#179. Penny plain, tuppence coloured


In a wonderfully entertaining and informative book about ‘sea lore’ published in 1935, Cyril Benstead referenced the observation that “[t]he weaknesses of mankind are generally accentuated under strange and unaccustomed conditions”.

The conditions brought about by the Wuhan coronavirus pandemic certainly qualify as “strange and unaccustomed”, and many of the “weaknesses of mankind” have indeed been accentuated by it. Whilst some countries have, of course, responded to the crisis in a pretty rational way, many more seem to have thrown reason to the winds. “Muddle through” is never much of a strategy, and a best guess at this point is that, whilst some countries will ‘get away with it’, others will not.

As you may know, there are many reasons why the coming autumn is likely to be a particularly testing time and, if there’s something that we need more than anything else at this point, that something is clarity. The thinking here is that, if a storm does indeed break in the coming months, we need to have a solid framework of understanding in place before it does. That’s why so much urgent effort has been put into completing incorporation of ‘the Wuhan effect’ into the SEEDS model.

What follows, then, is emphatically a “penny plain”, rather than a “tuppence coloured”, review of the economic and broader situation, set out during what may well turn out to have been “the lull before the storm”.

The material, immaterially considered

Clarity begins with the observation – familiar to regular readers, but so fundamental as to merit restatement – that the conventional or ‘consensus’ interpretation of economic processes is profoundly mistaken. This interpretation can be encapsulated in the statement that the economy is ‘a monetary system, capable of infinite growth’.

This, of course, is nonsense, in both particulars. Money is simply a human artefact, lacking intrinsic worth, and commanding value only as a ‘claim’ on the goods and services which constitute the economy. Literally all of these goods and services are products of the use of energy.

The process by which energy is applied to the creation of material prosperity is governed by an equation based on the interrelationship between (a) the aggregate value provided by energy, and (b) the proportion of that value which is consumed in the access process (and is, therefore, not available for any other economic purpose). Just as there are finite resources, not of energy itself but of energy value, so there are limits to the ability of the environment to tolerate some forms of energy use.

If, as is surely obvious, the economy is a material system, based on energy, we can only indulge in self-delusion if we carry on insisting that it’s an immaterial system, based on the human artefact of money. Money itself is worthy of study, whether mathematically or behaviourally, so long as we never confuse the study of money with the study of the economy. The laws and lore of cricket, likewise, may be a rewarding study, but they won’t enable you to understand a game of baseball.

If the economy isn’t, after all, the ‘monetary system, capable of infinite growth’ that it is so widely assumed to be, then two further observations necessarily follow.

The first is that policies based on this false assumption cannot be effective.

The second is that models reflecting this same false assumption cannot work.

The cartographer’s dilemma

These considerations mean that leadership, whether in government or in business, has spent a long time following a wholly false cartography, and continues to do so at a time when a soundly-based understanding of circumstances has become absolutely imperative.

If you were using a mistaken map to traverse an unfamiliar terrain, you would soon start to notice a progressive divergence between the map in your hand and the geographical features in front of your eyes. If you were sufficiently determined to insist that your map was accurate, in the face of accumulating evidence to the contrary, you would have to start inventing some increasingly surreal explanations, along the lines that ‘the river that I’ve just encountered must be a figment of the imagination, or a trick of the light, because it’s not shown on the map!’ 

The divergence between the ‘map’ of conventional economics and the ‘terrain’ of an energy-determined economy has indeed been progressive, because of the way in which the critical energy cost of energy (ECoE) has increased. Back in, say, 1990, when trend ECoE was 2.7%, a failure to incorporate it into interpretation might not be noticed if the accepted margin of error was, for instance, 3%. By 2000, though, with ECoE now at 4.1%, compounding errors had reached a point at which explanations such as ‘normal margin of error’ could no longer suffice.

This example has been chosen advisedly, because the decade between 1990 and 2000 spans the period in which followers of conventional interpretation began to notice – though they could not, of course, explain – a seemingly-baffling phenomenon which they labelled “secular stagnation”. Simply put, the economy of the 1990s started to diverge from expectations because ECoE, the critical factor omitted from those expectations, had now become large enough to matter.   

By the point in the 1990s when the false cartography of conventional interpretation began to take its users seriously off course, economic conditions in the advanced economies of the West were already nearing a critical point.

SEEDS analysis indicates that prior growth in the prosperity of Western economies goes into reverse at ECoEs of between 3.5% and 5.0%. The sixteen-country advanced economies group (AE-16) modelled by SEEDS entered this critical zone in 1995, when their weighted ECoE reached 3.5%, and reached the upward extremity of this range in 2003, at an ECoE of 5%. By then, the prosperity of almost all Western economies was past, at, or very near its downwards inflexion point. Between 1997 and 2007, per capita prosperity in all but one of these sixteen countries turned downwards.

This makes it no coincidence at all that ‘credit adventurism’ – adopted as a ‘false fix’ for the misunderstood onset of “secular stagnation” – was in full swing by 2000. This in turn meant that the global financial crisis (GFC), which hit the economy in 2008-09, had already been hard-wired into the system for at least a decade.

In fact, economic and financial developments had already taken on an internal momentum which has led us to where we are now.

Once the GFC struck, of course, a resort to ‘monetary adventurism’ became a foregone conclusion. This wasn’t so much a case of ‘when things get serious, you have to lie’ as of ‘when things get this bad, you have to crank up the self-delusion’.

As compounding monetary gimmickry has progressed, the economy has taken on increasingly surreal characteristics. These include paying people to borrow (which is what negative real interest rates mean), zombification of much of the corporate sector, and forlorn efforts to operate a ‘capitalist’ system without positive returns on capital. We could, of course, add numerous examples of the economically, the financially and the politically bizarre to this ‘list of the surreal’.

The inner life of figments

Returning to our cartographic analogy, these surreal characteristics are the economic equivalents of the ‘figment of the imagination’ and ‘trick of the light’ excuses adopted by the person determined to explain away the widening divergence between the real terrain in front of him and the false map in whose veracity he is committed to believe.

If you’ve been visiting this site for any length of time, some of the statistical characteristics of this divergence from rationality and reality will be familiar, so a brief recap will suffice.

Between 1999 and 2019, “growth” of 3.5% in world GDP was achieved only by annual borrowing averaging 9.4% of GDP. Each $1 of recorded “growth” was accompanied by $2.70 in net new debt. Stripping out this effect to identify underlying or ‘clean’ output – in SEEDS terminology, C-GDP – reveals that trend growth since 1999 has been only 1.7%, not 3.5%, and that fully 62% ($44tn) of the $72tn of global “growth” recorded since then has been purely cosmetic.

These trends – including the ‘wedge’ driven between GDP and underlying output by the divergence between GDP and debt – are illustrated in the following charts.

Some observers have used the term ‘Ponzi’ to describe these economic trends, though ‘compounding distortion’ might be a more polite way of expressing it. Either way, this sort of progression is entirely dependent on the continuity that alone enables the sleight of hand to deceive the eye.

The real meaning of the coronavirus crisis is that it has severed this all-important continuity.

If we carry on uninterruptedly pouring credit into the economy, and if this activity carries on creating an illusion of “growth”, then we may easily be lulled into an acceptance that what we’re experiencing is “normal”.

We only learn otherwise when, in the old phrase, “the music stops”, which is exactly what has now happened.     

Provided that we’re using energy-based interpretation of the economy – and have freed ourselves from the shackles of mistaken consensus paradigms – then the immediate outlook should be subject to a reasonably high level of visibility.

Critically, a genuine ‘v-shaped recovery’ can’t happen, because you cannot ‘recover’ a situation that didn’t really exist in the first place. The authorities can – and probably will – create a simulacrum of ‘recovery’, by pouring yet more newly-created liquidity into the system. They’re already doing this, of course, by monetising a large proportion of the deficit financing that has been used to support incomes during the first six months or so of the pandemic.

As well as providing support in the form of income replacement, though, governments have also operated policies of deferral, giving interest and rent ‘holidays’ to households and businesses. Though lenders in the United States have been allowed to book non-payments as ‘revenue’ – whilst various jurisdictions have adopted some pretty odd definitions of unemployment, and of rent and debt arrears – nothing can take away the real and extreme strains that these deferral programmes are inflicting on lenders and landlords.

This makes it likely that, probably by early autumn, the need for rescues will force governments into massive interventions, of which the almost inescapable corollary will be the indulgence in monetisation (through money creation) on a gargantuan scale.

Let’s put it like this. If governments were to take away rent and debt ‘holidays’, and to cease supporting the incomes of people idled by the crisis, they would not only inflict grave hardship on huge numbers of people, and destroy very large numbers of businesses, but would also deal a huge blow to demand in the economy.

On the other hand, though, if governments carry on providing this ‘support and deferral’, they will rapidly exhaust the resources of lenders and landlords, forcing the authorities into rescues that would certainly involve enormous levels of government borrowing, and very probably lead to correspondingly enormous exercises in monetisation.

This means that we can be pretty sure that the real test of monetary efficacy – and the corresponding challenge to monetary credibility – is likely to occur in the coming months.  

At the same time, government interventions are supporting demand whilst supply cannot be similarly supported. This implies that the prices of consumer essentials can be expected to rise, with the reverse happening to the prices of non-essential or discretionary purchases. The balance of probability strongly favours inflation over deflation, and the authorities might even be tempted to make a virtue of a necessity, recognising that the ‘soft default’ of inflation is the only way out of existentially dangerous levels of debt accumulated by years of ‘trying to get a quart of economic “growth” out of a pint pot of surplus energy value’.                 

Lost futures, contrarian opportunities?

Returning to the false cartography of mistaken economic interpretation, we find ourselves at a point where governments and businesses alike are planning for a future that isn’t going to happen.

In the words of the song, “the future’s not what it used to be”.

Until now, it’s been widely assumed that we could place unquestioning faith in a never-ending ‘future of more’ – more prosperity, more sales of every kind of service and every sort of gadget, more technology, more profits, more leisure, more flights, more use of energy and, on the downside, more environmental degradation. This delusion probably still governs the thoughts of decision-makers.  

Governments, for instance, are probably continuing to assume that the restoration of some kind of ‘normality’ will rehabilitate revenue streams to prior rates of increase, whereas the reality is that revenue-raising was already starting to exceed the prosperity resources of taxpayers. This is illustrated in the following charts which, in the central diagram, reference taxation in the advanced economies (AE-16) to prosperity, rather than simply to the misleading benchmark of GDP. In 2019, taxation may have accounted for ‘only’ 37% of the GDP of these sixteen countries, but it was already absorbing 50% of their citizens’ aggregate prosperity.

The right-hand chart illustrates how over-estimates of the affordability of taxation are likely to apply a tightening (and a very unpopular) squeeze to disposable, ‘left in your pocket’ prosperity, with adverse implications for anyone providing goods or services which the customer might want, but which he or she doesn’t actually need.

Some of the most cherished policies of many governments and parties, meanwhile, are likely to be pushed aside by a new popular concentration on economic issues, including voters’ concerns about their incomes, the cost of living and their economic security. Neither can we discount the possibility that profound hardship in various parts of the world will set up very large migration flows, something which, if it does happen, is going to have a significant impact on the political dialogue in many Western countries.

What this means is that the strains, not just on governments’ material resources, but upon their resources of judgement and wisdom as well, are going to intensify. Some governments’ escalating fiscal deficits seem already to be well on the way to being matched by competence deficits. It’s no coincidence at all that international tensions and suspicion seem to be increasing, or that some parts of some governments are already proving woefully inept. Political leaders surely need to rise above their preconceptions, and above partisan points-scoring – and doing this is even harder when your economic maps are turning out to be wrong.   

Even in extremis, it’s highly unlikely that governments will undergo a Damascene conversion to an energy-based interpretation of economic reality. To be quite blunt about this, any attempt to persuade them otherwise would probably be a waste of effort, conforming to the proverb which says that “he who washes his ass’s ears wastes both his time and his soap”.

For those of us who understand the energy basis of economics and finance, the wise course of action now seems to involve intellectual and interpretative preparedness; a willingness to put our interpretation at the disposal of those committed to limiting environmental degradation; and keeping a weather eye for the opportunities which fundamental, widely-misunderstood change almost invariably provides.     

132 thoughts on “#179. Penny plain, tuppence coloured

  1. Simply put, we’re up a gum tree without a paddle.

    Also, since the tide has gone out to make room for the financial tsunami heading our way, we can now see that many of those running the show aren’t wearing any swimsuits.

    • Exactly so.

      What I’ve tried to do here is to use the (comparative) calm of August to make a plain statement of the situation in good time ahead of a stormy Autumn.

      I’ve squeezed this in between the main effort of ensuring that SEEDS will be completely responsive in as many respects as possible when we need it.

  2. Marvelous, as usual, Dr. Tim.

    I find it extraordinary that most people I meet, socially and professionally, seem to be entirely unaware – oblivious – of what might come. There is a generation of young people who have only known low interest rates and generally rising stock markets, full employment, and ‘ease of living’. No longer. Suddenly, my young adult family members and those of friends, with high-level degrees, can no longer find employment, and feel rather desperate.

    Add on the severe problems of near-retirees with ‘defined contribution’ pension funds and finding an income, and we do indeed have trouble looming.

    • Thanks Mark.

      On the question of widespread ignorance, we can choose between (a) those in authority don’t actually know, (b) they do know, but are unwilling to tell, or (c) most people, living busy lives, don’t ask until the issue turns critical.

      I don’t comment here on investment, for obvious reasons, but a general proposition might be that genuinely worthwhile real assets are a better choice than cash, if we’re going into ‘full-on print mode’, but that we need to distinguish the genuinely worthwhile wheat from the chaff. Actually, I don’t think that’s as hard to do as it might seem, so long as one thinks strategically and ignores ‘noise’.

  3. For those fortunate enough to have saved money and other assets during the past 1/3 century or so, and who are in or near retirement, financial planning is primary. It is not easy, and there are no sure fire formulae. Diversification is important in my view, in currencies, in some commodities, and in highest quality, short term debt instruments if they pay a positive return. The equity bubble will break eventually. Currently dividends are being paid by many corps. which are attractive, but if they get cut or cancelled…that party is over. Best to stay as conservative as possible.

    • If the companies being considered have low debt, have assets that abet the provision of necessities, are unlikely to become subject to price controls or nationalization, then sure that can make sense.

      I consider 1-3 year sovereign notes paying around .5% as good as cash. Around 3 months ago I began building a position (25%) in (ETF) BWZ to diversify even more out of the $US.

      I’ve had (18%)WIP for longer. That holds inflation adjusted non$US sovereign bonds with longer duration. My view is for another 25% decline in the buck within 3 years.

      around 20% is in 5-8 yr tax free state of MA bonds.

      Have 8% in DBA (edible ag commodities) 13% gold physical given the price rise this year, and 15% cash waiting for any opportunities when TSHTF.

      The two technical systems I trust the most are flashing red for global equities.

  4. Has anyone ever argued that surplus energy is NOT decreasing? I have heard of oil reserves or uranium reserves going up (but what’s the net?), but I have never seen an argument that it takes fewer joules to extract, refine, and distribute a barrel of oil (or even a kwh of electricity) than it did previously. Who is the anti-Tim Morgan?

    • Surplus energy is decreasing, but if wealth = useful energy then we can use this decreased surplus energy more usefully and still be wealthy.

      The Covid crisis has shown many ways in which we can use energy more usefully.

    • There are plenty of anti-Tim Morgans. Tim Worstall of the Adam Smith Institute is a good example:

      “The supply of resources, of the earth’s goods, is indeed limited,” argues Tim Worstall. “But given that value itself is not a physical thing, the amount of value that can be created is not limited by the supply of physical inputs or goods.”


    • Ken, Will, Harry

      The “anti-s”, who happen to be the ones making most of the decisions, don’t claim that ECoE isn’t rising, but that it doesn’t matter.

      My contention is that energy-based interpretation is (a) more logical than “immaterial” explanations of the economy, and (b) is a better fit with the evidence. My self-adopted “project” has been to put the energy-based analysis into the same language – money – in which the debate is conducted.

      There’s nothing to say that we can’t increase well-being whilst surplus energy diminishes – indeed, there’s an argument that rising surplus energy has induced recklessness, wastefulness, inequity and a neglect of non-material values.

      When I look at the real issues – such as environmental and ecological harm, and grinding poverty in much of the “global South” – then I fail to see how the solutions can be non-physical.

    • “Has anyone ever argued that surplus energy is NOT decreasing?”

      The abiotic oil crowd possibly? You don’t hear much from them these days though.

  5. Tim,
    Genius new post, very well done. The cartography metaphor or analogy is very apt

    Mark, while most may not ever understand the basis of our predicament, I think what will become increasingly evident to most is that those in government have no idea what to do about the problems and are incompetent. This in itself may lead to a determination to seize local initiative and leave the national politicos behind.

    • Thanks, Tagio.

      I think you are right and, indeed, has already begun in my small Somerset village with the creation of a ‘localism-driven’ not-for-profit community shop, that was set up last year. The shop has been a godsend in recent months for the village ‘seniors’, and can get ‘essentials’ from local producers (and wholesalers) at prices that compete well with the major stores. There is one employee, everyone else work on a voluntary basis.

      If one thinks and looks, you can find many good things happening (or that should be happening) in villages, towns, suburbs, and city boroughs. Our MP was not interested, but our local councilor was very helpful.

      I also have faith in our bright young things; they have been dealt a terrible hand, but have hope and creativity on their side.

  6. A couple of questions:

    1. I can see the reason for discounting GDP growth due to increasing debt, but if increasing debt is distorting the monetary measurement of GDP, why can’t we just focus on real GDP per capita? Is keeping track of the purchasing power of money harder than “cleaning up” GDP by adjusting for debt issuance?

    2. I can also understand your concern about the effect of taxes on disposable income, but if the tax regime is progressive enough, a lot of those taxes will flow back to the majority of people through income support schemes and subsidized services. Won’t this take the sting out of increased taxes? Perhaps you think that tax schedules will not be progressive enough to get acquiescence from most people, that the top 10% will keep themselves protected from tax?

    • The top 10% already pay 75% of the taxes. There is only so much more you can get them to pay. If you make over 200k you are in the top 10% of income earners. A lot of these people are burdened with enormous debt to support their lifestyle. They also support industries that employee lower wage workers. If you reduce their spending money, those industries also suffer.

      You can try stuff like wealth tax. I believe California is going to try that. But its just more burden on the system. It doesn’t create real wealth, which comes from using surplus energy.

    • Even if a wise state does pay for all of their needs, people are still keenly aware of how much disposable, “left in your pocket” prosperity they have, and how that amount changes over time.

      As prosperity decreases, there are arguments for “the state should spend less”, and also for “make the rich pay more”. I think there are going to be increasing public demands for redistribution, but this is a prediction of a political trend, not an endorsement of it. I don’t take sides on this, but I do think that governments need to recognise that resources available to them are going to decrease. If, as I contend, GDP is a false metric, then keeping taxes “at a constant share of GDP” doesn’t mean that the burden on taxpayers isn’t increasing.

  7. We do not live reality. For a long long time. So, we cannot cope with anything that threatens our way of life. Our way of life is fake, from the top to the bottom. We seem to need more fake actions to prevent reality knocking on our doors.

    Eventually we all have to sit down at the table of consequences.

    Until then, the mass production of aspirine from Chine will be kept in place, dear readers.

  8. Tim, your third AE-16 chart has a “disposable prosperity” triangle. Ostensibly that’s showing the net between the two lines, but it ends in a point (0), whereas the lines indicate there’s still plenty of disposable prosperity.

    Probably a nit, but just making sure I’m not missing something.

    • My intention there was to show an arrow pointing towards decrease – I should probably have used a narrowing oblong, which was in fact used in an earlier version of that chart.

  9. Couple of Items of Interest from Charles Hugh Smith
    Charles writes a weekly note to his subscribers. While I could copy it verbatim and post it, I do respect the need for people who aren’t rich to get paid for their work. But I will summarize, so you can judge whether it is worth your own money to read it for yourself.

    First up is a link to a paper from Wall Street (literally) which looks like the Peak Oil papers that were appearing 20 years ago. Here is the link to that publicly available paper:

    Click to access 2020.02%20Goehring%20&%20Rozencwajg%20Market%20Commentary.pdf

    The gist of it is that the Shale Miracle is over and production will decline sharply in the US (and, presumably, will not grow markedly in other countries).

    Second is Charles own description of the current situation that the US Federal Reserve finds itself in:
    Staring Down Financial Collapse: Who Gets Saved and Who Gets Culled?

    The gist of it is that some interests are going to have to be sacrificed. Charles thinks that the Fed will choose higher interest rates. This is a carefully reasoned argument…but of course, anything is possible at this point, since he is trying to predict the decisions of fallible humans under pressure.

    One interesting point to contemplate is that the intersection of sharp declines in US oil and gas production will presumably lead to larger US trade and fiscal deficits and could imperil dollar imperialism. The Wall Street paper is based on the premise that the Emerging Economies are where the action is in terms of oil and gas consumption, which might push the US and other OECD countries down the prosperity chain rather rapidly. (China in particular is currently buying a great deal of oil and gas.). The audience for this blog is over-represented by people lamenting the sad state of Britain…and the US might very rapidly begin the look like Britain…a post industrial country with sharply declining sources of energy.

    The Wall Street model is a ’neural network’ which is based on how brains operate, but requires some faith that the results are reasonable because one can’t really tinker with the details. It is now possible to get articles published in Nature using opaque Artificial Intelligence models. These methods contrast with the more traditional methods of David Hughes.

    Don Stewart

    • The consensus long-term view – shortly before the Wuhan crisis, but I doubt if it’s changed much – is that, by 2040 compared with now, we’ll be using 10-12% more oil, 30-32% more gas, and the same amount of coal. That view incorporates significant growth in renewables, and concedes that annual emissions of CO2 will rise from 33 bn tonnes now to 38 bn tonnes by 2040. This is all part of the ‘75% more vehicles, 90% more flights, lots more gadgets, much more automation, a lot more everything’ narrative.

      With energy, it seems to me that the experts start with an external, consensus view of how big the economy is going to be in, say, 2040, then work out how much energy an economy of that size is going to need. My method, of course, is to reverse this, looking first at how much energy we’re likely to have, and only then at what size economy that can support.

      The SEEDS energy scenario sees energy supply roughly flat over the next twenty years or so, with decreases in FF supply largely offsetting growth in RE.

  10. Rising ECoE, energy cost of energy, is a primary assumption here. Most of us are led to believe we’ll discover a huge new low cost energy store, just like we did a lifetime ago after WW2. But we now discover year by year less and less new energy stores than we use – our increasing efficiencies do not make up for our continuing growth of material/energy consumption. This means we are running down our stores. What’s more they’re proving more and more expensive to get out of the ground.
    We promise ourselves energy in the future through our pensions and debt. Tim points to the mismatch between the reality and the promises or ‘maps’ that guide our thinking.
    Imagine a ten month trip to Mars and starting to eat extra rations in the second month because someone suggests there’s bound to be a way of coming back faster later.
    Tim’s just saying this is a bad idea.

    • Thanks, well put.

      The latest version of SEEDS tracks the efficiency with which we generate economic value from each unit of energy over time. Also, of course, we can look at the rate at which ECoEs are rising.

      One could almost animate this as two race-horses – the ‘efficiency’ horse plodding along very slowly, the ‘rising ECoE’ horse going at a fast canter.

      Perhaps this is why we keep hearing about ‘immaterial’ value – because the material version is heading in the wrong direction?

  11. ” I do think that governments need to recognise that resources available to them are going to decrease.”

    Dave Pollard on what to do when you can’t keep doing what you want to do:

    I learned a method very similar to this about 40 years ago. At that time, we used reams of easel paper and markers and sometimes breaking up into discussion groups and so forth. Just as Dave suggests today, we always started with the negatives:
    *The US production of oil will decline sharply and we will be forced to import it. Cars will be scarce.
    *There will be tremendous pressure on the fiscal and trade deficits
    *The US will likely lose the reserve currency Gift from the Gods
    *US military power around the world will decline

    It is only when people have the negatives out in the open that they can do a little bit of grieving (about 10 minutes worth along with a coffee break) and then begin to work on what the potentials are. When the group begins to work on the potentials, it is important not to try to achieve that with a group of Alpha Males…who will just go to war with each other. Exactly how one achieves the diversity required depends on the circumstances.

    There are ALWAYS potentials, but they cannot even be considered without the first steps of calmly analyzing why we are feeling pain and why we can’t keep on keeping on. I learned this an an ‘executive’. I always made a decision in the end, but my decisions were a lot better than I could have come up with by just ruminating about them, and I almost always got buy-in because everyone had contributed and they knew my head was on the chopping block if things went badly. I don’t see how US democracy can behave in this fashion. In the olden days, when everyone realized that we were a republic, a congressperson could come back to his district and say “after deliberation this is the best we can do”. Nowadays, the only acceptable message is something like “here is the Pork that you sent me to Washington to bring back”.

    Don Stewart

  12. One more thing
    I was visiting with a retired government official a few days ago. We were talking about the Virus in the US. I lamented that Fauci and the other government ‘experts’ have not told people the truth. The response I got was ‘one has to give the public the information in very small doses’.

    I recoil in horror when government people think that way. The public should always be told the unvarnished truth (IMHO). It may be necessary (and usually will be) that the implementation will be in stages, but the end result should always be clear to all.
    Don Stewart

  13. Dean Tim,

    Thank you for the vivid description of being « between a rock and a hard place ».

    But all things not being equal among countries, surely some are better positioned than others on the net energy cliff.

    Hence, a comparative analysis might prove to be a useful tool to anticipate the future.

    Best regards,


    • You are welcome.

      Where countries are on the energy cliff is something that SEEDS does indeed identify. There are other factors to be taken into account as well, including financial exposure, political issues and so on.

      SEEDS has a ‘risk matrix’ that includes credit dependency, debt and financial system exposure (both calibrated against prosperity), and the deterioration in per capita prosperity as an indicator of public discontent. Amongst the 16 advanced economies on the system, the last time I looked at the matrix the most at-risk were Ireland, Britain and Holland, in that order.

      I’m getting quite concerned about the rate of deterioration in a number of emerging economies – SEEDS paints a very dark picture for some of them, including South Africa, Brazil and Turkey.

      I’m going to see if I can find a way of presenting some of this case-by-case information.

  14. My view from the early1970s:
    50,000 years up to 1760 – not much to write about.
    1760 to 2010ish – a one-off, fossil-fuelled binge.
    2010 for another 50,000 years – not much to write about.

    Of the people I knew of my own age, who worked in this field (long-range planning for HMG) in the late ’60s some drunk themselves to death, were sectioned or committed suicide and on reflection, it is not too difficult to see why. 50 years later it is easy to see we were all suffering from massive cognitive dissonance. The Physics/Geology said economic collapse within 40 years and yet to fit into the world around us (get married/get a mortgage/have kids/expect a pension etc) we were being asked to ignore that which was staring us in the face.
    None of us had access to the concept of the zeitgeist, the (unspoken) spirit of the age, and that in fact there was no way in hell that anyone would listen to a bunch of young engineers. As we go into what looks like a very long, dark, bleak winter here in the UK, and all sorts of explanations and solutions are being offered, try to remember that it’s the zeitgeist that is to blame and that all of the explanations and solutions are of course a product of the said zeitgeist (how could they be anything other?) and so can do no more than kick the can down the road for perhaps no longer than a few more months.
    Will another civilization be along shortly? Well no, they are not like London buses, they don’t come in threes so no, not for a long time.

    Of course, most folks think of engineers in terms of fixing their washing machines so what on earth can I possibly know?

    • Most people alive today have not known anything but expansion, growth and “progress”. Add in that the educational system is set up for pupils to “reach goals”, and that no schools teach subjects that would lead to people get a true understanding of their basic human psychology (accumulate resources, procreate). Even in the psychology/psychiatric field you rather learn how to inspect other people’s minds, not your own.

      Perhaps after a great prolonged calamity, the zeitgeist will change. But even then, you are facing an uphill battle of changing the basic instincts of life itself. Personally I try to enjoy as much beer and wine as I can, and work less than full time. I have stocked up books and firewood in case the internet/grid becomes unstable.

    • Indeed so. If you look at the life of, say, an animal or a bird, it’s a balance between the energy that it gets from its food and the energy that it expends obtaining that food.

      The fact that we’ve known only “growth” (give or take temporary reversals) applies to all of us. The majority seems to take it for granted that growth will continue in perpetuity. Some of us know why this is unlikely, but even we can only do our best to anticipate how things might develop from here, and especially whether to expect gradual decline or some sort of rapid slump.

      Stocking up on books and firewood makes sense, certainly more so than acquiring a bunker.

  15. Is there anyone on the forum who can explain why, in the 1930s, the South Wales coalfields had an abundance of energy in the form of coal but was nevertheless pushed into a severe economic depression.

    The depression not only affected South Wales but became a worldwide issue.

    There seemed to be an abundance of energy but a strangled economy!

    • Energy does not in and of itself create prosperity or value it is its application. Here at home I have access to energy in various forms: gas, electricity, wood in the garden, solar power and so on. Reselling that energy might create value especially if I had enough solar panels or wood but if I were to use the energy to power something then potentially the ‘return’ could be much greater. This is where the SEEDS model (as I understand it) seems to not fully reflect added intellectual value. So if I use a modestly small amount of power to run a laptop but say write a best selling novel or trade successfully on the stock market I might potentially create significant value and prosperity. Of course if I simply idle on line writing comments on blogs then I am simply using power both electrical and intellectual but creating no value.

    • It’s definitely the case that energy value can be used wisely or unwisely, and it might, indeed, be the case that past abundance has resulted in a habit of profligacy that we might now need to break.

      On your two examples, trading the market successfully may make money for you, but it’s doubtful if it adds value to the economy. The best-selling novel does add value. However, if general prosperity in the economy deteriorates (as modelled by SEEDS), then the numbers willing and able to buy that novel, and/or the price that can be asked for it, might decrease.

      We’re working with a very subjective or haphazard pricing system within the economy, which is also incorporated into calibrations of GDP. Parts of the economy are priced residually, i.e. ‘they’re what we spend our remaining money on, after we’ve paid for the essentials‘. As the costs of essentials rise, then the amount of value that we have left for residuals is likely to diminish.

      This is a fascinating topic, and one that I’ve often thought of writing about. Some might think it’s esoteric, or theoretical, but in fact it’s critical to an interpretative and predictive process.

    • My answer would be that while economic decline can be caused by other things than lack of energy, lack of energy will always cause economic decline.

      An example is the current pandemic. It caused a sudden drop in economic activity that had nothing to do with energy supply, in fact energy supplies became glutted with surplus because of the economic disruption and energy prices collapsed due to the glut.

      But, ceteris paribus (one of economists’ favorite terms), as net energy availability declines, so must economic activity. Thus the difficulty in returning growth rates to those of the past when the ECOE was siphoning off less of energy resources extracted. And as the energy sector gets proportionally bigger and bigger to compensate for increasing ECOE, others sectors of the economy are likely to suffer.

    • My response would be simple: a reduction or temporary inaccessibility of surplus energy is a factor sufficient to cause economic problems but is not necessary for economic problems to occur.

      There are other factors which, on their own could cause economic decline but a constraint/reduction in surplus energy will cause economic decline without the need for any additional independent factors.

    • As I see it, the deterioration in surplus energy is the context now, much as its prior increase used to be the context for growth. Collectively, we can act wisely or foolishly within the context, reminding me of the coach who once said that his team “snatched defeat from the jaws of victory”.

      If I may venture to put it this way, what’s so different about our discussions here is that we both recognise and calibrate this dynamic.

  16. Hi Tim,

    I’m looking at historic charts for gas, electricity and oil prices.

    The current price that producers are getting for their product can’t be covering their costs of investment to produce future supplies? Am I wrong?

    This is not just about the “cost” of energy but about the “price” of energy.

    My understanding of economics always told me that suppliers would not supply at less than replacement cost. I find the education that the state was so proud of putting into my head all those year ago has ill equipped me for the here and now and the future. Thanks you for helping!

    • You’re not wrong there!

      An effective price must be high enough to cover producers’ costs, but low enough to be affordable for consumers. Provided that the latter is higher than the former, the customer gets satisfactory value and the producer covers operating costs and earns a sufficient return on invested capital.

      As consumer prosperity has decreased and trend ECoEs have increased, this equation has reversed. This is why investment has slumped and so many producers are in deep trouble.

      Logically, this reduces future supply. That’s why SEEDS no longer uses consensus energy supply projections (which show signifcant future growth), but a SEEDS-specific scenario showing only very modest future supply increases.

    • ladydog70,
      A “producer” will typically produce, or rather extract, if the market price is higher than their variable cost. They need that cash flow. Sometimes it makes sense to produce even if the production cost is less than the market price as there can be additional costs with shutting down the flow and restarting. This is only sustainable in the short term.
      During the last decade the situation has been absurd. Fracking in particular. The sector has continued to produce and invest in new capacity although it has continued to make a loss. External funding enabled this and Sr Mgm aimed at growth above all. Perhaps because some had bonuses based on growth rather than financial performance. If the external funding has indeed dried up as some claim then it will be very difficult for oil supply to match pre-corona levels in the future. Depletion is as rusts, it never sleeps.

  17. Sorry to come back again Tim, but I want to be clear about one point.

    You say, “but a SEEDS-specific scenario showing only very modest future supply increases.”

    IF the cost of securing future supply is more that the customer is paying for current supply where is the “market” signal to a producer to expend capital to produce that future supply? Or to the source of the suppliers capital to lend?

    I understand the argument for low rates on capital, but if I have to spend £1 to (possibly) get 90p in 5 or 10 years I’m not going to do that even if I’m only going to have to pay back £1 to the lender.

    IF the cost of securing future supply is more that the customer is paying for current supply where is the “market” signal to a producer to expend capital to produce that future supply?

    Is it then the case that investment in future gas, electricity or oil supply is still producing a positive return on investment at current market prices?

    • To be slightly more specific, the most recent consensus projections for oil supply – published shortly before the virus crisis, but probably still in place now – was that supply would be about 11.3% higher in 2040 than it was in 2019. The SEEDS projection shows oil supply 11% lower in 2040.

      Oil operations vary considerably in terms of characteristics and costs. Rates of decline in conventional supply – that’s excluding shales, etc, and also excluding OPEC – are about 7.5% per year, meaning that’s the decline that would happen if all new development stopped. Some new development will continue, but not enough to prevent a fall in supply, and certainly not enough to increase supply by 11% out to 2040.

      A reasonable question would be ‘why, if SEEDS can see this, does the consensus not see it?’ The probable answer is that the consensus sources start with an assumed size of the economy in 2040, and only then make an energy projection to fit it. The economists’ consensus was (and probsably remains) that the real size of the economy in 2040 will be 80-110% bigger than in 2019. I further think that, having established an aggregate supply number for, say, 2040, they then deduct realistic estimates for renewables, hydro and nuclear, and this establishes the requirement for fossil fuels. Additionally, the consensus view of 2040 is that we will have c75% more vehicles on the world’s roads, and take c90% more passenger flights, and this has a bearing on projected requirements for liquid fuels.

      Until recently, SEEDS used to use, pretty much, the consensus volume projections. But these have lost a lot of credibiity, which is why SEEDS now uses its own – lower – forward projections.

  18. Parsing the current indications of economy and energy
    I was talking with one of my daughters yesterday and she was lamenting the state of the economy where she is. She reports increasing desperation on the part of many people. Government seems hamstrung by lack of money to do anything about it. (In the US)

    “Wood Mackenzie expects China’s oil consumption in the second half to grow 2.3% to 13.6 million barrels per day (bpd) from the same period last year, driven by increased transportation and industrial use. … “China has led the demand recovery path so far.”

    Meanwhile, Exxon-Mobil has idled one of the two gasoline producing units in Baton Rouge, LA, for lack of demand. And shale oil production in the US is tanking at a rate of 35 percent per year.

    China has now reported 7 consecutive days with no new virus cases from domestic transmission. Cases in the US are down some, but everyone is still edgy. The number of W-2 forms (tax forms reporting wages) are down in the US, indicating huge job losses. Las Vegas is simultaneously experiencing a collapse in the tourist-based economy and a boom in house sales, with a very hot market rising to new peaks in prices.

    It’s hard for me to string together a coherent story about what we see happening. Are we simply seeing the return of the ‘Chinese Century’ scenario? Is China in a blow-off of their decades long bull market which will end in tears before the end of the year? Has the dysfunctional US social and political and economic system finally imploded (did Dmitry get out just in the nick of time)? Is the Las Vegas housing market merely an indicator of the power of cheap money to fuel anything the Fed want to fuel? Why is everyone in Britain so negative? Why is the best explanation for Covid-19 responses that governments simply copy each other as a means of CYA? Why do the Democrats think that RT Television interviewing the Green candidate (Jill Stein) is a subversive activity sorely in need of government intervention? Why is Trump allowed to bellow and bluster about absentee ballots when the real issue is the fact that it would erase the last decade’s Republican successes in voter suppression and make his re-election less likely? Is everyone (except me) crazy?

    Don Stewart

    • If ALL new investment stopped, including no new hook-ups of completed wells, US shale output would decline at a rate of 50%. My long-standing view is that it may be – or may be thought to be – in the US national interest to subsidise shale production.

    • Dr. Morgan
      A particular energy source can only be subsidized by another energy source**. With coal and gas in decline, and renewables (except for the fully developed hydro) and nuclear being dicey, where would the subsidy come from?

      **I do agree that the US dollar as a reserve currency upsets the purely energy picture. So long as the dollar is the reserve currency, we can print our way to shale prosperity on the backs of the rest of the world.

      If continuation of the US dollar hegemony is the goal of our foreign policy, then should we use force (e.g., put military forces everywhere) or persuasion (e.g., Belt and Road)? So far, we strongly favor the former. Economic cooperation with the South is heavily weighted to the benefit of US corporations. There is not much reciprocity at work.

      Don Stewart

  19. @Dr. Morgan
    One addendum to previous comment. The other alternative for the US is to embrace Degrowth in targeted industries such that the ability of the economy to function with higher ECoEs is achieved. The obstacles to that are evident when we examine the Biden/ Sanders relationship. Biden agreed to put into his platform a provision for a Government Option. But privately, his lieutenants are telling the insurance and pharmaceutical industries that he has their back and won’t permit anything which threatens them. So we will likely get something cosmetic if Biden wins and Democrats control both House and Senate. Our cost structure will remain one which is tenable only in a very low ECoE environment.

    Don Stewart

  20. ‘True’ ‘growth’ is ?
    “ . . . and be able to present higher economic growth (GDP)  figures They have had some success with the latter as replacing the RPI with the CPI in the GDP calculations has raised annual growth estimates by up to 0.5% according to the statistician Dr. Mark Courtney. “

    • Growth numbers are calibrated using the broad-basis ‘GDP deflator’, but the basic principle is correct, i.e. understating inflation increases apparent “growth”. It also affects – adversely – those with inflation-linked incomes, such as welfare payments.

  21. People have been well trained to focus on “growth” as a proxy for improvement of the human condition, as in ” a rising tide lifts all boats.” Like the American concept of the “frontier,” it’s a great distraction sidestepping ever having to address (i) inequality and the fact that laws create and sustain the wealthy, and (ii) the caste system. Focusing on growth has always been a bad idea, and its proponents are at best naive tools of the system. The focus should always have been on well-being directly, not this twisted proxy.

    Now that degrowth is in the cards, my guess is that the masses are likely to get the middle finger, along with far more powerful penal mechanisms and tools of social control.

    Regarding oil supplies, my guess is that TPTB intend to crush demand for fossil fuels to extend the benefits of the remaining supplies for the people that matter. The pandemic is a positive fountainhead for crushing small businesses (about 40% of U.S. economy, I’ve read), especially the services sector (leaving beloved asset values intact), crushing non-essential businesses like higher education, travel and health care for all (returning them to the province of the wealthy, where they were before), crushing discretionary spending among the middle and lower-middle classes (accustoming them to the world to come), and pauperizing tens of millions more. Yeah, small landlords and others who aren’t big enough for bailouts will be wiped out, but Blackrock is ready to swoop in and buy those properties up for pennies on the dollar. I’d love to see estimates of how much FF a drastic decline in the standard of living of a few hundred million of Americans and Europeans will save.

    It also unleashes massive deflationary pressure to offset the massive money printing and bailouts going on, thereby “preserving the value” of the dollar.

    Meanwhile, here in U.S. politics, apparently this year’s presidential election is an episode of Star Wars, with Joe Biden literally claiming he is fighting against the forces of Darkness, and imploring the voters to turn out to defeat the forces of Darkness. You can’t make this s**t up. Really, its so hard to feel upset for the U.S; there’s nothing to mourn. It so deserves what is coming. It has worked long and hard for this, and it is going to get it.

    • Agreed, tagio,
      C 19 is the shepherd dog driving us sheep to the brink!
      How to leave the herd, how to opt out?

    • The question might be ‘do we try to (or can we?) leave the herd, or do we try to influence it?’

      Some time ago I wrote up, though I didn’t publish, the theme of buying a bunker (assuming you had $3-$5m of spare money). It doesn’t work. In fact, it’s nuts. If that doesn’t work, neither will stocking up on tinned food, bottled water or ammunition. I know of a few places that might be ‘safe havens’, but very few could get there.

      So to that extent I think we’re “in this together” – as the Bard put it, “no man is an island”. We can leave the herd mentally – adopt different, more rational and more constructive thinking, and build preparedness that way – but I don’t see how we can leave the herd in a physical sense.

    • Simple, don’t ware a mask (face diaper). I say I have special exemption and if challenged I say I have mental health issues. They tend to jump back a bit and I am never bothered again!

      UK government guidance clearly states that people with mental health issues are exempt – I carry the printout!

  22. Tim, what does “world debt” really mean? I can see one country’s debt vs. another’s mattering, but at the “world” level, isn’t it all just a game?

    At the end of the day, all these systems are just supposed to get humans moving to dig things out of the ground, grow food, and make stuff. However you can motivate that.

    • Trust me, it matters!

      One person’s debt is another’s asset, for a start. Ultimately, the only way around that is to create new money. We’re often told that debt, or money creation, ‘doesn’t matter’, but then we’re also told that resources somehow don’t matter either….

      Fundamentally, yes, the important part is goods and services, not money and credit. Since our monetary systems are human artefacts, we could create replacements if they failed. But can you even begin to imagine the chaos that monetary failure would cause?

    • Since money is not real it’s easy to think that it is just a “game” and that it can be replaced at will with other organizing mechanisms for production of real goods and services. But it’s important to remember that the global market economy, which produces and distributes most of what people in modern cities depend on for their lives, is not under anyone’s control. It is an emergent phenomenon, the uncontrolled result of billions of separate and voluntary daily economic interactions, almost all of which are mediated by money.

      If all money disappeared, it’s true that nothing physical is destroyed. It’s therefore easy to think that since all of the physical equipment required to keep goods and services flowing still exist, it would simply be a matter of continuing their use. But how? What will provide the guidance to those who extract, transform and distribute the stuff that keeps us alive? Will it be by cooperative agreement between economic actors or perhaps by government command? Will international agreement quickly replace monetary exchange in order to keep oil and other energy supplies flowing to the places that need them?

      I think it is impossible to answer these questions affirmatively. Even if there were universal willingness to do so, I doubt that mutual agreement could replace the exchange of money in coordinating economic activities. And how likely is it, really, that we could implement the aspiration of a certain soft drink company “to teach the world to sing in perfect harmony”?

      The global financial system is as essential to economic function as air is to obtaining oxygen. It can withstand a lot of wear and tear because there are tremendous incentives to keep it as functional as possible. Destroy it and cities all over the world will begin to die within days.

    • For as long as man has been around, the beginning of trading starts with credit (not barter). Credit is the life blood of an economy; without it the system stops dead as in 2008, when LCs ceased to operate and all trade stopped for several hours and Hank panicked.

      Page 77 extract from my book:
      “Public and private debt is merely one aspect of the distortions apparent in all
      economies throughout the world today. There are many other features associated with
      government fiscal management when combined with the nefarious activities of global
      financial institutions. I promised not to dwell on the causes of the global financial
      crisis of 2008 but it might be helpful to gain some understanding of how one key
      individual sees potential solutions unfolding in order to prevent another meltdown.
      Henry Merritt “Hank” Paulson, Jr. (born March 28, 1946) is an American
      banker who served as the 74th United States Secretary of the Treasury. He had served
      as the Chairman and Chief Executive Officer of Goldman Sachs, and is now chairman
      of the Paulson Institute, which he founded in 2011 to promote sustainable economic
      growth and a cleaner environment around the world, with an initial focus on the
      United States and China. Hank’s book: “On the Brink” describes his experiences as
      Treasury Secretary when he managed a team of experts handling the financial
      meltdown during 2007-08. He writes of the lessons he learned and noted some
      observations critical of the current financial system, especially of that used in the
      USA. Since he left the Treasury he had been approached by people eager to hear
      about his experiences and two questions often appeared: “What was it like to live
      through the crisis?” and “What lessons did he learn that could help us avoid a
      similar calamity in future?” He hopes that the first one is answered by reading his
      book and goes on to list some lessons, although complex, he narrowed them down to
      just four crucial ones:” Read on.

  23. “The SEEDS projection shows oil supply 11% lower in 2040.”

    Truly, that would be a fantastically positive outcome given where we are now and the ongoing deterioration in capability to extract.

    Exxon is going to the wall. Valaris, the biggest offshore rig company in the world just declared bankruptcy. Saudi oil revenue is down 45%. Etc etc.

    • My forward projections – oil down 11% by 2040, total primary energy supply very slightly higher, and so on – might be on the over-sanguine side – but where on earth does that leave the ‘offical’ or ‘consensus’ line?

  24. An excellent article thank you Tim – I much appreciate the thought and effort you put into your writings. It all makes so much sense and of course you kindly contributed the ‘Epilogue’ supplement in my recent book which is now available in print as well as a free PDF.

    Your book in 2013, “Life after Growth” was indeed prescient and your forecast of an energy cliff, even in those early days, have proven correct in magnitude and timing – quite remarkable and a credit to the veracity of your current work.

    I am pleased to say that my weekly “Letters from Great Britain” to my American readers are going very well and I publish my Letters and my self-published book here:

    • Thanks Peter, you are most kind.

      The thing that writing the book impressed on me was that we needed a new model, based on the understanding that the economy is an energy system, but capable of expressing its results financially (because if results were expressed in BTUs or joules, they’d simply be ignored).

      I’ve been criticised for being over-cautious, and I make no apology for not running around proclaiming ‘it’s the end of the world!’. ‘Muddling through’ can work, but not well, and not indefinitely.

      This said, everything I’m hearing at the moment suggests that this Autumn could be very nasty indeed. That’s why it’s great to have SEEDS fully ready, which I really think could be a hugely useful tool and benchmark when other methods of interpretation fail, as logically they will.

      We’re already in a situation of smoke and mirrors – for instance, US second quarter GDP fell by ‘only’ 9.5% year-on-year, but that ‘relatively good’ number included fiscal stimulus of 40% of GDP, itself duly monetised. Now, industries that have been clinging on by their fingertips are pleading for help (and, with or without it, many will fail). Furlough schemes are stretching government finances to breaking-point. Lenders and landlords are put at grave risk by rent and debt payment ‘holidays’. Real, physical economic capacity is being lost.

      I’m not a ‘doomer’, but things are getting to look very unstable, so my task now – on which any thoughts are welcome – is to work out how best to use SEEDS in the coming months.

    • Thanks Tim, you have made your position very clear and I fully agree with your assessment. This is why I have been battling with Gerry and his QB proposal. I am sure there is something in it somewhere when we can bring the two together as a potential solution: your SEEDs and Gerry’s QB suitably modified.

      Unfortunately my book doesn’t offer any solution but it does point the way because, if we can understand how the present system malfunctions, it just might hint at a solution. It is a great pleasure working together like this and thank you so much for your support.

      Best wishes

  25. Dmitry Orlov Interview (behind his paywall…which starts at one dollar per month)
    It’s a good interview with some thoughts about Degrowth, but I will only point to the clearest explanation of the Russian Covid-19 vaccine that I have seen:
    “And the payload is a little bit of the coronavirus genome that’s been chopped out specifically. It’s the bit that generates the spike protein that allows the virus to penetrate human cells. And so the adenovirus is introduced into the body, penetrates cells and releases its payload. The cells then produce the protein—at this point it doesn’t have very much to do with the coronavirus itself except for this one spike protein. That protein then reacts with the immune system and antibodies are generated, which is the end result of the whole process. And since the adenovirus lacks the ability to replicate, it just gets flushed out of the system. So the only new ingredient is the spike protein. It’s not toxic on its own; it doesn’t do anything on its own, really, except trigger an immune response, because the body doesn’t recognize it, which is what it has to do. So that’s the reason that the Russians were able to do this so quickly, and so successfully. Because it’s basically reuse of an existing technique with a slight modification. ”

    If it is this simple (antibodies triggered by the spike protein), then it seems that the elimination of all viruses using spike proteins is at hand. We don’t have to worry about mutations.
    Don Stewart

    • This site is, most emphatically, NOT about medicine, biology and kindred subjects. On vaccines, though:

      – They only work if nobody can get re-infected

      – They require public trust

      – They can be hazardous if they over-stimulate immune responses – indeed, much of the harm caused by the Wuhan coronavirus seems to be caused by over-active immune responses.

    • @Dr. Morgan
      Agreed. However, to the extent that it is a virus which is behind the current economic malaise (and there are obviously other things such as debt saturation and rising ECoE at work), a slight modification to a well-established vaccine seems like a winner. I think the future looks different if we assume a vaccine in the near term, than if we assume that COVID is with us forever, even if the vaccine has to be renewed frequently.
      Don Stewart

  26. This article fleshes out a convincing if undeniably ugly picture of the future of work for many in what it calls the looming ‘digital neo-feudalism’; it’s a short step after all from companies finding out the massive savings made in having people working from home to having non-site staff permanently do piecework for them, as opposed to being direct employees with stable rights to depend on.


    Scaled up, this will destroy the office worker transport support employment structures, adding to the retail and commercial property bubble collapses. These dominoes will fall after shale seems to be finally biting the dust judging from the number of US bankruptcies in the hydrocarbon sector.

    • Indeed. If one company reduces wages, it can increase profitability – but if they all do it, demand is reduced and, with it, sales of their products and services. The low-wage ‘ideal’ (as some see it) is contradicted by the facts – if low wages were a route to prosperity, Germany would be poorer than Ghana, and Swaziland more prosperous than Switzerland.

  27. Tim, thank you for another great post. I have been following this site for a couple of years now and your explanation of the relationship between energy and money have been priceless.

    A question remains to which I find no answer here or anywhere else. How does the promised inflation actually occur?

    As I see it, the primary mechanism for transfer of money to an indivdual takes the form of employment. That is a private company generating profits and in the process requiring labour which requires compensation, a percentage of the generated profits. Post 2008 and particularly now after C19, the shutdown response has accelerated the disfunction of the private company to generate those profits. They have responded by trimming labour and thus breaking the transmission chain en mass.

    I work in technology, my role focuses of efficiency improvements and cost reduction which invariably means headcount, replaced by system integration. In the abcense of employment, consumers have naturally pulled back discretionary spending. This is reflected in M2V dropping off a cliff, without which broad inflation excluding essentials, cannot attain critical mass.

    Apologies for a long first post.

    • Interesting comment, Himura. Your business model gives labour the crumbs from the company’s ability to garner surplus from the application of technology to materials using energy. A true reflection of the energy intensity of our lives, our every human move supported by 20 odd energy slaves!
      Inflation helps us price in depreciation of technology and the remorselessly increasing extraction costs of material and energy. As C19 deflates the economy, we see how necessary and efficient this was, and are left to watch, relatively powerless, as the system struggles to find new coherence.

  28. Himura, welcome.

    It’s a good question for Tim. Perhaps inflation in costs / prices can occur but, as you say, this does not automatically translate into inflation in wages.

    I have often thought that the claim that CBs can inflate debt away is fatuous. Debt is easier to pay with inflated dollars only if you receive inflated dollars with which to pay it. Wage increases are anathema to companies, and will be more so in an environment of rising ECoE.

    Consumers retire both their own debts and the debts of companies by paying companies for their goods/services. Consumers obtain their income from wages, so if wages don’t increase, how can they retire the debts of themselves or of companies with inflated dollars? I don’t get it. Neither they nor the companies that depend on them to buy their inflated cost products and services will be able to more easily retire debts. Seems to me that inflation is not a real option for dealing with the debt overload. Seems like more mindless happy talk by the CBs. Maybe hyperinflation leading to a currency reset/revaluation?

    • There are a lot of moving parts in this equation. Increasing monetary claims at a time when real output is falling ought to be inflationary. But recessions are deflationary – and a wild card in the deck is monetary ‘value destruction’, typified by defaults.

      Right now I’m trying to assemble as many of these parts as possible, using SEEDS as a ‘real value benchmark’ against which these components can be referenced. There are going to be real capacity losses, and some sectors will shrink, or disappear, whilst opportunities exist for others. The complexity of the situation is such that the division into ‘winners’ and ‘losers’ is complex, and is unlikely to be what equity markets currently think it’s going to be.

    • Precisely!

      Looking at the way the bailouts/printing has been distributed, in terms of schemes created to access this money, none of them incentivise wage increases or additional employment. In fact it seems that debt is being encouraged to the point of exhaustion with no roadmap on how it is to be retired.

      As Tim has clearly explained, these debts cannot be forgiven without the complete destruction of the entire financial system.
      So it would appear that we are being encouraged to take on debt, where a small increase in interest rates would result in defacto debt serfdom through unplayable but never defaulted debt.

      This could very well be the way the rising ECOE issue is addressed, the middle class wiped out and the govt slowly pulling energy intensive activities out of the reach of the majority.

      Thank you all for the warm welcome

    • Thanks, Himura, and welcome to the site.

      It’s interesting to note that Fed chairman Jerome Powell has mused on the subject of higher inflation. This, in itself, is no great surprise, but his thinking seems instructive.

      It appears that Mr Powell accepts that 0% is the effective minimum for nominal rates. The problem, apparently, is that an inflation target of 2% limits the scope for negative real rates to ‘only’ -2%. If inflation can be pushed higher, the scope for negative real rates increases.

      There are all kinds of technical issues around this, which we can no doubt discuss here. But let’s look at the implications. These are that ‘an ability to increase negative real rates is desirable’. But does this make sense?

      This is where we need to remind ourselves that negative real rates amount to paying people to borrow – and is doing even more of this somehow a sustainable or even a sane way to behave?

      Might we just have to accept that there are limits to the potential for pouring ever more stimulus into economies that, in underlying terms, have been rendered moribund by rising ECoEs?

      This is starting to take us into the realms of “thinking the unthinkable”. One instance might be ‘stagnation/de-growth is here, and stimulus can’t fix it’. Another, on different lines but equally ‘unthinkable’, is: ‘might containing/defeating the coronavirus may be incompatible with restoring international travel?’

    • Indeed, I’d listened to his podcast. Of course, zombies have been prevalent in the Euro Area since the GFC, and were already by no means unknown in the US. They’re a symptom of ‘zombifying’ the economy, I think.

    • Are ‘interest rates’ ‘that important’?
      The rate of interest – the price of money – is said to be a key policy tool. Economics has in general emphasised prices. This theoretical bias results from the axiomatic-deductive methodology centering on equilibrium. Without equilibrium, quantity constraints are more important than prices in determining market outcomes. In disequilibrium, interest rates should be far less useful as policy variable, and economics should be more concerned with quantities (including resource constraints). To investigate, we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth. Examining the relationship between 3-month and 10-year benchmark rates and nominal GDP growth over half a century in four of the five largest economies we find that interest rates follow GDP growth and are consistently positively correlated with growth. If policy-makers really aimed at setting rates consistent with a recovery, they would need to raise them. We conclude that conventional monetary policy as operated by central banks for the past half-century is fundamentally flawed. Policy-makers had better focus on the quantity variables that cause growth.

      Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan”

    • Re:
      “To qualify this just slightly, the correlation is with reported growth”.

      Note also that they say interest rates FOLLOW growth. Duh…Not causal if after the fact.

    • Thank you.

      (1) There is a downloadable guide to Surplus Energy Economics on the Resources page, but I hope you’ll understand why detailed calculations are not disclosed (particularly at a time when ‘conventional’ economic modelling is falling apart).

      How we make best use of SEEDS in this fast-changing situation is an issue that I’m thinking through, but making its internal mechanisms generally available isn’t one of the options.

      (2) That view seems consistent with the SEEDS energy supply scenario, but SEEDS has a global rather than a European focus, though it does generate regional projections.

  29. British premier Boris Johnson has coined a useful new term – “mutant algorithm”.

    I scanned the report, wondering which of his colleagues he was talking about, but it turns out that he was referring to the exams fiasco.

  30. If Our Situation is As Components of a Complex System
    Consider this initial entry into a recent discussion of dealing with Complex problems:
    “led us off with a brief overview of a three-prong proposal to improve complex systems where understanding of issues may diverge wildly, and contention is acrimonious: 1) Fully understand the problem situation, 3) Identify stakeholders with different interests and divergent perspective, and 3) Identify leverage point where action may tip the system toward a more satisfactory state.”

    My concern is that our current system is a ‘far from equilibrium’ solution that is now untenable…based primarily on the need to adapt to the energy and environmental problems. What happens in such cases is the destruction of the existing structures and the formation of new structures which leverage synergies between components very differently. What will emerge from the restructuring is basically unpredictable. If that is true, then Roundtable discussions among current stakeholders is basically useless and just wastes time and energy. The multi-decade United Nations sponsored meetings of the parties trying to do something about carbon dioxide and other emissions is a good example of wasting time and energy in a fruitless effort to massage the differences.

    I am, perhaps, excessively pessimistic. But it seems to me that it is time to think about survival and what that entails in the way of synergistic relationships between people and animals and plants and rainwater and sunshine and so forth in ways that cannot be discussed, or even understood, by Jerome Powell in Jackson Hole.

    Don Stewart

    • The assumption seems to be that the ability to increase stimulus is, ipso facto, a ‘good’ thing.

      The SEEDS interpretation is that endless stimulus just widens the gap between reported economic “activity” and an underlying reality based on an energy-based equation.

    • I lean your way, Don. Brittle, interdependent systems are subject to Liebig’s Law. From wikipedia:

      Liebig’s law of the minimum
      Liebig law of the minimum, often simply called Liebig’s law or the law of the minimum, is a principle developed in agricultural science by Carl Sprengel and later popularized by Justus von Liebig. It states that growth is dictated not by total resources available, but by the scarcest resource. The law has also been applied to biological populations and ecosystem models for factors such as sunlight or mineral nutrients.

      Increased complexity increases the probability of system breakdown. Degrowth could help, but with a growing population, human systems would still find increased pressures.

  31. Dr Morgan
    Your last comment describes the economic/ecological/energy situation in a nutshell.
    The only hope is to provide the ‘correct’ stimulus . A good start would be education .

    • Collectively, humanity seemingly ‘cannot get it’s head around’ the idea of finite scope for economic growth, exploitation of the environment and neglect of ecology.

      What we need is a holistic view, which we can’t have for so long as we (or our decision-makers) believe that the economy is ‘a monetary system, capable of infinite growth’, even as evidence to the contrary continues to mount up.

      This is the sense in which education is indeed vital. This might be conceit, of course, but I do believe that SEEDS-type analysis has a role to play in this.

      If I’m anywhere near right about immediate prospects, we’re entering a critical period in which, whilst we cannot ‘reset’, we can certainly ‘re-think‘.

      During the coming few weeks I plan to think through how we make best use of what we know and can contribute.

      My working assumptions are that:

      1. We cannot persuade governments, and would only waste our time trying.

      2. We need to ensure that the public has access to this sort of analysis and information, which this site does.

      3. We have a duty to make this information available to those trying to do something about the environment and ecology.

      4. The best way into ‘the wider world’ of decision-makers might be through commercial application of the system.

  32. Dr Morgan,
    In GB there is an APPG on “Limits to growth”. It looks like a possible portal through which the SEEDS approach could be up for consideration. It looks far too large a group to make the rapid changes that are required. It is chaired by Caroline Lucas who I am sure would grasp the significant facts .
    In respect of the education on requirements for change , Nate Hagens in USA oversees a course
    In a university there which covers a wide range of topics on what I would term the 3 Es (Energy,Ecology and Economics). Establishment of such courses in British universities would be beneficial. Certainly substituting such courses for the massive number of courses on conventional economics and financial engineering would be if considerable long term value.

    • Thanks, an interesting group.

      I looked at their recent video conference, and the chief scientist seemed to be saying that no country would ever eliminate the coronavirus unless it prevented travel from overseas (starts at about 24.30 minutes) – my conclusion too, by the way.

    • If I understand the way the Russian vaccine works, it responds to the spike protein. If one has immunity to any virus using a spike protein, then it becomes a reasonable goal to gain immunity for everyone willing to take the vaccine. People who refuse the vaccine are best left to their chosen fate.

      Vaccines don’t last forever, and the vaccine might need to be repeated periodically. In addition, a vaccine might be overwhelmed if a very high viral load enters the body. E.g., an emergency room worker. The best strategy for the general population would be a combination of nitric oxide producing dietary habits, care and feeding of the T cells, and the vaccine to produce antibodies. If I understand it, that should give excellent personal protection. I’m not sure about dancing in crowded bars or singing in a church choir, but I would expect most people to go about their business with about the same level of worry they have in terms of seasonal flu.
      Don Stewart

  33. Regarding education of world leaders to the problem, this article,
    https://stevenguinness2.wordpress.com/2020/08/27/the-wef-clarion-call-a-breakdown-of-the-great-reset/?utm_medium=email&utm_campaign=email_subscription ,
    discusses the agenda of the World Economic Forum for the January 2021 meeting.

    Reading their proposals to lay the groundwork for the world economy for the next 50 years, you would never guess that the WEF had any concerns about the problems of getting sufficient oil, increasing ECoE, or that the complete digital currency and world technocratic processes they want to implement depends on a very aging electrical grid.

  34. Forgiveness only applies to those who understand and feel that they need forgiveness; it presupposes a personal relationship. Otherwise it’s just license.

    Re: electricity I forgot to mention, that their beloved cryptocurrency schemes, if truly implemented on a global scale to track, monitor and control all uses, will require far far more electricity than the existing non-crypto digital payment systems. Where’s all that coming from?

    Resources just magically appear for these people, evidently. They really seem to think that, like Jean Luc Picard, they can just command someone else to “make it so,” and it will all happen for them.

    It’s a mental illness. The millennials’ approach of just ignoring all these sociopaths and manifestly not choosing or working to “make it so” for them seems to be an informed course of action. Unfortunately the hangers on in the media keep giving them the time and space to spout their crap, polluting the mental environment for the rest of us.

  35. Hi Tim and everyone.

    I’ve managed to articulate a response by way of a comment to the following

    As ever Jeremy all your points are relevant. However two foundational issues need to be taken into consideration.

    The first is the need to expand and upgrade our infrastructure as a result of population growth. Congestion within our infrastructure, ranging from transport to health, is lowering our productivity. Similarly, with oil depletion on the horizon, our infrastructure needs to be adapted for a post oil world.

    The second is secular stagnation which is a direct result of the increasing costs of supplying energy. Because our economic system is an energy system, not a financial one, then the increasing costs of surplus energy has already started prosperity degrowth, which is compensated for by private and public debt.


    Within this context, especially when including prosperity degrowth, then increased taxes is politically toxic but similarly so is an overburdened infrastructure and under resourced public services.

    The current administration is therefore in a secular stagnation bind.

    The only way out, as far as I can see, is increased productivity. This means dezombifying our economy, executing a levelling up agenda with increased technical skills, distributing investment across the regions, upgrading infrastructure, establishing free ports, investing in R&D, especially in emerging technologies like hydrogen, solar panels and co2 upcycling.

    However, productivity is not only increased economically but socially too. A more cohesive nation is one in which energy wasted on social competition and cultural conflicts gives way to increased solidarity and national pride so that more energy is available for innovation, ingenuity and experimentation. Thus the culture war is impeding economic recovery as we all know too well.

    This means economists need to be working with culturalists and innovating ways towards national economic and cultural solidarity. This means more work on building up an inclusive national consciousness towards national strategic interests, national economic interests and national cultural interests.

    How to build an inclusive national consciousness is the challenge for both this administration and anyone who wishes to realise national sustainability, national resilience and national sufficiency for Britain since it is these foundational factors that will determine our success in an increasingly unstable and competitive global environment.

    We need strong foundations for British success, which will require building up a cooperative spirit within the Nation.


    Any constructive thoughts and suggestions to add?

    • @Steve
      Two contradictory suggestions, which I will try to square the circle. The first thought is REMOVING some socialization of costs. Charles Smith had a nice essay this past week in which he detailed the unsustainable costs associated with some practices in the US…two of his targets were medical costs (about 20 percent of GDP) and higher education. If we took as a strategy to expose every individual to the full force their folly, we might do the following:
      *Require every adult to purchase health insurance, with the insurance companies able to dictate any medical tests they care to impose (with the costs of the tests paid for by the company). So, for example, in order to get insurance one would have to submit to an hbA1c blood test which is a record of insulin sensitivity. We know that a single meal at a typical fast food chain can skyrocket insulin resistance, so the repercussions from naked exposure to the consequences would be profound.
      *Similarly, if the US government stops backstopping loans for ‘going away to college’, then students would be exposed to the full consequences of traditional ‘hall of ivy’ education. Alternatives in the form of ‘demonstrated competence’ would arise at a much lower cost.

      At the same time as the government is exposing individuals to the full force of consequences, governments can benignly encourage self-help local cooperative societies. For example, all of the red-tape required to keep children for others can be eliminated. And inviting people to come to one’s home for a meal and be paid for it can be deregulated. In short, the sorts of practices which are endemic in all poor societies can be legalized in the erstwhile ‘rich’ societies.

      What we end up with is a paring down of what government tries to do and the acceptance of the notion that behavior carries consequences which the government will not insure against. As an example, the number of houses directly facing the Atlantic and the Gulf in the United States continues to rise rapidly. Only governments are willing to backstop insurance against damage from hurricanes and northeasters. The governments should get out of that business and the people building the houses need to understand the consequences.

      Don Stewart

    • Don, you make such excellent input to this blog – with a great deal of thoughtful work. Had you thought about writing essays and publishing them on Jim Quinn’s ‘The Burning Platform’ where I write a weekly “Letter from Great Britain” https://www.theburningplatform.com/author/austrian-peter/ ? Jim is always looking for contributors and I am sure he would welcome yours.

      You can email him, (as I did) to request being a contributor: quinnadvisors@gmail.com

    • Here’s a thought Steve, extracted from from my book page 182. A free PDF is available at:

      “Stanford University economist Tony Seba119 has issued a detailed report recently on
      the future of oil and transport. Fortunately Tony comes from the real world, having
      spent decades successfully building, running, and managing businesses and has a lot
      of practical knowledge and understanding of our present world. He says:
      “Oil demand will peak at 100 million barrels per day by 2020, dropping to 70 million
      barrels per day by 2030. That represents a drop of 30 million barrels in real terms
      and 40 million barrels below the Energy Information Administration’s current
      ‘business as usual’ case.

      This will have a catastrophic effect on the oil industry
      through price collapse (an equilibrium cost of $25 per barrel), disproportionately
      119 All about Tony Seba: https://tonyseba.com/
      impacting different companies, countries, oil and infrastructure depending on their
      exposure to high-cost oil.”

      His report continues saying that the impact of the collapse of oil prices
      throughout the oil industry value chain will be felt as early as 2021. In the U.S.A, an
      estimated 65% of shale oil and tight oil, which under a ‘business as usual’ scenario
      could make up over 70% of the U.S. supply in 2030, would no longer be
      commercially viable. Approximately 70% of the potential 2030 production of US
      Bakken shale oil would be stranded by fewer than 70 million barrels per day demand
      assumption. Infrastructure such as the Keystone XL and Dakota Access pipelines
      would be stranded as well.

      Other areas facing volume collapse include offshore sites
      in the United Kingdom, Norway and Nigeria; Venezuelan heavy-crude and the
      Canadian tar sands. Conventional energy and transportation industries will suffer
      substantial job loss. Policies will be needed to mitigate these adverse effects.

      These are very substantial claims and it is easy to dismiss them as yet another
      ‘academic’ report which will be lost beneath volumes of oil industry propaganda. It
      might be worth remembering some quotes from similar claims in the past:
      “What can be more palpably absurd than the prospect held out of locomotives
      traveling twice as fast as stagecoaches?” – The Quarterly Review, March, 1825
      “There’s no chance that the iPhone is going to get any significant market share.” –
      Steve Ballmer, USA Today, April 30, 2007

      However what Tony Seba makes clear in his report is that immense changes
      are already in place to adversely affect the smooth operation of our integrated energy

      The economics of ‘transport-as-a-service’ (TaaS) offers a much lower
      cost transport alternative; about four to ten times cheaper per mile than buying a new
      car and two to four times cheaper than operating an existing vehicle in 2021. This
      beats even electric vehicles as the main economic driver because this is Uber and any
      transportation-on-demand service. If we look at how readily and rapidly internet users
      have adapted to using the Microsoft ‘cloud’ then we can see the same process
      potentially unfold in personalised transport. We might be seeing the demise of
      personalised transport in the New Economy.”

      AND Charles Hugh Smith has some good ideas:

  36. Re: educating the majority of people on what is to come and therefore the options available, I feel no hope, even the few who are interested and capable of understanding often capitulate to bread and circus distractions rather than face scary, scary reality. Our rulers understand this only too well, that’s why the ‘entertainment’ industry which includes mindless, unnecessary, consumption is such a huge part of the economy and people’s lives. That unthinking consumption is then a key part of our destruction. The majority don’t want to hear this and will ignore it until they are presented with the crash, history is littered with examples of our self-sabotage as civilisations, seemingly unable to learn. Our planet has never has such access to knowledge as is currently available, so we should be the most able living generations ever to make this transition, yet collectively we are no better.

    • “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” ― Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds

      There is hope FI Warrior, if we keep our sanity as individuals and seek the information and knowledge to enable survival and prosperity in the New Emergent Economy which is the subject of Chapter 13 in my book, “The Financial Jigsaw”:

      Please don’t lose hope – People will keep on hoping, no matter what the odds. For example, I keep buying lottery tickets—hope springs eternal. This expression was coined by Alexander Pope (An Essay on Man, 1732) and quickly became proverbial.

    • Peter,
      I am surprised that you buy lottery tickets. The odds are terrible. Hope is understandable. Religions offer life after death to assuage harsh reality. As a mutant, I embrace uncertainty. Seems that 15-20% of humans are also mutants!

  37. Thank you for your reply to my previous questions. No problem at all if, for commercial reasons, you cannot give specific answers. Up to you to see how to handle questions and I take no offence if you cannot reply.

    To follow up on your answers, so prosperity is clean GDP minus the share of GDP allocated to procuring energy. Just to confirm, as GDP is measured in financial units, not physical ones, and countries import energy paying with money, the ECoE is translated into a financial equivalent in currency value for the year right? So it is actually a money cost of energy for the year?

    On the Shift project estimates, indeed they seem to me broadly in line with your predictions, and you in your model you have country level data so you could verify how far the estimates are aligned. What is interesting is that the Shift project’s starting point IS surplus energy economics and degrowth as the only physically possible future scenario, so I guess it may be of interest even to you for your work to check or collaborate with them just so you both can cross-check your models. May be you will feel less lonely 🙂

    Finally on SEEDS, pardon my ignorance, but do I understand well that you do not sell access to the database, but rather you keep it confidential because you use it for your own consulting work, for instance with Tullett Prebon?

    • Thanks.

      Just to clarify, I have had no connection with Tullett Prebon since I left the company in 2013, and there was never any connection between TP and the SEEDS model, which I only started developing in 2014, after work on my book showed me that there was a huge interpretative gap.

      Hitherto, SEEDS has been developed simply as something that I wanted to do – ‘to see if it was possible’ – and I’ve shared its output and its interpretations with readers here (whose numbers have increased pretty dramatically). I have kept it ‘in house’, and financed its development myself.

      The possible choices now include (a) developing a commercial product based on SEEDS, and/or (b) licensing SEEDS for commercial use, either widely to many organisations, or exclusively. The latter route would make more sense in practical terms. These are things that I’m going to be exploring in September.

      In any event, my aim is that SEEDS-based interpretation should remain freely available to the public here, with no subscriptions and no ads. This doesn’t mean that there might not be a ‘premium content’ version at some point.

      The aim has been to produce energy-based interpretation with its results presented in financial terms.

      Yes, aggregate prosperity is underlying or ‘clean’ (C-GDP) output minus trend ECoE (the proportion of that output required for continued energy supply).

    • Thank you Tim for your generosity in providing us, your readers, with such important information and knowledge. It is my mission to spread the word and I do rely on your excellent articles and the marvellous input from your readers.

      It was only when I read your book that I realised that my book had so much synergism with yours and as you know, you have contributed immensely to its content.

      Best wishes to continue your good work.

  38. The Russian Vaccine
    I explained earlier my amateur’s understanding of how the Russian vaccine works, stolen from Dmitry Orlov’s lucid explanation. Briefly, the spike protein characteristic of Covid 19 is cut out of the genome and attached to another virus. The combination is then given to the person being inoculated. The virus cannot replicate, the spike protein cannot replicate, and neither does any harm standing alone. What the combination does is provoke an immune response which results in the creation of antibodies…presumably to the spike protein.

    So, in my words, the Russians used some existing technology along with a novel concept of splicing only one distinctive part of the corona virus (and excluding all the genetic material which facilitates replication) which gives a vaccine which is effective against not only Covid 19 but also Covid 1 through 18 and should be effective against Covid 20 through 1000…since it is the spike protein which is common to all of them.

    The US government, of course, doesn’t like it that its multi-billion dollar subsidies to US Pharma companies appears to be a gross waste of money. So it is sanctioning all the Russian institutions involved.

    As for Dr. Morgan’s concern about modulating immune function. I suppose that it is theoretically possible to give such a high dose of the inert vaccine to a person that they get an overwhelming immune response. But that is what dosage tests reveal. The Russians have dosed a lot of people and haven’t killed any yet.

    I also made a recent post here which outlines the layered viral load management and immune response management that I would personally follow. Briefly, three layers of protection. Plus, of course, getting rid of the co-morbidities with lifestyle interventions.

    By their deeds ye shall know them….Don Stewart

  39. Russian Virus Part 2
    Trump has been running ads shows a clueless Joe Biden being subservient to the Drug Companies, while Trump courageously fights them to benefit the American people.

    If you understand what happened with the sanctions issue, what sort of estimate of public intelligence do you think the Trump campaign holds? Unfortunately, I think their estimate is just about on target.

    Don Stewart

    • Re. Trump/Biden:

      Just a reminder (to everyone) that ‘we don’t do party politics here’.

      Politics is, as somebody once said, “no trade for a gentleman” (or a lady).

    • @Dr. Morgan
      I should have added a note to the effect that Biden really is as clueless as Trump portrays him. I am equally skeptical about both. I would like to vote for None of the Above.
      Don Stewart

  40. Dr. Morgan, you present an interesting approach with the C-GDP. Have you calculated the MTOE of primary energy supply per $ of C-GDP? It is clear from a look at your charts that such would show an increase of energy intensity of the economy over the years. This is in direct and strong contrast as to what energy agencies and private analysts are plotting, where the future is a continuation of our past decoupling of the economy. Your approach reflects in a way the underestimation of the GDP deflator due to definitional changes over time, resulting in overestimation of GDP. That underestimation of the deflator too leads to a suggestion of decoupling. How do you look at that? Kind regards, Maarten van Mourik

    • Thank you, and yes, I’ve looked at the connections you refer to. These relate not just to energy use, of course, but also to CO2 emissions.

      If we were to accept reported GDP as accurate, we would think that $ of activity per tonne oe, and per tonne of CO2, were moving favourably.

      Using C-GDP unmasks such illusions. Also, of course, ECoE and prosperity (C-GDP minus ECoE) are important components.

      Comparing C-GDP with energy use and CO2, it’s possible to detect very, very small progress. But, whereas surplus (gross less ECoE) energy is the driver of prosperity, gross energy is the releant number for energy consumption and CO2 emissions. So, in terms of sustainability, efficiency gains are the favourable side of an equation of which ECoE is the negative side – and ECoE is increasing markedly, whereas efficiency gains are very small.

      The conclusions are that ‘sustainable growth’ is not achievable, whilst the European Environmental Bureau was quite correct, in its recent report, to dismiss the idea of “de-coupling” economic activity from energy use.

      This is something that I really should write an article about. At the moment I’m putting together a report on the implications for business of a “de-growth” process accelerated by the pandemic, but these issues might be the subject for the next one.

    • The ‘suggestion of decoupling’ sure does raise some questions.

      With the more serious ones arise over time.

  41. Steve Keen, Tim Garrett and Mattheus Grasselli have produced a thermodynamic modelling approach to world civilization with an eye to effects on climate change, and including a section on thermodynamic limits to economic growth. Their ground- breaking work may be found at https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0237672

    From the Conclusion:

    “This article identifies a persistent relationship between global energy consumption and cumulative economic production. It implies that a surprisingly simple description of the human system is sufficient to explain past global trends and make robust projections of the aggregated world economy and its waste products. Humanity grows when more energy is available than it requires for its daily needs. Then work can be done not just for sustenance but for expansion. Because current sustenance demands emerge from past growth, inertia plays a much more important role in determining future societal and climate trajectories than has been generally acknowledged, particularly in the physically unconstrained models that are widely used to link the economy to climate [46, 47]. We have accumulated over history a long series of innovations in efficiency that continue to propel us forward. Without forgetting these advances, we will maintain a continued ability to expand our interface with the primary resources we consume.

    Eventually, of course, the interwoven networks of civilization will unravel and emissions will decline, whether it is through depletion of resources, environmentally forced decay or—as demonstrated recently—pandemics [48]. But the cuts will have to be deep, continuous, and cumulative to overcome the tremendous accumulated growth we have sustained up to this point.

    The formulations presented here are intended to help constrain the problem by reducing the number of available targets that can reasonably be expected to lead to avoidance of extreme climate change. Notably, gains in energy efficiency play a critical role in enabling increases in population and prosperity, and in turn growth of energy demands and carbon dioxide emissions, contrary to what would reasonably be assumed if civilization did not grow [33, 49, 50]. What seems to be required is a peculiar dance between reducing the production efficiency of civilization while simultaneously innovating new technologies that move us away from combustion.”

    • @Tagio
      Thanks. I have been eagerly awaiting this. Sounds like Garrett’s cumulative approach carried the day….Don Stewart

    • I have to say that I’m not persuaded by a cumulative approach.

      It seems to me that we could make reasonably good forecasts of (a) forward energy supply, (b) ECoE trends (meaning that we can forecast future surplus energy supply), (c) rates of economic value change per unit of surplus energy, and (d) forward rates of CO2 emissions on the basis of gross energy projections. (This means that ECoE is the inefficiency factor in the relationship between energy value and CO2 emissions).

      These could, I suppose, be added to historic data to calculate what the initial position might have been. But I don’t see how we can work out how surplus energy value (etc) the world ‘started with’, from which we can deduct what has been ‘used so far’ in order to tell us ‘how much remains’.

    • @Dr. Morgan
      I haven’t digested this version of Garrett’s original paper, along with the contributions of his two co-authors. So anything I say here is subject to checking on what they actually did with their model.

      But the place where I think the cumulative becomes important is when the cumulative is about to collapse under its own weight….and thinking about what might be done to ease the transition to a new state.

      Consider this headline from Charles Smith’s weekly letter to his subscribers:
      “It Now Takes 53 Weeks Of Median Wages Every Year To Pay For Basic Needs”
      The facts of the matter are a function of the history up to this point. It’s like saying “I do” on the arm of a high-maintenance woman. There is a history which is exacting an unbearable toll on the present. It seems to me that we are in that position. You can see the issue discussed in the debate between Jerry Seinfeld and James Altucher about whether New York City has any future at all. You can also see a very confused discussion between Jim Kunstler and economist Jack Rasmus on Jim’s site. Rasmus is taking the position that what we need is a whole lot of New Deal to rescue us from the prospect of Depression, while Kunstler tends to think that we have worked our way into a box canyon.

      If it is the history that is dragging us down, then a clean break with at least parts of that history are essential to avoid extinction. Rasmus’ position boils down to bankruptcy and a restart (that’s my characterization of his complicated position).

      My thinking for some time now has been for radical resets of particularly costly and pointless parts of the economy. Rather than the Fed attempt to keep every bank and hedge fund and speculator afloat, or Rasmus’ attempt to start over by coming out of bankruptcy with the same basic approach to the economy, I think it is necessary to hack off some limbs which have proven to be dysfunctional. In defining ‘dysfunctional’, I try to examine with the broadest view I can muster. Which is why I think that trying to contain the discussion to finance is a mistake.

      Don Stewart

    • Indeed.

      Part of the problem is that knowing what makes sense and doing it are very different things.

      Logically, for instance, we would never have countenanced sub-prime mortgages (because they were doomed to fail after ARMs adjusted), or MBSs (because they separate risk from return, never a good idea).

      More recently, we know what the environmental issues are, yet we carry on making and buying SUVs.

      In the current crisis, it is obvious – and has been said authoritatively – that no country can eliminate the coronavirus unless it prohibits international travel until the virus has been eliminated globally.

      In Europe, the “second wave” which threatens to negate prior progress and compound the economic damage is a direct consequence of lifting flight bans. Yet the EU said some months ago that it aimed to restore cross-border tourism ASAP – logically, an irrational objective.

    • Garrett, et. al.
      From conclusion:
      “Eventually, of course, the interwoven networks of civilization will unravel and emissions will decline, whether it is through depletion of resources, environmentally forced decay or—as demonstrated recently—pandemics [48]. But the cuts will have to be deep, continuous, and cumulative to overcome the tremendous accumulated growth we have sustained up to this point.”

      This is a pretty good description of my assessment of where were are…unraveling. The question is whether we (e.g., the democracies) can prune enough to make a difference. We are like the sea captain in the South Seas when a sailor came down with gangrene…is it time to tell the ship’s carpenter to saw off a leg?

      Don Stewart
      PS. His reliance on cumulative growth is reminiscent of Howard Odum’s assertion that university professors with a chalkboard are the most energy intensive jobs…they rely on all the knowledge ever acquired by humans or, more broadly, living creatures.

  42. BTW
    The conversation between Kunstler and Rasmus features your name. You may be horrified, amused, or infuriated…or maybe just ‘more of the same’.
    Don Stewart

  43. I am trying to make Surplus Energy Economics fit into the development of China the last 25 years. There is scant appreciation for the fact that China’s explosive growth and we are talking real growth; with hundreds of new cities, tens of thousands of factories, thousands of miles of high speed roads and railroads, and the list goes on, along with hundreds of millions of people rising from extreme poverty, that this has been mainly an monetary/credit phenomena. All this despite the ECoE working in the background against it.

    Anyone want to start to address this seeming contradiction?

    • @Rapier
      ECoE is one factor, but not the only factor. Consider health care costs per capita:

      From practically zero in 2000 up to 441 dollars in 2017. The US was spending 9892 dollars in 2017, according to Wikipedia. The advantage to China from medical expenses probably far outweighed any disadvantage in terms of ECoE and competition with the US. Since the US could finance unlimited imports by using the Reserve Currency Gift From God, China could grow rapidly with financing from the US. But even before China entered the World Trade Organization, there were cranes everywhere as they constructed their country after disposing of the Gang of Four.

      I’m no China expert, so buyer beware….Don Stewart

    • Let me give you a partial explanation, at least. For ease of reference, I’ll compare 2018 with 2008, with financial numbers in RMB tn at 2018 values.

      First, China’s rapid growth in GDP has been supported by truly eye-watering amounts of borrowing. Comparing 2018 with 2008, GDP increased by RMB 47 tn (+115%), but debt increased by RMB 172 tn (+301%). GDP growth of 6-7% was made possible by annual borrowing typically in excess of 20% of GDP.

      If we adjust for this extraordinary surge in credit, underlying output (C-GDP) growth was about 57% – still impressive, but not as much so as ‘doubling GDP by quadrupling debt’.

      Second, energy consumption increased by 1,036 mmtoe, or 46%. Allowing for increases in ECoE, surplus energy supply increased by 904 mmtoe, or 43%. As of 2018, China’s trend ECoE (7.9%) had only just reached the critical territory (8-10%) for EM economies.

      In recent years, strains have started to show, both financially and in the physical economy. Financially, P2P lending platforms have collapsed, defaults have accelerated (even amongst SOEs, previously assumed to be immune), credit ratings have started to look ‘optimistic’, and in some cases, defaults have happened despite large reported ‘cash holdings’ which turned out not to exist.

      Physically, sales of cars, smartphones and many other consumer and industrial products turned down markedly from mid-2018.

      Prior to the pandemic, the SEEDS model was showing prior growth in prosperity per capita going into reverse in 2021, with some indications that this might happen in 2020 rather than 2021.

    • It may have something to do with China’s energy consumption more than tripling since 2000. Much of that energy was from domestic coal, but I don’t know much about the energy cost of coal extraction there. China does import a lot of oil, especially in recent years, but since it is the “workshop of the world” now, it can afford it.

      ECoE affects every energy user, but it least affects those who make the best use of it. China’s energy intensity per unit GDP has declined by nearly half since 2000. All in all, China has used a lot of energy and used it with more and more efficiency to make things the rest of the world wants. ECoE affects every economy differently. It may well be that China will put off prosperity decline longer than most countries.

  44. @Rapier
    More on China:
    “China witnessed a marked increase in the prevalence rate of diabetes, from 2.5% in 1994 [7] to 9.7% in 2008 [8] and further to 11.6% in 2010 [9], amounting to an increase of 3000 new patients per day [10]. Moreover, 15.5% of the adult Chinese population had pre-diabetes ”
    The CDC has put out some predictions that there will soon be billions of people in the world with insulin resistance and diabetes. But insulin resistance is implicated in all sorts of chronic disease from erectile dysfunction to Alzheimer’s to heart disease to Covid 19 risk. So we can use the statistics on diabetes to get a rough estimate of the drag on the economy of China and the global economy. In the US, about 70 percent of the population is overweight or obese.

    Very few groups of people have been able to acquire ‘civilization’ without succumbing to insulin resistance. One resistant group is the Seventh Day Adventists in the US, who are still a Blue Zone while all the other Blue Zones from 25 years ago are disintegrating. There are also some religious groups in China (which I know very little about) who are resisting ‘modernization of the diet and lifestyle’.

    So, besides the problems with ECoE, we can see that the fallout from rapid economic growth is almost always an undermining of the capacity of the population to perform at a high level, and an increase in the overhead costs of keeping the economy running. China is no exception.

    Don Stewart

  45. Geoff Lawton Tweet:
    “Any system that is over supplied with energy that cannot be put to productive use goes into chaos and this applies to everything in permaculture design.”

    The same can be said of money. If we oversupply nitrogen to a plant or provide a human with more calories than they use or goose an economy with cheap money, the results are uniformly bad….regardless of cosmetic movements in aggregate measurements. Americans (and probably others) firmly believe that if a little is good, the more must be fantastic. It’s a dangerous delusion.

    Don Stewart

  46. The CDC (Center for Disease Control) and the Lockdown
    The CDC has just issued, with no fanfare, an analysis of deaths from Covid 19 and other causes. The result is that very few people have died solely from the virus. The number of excess deaths is very small. I’ll post the link, which is not really designed well for rapid scanning:
    “For 6% of the deaths, COVID-19 was the only cause mentioned. For deaths with conditions or causes in addition to COVID-19, on average, there were 2.6 additional conditions or causes per death.”

    These data would tend to convince most people that horrendous costs in lost productivity and wages were endured to save very few lives. There are still loose ends, such as the continuing health problems of some of the people who recovered, and the issue that the lockdown may have reduced deaths below the ‘expected deaths’ line, so that the excess deaths from Covid 19 are actually higher than those indicated by a simple subtraction or addition. At any rate, it certainly looks like Sweden had the right idea.

    For a population such as the elderly in the US, it is true that the addition of stress from Covid 19 to the already heavy stress load from overall poor health can lead to more deaths. The question is how much cost the society is willing to endure in order to avoid such added deaths. For example, we know that we could eliminate traffic deaths simply by eliminating automobiles…but we don’t do it for very good reasons.

    I see this as an exercise similar to the announcement that ‘there is a rattlesnake loose on the campus’. Having induced a fear of Covid 19 on a par with our fear of rattlesnakes, the public was herded into extreme avoidance behavior.

    Don Stewart

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