#171. Inflexion point


Though most people have better things to do than watch market indices, it hasn’t escaped public notice that stocks have risen at record rates just as economies have decelerated ever nearer to stall-speeds. Market logic, such as it is, seems to be that previous falls ‘priced in’ the consequences of the Wuhan coronavirus crisis, and that, latterly, investors have started to ‘buy the recovery’.

To put any trust at all in the thesis that has powered the market rebound, you’d need to place unquestioning faith in the concept of a ‘V-shaped’ economic recovery.

The hugely influential International Monetary Fund certainly endorses this view. In its latest, slimmed-down set of WEO projections, the IMF predicts that world economic output will fall by -3.0% in 2020, and then grow by +5.8% next year. This would mean that GDP was higher (by +2.6%) in 2021 than it was in 2019. It’s implicit, though it’s not stated, that growth will then revert to something not dissimilar to previously-anticipated annual rates of between 3.0% and 3.5%.

This is a classic ‘V assumption’.

The view that has been taken here throughout this crisis has been that this kind of rebound is extraordinarily implausible. If, as seems increasingly likely, the market now ditches the fiction of a ‘V-shaped recovery’, markets could be poised for catastrophic falls. If this is how things pan out, hindsight might decide that the ‘Lehmann moment’ in this second-wave crash was the news that investment guru Warren Buffett’s Berkshire Hathaway fund has liquidated its entire holdings of airline stocks.

Unless you’re an investor, none of this may seem to matter very much. After all, prolonged support from the Federal Reserve and other central banks has created a ‘positivity bias’ in the minds of investors, so it wouldn’t be a huge surprise to everyone else if the recent sharp rally in stocks turned out to be a colossal exercise in complacency and wishful thinking.

There are, though, far broader economic implications to the probability that, like investors, the government and business ‘high command’ has reached the point at which trust in a ‘V-shaped’ recovery starts to evaporate. Indeed, ‘ditching the V’ would have profound consequences, both for policy and for the practicalities of “exit” from lockdowns.

Airlines have become very much the bellwether for how the prospects for business and the economy are perceived.

Let’s remind ourselves that, prior to the crisis, the general expectation was that the aviation industry would continue to grow at annual rates of about 3%, implying aggregate expansion of around 90% by 2040.

Though it’s long been recognised that a sharp fall in passenger numbers during 2020 is inescapable, the ‘V-shaped’ assumption, hitherto, has dictated that this would be followed by a rapid rebound, with volumes pretty quickly recovering to (or very near) trend levels. This, it has been assumed, would leave the longer-term outlook largely intact, a scenario illustrated in the left-hand chart in fig. 1.

Fig. 1 

Air traffic

To believe this, you’d have had to assume that passengers would put away all of their fears about close proximity, dismiss from their minds any idea of a second wave of infections, and ignore their battered financial circumstances. If you did believe this, the only meaningful issues would be the duration of the crisis, and the ability of airlines to out-last it.

Where the longer-term outlook is concerned – and well before the advent of the coronavirus – the view here has been that continuing exponential growth in passenger aviation is implausible. This is a stance which forms part of a broader “peak travel” thesis.

This view isn’t confined to aviation, or to travel more generally. Rather, the Surplus Energy Economics interpretation is that the global economy has already reached the cusp of “de-growth”.

Simply stated, rapid rises in ECoE (the energy cost of energy) have put prior growth in prosperity into reverse, and are starting to exhaust the ability of financial gimmickry to hide this underlying reality.

This means that it would be counter-intuitive to expect exponential growth in any part of the economy, and particularly in any sector driven by discretionary consumer spending. The logic of de-growth is that we should now start to concentrate on those issues – including de-complexification, simplification, de-layering, loss of critical mass and falling utilization rates – which will determine the rate of de-growth, and the shape of the shrinking economy.

Returning to aviation, the outlook is likelier to be the “accelerated de-growth” scenario illustrated in the right-hand chart in fig. 1. The black line shows the “peak travel”, de-growth interpretation as it was understood before the pandemic, and the red one shows how the coronavirus crisis is likely to have modified this outlook. The gist of it is that any recovery in aviation from the 2020 slump will be very pedestrian indeed.

Of course, neither the consensus nor the ‘high command’ is going to accept the broader economic de-growth thesis any time soon – established ways of thinking are far too entrenched for that.

But what they are likely to do is to abandon trust in a ‘deep V’ recovery, not just in aviation, but more broadly too.

De-growth itself may remain a long way from acceptance, but two economic aspects of the coronavirus crisis are gradually gaining recognition.

One of these is that we face a very protracted period of “co-existence” between the virus itself and resumed economic activity.

The second is that some industries might not be able to survive for the duration of this extended co-existence. Together, these two considerations, extended across the economy as a whole, are likely to be more than enough to kill off the recovery in the markets. More importantly, we can expect ‘abandonment of V’ to have far-reaching implications for policy.

It’s important to note that, in the absence of an effective vaccine or treatment, lockdown has been the only policy response available to the authorities. Thus far, it has met with very high levels of public co-operation, flaunted only by small minorities of the obstinate and the anti-social. It seems to be succeeding in its stated aim of “flattening the curve” of virus transmission. Of course, there are alternative viewpoints, ranging from ‘coronavirus is just another flu’ to ‘this is the end of life as we know it’. Neither view has been accepted by governments as a reasonable basis for planning.

But the authorities have always known that lockdowns have two big problems.

The first is that, for as long as they continue, they inflict compounding damage to the economy.

The second is that, once restrictions are lifted, it would be very hard indeed to reimpose a “lockdown 2.0”. This latter consideration has inclined governments towards caution, despite the siren, often self-interested voices calling for an accelerated “exit”.

Recognition of “co-existence” seems to be moving the authorities away from an ‘everything stops, everything resumes’ stance towards a much more nuanced position, in which some economic activities can be restarted relatively quickly, whilst the resumption of other activities will take very much longer.

Aviation falls very much into the second category. If physical (wrongly labelled “social”) distancing needs to remain in situ, it’s almost impossible to see how airports and airlines can return to operation. Even if they could, it’s very hard to envisage passengers returning in their droves. Quite apart from the fact that most people are going to be a lot poorer after the crisis, there will remain an extreme and prolonged unwillingness to enter crowded spaces. Aviation has the additional handicap – which it shares with the cruise industry – that people will be reluctant to risk finding themselves put into extended isolation, either at their destination or on their return home.

Both the practical and the psychological implications of the crisis for consumers are likely to be profound, and to extend far beyond the international transport and tourism sectors. As and when the virus recedes, most households are likely to have experienced a draining of their savings, an increase in their debts and a meaningful reduction in their incomes. To health-related fears will have been added a new financial conservatism, reflected in a reduced propensity to engage in discretionary (non-essential) purchases.

Changes in consumer circumstances are likely to have their corollary in the commercial sector, too. Businesses which survive this crisis will, in a majority of instances, emerge with very stretched balance sheets and seriously impaired revenues and earnings. They can be expected to turn borrowing-averse, and to take an ultra-cautious line both on operating costs and on investment.

Just as consumers will be reluctant to spend on non-essential purchases, businesses are likely to keep discretionary outgoings to a minimum. This means that acceptance that a V-shaped recovery isn’t going to happen can be expected to have the same effect on sectors like advertising that it has on consumer areas such as travel.

Financially, both investor and government attitudes are likely to undergo significant alteration as the improbability of a V-shaped recovery becomes apparent.

Governments which might have been willing to support companies and sectors through a relatively short hiatus will take a markedly less accommodating line when faced with the prospect of providing such support for a very much longer time. They might also reflect that bankruptcy, whilst it wipes out shareholders, does not in fact ‘destroy’ businesses and their assets, but simply transfers ownership to creditors.

Framing these considerations will be recognition that the resources of governments face deep and permanent impairment, and that public priorities are very likely to have changed.

What is emerging now – and is likely to reach even into the rarefied levels of investor calculation – is that neither the assurance nor the comparative simplicity of a V-shaped recovery is persuasive.

The wise course from here would be an acceptance, if not (yet) of de-growth, then of a wholly altered economic, financial, political and social landscape. Denial will of course continue in many quarters, but the centre of gravity will move fundamentally as a single observation gains traction.

That observation is that a ‘V-shaped’ recovery is not going to happen.


398 thoughts on “#171. Inflexion point

  1. Dear Tim,

    Thank you very much for your most recent analysis.

    As it becomes everyday more obvious that the World has now entered a new paradigm that includes reduced energy consumption, it would be interesting to assess by how many years we may have stretched our remaining fossil fuel energy reserves.

    And to determine if this will be long enough to develop and implement a high EROEI alternate energy source, such as controlled thermonuclear fusion.

    Best regards,


    • Thanks John.

      The principle is that any oil/gas/coal not used now is available to be used later. But estimates of future supplies are subject to very large margins of error, so a short hiatus isn’t likely to make a measurable difference.

      It’s much the same story with ECoE. If we stopped using, say, oil for a year, then that year’s trend rise in ECoE theoretically wouldn’t happen. This said, operating for a year without any oil (or gas, or coal) for that long would kill the economy.

      The downturn in energy-driven activity does seem to be having an encouraging impact environmentally, but isn’t doing anything significant for energy economics. There are lots of parts to the equation. The economic slump is going to impair our ability to invest in renewables, and is already crippling investment in replacement sources of oil and gas.

      If – as I suspect – this event marks the onset of ‘visible’ de-growth, then both our environmental and our economic predicaments could improve.

  2. If the personnel involved in financial engineering and weapons engineering turned their attention and efforts to the nuclear FUSION problem , the long term energy requirements might be attained.
    However , the FUSiON research investigations are I believe headquartered in France and an EU project. Future collaboration might be in doubt If the recent lack of collaboration on PPE is an indication .

    • Fusion research is indeed based at Cadarache in France, but the ITER consortium is multi-national, not solely European. The problem with fusion is that target dates keep being pushed into the future, whilst costs keep rising. The theory of fusion has been with us since the 1920s, and even the Tokamak design itself has been around for a very long time.

      The EU is failing spectacularly at the moment. If union means anything at all, it should mean that those countries worst hit by the pandemic should be helped by the others, including shared responsibility for newly-issued debt. This isn’t happening, whilst Brussels continues to pour out ‘Directives’, micromanaging issues that ought to be national or even regional competences. I’m neither pro- no anti- EU, and recognise that it does do some good things. But if, say, an Italian asked me for reasons why he/she shouldn’t vote for ‘Italexit’, I’d be stumped for an answer.

      Your general point, though, is well made. Financial engineering has long since outgrown any useful service to the economy itself, whilst further weapons research seems pointless given our existing ability to render the Earth uninhabitable.

  3. Thank you for this recent analysis that, in part, deals with the stock market’s view of the health of the economy.

    I am not from a financial background but an engineering discipline. My view of the stock market is, in part, that of a gambling casino where very few people know the true, accurate, and detailed economic future of any business. Sometime accountancy valuations and estimates can be brought into question.

    Investors hope, if things go wrong due to unforeseen circumstances, the Government will always come to the rescue! That is what has happened as a result of the recent CO19 virus event, although many experts have been predicting such an occurrence. Their views were completely ignored, even the Government was unprepared.

    It is mainly a risk assessment where frequently herd instinct drives the assessed value of businesses. Unfortunately it governs our future pensions and financial security.

    The market is driven, in part, by greed and fear.

    • Markets, if they are to function at all, need to be tightly regulated, but otherwise left to themselves. Back in 2008-09, large numbers of institutions should have been wiped out, because that’s what risk and reward means. Opting instead for rescues was a huge mistake, as some wise people said at the time, and it’s a mistake we’re still paying for.

      I suspect that public attitudes will have changed fundamentally during this crisis, and this may have far reaching consequences for the financial sector. I expect to see far more popular support for public services, whilst some (not all) private corporations are turning this into a PR disaster.

    • Hello.
      This is the opinion of A. Kaletsky re the ‘banking system’.
      “Guarantees would have been the easiest form of intervention to present politically because they would have emphasised the true purpose of government assistance to the banking system: to prevent the savings of depositors – especially wholesale depositors such as corporations, foundations, savings institutions, and local governments. These depositors would have seen trillions of dollars in payrolls, pensions, and working capital evaporate if the banks were allowed to fail. Guarantees would have underlined the fact that the main beneficiaries of all bank rescues were not greedy bankers or shareholders but wholesale depositors whose money is not covered by retail guarantees.”
      A. Kaletsky: Capitalism 4.0. P150.

    • We have a system of debtors only. No savers. Savers are slaughtered on the altar of growth. Their savings are mostly imaginary, ie paper wealth. In de-growth there will be a place for savers again, while the debtors work the fields.

  4. John and all,

    The first calculation is a reasonable task for experts to undertake. The second question is probably as unanswerable now as it was 1,2,3,4…decades ago. Guesswork, and opinions by competing interests (“talking their book”) are what I’d expect as proferred answers.

  5. I note that your “degrowth” chart shows the peak of growth from BAU at around 2033. I assume this is a global number and that energy intensive economies will start (have started) degrowing earlier, leaving emerging markets to make better use of energy sources, thereby pushing “peak GWP” to later.

    Since emerging market countries may well suffer more adverse affects from Covid-19 than richer nations and prevent them from following the BAU trajectory, would you say that 2019 will have been the year of “peak growth” and therefore “peak industrial civilization”?

    • That black line is an illustrative one – pre-dating the crisis – of where I thought airline industry volumes might go. It’s an aggregate, whereas charts usually published here show prosperity per capita.

  6. Unfortunately, markets have been corrupted to the point where they can’t serve as indicators of anything except governments’ willingness to meddle and ruin for the sake of public perception.

    With this loss, I fear the impacts of declining ECoE won’t be seen coming, they’ll just be felt hitting.

  7. Dr Morgan,

    I fully understand, and agree, with your view on energy usage as the basis of our economic health and prosperity, but am I correct in assuming that manipulation and adventurism in financial markets, together with herd instinct of financial speculators, is also having an effect on the future health of the economy?

    If this assumption of mine is correct can it affect your SEEDs forecasts?

    • Thank you.

      SEEDS uses two main calculations to interpret past economic trends. One of these calibrates underlying or ‘clean’ GDP by backing out the effects of financial adventurism. The second applies trend ECoEs to these C-GDP numbers.

      Forward projections are based on (a) underlying growth, plus or minus forecasted variables, and (b) continuing evolution of ECoEs.

      To be clear, no model could predict something like the virus crisis. I contend that at least SEEDS (unlike conventional models) starts from a realistic interpretation of what was actually happening pre-Wuhan.

      One reason why the ‘V-shaped recovery’ assumption is failing is that it tries to project a rate of return to a prior situation which, from my perspective, didn’t exist anyway.

      For illustration, conventional modelling sets itself the task of working out how the world returns to “growth” of 3.0-3.5% annually. But the SEEDS interpretation is that underlying growth, stripped of financial adventurism, was only 0.6-1.5% anyway, so there’s far less ‘impetus’ taking us back towards ‘business as usual’.

      Not explained in this brief article is my belief that this event exposes the faults within ‘conventional’ modelling. When ‘V’ doesn’t happen, the failure of conventional modelling will become apparent.

  8. Thank you Dr Morgan for your explanation. Events can have unexpected consequences.

    It says a lot for the financial markets when businesses are in trouble and require financial help; many money men take their money out!

    An example of this is Warren Buffett’s Berkshire Hathaway fund that’s removing funding from the American Airlines.

    I remember Margaret Thatcher claiming that no one should rely on the “Nanny State” for help.

    This was greeting with rapturous applause from the financial markets.

    How times have changed.

    • There are abundant ironies at the moment. In the UK, for example, a Conservative government is heaping praise on the public services in ways that would have made earlier Tories blush.

      I find Mr Buffett’s decision illuminating, and it’s telling that he’s not afraid to admit to having changed his mind.

      What this seems to amount to is that, like others, he bought into ‘V-shaped recovery’, but is changing his mind about this (which is the theme of this article). If you believe in the V, things that have fallen the furthest will then increase by the most. That’s why, if you ‘bought the V’, you’d buy airlines. If you dismiss the ‘V’, on the other hand, you become open to the idea that things that have fallen a long way might not recover at all.

  9. I’m actually surprised that you say “underlying growth, stripped of financial adventurism, was only 0.6-1.5% anyway”, as in surprised it was that high. I suspect if you look at Western economies, they’ve been going backwards.

    Do you have any figures on traditional industrial GDP vs services GDP i.e. selling each other real estate, dog grooming and lattes?

    Figures show that the balance is moving towards (much) less of the former and more of the latter in most Western economies and that the latter is much less robust during periods such as this. I.e. Discretionary and much more likely to decline precipitously.

    • Three things I’d emphasise here:

      1. The 0.6-1.5% range is global. The Western economies are far weaker.

      2. These are aggregate numbers – they are diluted in terms of per capita prosperity by continued increases in population numbers.

      3. 0.6 -1.5% is the current (though pre-Wuhan) point on a deteriorating trend.

      Taking the US as an example, almost 95% of growth between 2008 and 2018 came from what I call ICS (internally consumed services), or ‘services which Americans sell to each other’). The other components are GMO (globally marketable output, including agriculture, the extractive industries, manufacturing and construction), at 5.2% of all growth, and net exports of services, at 3.4%.

    • I think we need to add some SM into our mindsets. Submerging Economies.

      You could be the first doc.

      I won’t tell anyone.

    • Steven, a more common translation of creative destruction, don’t you think?

      In the end, they will all know.

      As the mistress tries to see through the fog of fiat, the whipping continues. Until moral improves of course.

      Submerging economies, soon to be added in the dictionary of de-growth.

  10. As one who doesn’t agree with the hamster-wheel economy of ‘buy it’, ‘chuck it out’, ‘buy some more’, etc., etc., etc., I wonder if the current lessons of managing with less or improving how things are done will break the wheel or at least slow it down.

    • Let’s hope so, Tim.

      That said, it’ll take a lot of imagination to create an economy which doesn’t rely on perpetual over-consumption but which does give people work to do and reasons to get out of bed in the morning.

  11. Tim,
    Thank you for the latest thought provoking analysis.

    Please could you elaborate on the statement ….”SEEDS uses two main calculations to interpret past economic trends One of these calibrates underlying or ‘clean’ GDP by backing out the effects of financial adventurism.”

    What are the elements you strip out to arrive at a clean GDP figure?

    • You’ll understand, I’m sure, that this is a complex issue – and that, at a time when ‘conventional’ economic modelling is falling to bits, I’m not about to reveal details that would help commercial interests to build a model that works!

      A great deal of activity falls into the category of “spending borrowed money”, something not captured by conventional modelling, which treats the balance sheet as largely unrelated to current activity.

      But there’s a lot more to it than debt-funded expenditures which would not otherwise have happened.

      To give just one small example, an increased availability of mortgage credit pushes up property prices. This then has a bearing on the incomes of real estate agents, which typically are percentages of housing prices.

      So, if increased mortgage debt pushes up property prices, the incomes of agents increase, even if numbers of transactions, and percentage rates of commission, have not changed. A large chunk of economic income-generating activity links, directly, either to asset prices and/or to finance-related turnover.

      This makes the C-GDP algorithm complicated.

    • Hello dr. Morgan. First time poster here, but long time reader.

      First of all, thanks for sharing the results of your model publicly, and explaining the causal relationships at play in it. Truly insightful.

      But, I have to question your stance regarding this, and I quote : “You’ll understand, I’m sure, that this is a complex issue – and that, at a time when ‘conventional’ economic modelling is falling to bits, I’m not about to reveal details that would help commercial interests to build a model that works!”

      So is it better to let them fall? For what exactly? Wouldn’t it be better if the power that be could actually fully grasp the physical nature of the economy (as opposed to its financial facade) through the use of your algorithms used in your SEEDS model? Perhaps you could even monetize their use.

      Food for thoughts.

      If anything, thanks for your time and all your insight you’ve shared.


    • Thanks, and welcome.

      It’s very hard to see “officialdom” adopting energy-based modelling.

      First, the weight of tradition supports the use of conventional interpretation and modelling, despite the fact that it’s failure is becoming ever more apparent.

      Second, it would involve admitting that the authorities’ ability to control the economy is far less than they’d like people to think.

      Third, and worst of all politically, it would mean accepting that “growth” has not only finished but has gone into reverse. Not exactly a vote-winner!

      If officialdom ever did use SEEDS-type modelling, I suspect it would be in-house, not public.

      Commercial users of economics might be slightly more open to this, if it gave them an edge over competitors. But I still think that they’d be likelier to use it in-house rather than go public about it.

      This could be depressing, as without effective modelling we can’t plan properly – or, for that matter, craft an effective environmental response.

      On the other hand, there’s something to be said for having a tool that the big battalions don’t have.

      Finally, the coronavirus provides a persuasive excuse for everything that goes wrong in the economy, and I expect that excuse to be used for years to come……

    • I wonder what’s worse; shampoo in your eyes, or running out of shampoo completely. It really is that simple.

  12. Hi Tim

    In all honesty that forecast by the IMF must be a “tongue in cheek” exercise; the total wishful thinking version.

    Cvid 19 is a huge inflexion point, probably the biggest since the end of WW11, and if there’s one thing (amongst many) that the forcasters fail to pick up it’s inflexion points and their aftermath. It’s not just the inflexion point it’s, as you say, the changes in behavior afterwards that sends the economy off on a different path.

    What is interesting to me is that Cvid 19 suddenly illuminates the economic landscape and reminds us that the “economy” is composed of “real” things and contingencies (the known unknowns and the unknown unknowns) and not the elaborate monetary facade that has been erected by the central banks who have now been relegated from the position of agent in chief to passive bystander and indeed largely irrelevance. This is not to say they have no function in the current situation but it is one that is much diminished compared to previously.

    This issue will cast a long shadow.

    • Point taken, but the IMF isn’t exactly a tongue-in-cheek organisation!

      If you’ve worked in the City or on Wall St (or, as in my case, both), you’ll know how this works. The consensus is critical. Analysts tend not to stray too far from it. It provides cover if you get it wrong (“I was only following the consensus…..how was I to know…..?”)

      They also reference it (‘my forecast is X% above/below consensus’). Prices are consensus-based (the collective market opinion at any point in time).

      A variety of data sources is used, by economists, investors, governments, corporates and so on, but these sources form an inverted pyramid, with comparatively few sources at the base of the pyramid. The IMF is amongst the most important of these. (It’s almost the macro equivalent of what ‘the analyst consensus’ is to earnings forecasts).

      Thus understood, we can trace what we might call (with apologies) a ‘lineage to inflexion points’. A mistaken consensus generally changes slowly. Market participants, who are aware of how consensus influences other participants, change their thinking slowly with it. Ditching the consensus, when it happens, usually happens slowly, because of inertia. The really clever investor is one with the courage (or, they might fear, the foolhardiness) to depart from consensus. These are the ‘outliers’, who get things ‘spectacularly right’ (or wrong). Herd instinct reinforces grouping around the consensus.

      So “the consensus is wrong!” is an inflexion point, a comparatively rare one and VERY important. What I like about Warren Buffett’s latest move is his preparedness to admit he got it wrong previously. His previous stance seems clearly to have been based on ‘what’s fallen furthest will recover most’, in itself an acceptance of V.

      If someone as esteemed as him is prepared to ditch the V, that’s – for me – a lead indicator of an inflexion point.

  13. Thanks for your reply Tim. I understand the points you make.

    An ever present and burning question has been nagging me for years. Why have the leaders of national reporting agencies (such as the ONS) failed to grasp the points you make about the distortions in reported GDP? Is it ignorance or is it wilful misrepresentation? If it’s wilful misrepresentation, then who sanctions such acts?

    • There are serious flaws with GDP reporting, and, I believe, a positivity bias too. It’s a bit like “core inflation”, excluding oil prices, during the 70s oil crises – “inflation, with the bits that are rising left out”!

      This said, it does enable some of us to know what’s really happening when the consensus doesn’t ;-

  14. With regard to airlines, for tax benefits Ireland apparently has 14 of the largest 15 aircraft leasing companies. If things go badly for the airlines it doesn’t bode well for Irish banks.

    • No worries David, Michael O’leary says Ryan Air back to 80% by October. And to think some people think/know he is a business genius. So relax. Ha ha. I don’t think he reads this excellent site, but should.

    • He has to talk up his business, and bolster confidence, so I don’t blame him for that. I seem to recall that it’s some time since he said that. This will, in any case, depend on what governments allow, and how confident customers feel.

      Like others, Ryanair’s model is high-volume, low-price/margin one, and requires very high utilization rates. I don’t see much of a future for that model.

    • Hi Tim, Yes it was a while ago that O’Leary made the comments but only a few weeks and nothing has really changed since then as you point out. You could have written this post months ago and have in various forms. The fundamentals have not changed, well apart from getting worse that is.

      I suppose the business people, media and politicians are trapped in their own narrative. At least they have something to blame now.
      The view from Ireland is all will be well. When will things change, when will people notice?
      All best and thanks for the education.

  15. Hi Dr Tim,

    Warren Buffet ditching his airline holdings makes great sense but still made me gasp when I saw the news, it’s a shift in sentiment that will be hard to ignore!

    I particularily like your two graphs, it occurred to me that the graphs for 2008/9 might be similar,
    when you widen the time line so both appear on the same sheet then it starts looking like steps on a flight of stairs heading downwards,

    this will be the third significant recession over my lifetime, 1980’s, 2008/9, 2020,

    each time I’ve felt only one segment of the population were included in the recovery phase and at each cycle the segment that did recover has shrunk,

    we do seem to have reached ‘peak everything’, we must have finally hit ‘the limits of growth’?

    revisionist historians have pointed to the performance, apparent invincibility and callous disregard for human life of the Wehrmacht in the first years of WW2 and suggested that the widespread distribution of meth amphetamine amongst the troops in the form of brand name Pervitin tablets may have contributed to this impression,

    when I look at the mainstream confidence in never ending growth, even in the face of compelling evidence otherwise, I wonder if cocaine abuse amongst the movers and shapers of the world may be contributing?!

    I’m just trying to rationalise such ebullient over confidence.

  16. Thanks Dr Morgan for another engaging read.

    I’m not so sure the situation is quite so gloomy. Many seem to be quite content with lockdown receiving 80% of their salary to stay at home and sit in the sun and do a bit of gardening. Some will be better of as they put off car purchases and cut back on meals out etc.and are able to pay down debt for the first time in years.

    I note that cruise ship bookings are up 40% for 2021..maybe these people know something we don’t!. Aside from a full blown economic crisis, I don’t think recent events are going to convince the average person to give up their weeks in the sun and other creature comforts.

    • Thanks Ken.

      First of all, I don’t put much faith in the cruise ship bookings number, as a previous similar number turned out to be……well, ‘factually challenged”.

      I’m certainly not advocating negative attitudes, but most people are likely to come out of this with more debt, not less. People worldwide were already putting off car purchases long before this crisis arrived.

      In looking for positives, I incline more towards attitudes, and changing values. The importance of contact with friends and family may be valued as it hasn’t been in a long time and, with communication available through phones, internet, Skype and so on, I don’t know why some idiot somewhere chose to label physical as “social” distancing!

  17. Ken, as I recall, the report that cruise ship bookings are up 40% for 2021 was “news” reported by the cruise industry. Unless they open their books for verification, I would chalk that up to PR. I took it as an entirely false report designed to push the fools who think this is a great idea for a vacation to make their reservations now. “See, people aren’t worried! You should book now!”

    When dealing with the modern economy, it is best to start with the presumption that, with apologies to Bertrand Russel’s famous story, “it’s manipulation all the way down.”

    I also note that while the U.S. Congress would not bail out the cruise ship industry because they are not U.S. corporations, the Fed bailed them out on its own. The cruise ship industry has of late been on a bender building more and larger ships. I am sure that they are indebted to banks up to their eyeballs, so the banks had to be protected at all costs. See Wolf Richter’s excellent article on WolfStreet on April 18, “What U.S. Cruise Lines Are Up Against.”

  18. I agree with you that a V recovery for the economy is very unlikely, but you are mistaken in considering airlines a “bellwether” for business prospects. In fact, they are very much the opposite, a late-cycle industry, never a leader. The key term you use is “discretionary”, which is exactly what most personal air travel is, in the “nice to have” category. The steady rise in recent years in air travel has more to do with the aspirations of the emerging middle class in Asia than any economic need.

    As pointed out, Buffett sold his airlines and a bit of Boeing, but nothing else. He is keeping his insurance, railroads, power utilities, soft drinks, food processing, banks etc, etc because he knows that all of these will come back long before airlines. The travel industry will be dead last in that regard, with cruise lines taking up the ignoble rear.

    • Perhaps I should have said “symbolic”, perhaps of rationality vs irrationality in the management of this event.

      If our (and our representatives’) responses to this crisis were wholly rational, governments would probably provide airline employees with long-term income support, and put the industry itself in mothballs until the virus has been eliminated. Air travel is very much discretionary, in the sense that people can get by without it, and also high-risk, in that physical distancing is very difficult indeed. That being so, why would you even think about restarting it? Much the same goes for elite sport – huge numbers enjoy it, but we don’t need it.

      Yet we have the airline industry telling us they can return to something like normality within months, and leading European football leagues discussing plans for resuming matches within weeks.

  19. I have to agree with this writer, we have been brainwashed, cowed and behave like medieval peasants – will our modern Watt Tyler meet a similar end?


    Stockholm Syndrome:
    A condition in which hostages develop a psychological alliance with their captors during captivity.

    Lockdown Stockholm Syndrome:
    A psychological state of mind that causes its sufferers to come to love seeing their economies and liberties being destroyed, whilst simultaneously being incapable of accepting that Sweden kept its society going without resorting to such measures.

    I continue to be baffled by those who cannot bring themselves to admit that Sweden has carried out a relatively sensible policy on Covid-19, whilst the response of so many other countries has been authoritarian and frankly unhinged. The idea of quarantining millions of perfectly healthy people and stopping them from doing normal, healthy things is something that has apparently never occurred to any national leaders in the past, or at least if it did, they presumably never enacted it for fear of revolt.

    No such fear today. It is simply staggering to see how so many people have not only come to accept the inevitable destruction of the economy and curtailment of civil liberties as a price worth paying to deal with an illness which is killing numbers on roughly the same levels as a bad flu season, but have actually become cheerleaders for the giant social experiment being done to them. It reminds me of the chilling and dispiriting line at the end of 1984: “He loved Big Brother.” Today, for reasons that are not at all clear to me, many appear to “Love Lockdown”

    • Hi Jonathan

      With regard to the lockdown the Swedish position seems to me to be counter intuitive and so much more acceptable to the population. This does not of course mean that it is wrong; from the point of view of stopping and minimising the epidemic it may be the best option. Many people will of course self isolate despite what the government will say so the policy is not 100% in any case.

      I agree that it’s remarkable how people have accepted the strictures of the lockdown. One has to take into account that there are different scientific opinions about what is a complicated subject so there is no final authority on what is best or optimal. In these circumstances that people go with the policy that seems intuitively right is perhaps no surprise.

    • We’re neither brainwashed nor cowed. And we’re certainly not behaving like medieval peasants. Those of us choosing to physically distance ourselves are doing so toward the common good. Remember that (seemingly long lost virtue), the common good? If anything, most people living today have been brainwashed and cowed to believe that only their needs and desires matter, without a thought given to the welfare of others.

      Distancing ourselves from others right now isn’t about creation of an authoritarian, police state. It’s about digging deep to counteract our natural tendencies to be hypersocial in order to reduce the suffering and death caused by this vicious disease. A disease which is very significantly worse than seasonal influenza [https://www.vox.com/science-and-health/2020/5/5/21246567/coronavirus-flu-comparisons-fatality-rate-contagiousness]. Seasonal flu doesn’t cause the forced piling of corpses into refrigerated trucks outside hospitals. It doesn’t cause a rush to temporarily bury bodies in nearby land plots. It doesn’t overwhelm and kill healthcare professionals treating those sickened and dying from it. COVID-19 does all of those things.

      I beg those of you who are minimizing this very serious and deadly disease to reconsider your perspective on it. This disease is much worse than you realize. It’s severely sickening and killing via random, almost inexplicably varied ways and doing so not only to those more susceptible due to pre-existing conditions or advanced age, but also to those who are younger and otherwise quite healthy.

      I also ask that we focus our attention on preventing this from happening again, if at all possible. We can start by ending gain-of-function research [https://medium.com/@yurideigin/lab-made-cov2-genealogy-through-the-lens-of-gain-of-function-research-f96dd7413748].

    • Thank you. Your comment puts, very eloquently indeed, the case for caution. I find it hard to understand the view that ‘this is just the flu’.

      It seems to me that we need to put two questions to ourselves about this, not just one.

      The obvious question is ‘have our scientists the ability, knowledge and resources to beat this virus?’

      But perhaps the more important question is ‘have we – collectively – the intelligence to handle this situation?’

      The outlook on the latter isn’t encouraging. We’ve resolutely refused even to question the assumption of ‘perpetual growth’. We’ve failed to address the issues of the economy, energy and the environment in a holistic or intelligent way. We’ve fallen for the “growth at all costs” mantra. We’ve created huge financial risk as part of exercises in denial about this. Right now there is active consideration of restarts in activities where restart shouldn’t be on the table.

  20. What are your thoughts on whether there is coming inflation / deflation? Will we see either?

    I’m curious: given all of this, how are you preparing yourself, both financially (investment-wise) and physically (nonfinancially?)

    • Deflation is likeliest, but could eventually be followed by inflation if policymaking becomes desperate.

      I don’t put too much trust in “prepping”, believing that we’re all in this together, so the best thing any of us can do is promote the adoption of realistic planning. Financially, I turned very conservative a long time ago.

    • I appreciate the idea that we’re all in this together. I went to Yale, worked at Google for a few years in their “elite” associate product manager program. I was excited to get to work, hoping to improve upon the world-transforming products that Google had built in its early days. I saw very quickly that the modern Google (and in turn most modern companies) cared not even a little bit about the real effects and true externalities of their work. Everything was about making more money, which in turn meant devaluing the Google products that I once loved. I left because it was such a waste of life to work there.

      I have friends who go to work in investment banking, consulting, private equity, and at tech firms like Facebook. It upsets me because these companies arguably earn their “profits” by making the world a worse place. But these friends and others feel overwhelmed by, for example, their debt, and by the social pressures around them to become very wealthy. Convincing them not to take a job that pays many hundreds of thousands of dollars doing minimal work is nearly impossible. Even the people who recognize how messed up the world is (energy, climate change, wealth inequality, exploitative/extractive economic systems), those who can acknowledge that what they’re doing might not be right, do it anyway because they’re at the point where they see no hope. If the system cannot be fixed or improved, then the best choice is to make enough money to buy resiliency (a farm, self sufficiency, etc). But the reality is that, as long as that is the majority view, nothing will change for the better.

      Now, watching the Federal Reserve and other central banks entirely distort financial markets, entirely disconnect them from reality, it’s hard to see what can be done to have this end well. It’s hard to imagine those in power relinquishing that power or allowing it to be eroded slowly and safely via higher tax rates and progressive policies. It seems more likely that the central banks will increasingly push the ponzi scheme bubble out of financial asset markets and into the real economy. Given that economies are fundamentally energy systems, we *do* know that at some point this will break. All this said, I suppose I’m wondering how you maintain an optimistic view given all of this?

      I’ve also been thinking about why we might not see inflation any time soon. Would love to get your thoughts: the Feds bandaid bailouts have certainly propped up markets, but they definitely aren’t providing enough money to entirely account for lost wages in the lower and middle classes. Hypothetically, even if they entirely supplemented lost wages, these people would still be spending their money only on the bare necessities (let’s just say food to keep it simple). What if it turns out that our economy can largely produce the basic necessities (food) with a huge portion of people unemployed? Perhaps most of the people who were laid off are service sector workers, which is roughly a surplus economic product that isn’t really “essential”. So the government is providing wages to the non-essential service workers so that they can go buy food, and (also hypothetically, let’s say that) food production hasn’t really decreased. Then the majority of people can continue to get food without inflation, but now our economy has an output gap on the services side of the economy: all the people who were previously buying a lot of Starbucks lattes won’t have a place to spend their surplus income. They in turn might save it or put it into the stock market? On the other hand, the owners of capital in the service economy businesses, will no longer have incoming revenue. So some velocity of money will decrease. Overall it seems like basic goods inflation might not materialize, since much of the truly necessary economic output (food) is relatively stable in production?

      Regarding investments: I imagine conservativeness means mostly a large allocation to safe forms of cash and some amount of gold to hedge against currency debasement?

      But I’m curious if you ever make other bets on say commodity price directions, inflation changes via TIPS, or long term interest rate moves (down?). Is there a point at which you would go back to investing in the more traditional asset classes of bonds and equities? My personal view is much the same as the one I shared above: I don’t believe that a lot of the economic activity currently undertaken is “good” for the world. A lot of it is wasteful. Even if equity valuations were reasonable, I wouldn’t feel good owning stock in Google, Facebook, McDonalds, Philip Morris, or the oil companies because their long term visions don’t align with my own. At the same time, though, cash yields near 0% so any wealth that one holds is being eroded by current policy. Maybe this is only in the short term, though, and the longer term return on cash, though negative in real terms, will be high relative to the negative performance of all the other popping-bubble assets?

      Oh, one final curiosity: is your SEEDS model an agent based simulation implemented in a programming language? Or is it mostly spreadsheet based?

    • Thank you. I believe this is your first comment here, so welcome. You raise a lot of very important issues to reflect on.

      When I worked in the markets, I hardly did any investment on my own account, because I didn’t want my own interests to skew my judgement. In the securities business, you’re paid pretty well, and part of the deal (in my personal opinion) is that you owe it to your clients to be as objective as you can be, tell it like it is, and put clients first. I was fortunate in working for firms with high standards.

    • JJ – “I’m wondering how you maintain an optimistic view given all of this?”

      I don’t. Instead, I opt for an unflavoured realistic view, and take care of my physical and mental health. I’m happy, functional, optimal weight, unaddicted, and pessimistic!

      On these sorts of issues, I should say. I’m plenty optimistic on all sorts of things. Tech, nature, my abilities, humans in general.

      “You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
      -James Stockdale

      James Stockdale came to this wisdom after watching the ‘optimists’ fail and die in prison camps.

  21. Degrowth; Zach Bush and Rich Roll
    Rich Roll:
    “Without minimizing the profound severity of our current situation, I cannot overstate the unique opportunity we are being gifted. Like an addict’s moment of clarity, the pandemic presents a singular occasion to break the chains of denial that imprison us. A moment to objectively examine that which no longer serves us. The behaviors that repeatedly lead us astray.” My gloss: Rich was a fat drunk who could not climb the stairs to his bedroom. That was his moment of clarity. He became one of the outstanding endurance athletes in the world. So he knows about crises and moments of clarity and doing the impossible.

    Search on:
    Rich Roll Podcast Zach Bush 2020

    Dr. Bush makes a passionate argument that the problems of the world cannot be solved without addressing the biology. The biology creates downstream problems in the use of energy and the resulting economy which are intractable unless we align our lives with the biology based in organic chemistry. Fixing the food would fix agriculture and much of physical health and mental health and social health. Animal to human transmission of harmful viruses would slow dramatically.

    For those who doubt that humans, with our specific genome, can do anything about our predicament, read Paul Davies’ account of the experiments with the two headed worms in The Demon in the Machine. And how development is shaped by polarity patterns.

    Clouding the vision of potential is the current irrational behavior which seems to dominate the social and political space. Zach spends quite a bit of time on the evidence from China in terms of the microbiome and Covid-19 risk. According to Doctor Bulsewicz, it takes 6 weeks to significantly change the microbiome. Zach recounts an experiment of feeding young black people in Pittsburgh a South African diet, and young black South Africans a Pittsburgh diet. In 3 weeks, the new Pittsburgh diet had the South Africans headed toward chronic disease. And the Pittsburghers eating the South African diet were on the road to health, as indicated by microbiome changes.

    They do not deal at all with issues of energy costs, but if their recommendations were followed, the need for energy would decrease significantly. My gloss on that is that GDP would also decline, as there would be more of a non-monetary economy in households and small groups. I doubt that Jeff Bezos would have 170 billion dollars of personal wealth. Kansas would not be importing 90 percent of its food.

    Don Stewart

    • Based in Organic Chemistry. I should probably say organic chemistry plus signaling/ information. Information is not part of traditional organic chemistry, but Zach promotes using carbon structures to facilitate signaling. At any rate, both Bush and Davies make signaling/ information an extremely important element of health.
      Don Stewart

    • If one has a bridge, and one is a traffic engineer, then one can figure out ways to get more cars across the bridge and collect more tolls. But if the structural engineer is telling you that your bridge is collapsing, then it is wise to step back from your immediate goals and take broader perspective.

      That is, of course, if one is trying to come up with a practical plan.
      Don Stewart

    • Maybe Don is like the system we live in. Lots of rain, but not a drop to drink.

  22. Tim, you expressed your opinion that “I don’t put too much trust in “prepping”, believing that we’re all in this together, so the best thing any of us can do is promote the adoption of realistic planning.”

    I well understand that this is your view, and that you do not wish this forum to morph into a prepping forum, so I will discuss this only in a general way. Even if that is the BEST thing we can do, it is not the ONLY thing we can do, and there is a wide range of activity between trying to get government to understand the predicament and then plan and act accordingly and setting up a homestead in the countryside designed for continued water, food and heating production after the grid goes down.

    Even if government does a socially admirable job of prioritizing where resources go, we can be fairly certain that the future holds: more and more frequent power outages, food shortages, and possible disruptions in or shortages of heating fuel supplies. Aging electrical grid, public water supply infrastructure and natural gas lines are not going to be replaced and upgraded to anything close to the extent needed.

    Based on everything we know about how government operates, there will be sacrifice zones, where people are left almost entirely to their own devices while scarce resources are directed to “core” functions and to bubble zones where the illusion of normality is maintained and preserved as long as possible.

    There are things that people can do now – personally, in their families, church groups or civic clubs, in their local neighborhoods, to locally mitigate these entirely foreseeable conditions and events. Yes, group activity requires some measure of a shared understanding of what is happening and what is coming, and it is easy to believe that, because of the top-down control systems we have, the best thing to do is to convince a relatively few people at the top and major, positive changes will follow, and that that will be far more effective than working with one’s families, friends and neighbors. (A sad commentary, really; a reflection of just how extensively our minds have been colonized by government, with the belief that only it has the power to act.) However, the two are not mutually exclusive, and relying primarily on government to lead the way is very much akin, IMO, to sourcing all critical items in your supply line from China.

    While this forum is not the place for it, people should be encouraged to improve resilience locally, even if that is not the “best” they can do.

    • Thanks.

      To be clear, I see no point in stocking up on baked beans and ammunition, or anything else that sounds like ‘survivalism’ (which was so brilliantly sent up by Carl Hiaasen in Lucky You). I drafted a piece (but didn’t publish it) about how crazy the idea of bunkers is.

      As I see it, we have to think and manage our way through this, collectively, even if that does mean “managed retreat”. Though the kind of threat involved is a very different one – dramatic rises in sea levels – John Wyndham’s The Kraken Wakes is a fascinating study of a society in retreat.

      I agree with your emphasis on resilience, especially locally. I don’t imagine we can trust governments (or other institutions) to ‘do the right thing’ in al situations, but I believe the answer to that is for people to get involved.

      Of course, I think it highly desirable that we face the reality of an energy-based economy ‘running on empty’…..

  23. Which is worse, Covid 19 or the reaction to Covid 19?

    It’s hard to beat Mac10 for pithy, pointed commentary. Perhaps I am badly informed about Covid but his following observation strikes me as essentially correct. For those not familiar with his work, note that Mac10 routinely describes Western societies as “old age homes.”

    “A slightly stronger than average flu bug literally imploded the global economy overnight. The problem wasn’t the virus itself, it was the sheer pandemonium that it created in the old age home.

    Make no mistake, our politicians, most of whom are ancient geezers themselves, panicked when they saw the mortal threat posed to their own health AND more importantly their political future. The politics of the U.S. and most of the developed world are controlled by the AARP (American Association of Retired Persons). These senior citizens are 6:1 in favor of social distancing at the expense of the economy. Whereas Millennials are 60:1 in favor of ending forced celibacy. Had this so-called pandemic arrived when the Baby Boomers were in the prime of their free love Woodstock orgy I assure you it would have just been one more flu bug coming from China. Not this clusterf**k it’s turned into.”

    • Data is certainly imperfect. But a few points here. First, most who claim “slightly stronger than average flu bug” don’t usually include links to educate the rest of us. To be fair, I did see Germany hasn’t had excess deaths in 2020: good for them! For other OECD countries, I haven’t seen any similar claim.

      Second, it would be nice if we stated how many excess deaths we will tolerate. Maybe it should be a lot, maybe not.

      Third, lockdowns have been here, in one form or another, for a few months. If no lockdown, are the open the economy proponents claiming the death rate would have been the same without lockdown. It’s hard to determine: yes, Sweden better than Belgium, but worse than its neighbors.

      Fourth, we really don’t know if catching this coronavirus gives one long term immunity.

      Many more points could be made. Should we open everything up? Why not? Just state in great detail the risks you’re taking and what probability, however small, would make your decision a poor one. Stop shifting the goalposts (US expression).

      Mac10 isn’t doing much good here.

    • I replied on this topic a week or so ago. Besides unknown immunity for those who recover, and no vaccine, and mutations like with other flues making vaccines imperfect and temporary…I reported that there are various possible long term effects. These include: lungs, heart, kidneys, brain, intestines, and vascular system. I for one will try to avoid catching this bug. In my opinion, playing Russian Roulette with your body is unwise.

    • Personally, I don’t think there’s an “either/or” answer to that question – we’re dealing with shades of grey. There’s no hard and fast data on this “either/or” and, in part, any answer depends on what we choose to include on one or other side of the equation.

      Environmentalists, for example, might say that, to lives saved by lockdown should be added those saved by reduced pollution. Safety campaigners might want to add lives saved by having fewer vehicles on our roads. And so on.

      My view is we need to be pragmatic. This virus is a killer, and people who recover from it might suffer permanent or long-lasting health impairment. This suggests that some responses are required.

      But I don’t see why this response has to be 100% lockdown, or for that matter 0%.

      So, where an activity (a) can be re-opened with reasonable precautions, and (b) ranks high in terms of its importance, then we should re-open it. Retailing, manufacturing and utilities are likely to rank high on both criteria, so should be reopened as soon as possible. On the other hand, I’d say that both passenger flights and elite sports should not.

      I’m also aware that there are vested interests involved in all of this. An airline boss would probably say that the lockdown is worse than the virus – to which the reply might, in the words of Mandy Rice-Davies (or was it Christine Keiler?) be “well he would say that, wouldn’t he?”

    • Not surprising news:

      Scientists at the Los Alamos National Laboratory published a study on Thursday that indicates the now-prevalent strain of coronavirus is a more contagious version of the pathogen first reported in Wuhan, China.

      The study, which is not yet peer-reviewed, was published on BioRxiv, a website used by medical researchers to speed up collaboration on studies and potential treatments of coronavirus. Scientists at the Los Alamos lab, run by the U.S. Department of Energy, collaborated with researchers at Duke University and the University of Sheffield in England.

      The researchers concluded that a mutation of coronavirus that occurred sometime in early February in Europe made the pathogen more contagious, such that the mutated strain rapidly migrated to the East Coast of the U.S. and has been the dominant strain of coronavirus worldwide since March.

      Most worldwide research on a vaccine has focused on earlier versions of coronavirus that lack the new mutation, the Los Angeles Times noted. The authors of the Los Alamos study wrote that they felt an “urgent need for an early warning” that the now-dominant strain of coronavirus had mutated, which would compel vaccine developers to study that strain in order to produce effective treatments.

      “The story is worrying, as we see a mutated form of the virus very rapidly emerging, and over the month of March becoming the dominant pandemic form,” study leader Bette Korber, a computational biologist at Los Alamos, wrote in a Facebook post. “When viruses with this mutation enter a population, they rapidly begin to take over the local epidemic, thus they are more transmissible.”

      Researchers in the U.S. and around the world are racing to find a vaccine for the pathogen, which has infected over 3,600,000 and killed over 250,000 worldwide. The pandemic has caused many of the world’s nations to close businesses and schools, with several, including the U.S., imposing travel restrictions on the entry of foreign citizens.

    • Covid 19, Wuhan whack, China coincidence, whatever.

      Fact is, there’s no future in 7.5 billion humans expecting unfinite growth. Whether it’s a bug, or war. Or both.

      Fact is, brain quantity is no party for Mother Nature. To her, it’s just another duck, fed to the wolves.

      Really beautiful. Painful, but beautiful.

  24. The question about inflation though is a good one and it is something that I’ve never really understood.

    The conventional thinking of economists seems to be that deflation is generally a bad thing. It is stated as fact that deflation reduces demand as people would put off buying something that would drop in value in the future. But if that was true then people would hold off buying new phones, computers and so on. And they clearly don’t. They even borrow to do this. And I can’t see any disadvantage in lower food prices either. Given that prices remained stable throughout much of the 18/19th even 20th century, except for wars or famines, then it that would actually seem that deflation is the norm. In fact, you would EXPECT prices to drop through economies of scale, higher utilisation factors and new technologies.

    But of course it isn’t so good if you have debt. Then it does become a problem. That must be the reason why it is considered a issue.

    As no one can currently agree then maybe the answer is there will be both inflation and deflation and this might become more extreme. QE appears to have pushed inflation into assets like property and shares. Could it be we are heading for huge deflation in assets that are predominantly bought by debt as old valuations no longer apply and huge inflation in ‘essentials’ like food and energy. Now that would be a toxic mix.

    • Deflation is death to a debt based fiat currency system (which is what we have had since Mr Nixon broke the link with gold in 1972 in response to the spiraling costs of the Vietnam War and LBJ’s Big Society social programs).

      The bankers will do everything to make sure we induce inflation to try and keep the system going while they suck as much loot out prior to pulling the plug

  25. A Deflationary Scenario
    Not a prediction, just a thought experiment. Let’s suppose that the biological stresses and the financial/ energy stresses are such that large sectors of the economy are no longer supported by the US government (with similar outcomes in other countries). We talk here about the financial/ energy stresses all the time, so I will stick with the biological for the sake of discussion. Zach Bush is elevated to a Cabinet level position and he stops all subsidies for Big Ag, Big Food, Big Pharma, and health insurance is made transparent…as in, one’s lab results are available to insurance companies who can draw any conclusions they wish in terms of risk.

    In such a scenario, there would be enormous overcapacity in those industries, as people substitute ‘victory gardens’ for purchased perishables and commercial commodities shrink to dried grains and beans. Meat becomes an ‘extravagance’, in Simon Fairlie’s language in Britain. People shun junk food because of the insurance cost. The land allocated to corn for ethanol would suddenly go on the market. Health would doubtless improve, but land prices would fall precipitously, allowing small farmers to acquire acreage close to cities across the country. While nobody would get rich farming, there would be plentiful food at reasonable prices at a fraction of the grocery bill today.

    One can think of other deflationary scenarios also. But probably the most severe would be in cases where current practice actually makes no sense in an environment of limits.

    Don Stewart

  26. Nora Bateson Tweet
    “The existing system is melting.
    It has been for a long time.
    Re-structure of socio-economic policy?
    I am asking,”What is the perception of life, personal & communal,that informs the logic of existing structures?”
    It is there that the change lies.”

    I suggest that as Degrowth becomes the macro trend, the current political practice is to seek socialization of risk, despite corporate and personal behavior which increases that risk. Thus, Wall Street wants bailouts necessitated by their extremely risky behavior. And people who eat junk food want ‘Medicare for everyone’. Corn farmers want a guaranteed market for corn ethanol. North Carolina wealthy people want their beach house insured by the State against hurricanes, and they want state highways built on sand to be repaired promptly when the hurricane moves the sand somewhere else. As the saying goes, “Risk cannot be eliminated, it can only to shifted somewhere else”.

    I suggest that as we approach the limits of debt, the socialization of risk will either be stopped because we must or else our society will disintegrate as individuals and families do their best to avoid the risk. As I see it, there are two approaches. The first builds on our ‘we are all in this together’ but adds twists. For example, Rich Roll interviewed a Dr. Klapper, who has been practicing medicine now for 50 years. They talked about the risk from poor life-style. Klapper said he has had discussion with insurance companies who have very precisely quantified the risk if they know certain biomarkers: blood pressure, hemoglobin A1c, cholesterol, etc. Klapper’s solution is a rebate on taxes if one achieves good results on the biomarkers. My own inclination favors Libertarianism. Let everyone buy whatever insurance they want, but the insurance companies have a right to all the information about you they can get…if you can find an insurance company which looks with favor on your carnivore diet, power to you. If you can’t, you may want to reconsider.

    It is noteworthy that New York State, which prohibits ordinary citizens from getting lab tests on their own initiative, has relented on Covid-19 and allows antibody testing. I find this ridiculous. Did someone designate New York State as God who decides whether a citizen will be able to do what they obviously need to do just to manage their risk? I think part of the shrinkage in response to the pressures from debt, energy, and biological factors will have to be a sharp look at all the ways the political process has been used to shift risk. I think touchy-feely is past it sell-by date. But it is also true that common courtesies can be practiced. Someone commented that in the Asian countries wearing a face mask is considered a courtesy to others…not a personal protection.

    Don Stewart

  27. With change knocking at the door, a few wise words from the past:

    “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change, that lives within the means available and works co-operatively against common threats.”

    Charles Darwin.

    • If Charles Darwin is right why don’t we (as evolution suggests) get rid of the weak and allow the strong to flourish- this would allow the strong to get stronger and improve the species. Just a thought.
      We all know there wasn’t a Creator of the universe don’t we?

    • Eddy
      Agreed. My list of obstacles, in order of severity:
      *Debt…keeps us doing what we were doing and failing
      *Social pressure to conform
      *Government regulations and taxes
      *About 20 percent of the population (maybe more) don’t have the mental capacity for very much innovation on their own initiative

      Don Stewart

    • Here’s the big one, as I see it – the rise in ECoEs, and what that says about this economy that we’re trying to ‘rescue’.

      Back in the post-1945 decades, we enjoyed real growth when ECoEs were at a nadir of about 1%. By 2000, ECoEs had risen to 4.1%, which started to put an end to prosperity growth in the advanced economies. During 2018-19, we passed the 8% threshold which starts to stop and reverse prosperity growth in the EM countries. SEEDS indicates that ECoEs will be pushing 10% by the mid-2020s. Growth, as I see it, is over, de-growth has begun, and there’s nothing we can do to prevent it.

      This is where your list comes in. Most obviously, debt has been pushed ever upwards in a futile exercise in denial. We’re not even thinking about de-growth – even in the environmental context – but telling ourselves fairy tales about perpetual growth. People will get more prosperous ad infinitum, the rich will get richer, governments can spend ever more money. Where’s the preparation for de-growth?

      We’ve even got the oil situation wrong. Yes, cheap oil is great for the consumer, right now, but it’s killing the investment required even to sustain oil output, let alone to deliver the 10-12% increase by 2040 seemingly assumed by the consensus.

    • I firmly believe that there are many clever people out there, mainly young ones, who are held down by a combination of politics and dead wood at the top. Even at a low level locally, lots of people are coming up with all sorts of ideas to lighten the dark days and ease the boredom of lockdown.

      I’m hoping (probably against hope) for a giant brush to sweep the political nonsense and dead wood away and give those waiting in the wings their chance.

      We need new ideas.

    • Is it that we lack new ideas, or that decision-makers aren’t willing to consider them?

      The context for this remark is that I can foresee exit from lockdown going horribly wrong.

      I hope I’m wrong about this, but I fear that governments are feeling pressured to allow the restart of activities which seem very hard to operate safely. If this leads to a second surge in virus infections, we could find ourselves in a second round of lockdowns which could do even more economic damage.

    • Trump just reversed his decision, made just yesterday, to close the COV Task Force (headed by Pence). The scientific input was overwhelming in expectation of an upsurge with loosening of restrictions in some states.

    • If we could only apply some simple logic, we might be able to manage exit from lockdown. Instead, I’m seeing plans to re-open passenger flights, international tourism, football………

      Some activities are important, and can be re-opened with reasonable precautions. Other activities fail both tests.

    • Re: “If we could only apply some simple logic, we might be able to manage exit from lockdown. Instead, I’m seeing plans to re-open passenger flights, international tourism, football………

      Some activities are important, and can be re-opened with reasonable precautions. Other activities fail both tests.”

      Aside from the short circuits in DJT’s head, the main drivers of policy are (no surprise) money and re-election. Professional sports are a huge business. Ditto tourism, recreation, bars and restaurants. Trump’s hotel and golf businesses are getting crushed. Lobbyists are all over him to open up. Only the fear of a large second wave being pinned on him is stopping him. He doesn’t want to lose in November.

    • Commercial priorities seem to be driving decisions. That’s why I really fear a second wave.

      Elite sports and aviation are the craziest of the lot. How do the latter think the virus went from China to Europe & the US – by bus?

    • My last post was addressed to Don by the way.


      I think a little chap with a Charlie Chaplin moustache tried something along the lines of what you’re suggesting about 70+ years ago.

    • Tim,

      Re new ideas.

      My ideas suggestion transcends the current crisis and covers many things which don’t work well but could work better were our elite to open the curtains and let some light in. Some of what’s happened in record time over recent weeks shows what can happen when our leaders are forced to think outside the proverbial box.

      As for when the lockdown ends, I’ll steer clear of that debate.

  28. @Dr. Morgan
    “ECoEs will be pushing 10 percent”
    Art Berman has a paywalled article which predicts:
    “See my latest newsletter for details! http://www.artberman.com/2020/… Production & oil price peaks will be progressively lower going forward. Oil price collapsed in 2018 & 2019 when world production reached secular peak levels. ”

    When I see these kinds of predictions, along with your prognostication that 10 percent ECoE kills BAU, I am reminded of BW Hill’s thermodynamic model (which was universally dismissed) which predicted a sort of ‘heat death’ about right now. Given the heat machines we actually use to produce goods and services and the ancillary stuff we do to keep it all running, there simply aren’t enough ‘energy slaves’ to power the beast. That sure looks to me like the symptoms we are seeing. Particularly for the world. The US is different because it can still print money and expect the rest of the world to pay for it. For how long???

    If our problem is thermodynamic, then the solution is to whack away at the deadwood. There are still a ton of ‘energy slaves’ in each barrel. Our principal problem is making use of them.

    Don Stewart

    • Let me just step back a bit here, Don, putting the Wuhan virus on one side for a moment.

      We face two huge problems. One of these is a relentless deterioration in the energy equation which drives the economy.

      The other is the environment, which would limit our ability to grow the economy even if the energy dynamic wasn’t already doing the same thing.

      Both of these point, unequivocally, towards ‘a future of less’. That might be ‘gradually and manageably less’ or, if we’re obstinate (= stupid) about this, ‘suddenly and catastrophically less’.

      So, are we planning for ‘less’? Far from it. We’re promising ourselves ‘more of everything’. More mouths to feed, more ‘prosperity’, more economic activity, more debt, more money, more profits, more travel, more cars, more energy-consuming technology, more market economics…………..

      Responses to the virus crisis (after the initial dose of reality) crystallises this folly. We’re insisting on restoring what it pleases us to call ‘normality’. Personally, I’m sure there is no reason to doubt either the thermodynamic or the environmental issues that we face.

      So is it simply a case that we lack the intelligence to adapt?

    • @Dr. Morgan
      “lack intelligence to adapt”
      I think we do clearly have the intelligence to adapt. People can go camping or to Antarctica or climbing Mt. Everest and adapt to a very different situation. A very few humans are capable of creating a new structure (Jeff Bezos and Henry Ford come to mind.). Most of us take the structure we find ourselves in as a given, and do the best we can. When we try to change the structure (e.g., the workers paradises in China which soon looked like factory towns have always looked), we mostly fail because we aren’t Jeff Bezos or Henry Ford.

      To use as one example, Jim Kunstler rails against suburbia. It’s wasteful of energy and is a cultural nothing-burger according to Jim. Yet there have been very powerful forces expanding suburbia in the US, especially since WWII. While I and my wife were born into a world where the bulk of the people walked to work, my children were born into a world of carpools. Their children are born into a world of cars for virtually everyone in the family who is old enough to drive. How does it feel to be the only teenager without a car?

      Another example is the kitchen, one of the more capital intensive rooms in a house. We know from history that very few people in Edo Japan had a kitchen. Throughout residential areas there were fast food places which served take-out food. So the capital intensity and energy requirements were conserved. Today, we have in the US in middle class houses capital intensive kitchens but the people go out to eat in restaurants. There was a joke circulating a couple of days ago: “honey, I heard about a new restaurant…it’s open 24 hours a day…it’s called the kitchen”. The fact that we can recognize the joke indicates that we are very far from conserving energy and capital.

      Can we change course and use less capital and energy? I think so. As one example, me and everyone I hear who lives near a woodland with walking paths remarks on the big increase in people walking. We have known for a while that walking in the woods cures ‘nature deficit’…lower blood pressure and better sleep and less anxiety, etc. The opposite is true of going to the mall.

      Odysseus had himself tied to the mast to resist the call of the sirens. I suspect we are going to have to find an equivalent. Tim Garrett (who defines the economy as a heat engine) tweeted a few days ago that we MUST find a way to lower the energy density of a dollar of GDP. But, of course, his work and your work indicate that we have not done so in recent history.

      Don Stewart

  29. It’s not a problem of intelligence, it’s that our intelligence is misapplied because we value the wrong things. Stated otherwise, we don’t really know how to ascribe true value to things, but value things based on opportunism and a very immediate here and now. Whatever foresight is actually for, it has almost on power to alter present behavior.

    Or you could look at it as a more fundamental defect associated with our ability to conceptualize and mentally inhabit alternate realities to the exclusion of the real world. We are jacked into the Matrix (a shared social hallucination about what “the world” is and what we want it to be), literally cannot see the real world in front of our faces, or dismiss it when we get glimpses of it.

    Mac10 today says: “The human species is always trying to invent some sort of virtual reality, because the real thing is not good enough for them.” That’s not a bad way to state the problem.

    • Mac10’s observation is very good.

      St Francis had a formula for the true valuation of things:

      Each man (we might add ‘thing’) is what he is in the sight of God: that he is, and no more’.

      The Stoic philosophy of Marcus Aurelius also offers useful practical perspectives, from an actual ruler of men(and clearly a most unhappy one – ‘I say to myself when I wake, this day you will meet fools, and flatterers and liars, the arrogant, etc……)

      But as most men are neither contemplative ascetics, nor great emperors with a bent for philosophy, they are condemned to move in an atmosphere of delusion, of primitive impulses, hopes and fears, and – if intellectually inclined – often deluded by their own theories and anaesthetized by the charm of words, the veil which has covered every crime, idiocy and folly known to history.

      We see this now in those who think that ‘De-growth’ can possibly be a benign process.

    • My feeling is that we, collectively, are “clever idiots” – clever enough to split the atom, idiotic enough to turn that knowledge into a bomb.

      The things that ought to have been top of our agenda – long before Wuhan – were (a) de-growth, and (b) the environment. These are, of course, closely related issues, pointing in exactly the same direction, but we’ve failed to find sensible strategies to confront this combined issue.

      In the current crisis, it’s easy to find examples of individual or group idiocy – my favourite is probably the UK health secretary’s assurance to Parliament that aviation needn’t be restricted because it wasn’t a major form of virus transmission. Other examples abound, especially in the US and the UK.

      But what really interests me is collective wisdom, or lack thereof.

      We seem to have a collective inability to face reality. For example, confronted with climate issues, fewer and smaller cars seems a blindingly obvious measure, yet we fiddle around with non-answers like EVs instead.

    • It’s not my assertion that de-growth can be a benign process.

      But it’s something that can be handled intelligently, and managed – or answered with denial and idiocy, to the point where it becomes chaotic and disastrous.

  30. Imperial’s code has been released and been reviewed by a Google engineer:

    “On a personal level I’d actually go further and suggest that all academic epidemiology be defunded. This sort of work is best done by the insurance sector. Insurers employ modellers and data scientists, but also employ managers whose job is to decide whether a model is accurate enough for real world usage and professional software engineers to ensure model software is properly tested, understandable and so on. Academic efforts don’t have these people and the results speak for themselves.


    So Professor Ferguson, left wing academic, climate emergency enthusiast and Remainer is a fraud essentially. Oh, and he’s resigned from SAGE.

    Lockdown was a colossal mistake. Sweden were right all along.

    • Did you miss the link showing the “normal” deaths expected by countries and the death rate this year? COVID-19 is the only known added variable.

      “Pointing any remaining “it’s just a flu” believers at this data should cure them:

      (open access)
      Global coronavirus death toll could be 60% higher than reported

    • JonathanTed,
      I agree with you when you say that “Lockdown was a colossal mistake”.
      While the danger of this virus should not to be underestimated by the elderly and the immune compromised, it is now perfectly evident that it is not going to wipe out humanity either.
      There is something going on here.
      This is concerning:
      Your man Ferguson from Imperial College London is a paid for stooge. Given his miserable track record to date, the fact that he is still about advising governments is highly suspicious.
      I watched a very interesting video interviewing Dr.Judy Mikovits yesterday over on TheBurningPlatform.com, but the link has now been taken down.
      So much for Freedom of Speech.
      This whole Covid-19 issue stinks like a rotten fish.
      I suspect politics and ideology are in play, more so than medicine and science.

    • I actually saw a YouTube video with Mr Ferguson presenting his views on the lockdown. It was clear from the start he had applied his political leanings to the output of the models and his attitude to ordinary people having their lives and futures destroyed was frantically disgusting (a ‘let them eat cake’ attitude which is somewhat unfair on Marie Antionette as she uttered this remark in ignorance and was actually concerned with the poor plight unlike Mr Ferguson who is well aware off what he was doing).

      The fact he was bust breaking his own recommended social distancing policy at the exact moment he was being interviewed just added to whole farce he has brought down upon the country

  31. 2020 is shaping up like the Summer with no holiday for many of us.
    In fact, most of us will be lucky to still have a job.
    We here, know that there is no recovery going to take place.
    If you want it alphabetically it’s an “L”.
    The first effects are being felt by Aviation, Retail and by Hospitality. These will never return to their Glory Days again.
    Next up will be Housing and Car Sales.With a big drop in earnings, people will cut back on high ticket items. I expect to see a drop in house prices with knock-on effects felt by estate agents, surveyors, mortgage lenders etc.
    With less money going around, I expect many car dealerships to close.
    The Services sector of the UK economy, a sector upon which the country is totally reliant, has been knocked flat on its back.
    So the UK will have less tax revenue coming in, and much higher welfare payments going out, and its economy will be in tatters. Although I have to a greater extent, divested myself of GBP , I am still worried about it collapsing.
    If there is no going back to BAU in the UK,
    Where then, do we go from here ?
    MMT and a Potemkin Economy ? ..or is that where we already were ?

    • Put your treasure in Heaven, not in earthly things, Johan: Moses pays interest I believe.

      Or maybe that is fake news, too…….

    • Interesting point you make about GBP Johan. Looking at price charts of GBP against a number of key currency’s, the technicals don’t look good. The implication is that the pound looks like it could get walloped this year.

    • My guru’s momentum system (35 years experience; he’s a friend as well) indicates that the GBP will be stronger than the $US the next several years. It will likely be weaker than the Yen and Euro which will be even stronger against the $US. I realize that this is a contrary opinion.There is talk this morning about negative interest rates in the US which might be in the works behind the scenes. This would break the “carry trades” which have been borrowing in NIRP currencies and investing in $US sovereign debt.

      A brief opinion explaining cycles is on the company website. Ulf bought out Fred Bisset some years ago, and he died last year. Note the awards they’ve won. Ulf is the quant.


    • Stephen, thank you for the link, although I probably disagreed with most of it.
      I would really like for you and your guru friend to be right, but I think that I would have to swap my physics degree for one in metaphysics.
      The US $ is toast, as is the whole fiat money system.
      The only race left on the card is who gets to hyper-inflate their currency first.
      The race is already started, so I expect a winner to be announced in about 6 months from now.
      My money is on GBP winning. ( ie. being the first to become worthless ! ).

    • Nobody knows the future in complex systems. Currency values are relative to each other as well as to goods and services. The $US is the most overvalued of the majors on a purchasing power parity basis, and it is the most extended on distance from mean reversion. Gold is telling us that all fiat is doo-doo. It will likely be a race to the bottom.

    • Too true, Steven.
      It is impossible to predict when what is going to happen, because there are no fundamentals to go on. All the input data is corrupted and falsified and manipulated.
      However, I can see that the MMT ‘ers are now going to have their Day in the sun.
      This is a good thing, because it will only accelerate a return to some semblance of sound monetary policy. Just like Socialism, the general population will need to experience MMT to know that it doesn’t work. Only then will they ask the Austrians for some help.
      I have put my faith in Gold and in Bitcoin, both out of the reach of government.
      I’m going to be putting the rest into wine ( for drinking, not for long-term storage ! )

  32. I think there are several major problems that influence on our economic future:

    1 Surplus Energy Economics; as discuss on this panel in detail.

    2 The Government’s solution to all problems is to throw money at it!

    3 General disrespect for cash and the attitude is to get rid of it as soon as possible and buy assets.

    4 Unlimited globalisation, the disrespect of nature, and its effect on the planet and human survival.

    Can anyone think of other problems?

    • Addiction to credit is a global problem. Debt is an obligation. The more one has, unless deemed too big to fail, the less freedom one has.

  33. The Bank of England has just published its latest Monetary Policy Report.

    For the UK, it projects a 14% fall in GDP this year, followed by growth of 15% in 2021 and 3% in 2022. That would leave GDP in 2021 still -1.1% below 2019, but +1.9% higher in 2022.

    Globally (PPP), it sees GDP falling by 12%, followed by growth of 15% and 5% in 2021 and 2022.

    The ‘V-shaped recovery’, then, is alive and well……………….

    • the only V shaped recovery I’m anticipating is in covid-19 infection rates if this lockdown is lifted too early and with insufficient precautions and measures in place,

  34. With respect, it’s not as simple as commercial self-interest over appropriate caution. Unless the government is going to step up and provide basic income, there are a lot of people certainly here in America that need to eat, pay rent, heat their homes, etc. More than thirty million unemployed within the last 6 weeks, many of whom cannot collect unemployment and even those who can are likely to find it insufficient. Most of whom will now be without health care, because you need a job to have healthcare in America (including under Obamacare, which is a health insurance program, not a healthcare program – you need to pay for it, so you need income). Many states provide for 70% of income capped at some amount. Do you think that people who can’t save a thousand dollars based on their incomes can make it on 70% of that amount? Is 70% of minimum wage a “living wage”?

    “Appropriate caution” however interpreted and applied is going to leave a lot of people without bare sustenance income. So unless government is going to step up and put the systems in place to provide direct funding to the people (as opposed to trickle down mechanisms that give the money to the banks and companies) tout suite, the actual choice might be between “appropriate caution” on the one hand and starvation, massive rent and mortgage defaults and riots on the other.

    The lockdowns are NOT about preventing infection. That ship has sailed. Until there is an effective vaccine (hint, maybe never) they were about flattening the curve; the lockdowns can’t prevent people from eventually getting the bug until we achieve herd immunity, if herd immunity is even possible. In other words, deferring deaths and illnesses will only turn into “lives saved” if we get a vaccine that provides herd immunity faster than the herd immunity we will get by 70% or more of the population becoming infected.

    The median age of the people who are dying from this bug is about 82 years old. How many children and adults in their prime are you willing to see starve, go bankrupt, go without health care (because you need a job to have healthcare in America), default on their rent and mortgages and be threatened with eviction to “prevent deaths” from Covid? Many people are willing to “let the chips fall where they may,” letting individuals take such precautions as they deem advisable (Sweden) — as humans have done from time immemorial before we had the supposed god-like powers conferred by medical science — instead of relying on central planning to (maybe) achieve a net number of lives saved. A “fact” that, like all utilitarian calculations, will turn out to be very difficult if not impossible to prove, by the way, even relying on the value assumption that a greater number of lives saved versus those lost is de facto and de jure a collective good. Another facile utilitarian stupidity. Who’s the god in this picture that gets to decide this?

    • My point on that is that industries saying “we are important!” shouldn’t outweigh considerations of caution.

      Take, for example, international flights. It’s hard to see how these can be operated with reasonable precautions. It’s also quite hard to see customers returning, with the various perceived risks (infection, quarantine, etc), plus reduced consumer resources and increased financial caution. In this instance, it could be best to accept long-term lockdown. In this event, governments would have to provide long-term income support for employees.

      Taking the UK policy simply as an example, employees laid off due to the virus are paid by the state 80% of incomes up to a maximum of £2,500 per month. That remains in place until end-June, when it’s reviewed. Affected people also get mortgage payment holidays, and other forms of credit support, for the duration of the crisis. With aviation, it could be best to make this a “designated sector” and prolong that financial support.

      I’m wary of all of the ‘this is just the flu’ (and similar) messages, not least because I don’t know where support for them is coming from, i.e. vested interests could be involved.

      I cannot emphasise too strongly that this is part of the broader issue of de-growth. As de-growth progresses, we can expect a rolling wave of industry failures. We need to be thinking ahead to how we support those who occupations are destroyed by processes such as de-layering and simplification.

    • Exactly Tagio.

      Given the true risk-profile for COVID by age-group, wrecking innumerable businesses and lives to save a modest % of the elderly -and mostly elderly men – is akin to bankrupting oneself to glue dying leaves on every deciduous tree in the forest because one can’t bear to see them fall.

      If we are to be told that this is ‘all part of De-growth ad would happen anyway’ then that must imply accepting in a mature way the reversal of increasing longevity made possible by fossil-fuels and the wealth and technologies they generated, must it not?

      ‘Your job is gone forever and you are on the street with your family, but I can now wheeze out my last senile years OK’ is not a respectable position to take. And in fact societal collapse will quickly catch up with the old codgers eventually anyway.

      The timidity and (natural) selfishness of old men (and politicians who fear bad headlines) should be allowed to destroy lives prematurely and suddenly in this fashion.

  35. New Brookings Institute study out, the gist of which is that hunger is rising dramatically in America. “Nearly half the US couldn’t withstand a $400 emergency, and most households that have taken hits are seeing bigger income losses than that. Only 29% of the unemployed got insurance payments in March, and those set to get paper stimulus checks could get them as late as August.”

    NakedCapitalism article today, with separate graphs breaking out “child food insecurity” and the decline in (deliberate de-funding of) the SNAP “food stamp” program in America because, you know, corporations and tycoons needed tax breaks, so there’s less to go around.

  36. Clearly, the fact that Brookings published the study is a good sign that those who can see the handwriting on the wall are trying to push Congress in that direction.

    • There are, it seems to me, two ways to look at the coronavirus crisis in the longer-term economic scheme of things.

      One is that it’s simply a one-off (though nasty) interruption to BAU ‘perpetual growth’.

      The other is that it’s a dramatic foretaste of de-growth.

      If (like me) one takes the latter view, it should prompt strategic thinking about how we respond to a world that has started getting poorer. That necessarily involves consideration of (often unpalatable) issues such as redistribution, migration, population numbers and aid for poorer countries and regions.

  37. David Katz and Rich Roll discuss the Pandemic

    There is a lot of really good information in this. David is a Public Health expert, but is also a clinician who worked for a week in the Bronx. David has, from the beginning favored a targeted response rather than shutting down the economy. He thinks that the State Governors are more data driven, while he wishes that we had some adults in the Federal government. He favors a ‘Let’s Get Healthy Now’ campaign to reduce the risk from co-morbidities. He sees a longer transition for those who are very exposed such as nursing home residents. There is also the uncertainty about another wave.

    There is a lot of discussion about the mismanagement of the news by the media, in terms of real risks.

    Don Stewart

    • David and some colleagues are working on a ‘Covid Risk Age vs. Chronological Age’ indicator. David, who espouses healthy living, has calculated his risk age as 20 years less than his chronological age. Wouldn’t it be wonderful if the Federal Government set a goal of reducing the national risk age by 20 years? But that, of course, would reduce GDP and disembowel many industries…so of course we won’t do that.
      Don Stewart

  38. Tad Patzek on a second US wave of Covid-19.
    Check his blog LifeItself.
    “Notice that the second Gaussian is two-times steeper and 25% lower than the first one, and it is offset by the magic three weeks from April 20, 2020. In other words, the second Gaussian has been picking up speed in the last 7-10 days, unbeknownst to most of us.”
    The US deaths are not declining as his first and primary gaussian predicted. So he posits a second wave starting around mid-April.

    Why look at the predictions from Patzek? Well…it’s the same tools he uses to look at oil production and other phenomena. So it’s kind of interesting for those of us trying to gaze into the crystal ball and see something meaningful.

    Relates to the caution about re-opening exhibited by Dr. Morgan.

    Don Stewart

  39. Wow, Patzek is really mad. Unfortunately, he’s powerless like the rest of us, so being mad and disgusted is worthless.

    Sounds like he’s just discovering now that the economy and the wealth of the wealthy is built on disposable humans. Well better late than never, but that has been the case since “civilization” began. That’s kind of the whole point of “civilization.”

  40. From the current post at ArtBerman.com
    “A 100% renewable economy is fine only if we are willing to accept a lower living standard and much smaller population than we have today.

    Humans have never gone from a higher to a lower density energy source. A renewable energy world would have a smaller and less productive economy because of the lower energy density of its primary source.

    I am an advocate for solar and wind, and I take climate change very seriously. It is, however, critical that people know the truth: the world will be much poorer when fossil energy is abandoned.

    Many believe that the Coronavirus crisis will hasten the transition to renewable energy. I believe the opposite will occur. As I wrote last month, “A world in economic depression will default to the cheapest and most productive fuels. Oil will be cheap and abundant for a long time. There will be little money or appetite for the massive equipment changes that renewable sources require. Climate change will not be high in the consciousness of people struggling to survive.”

    Humans will self-organize around energy as we have always done. It is impossible for humans to choose an energy source that violates the genetic imperative to expand as a species. When that happens, it will be imposed by circumstances that make survival a greater imperative than growth.

    Coronavirus is a substantial step in that direction but is only a prelude. The economy is unlikely to fully recover from the economic damage done already. If premature opening of the economy results in another period of quarantine, the damage will be greater.

    The effects of this virus will be recognized in time as a fundamental and painful shift in the course of human history. The result of the transition to a 100% renewable energy future will, by comparison, be traumatic.”

    Sounds very much like what we discuss here….Don Stewart

  41. Organized Preparation for Bad Events
    Dave Pollard has a good essay on human nature and why we don’t prepare for events such as the Corona virus:
    Dave’s point is that human nature is to focus on our immediate goals and leave little time or money or energy to deal with known, but uncertain risks. Business experts polled by the Davos organization ranked a pandemic dead last in a list of potential threats. Everyone can see the danger posed by industrial animal farming…but it is quite unlikely that governments will do anything about it. Some individuals will refuse to eat the animal products for reasons of health or ethics…but the businesses will keep right on doing what they do.

    If you think Dave (and John Gray) have it figured out correctly, then it has implications for how you proceed if you think Dr. Morgan (and a few others) are on to something important.

    Don Stewart

  42. Interesting to watch the discussions. As Tim says, the economy is heading inexorably down the gurgler due to basic thermodynamics. COVID-19 will probably hasten the process, but who knows for sure?

    The human X factor is that we also have thermodynamic drivers baked into our genes that shape our behaviour. These are not perceived by most people, but that’s where our insatiable drive for more of everything comes from.

    Those drivers are also why it’s so hard, impossible really, to change people’s behaviour – be it celebrities taking private jets to climate change conferences, or driving electric cars to “fix the environment”, or thinking that we can continue infinite growth.

    It’s also the reason why most civilisations through history end the same way – by outgrowing their resource base. Every indicator is that ours is going that way, thus following the natural cycle of birth and death.

    You could postulate that the panic over a few COVID-19 deaths (relative to normal birth and death rates) is a subconscious recognition that our society’s death aka life as we know it, is also approaching. Societal discord, uprisings and wars map to energy availability and resources curves (energy/resources go down, uprisings go up), so people sense ‘something’s wrong’ even if they don’t know exactly what.

    • Indeed so.

      I find myself wondering if the archetype for our behaviour is King James I of England (VI of Scotland). He was described as “the wisest fool in Christendom”, very clever at small things but a fool in “weighty affairs”.

      We can do great stuff with technology, science and so on, but when it comes to “weighty” stuff we seem clueless. We combine the cleverness to split the atom with the idiocy of using this knowledge to build a bomb.

      In our current circumstances, we can’t get our collective heads around the reality about the economy as an energy system, let alone plan ahead for it. We treat “growth” as a Holy Grail but have billions living on a pittance.

      In finance, we can design some incredibly clever algorithms but then use them to create a dangerous and dysfunctional system.

      In this crisis, we can’t make the simple decision to re-open activities that are important and low-risk, and leave shut those which are high-risk and are not that important anyway.

      The UK has just announced that anyone arriving from overseas after the end of May will be asked to go into two weeks’ quarantine – something that should surely have been done two months or so ago, back when the British health minister was insisting that air travel wasn’t a major factor in the spread of the virus (so the virus obviously travelled from China to Europe on buses?).

  43. Over at Wolf Street, it’s been pointed out that numbers in employment in the US have plunged back to the level of June 1999. That’s a function of the coronavirus, of course, but it’s prompted me to look at comparisons using SEEDS. Comparing 2019 with 1999:

    Aggregate prosperity +9.6%
    Population: +17.9%
    Prosperity per capita: -7.1%
    Debt per capita: +73.5%

    • TIm,
      The time period you refer to (1999-2019) includes the longest unbroken economic expansion in US history. It’s remarkable that our leaders can’t look at the same data and see that there’s something very broken with the economic machine. It’s there in plain view for all to see, unless you choose to turn your head the other way.

    • Tim,

      Population stats are easy. Prosperity requires a source and definition.

      Also, is “debt” just personal incl. mortgages, credit cards, auto loans, etc. Or are you incl. all debt by all institutions: corps, govts…? I suspect the former.

    • Debt is government (owed, not traded value), plus households, plus private non-financial corporations. Internationally, it is published quarterly. Population numbers are published twice yearly.

      Prosperity is sourced from SEEDS.

    • It doesn’t. Corporate debt is included, whether bank loans or other forms including bonds. Private sector debt (corporate + household) is further reported as bank and non-bank.

      Aggregate debt includes government, household and ‘PNFC- private non-financial corporate’ (meaning it doesn’t include financial corporations such as banks). Government debt is stated at market and nominal values, of which I choose to use the latter (i.e. the amount owed).

  44. Alice Friedemann on Shut In wells and Peak Oil
    See Alices new post in her website Energy Skeptic
    A listing of all the potential problems caused by shutting in wells. The Russians say it might be better to burn the oil than shut in a well. Bankrupt US companies are desperate to keep the wells flowing. Yet storage is filling.

    Her concluding paragraphs:
    “That means global peak oil decline — the downhill side of Hubbert’s curve, may be steeper after the pandemic in a recovery, though energy shortages are likely to be blamed on covid-19 and the financial system. Since oil is the life-blood of civilization, some speculate oil & gas companies will be nationalized in an on-going depression with little credit available.

    Meanwhile, for as long as this depression and less consumption last, we are staying below the oil depletion curve and learning important lessens and skills for when the Great Simplification begins, such as consuming far less, starting victory gardens, bonding more with neighbors and family, online education of all sorts, reading more books, and so on.”

    She does not address any of the issues from the angle of ECoE and declining prosperity, but she does note the perilous financial state of many oil producers.

    Don Stewart

  45. @Steven Kurtz
    It’s not clear to me what she thinks will happen to price. Now I have to make a detour into my own ideas about price and shortage, which allows me to connect the ideas of low price and also energy deficiency…in contrast to conventional price and demand curves. A thermodynamic interpretation is that if the society cannot make good use of the energy, then the price the society is able to pay will decline, which leads to lower prices paid to producers. Which can become a self-reinforcing cycle.

    Then we can talk about the various ways that a barrel of oil which contains so vastly many energy slaves ‘cannot be made good use of’. But one of them is ‘shelter at home’. Whether the ‘shelter at home’ phase is followed by a more thermodynamically productive shift or into, shall we say, a ‘more overhead to try to generate more GDP’ shift seems to me to be a critical difference.

    Don Stewart

    • Petrochemicals have myriad uses besides transport diesel, jet fuel, gasoline, home heating. Synthetic materials, pesticides, pharmaceutucals/cosmetics, agribusiness, etc. for example. I suspect there will always be demand. Methane is used in fertilizers, fungicides as well as fuel too. In any case, affordability for everything comes into play as Tim has explained many times. Printing money and subsidizing FFs seems to be an addiction that won’t quit.

    • ‘Shelter at home’ is in fact only made possible by an immense surplus of FF energy. That we can do so is the sign of our immense and disproportionate privilege.

      Look at the poor of the world, now starving because such policies have been imposed on them by foolish governments, and they have no such luxury to sustain them.

    • Xabier confirms why Art said “oil will be plentiful and cheap” because poor nations will be priced out of the market and their populations will die first.

      America should be the one to start the Great Simplification, but our arrogance will not see that we can change a few things slowly that will serve everyone beneficially. We really have no one that can articulate a positive future going forward, only ones that tear down.

    • The immediate effect will indeed be low oil prices. Longer term, though, this could devastate the ability of the industry to find and develop new sources of supply. It’s not great for renewables, either, with competing prices low, and investment harder to find.

      As I see it, the Wuhan virus crisis is a precursor for the economic, energy and environmental challenges that were looming anyway. I didn’t expect miracles of common sense but, even so, I find the shambolic responses – most obviously, perhaps, in the US and the UK – very depressing. The general level of public and political debate has been equally dispiriting. People and governments seem, quite literally, to have been panicked out of their wits by this crisis.

  46. For what it’s worth – which I’m the first to say, of any such forecast, isn’t very much – the latest SEEDS projection is that world GDP will fall by just over 13% this year. That’s not a million miles away from the latest Bank of England global forecast (-12%).

    Where the SEEDS numbers differ, though, is in what follows. For 2021, I’m expecting a very small recovery, leaving global GDP still a long way (9-12%) below 2019.

  47. @Steven Kurtz
    Let me expand a little on the price/ availability issue. Since both Alice and Art sometimes speak in biblical quality riddles, I want to go back to the thermodynamic model of BW Hill from several years ago. I don’t know what Art may have thought about, or even knew about it. I do know Alice was enthusiastic at first, then cooled to the idea. What Hill did was graph a declining ability of the US economy to produce GDP per barrel of oil. Against that, he graphed an increasing cost per barrel. The two lines showed increasing surplus (that is, the volume times the difference in GDP and cost) up to the year 2000, with declining surplus and a breakeven point right about now. Meaning that our ability to produce GDP with all those energy slaves was zero for an incremental barrel of oil. He also graphed ‘wealth’, which was cumulative GDP…very similar I believe to what Tim Garrett has done. Wealth peaked shortly after 2020. (Garrett is part of a trifecta of biophysical types who are re-examining the economics. I have no idea what they are thinking now.)

    Hill was roundly criticized by all and sundry. I found some of the detail to be questionable (such as processing costs), but found the overall framework to be pretty compelling. Hill stopped answering questions about it, but left it up on the internet for several years. Now it is gone, I believe. I come back to the thermodynamics as the most logical explanation for the situation we are in. I also found Hill’s critical dates of 2000 and 2020 to be very suggestive of what we could see if we looked. While Dr. Morgan’s model is different superficially, I think it boils down to the same idea. At an 8 percent ECoE (or something similar), the economy stops growing. If our economy stops growing, then all sorts of bad things happen given our current social and economic system.

    So the question (to me) becomes:
    Suppose we can imagine an economy which is much more efficient in its use of energy. Can we create an economy which can produce what we need (as opposed to what the billionaires might WANT), at perhaps an ECoE of 15? Such a question is inconsistent with Neo-Liberal economics which assumes that whatever we are doing today is necessarily optimal because a perfectly informed consumer body will necessarily maximize consumer surplus (or whatever they are calling it now).

    Don Stewart

  48. Dr Martin,

    As an engineer that understands little about economics, but fully appreciates the concept of Surplus Energy Economics, I have a question and wonder if you could provide an opinion?

    Am I correct in assuming that the inflationary period that has taken place over the last forty to fifty years has been created primarily due to cheap and relatively easy access to fossil fuels?

    And If you agree with this premise am I correct in thinking that the future ECoE must result in a contraction of the economy and will lead inevitably to a deflationary period.

    • It doesn’t work quite like that, unfortunately.

      The best way to think of it is that there are two parts involved here. One of these is output of goods and services. The other is the system of money used in the exchange of these ‘real’ things.

      Prices are the relationship between the two at any particular time. Inflation or deflation are movements in these prices, i.e. changes in this relationship between the quantity of ‘things’ and the amount of money. This purely mathematical process is modified by behaviour, because money is a human artefact, and subject to human behaviour, expectations and so on.

      The modern trend towards high inflation dates back to 1971. That’s when the gold backing of money was abandoned. Governments could then create money in theoretically unlimited quantities.

      Looking ahead, what’s likely now is deflation. The money in consumers’ pockets will have slumped, and consumers will have turned ultra-cautious, and reluctant to spend. This is likely to be offset by increases in the quantity of money, as the authorities try to stimulate spending. If this goes too far, deflation could then be replaced by inflation. Longer term, inflation might be the only way out of our debt mountain – if the value of money halves over a given period, so does the real value of debts.

  49. Thank you Dr Morgan for explaining this.

    My train of thought led me to believe that since 1971 the Government had relatively little fear in easing money supply since access to relatively cheap energy allowed economic growth.

    Should they continue, in the future, to excessively ease money supply with QE when ECoE deteriorates then it is inviting hyperinflation and common sense should apply!

    • Common sense, alas, will not come into it, it assumes more rationality and foresight than is usually to be found in government policy.

      The actions which are most attractive in the short-term will be the ones which governments take, and then a little later the dread consequences will be upon us all.

      Commons sense, like honesty and candour, is as likely to be found emanating from governments in a period of crisis as is a fairy or gnome with a crock of gold at the bottom of one’s garden. ….

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