benighted and unattractive (Congo, Malawi, Afghanistan, etc) could afford to take a hit in this sector.

    This, it seems to me, is where the analysis loses validity.

    Something may well be frivolous and inessential in an ideal economic construct, but in the world we inhabit it is vital and there is simply nothing for those employed in it to move to – and the would need to be able move there next week, not led to hope in some airy promise of Transition.

    If whole sectors are going to go suddenly, is some form of UBI -without the utter humiliation of making formerly hard-working and decent people welfare claimants – then the solution, at least in the short-term

    • This is part of the ‘mosaic’ paper that’s likely to be next here.

      But yes, there are going to be losses – jobs will be lost, businesses will go under, financial value destruction will happen.

      I’m not pussyfooting around this. Value is going to be destroyed. Whatever we do now, we’re going to have a smaller economy after this. Any claims to the contrary are, at best, mistaken and delusional.

      If we just lift all lockdowns, and a virus resurgence occurs, the outlook might be even worse.

      So what I think we need is a response that is both measured and realistic. Can we preserve every job, every company? – no, and it’s about time that TPTB recognised this. We’re into damage limitation, not preservation.

  41. Hi Tim,

    Nouriel Roubini has a Project Syndicate article republished in the Guardian today.

    Now clearly he’s blind to the points that you are making about energy and the economy, we know that because he’s a professor of economics at a business school so that can be taken for granted.

    My point is that if we renumber your contribution as point one and his as points two to eleven then there clearly is significant trouble ahead.

    His article can be found here;


    or directly on the Project Syndicate site.

  42. I would argue that we must, while avoiding attempting to preserve the absurd unicorns and cash-burners, etc, strive to maintain as much as possible – simply because not to do so will be socially disastrous and totally destabilising.

    Again, if we look at the term ‘high risk’ the question must be: ‘For whom?’

    Being crowded together in a club, bar, sports stadium, metro, bus or jet is of no great risk -ie ‘safe enough’ – to most of those under 50, a slightly higher risk for those in their 50’s, and most threatening to those over 60.

    This is not a very potent pandemic on the historical scale of such things.

    ‘Risk’ is entirely relative and can be modified by behaviour: the effects of lock-downs are immediate and crushing and look set to be very long-term.

    How do pensioners, I wonder, hope to continue to get their state and other pensions and live in cosy idleness while young people who need not greatly fear death from the virus are prevented from working, feeding themselves and their families and staying housed?

    It is far from proven that opening up across the board would pose a greater threat than these absurd lock-downs which are going to create significant mortality in all age groups,and are even now driving people in poorer economies to starvation-point.

    So, we do have to address the issue of UBI if we are to be so complacent about throwing millions out of work so suddenly.

    And we need to jettison the term ‘De-growth’, which is merely a consoling euphemism for mass suffering in a collapsing society, implying as it does the sudden collapse of whole economic sectors.

  43. This will give you a laugh…which is good for a lot of ailments
    Tad Patzek in his blog LifeItself
    “When a functional idiot leads the most powerful nation on the planet, there will be repercussions”
    Whether you approve of Mr. Trump or not, this is like Mark Twain at his best.

    Don Stewart

  44. Don,
    TPTB elected to make — or the “system” evolved to make — (choose your own theory of agency) “government” a reality TV show, while the real business of violating, eliminating and manipulating laws and regulatory authority goes on behind the scenes. The country ends up endlessly discussing and trying to address and rectify this parallel, alt-reality TV universe, while the real business of ruling, amassing and consolidating wealth and power and rampant lawlessness goes on unseen, unreported, and unaffected.
    It’s a brilliant innovation that goes far beyond the old-school model of manufacturing consent, because not even manufactured consent is needed anymore.

    • That’s my view exactly. What is going on in the US is ultra high stakes puppetry, with minor differences in the puppets. The puppeteers remain the same.

  45. I believe that we need to address both the short term problems of getting people back to work as best we can, but also use the opportunity to address the longer term issues. Which means, because of many things such as rising ECoE, we need to think and act differently than we have done for the last couple of hundred years. In my case, it’s thinking more like the Depression and WWII era in which I spent my earliest years. For most western people, it’s remembering 2008-9. It’s different for the poverty stricken, and I won’t try to speak for them.

    If we are going to try to sort ’needs’ from ‘wants’, then that is a very large topic and you wouldn’t want to sit still while I pontificated on it. But here is what I think is a good article:

    My research is on the social science side of climate change: trying to understand how we can live better lives using less energy and natural resources. How to protect ourselves and our life support systems at the same time – and what kind of economics would allow us to do this. There are many lessons that translate to the current pandemic-induced economic crisis. Welcome to my crash course in pandenomics: the economics we need in a time of pandemic.

    I also think that we need to seriously think in terms of systems. This is particularly important for the ‘ruling class’…whether that be elected representatives, politically active people, social organizers, or just those with money who command the economy when they spend it. For example, I was listening to the woman who has by far the most successful weight loss program last evening.

    First, why is weight loss important?
    Team Sherzai M.D. is at Brain Health & Alzheimers Prevention Program.
    “A recent article was published in the European Journal of Neuroscience that explained the biochemical processes of excessive fat accumulation in obesity and how it can alter brain structure and function, beyond just causing metabolic syndrome atherosclerosis. It turns out that in obesity, fat tissue becomes an active endocrine organ, releasing a storm of hormones and mediators such as adipokines and cytokines including leptin, IL-1beta, and IL-6, which pass through the blood brain barrier, a tight junction between the endothelial cells of capillaries in the brain, and start an inflammatory cascade by activating microglia. This results in a chain reaction of inflammation, oxidative stress, insulin resistance, vascular damage and increased deposition of Beta-amyloid — all leading to Alzheimer’s disease.”

    The article is behind a paywall. But you get the idea. In the US and increasingly worldwide, obesity and overweight are epidemic. Therefore, Alzheimer’s and deaths from respiratory viruses are epidemic. Playing Whack a Mole with the latest variation of viruses, or advising people to work more crossword puzzles, is gross failure to address the underlying problem.

    And what is the magic solution the the weight loss expert stumbled on after wrestling with obesity in her own life. She divides people into 3 groups:
    One third can read a scientific report or pay attention to their own observations and change their behavior accordingly.
    One third can, with encouragement, (think children listening to their parents) change. behavior.
    One third need a lot of structure in the their lives. For example, the high school students who were supposed to be doing virtual learning but who have actually done nothing but party.

    The ‘ruling class’, whether it be parents or social influencers or the police, need to be judicious in their choice of total freedom vs. structure. There is no magic solution, but we can see how good parents manage to strike the right balance, while treating everyone as if they are in the first third of the population will lead to disaster in a world of constrained capabilities.

    As another example of systems thinking, and building off the Open Democracy article, consider solar panels and rice cookers and batteries. We can all see that it is totally impractical to put up enough solar panels to reproduce the electric grid plus electric vehicles in the OECD countries. So what is a sort of ‘minimum installation’? I will look at the:
    *necessity of paying attention to things traditionally done by women…making breakfast in this case. (Remember that investing in women worked in Afghanistan)
    *the psychic value of a hot breakfast when it is cold
    *the need to get up really early to make a hot breakfast..traditionally delegated to women
    *the ability of a rice cooker to make a hot breakfast on a timer….provided it has electricity.

    The conclusion is that one needs a battery large enough to store the charge needed to run the rice cooker in the dark.

    Don Stewart

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