#180. In search of competitive edge

LOGIC, ‘CONTINUITY BIAS’ AND THE BALANCE OF IMPROBABILITIES

Those of us who understand the economy as an energy system know that fundamental change, long overdue, is being crystallised by the coronavirus crisis. Can that knowledge be the basis for establishing ‘competitive edge’?

The conclusion here is that it can, but realising this requires more than just knowing the difference between the logical (energy-driven) and the accepted-but-illogical (wholly financial) ways of interpreting the economy. We also need to recognise the ways in which continuity bias and extrapolation inhibit the application of logic and knowledge.  

This understanding reveals scenarios which, whilst they may appear improbable, are far more plausible than consensus lines of thinking which have become impossible.

Government – right by default?

It’s been well said that governments will “always do the right thing, after exhausting all other possibilities first”.

The Wuhan coronavirus crisis illustrates this axiom to good effect. For many years, scientists have warned (a) that the world is likely to experience some kind of viral pandemic, and (b) that no country would be able to counter such an outbreak unless it closed its borders to international travel until such time as the virus had been eliminated globally. In other words, no amount of lockdown or physical [“social”] distancing is going to work, if the virus can simply return on the next inbound flight.

Governments are under all sorts of conflicting pressures, so their reluctance to follow this logic is, perhaps, understandable. But this interpretation seems vindicated – certainly in Europe, and probably elsewhere – by a sequence in which the re-opening of passenger flights has been followed by “second waves” of infection.

Unless we’re prepared to assume the early development of a vaccine which is effective, safe and trusted by the public, then, it seems prudent to anticipate that the coronavirus is going to turn out to be a process rather than an event. Governments are likely to act when the gravity of the situation compels them to do so, but are equally likely, as soon as the situation eases, to roll back, prematurely, on unpopular policies.

Inferences of process

If we understand the pandemic as ‘a process rather than an event’, certain economic and financial inferences can be drawn from this conclusion. Equally important, though, is the evidence of what we might call a ‘continuity bias’ at work. There is, in a strictly non-political sense, a conservatism which impels organisations and individuals to lean towards continuity, not just in their expectations, but in their decisions, too.

This ‘continuity bias’ opens up a disconnect between perception and reality, and anyone seeking to progress – in the realms of ideas, of politics or of business – can benefit from a recognition of the way in which ‘continuity bias’ creates ‘perception deficiency’.

One aspect of this process is a susceptibility to extrapolation, the assumption that the future must be a continuation of the recent past. If, for example, the price of, or demand for, something has risen by X% over, say, the past ten years, the tendency is to assume that it must rise by a further X% over the next ten years. This extrapolatory assumption can be called ‘the fools’ guideline’, in that it blinds us to the possibility (and, under certain conditions, the probability) of a fundamental change of direction, even when logical examination ought to persuade us that fundamental change is likely.

Dynamic interpretation

As regular readers will know, the general thesis followed here is that infinite growth is implausible in an economy governed by a physical energy dynamic. We can, indeed, go further than this. We can (and without being guilty of unjustified extrapolation) compare (a) the trend in the rate at which energy is converted into economic value, with (b) the trend rate at which the ECoE (energy cost of energy) deduction from this value is increasing.

And, since the supply of energy is itself determined by a relationship between value and cost, we can also develop pretty good visibility on future trends in the quantum of energy supply.

What this means is that a per-unit progression of energy value (V minus ECoE) can be applied to a linked projection of quantity (Q) to produce an equation which interprets and predicts trends in the aggregate supply of economic value.

If the present position is termed ‘point zero’, we can then look either forwards (to points +1, +2, +3 and so on) or backwards (points -1, -2, -3). The value of forward visibility will be obvious, but backwards visibility can be of at least equal importance, because it can tell us the extent to which current interpretations of direction and value are mistaken.

Competitive edge

If our aim is to identify competitive edge, the best way to do this is likely to involve triangulating (a) accurate fundamental analysis, (b) prevalent false perceptions of current value, and (c) the effects of ‘continuity bias’.

Here’s an example of how, in the near future, such an equation might function.

We know that the Wuhan coronavirus pandemic has involved the provision of support for household and business incomes, together with the deferral of various household and business expenses (such as interest and rent payments). We can put these together mathematically to calculate a progression of fiscal shortfalls, and we can further postulate a point at which this progression becomes critical, requiring, perhaps, state ‘rescues’ of embattled lenders and landlords, and/or central bank money creation to support these initiatives.

This much, though, can be done by anyone, provided he or she has access to the numbers and the methodology required to calculate this progression. Accordingly, it does not, of itself, constitute ‘competitive edge’, other than in relation to those who are unable to carry out these same calculations.

This is where the equation of energy value, false perceptions of value and ‘continuity bias’ comes into play. The person who can calculate a fiscal progression with reasonable accuracy can be led astray by referencing this to a false perception of where the economy really is now, and where it can be expected to go in the future. Competitive edge arises when the background to this progression can be calibrated correctly.

More broadly, the ‘generality’ – governments, businesses, investors and the general public – has perceptions of how the economy has got to where it is and of where it will progress from here, and accepts current valuations imputed by these trends, all of which are mistaken.

These ‘mistaken perceptions of the generality’ define a situation of risk and opportunity. If, for example, you were in business, the ability to draw on accurate interpretation, plus your understanding of others’ extrapolation and ‘continuity bias’, would tell you to invest in certain areas, to divest from others, to buy certain undervalued assets and to sell some overvalued ones, to alter your slate of products and services, and to change your methods and practises in ways recommended by economic and financial knowledge not available to your competitors.

Without, of course, straying into investment specifics, it will be obvious that assets are priced in relation to current appreciations and forward expectations, both of which are founded in these same ‘mistaken perceptions of the generality’. 

On the road – theory in practice

From what we might term a ‘top-down’ standpoint, we can observe that a prior belief in ‘a future of more’ has, under pressure of circumstances, segued into ‘a certainty of recovery’. Some examples of this mindset are instructive, not because they are ‘right’, or even because they were ‘wrong before’, but because they ‘remain wrong now’.

Future sales of vehicles are an interesting example. As of 2018, there were 1,130 million cars on the world’s roads, and 236 million commercial vehicles. The consensus view, as of 2019, was that these numbers would, by 2040, have risen to about 1,970 million cars (+74%) and 460 million commercial vehicles (+94%). This view has been maintained despite evidence that sales of both classes of vehicles had started to deteriorate during 2018. The overall perception was (and probably still is) that the numbers of vehicles of all types was set to increase by 1.06 billion units (+77%) by 2040.

Under current, extreme circumstances, of course, sales of cars and commercial vehicles have slumped. Rationally, you might ask (a) whether pre-existing adverse probabilities have been crystallised by the crisis, and (b) whether consensus longer-term expectations are being invalidated.

What seems actually to be happening, though, is that the question has become, not ‘was our prior expectation wrong?’, but ‘how long will it take to get back on track?’. We should be clear that this latter question is based on assumption, not on logic.

Finding the ‘right’ answer to such questions is very far from being purely theoretical. It would have a critical bearing on your current actions and your future plans, if you manufacture vehicles or components, if you supply materials for these processes, or if you’re a government trying to plan forward infrastructure investments. If you’re an environmental campaigner, or an advocate of conversion from internal combustion (ICE) to electric vehicles (EVs), these issues are fundamental to how you frame and conduct your current activities.

Understanding of energy-economic principles would, in this instance, already have told you that ‘77% more vehicles’ was an implausible outcome. That in turn would provide a valid point of reference for the effects of the current crisis.  

It would, in other words, give you a competitive edge.

Flying blind – of aviation and technology

A second and a third instance are provided by aviation and technology.

In the former instance, the pre-crisis consensus – welcomed by the industry, disliked by environmentalists, but seemingly accepted by almost everyone, and used as a planning assumption by governments – was that passenger flights would increase by roughly 90% between 2018 and 2040. The coronavirus crisis has inflicted huge damage to the sector, but the ‘continuity bias’ assumption seems now to be that the prior trajectory will be restored, and that a worst-case scenario is the likelihood of a lengthy delay in returning to that prior trajectory.

It seems to be accepted that the duration of a recovery may be protracted, given the unknowns around travel restrictions and customer caution, but it also seems that no consideration is being given to the possibility that the prior (upwards) trajectory might not be restored at all.   

A third and final example is provided by the assumption that the future will comprise ever more technology, ranging from more ‘big data’, more AI and more gadgets to self-driving cars and ever-increasing industrial automation. Downturns in sales of smartphones, chips and electronic components, again dating from 2018, seem to have been dismissed as aberrational ‘noise’ around a robustly, indeed an unquestionably upwards trend.

Once again, energy-based interpretation of the economy suggests that this is a combination of ‘continuity bias’ and unquestioned extrapolation, seemingly at very considerable variance from economic probability.

Stated at its simplest, if consumers become poorer, and rebalance their priorities accordingly, whilst businesses emphasise cost control and concentrate on simplification, the balance of probability swings against the assumed future of unending automation.

The ‘improbable’ versus the ‘impossible’

Many more examples could be cited, but let’s finish by applying an acid test to these questions.

If you believe in ‘a future of more’ (more cars, more flights, more automation and so on) – or are persuaded by the theory that we will witness a ‘recovery’ (of whatever duration) back to the prior growth trajectory – then it follows that the economy of the future is going to need more energy than the economy of the present.

On this basis, expert forecasters have projected global primary energy supply rising by 18% between 2019 and 2040, adding roughly 2,500 mmtoe to our annual requirement. The experts think they can find just over 70% of this required increase from a combination of nuclear, hydro and the various forms of renewable energy (RE). This leaves them (and us) needing an extra 720 mmtoe or so from fossil fuel (FF) sources. It’s assumed, not only that this can be found, but that doing so will increase annual emissions of climate-harming CO² from 34.2 million tonnes in 2019 to about 38.4 mmt by 2040.   

Meeting the required increment to fossil fuel supply means that, comparing 2040 with 2019, we’ll be using roughly 11% more oil, at least 30% more gas and roughly the same amount of coal. If you look realistically at the state of the FF industries, though, you can see that any such expectations are pretty implausible, not least because the delivery of such gains would require price increases that would move far beyond the affordable.

Here, then, is the conundrum. Meeting assumed economic needs in the future requires quantities of oil, gas and coal whose provision seems implausible. Faced with this, do we conclude (a) that we’ll somehow ‘find a way’ to supply this much additional energy, or (b) that the foundation growth assumption might itself be wrong?

That the experts are wrong about the size of the future economy may seem improbable, but logic suggests that supplying the required amount of additional fossil fuel energy looks very nearly impossible.

In this situation, we could do worse than reflect on the axiom of Sherlock Holmes – “[w]hen you have eliminated the impossible, whatever remains, however improbable, must be the truth”. 

253 thoughts on “#180. In search of competitive edge

  1. A large part of the problem is that the UK is not a meritocracy. It remains what it was in the 1930’s: a class-ridden oligarchy where those with money and contacts (including access to elite private schools and certain universities) get fast-tracked into positions of power and eminence for which they are underqualified and inexperienced. Think Blair, Cameron, Osborne and now Johnson, Hancock and Jenrick. The end of grammar schools and free university education has made this much worse. The voting system is archaic and there are few checks and balances. Johnson is a wealthy journalist whose entire career has been built on looking after Number One and double-crossing people. He isn’t going to change and he lacks the judgmental experience to balance difficult competing factors and take hard decisions. Hence the current shambles.

    However, the huffing and puffing over the EU Withdrawal Agreement is overdone, bearing in mind that it is built on bad faith. The EU (for which read the ex-DDR apparatchik, Merkel) has never had any intention of agreeing on terms which were not massively disadvantageous to the UK. The EU wishes to derail the democratic decision in Brexit “pour encourager les autres” and Theresa May was only too happy to assist them because like much of the UK establishment, her contempt for ordinary people is total. Johnson of course lied to the voters about the great improvements he had made to the WA and is now in a bind of his own making. If he simply goes along with the WA, he will be betraying the new voters who flocked to the Tory Party last December……..and those voters, and their new Tory MPs, are watching him. My guess is he will get some modest cosmetic changes which he will attempt to mis-sell (again) to the public, but this will only deepen and widen the ongoing Tory split over Brexit, both at Westminster and elsewhere.

  2. I don’t want to comment too much on the UK situation – this is an avowedly international site – but it does seem now to be descending into farce.

    Mr Johnson, going ‘full-on JFK’, has proposed an “Operation Moonshot” plan to conduct “millions” of virus tests each day. Leaked reports have put the annual cost of this at £100bn, about 5% of GDP in a country where total government spending – which includes transfers, like pensions, as well as own-account government spending on services – was about 37% of GDP (c£800bn) pre-pandemic.

    The irony about this is that ‘test and trace’ seems to have been one of the two most spectacular failures in the UK response to the crisis (the other being the seemingly inexplicable delay in closing airports, followed by their premature re-opening).

    • Covid Actions
      Previously, in response to someone who said Britain is now entering the ‘second wave’, that the sane response is to license the Russian vaccine and begin rapid manufacturing and inoculation. However, that is only a short term expedient, and I side with Dr. Zach Bush on the necessity of beginning with a healthy human and eliminate the sources such as intensive pig feeding operations. Having looked at the latest statistics from Europe, I now think any hasty action is probably a mistake:

      Viral Issue Crucial Update Sept 8th: the Science, Logic and Data Explained!

      In terms of premature deaths, Covid 19 has been a non-event in Europe. The lockdowns were huge mistakes…which was my thinking from the beginning. There are still unclear issues such as the lingering effects in some people who did not die…but the real solution is to eliminate the co-morbidities with diet and lifestyle.

      It may well be true that the worldwide panic which attended Covid 19 has accelerated the move into Degrowth territory, but that not the fault of the virus.

      Don Stewart

    • @ Don Stewart,

      I stopped watching when the narrator falsely asserted that lockdowns and mask wearing had no effect on the rate of death due to SarsCov2 and that therefore the death rate was only slightly worse, if at all, than the seasonal flu. I was also concerned that he presented data only until August 13 for an update dated September 8th, nearly a month later.

      Deaths in Spain began increasing again about mid-August and have continued to climb since then. Anyone who claims that the pandemic is finished in Europe has not been following recent events (yes, even as of September 8th).

      Let’s wait until it’s really over (post vaccine) before assessing the death toll. I know that people are impatient for it to be over, but the virus doesn’t care. There may well be several peaks and valleys in the case rate and death rate before it’s done; we shouldn’t assume that the first peak is all we’ll get.

    • We’re not – in the West, anyway – handling the pandemic rationally.

      Logically, rolling back lockdowns should have been done sequentially, starting with sectors which (a) are important, and (b) can be operated with reasonable safety precautions. An early example would be supermarkets – (a) people need food, and (b) supermarkets can be operated with effective spacing, and an absolute insistence on masks and gloves.

      On this strictly logical basis, some activities could not re-open for a long time, as being (a) not that important, and (b) hard to operate safely. In these instances, govt support would include paying staff wages (up to, say, $3000/month), debt service costs and maintenance of plant and equipment.

      At an early stage, I advocated comparing (a) the cost of some long-lasting restrictions versus (b) the cost of a “second wave”.

  3. Excellent video thanks Don. Explains everything clearly, especially the COVID “Casedemic” now running, while deaths more or less disappear.

    Dmitry Orlov said from early in proceedings that the massive overreaction was intended to disguise the economic crash already underway. You could argue it was an effective mitigation strategy, as it’s taken a useful chunk out of energy consumption and what’s gone was largely discretionary.

    You might also wonder whether the illogical and erratic travel bans are bureaucratic incompetence, or a cunning strategy to kill off the travel industry.

  4. “Dmitry Orlov said from early in proceedings that the massive overreaction was intended to disguise the economic crash already underway.”
    According to T.G.C. there was no potential ‘economic crash’?
    “High growth of real broad money is associated with rising asset prices and healthy balance sheets, and tends to precede above-growth trend in demand and output. In the five months to September US M3 (as measured by Shadow Government Statistics) increased at an annualised rate of 9.2%, in the context of sub-2% inflation. Real money growth was therefore unusually high, the highest in fact since 2007. In the Eurozone also recent money growth has been robust. In the six months to August the annualised rate of growth of M3 was 7.3%, with inflation at about 1%. Since the USA and the Eurozone together account for 40% of world output (in current prices and at current exchange rates), these developments argue against a recession in 2020. They suggest that, on the contrary, the world economy should start 2020 in good form. Admittedly, money growth may slow from here. (Money growth has also picked up in the last couple of months in Japan and the UK, but from low levels, and they of course matter less than the USA and the Eurozone.)
    In China and India banks continue to expand their balance sheets at not much less than double-digit annualised rates. But in both these two big developing countries regulatory officialdom is disciplining the financial system, with attacks on shadow banks in China and on non-performing loans in India. (Moreover, India seems to suffer at present from a supply-side malaise [due perhaps to the over-active BJP government], with the car industry undergoing a sharp reverse.) Overall a sensible central assessment is that during 2020 the world economy will see roughly trend growth, with inflation staying at very low levels. If money growth remains close to recent highs in the USA and the Eurozone, a more positive forecast would be justified. “

    Click to access Monthly_e_mail_1910_No_global_recession_in_2020.pdf

    • Thank you James for this intriguing article. I have been tracking the gradual decline of the global economy ever since 2008 and Tim’s concept of degrowth confirms my own assessment in Chapter 12 “The End of Growth” of my book which is all consistent with evidence in Tim’s book written in 2013 and is consistent with Orlov’s view:

      IMHO this Institute’s conclusions are not believable. They surely have an agenda? Your assessment of my Chapter 12 would be most enlightening. A free PDF of my manuscript is available at: https://www.theburningplatform.com/author/austrian-peter/

    • On this sort of basis, there need never be a recession, ever, just so long as monetary policy remains expansionary.

      What this sort of thing highlights is a tendency to assume that the economy is a financial system. This has led to assertions elsewhere that energy is ‘just another input’, and that the world “can, in effect, get along without natural resources”.

      If any of us were ever cast adrift on a desert island, we’d get the chance to put this to the test. Instead of trying to find water, food, energy (perhaps firewood), or materials with which to construct shelters, and perhaps to build wheeled barrows and a boat, we could instead sit around exchanging tokens, such as brightly coloured pieces of paper, or cowrie shells. As the saying goes, ‘good luck with that one’.

      This might be a good point to mention that SEEDS mapping makes it possible to plot the divergence between (a) the economy of ‘things’ and (b) the economy of tokens. There’s very little in our current predicament that cannot be explained in terms of this divergence.

      Indeed, I’m tempted to write this up, in summary form, ahead of the planned China-America analysis.

    • Thanks – it might be a good way to start the article if I write it. I don’t mind saying that I’m excited by what this SEEDS mapping is doing. Amongst other things, it explains a lot of winners and losers, plus why, in the future, why ‘the last shall be first and the first shall be last’.

    • Tim wrote: ‘If any of us were ever cast adrift on a desert island, we’d get the chance to put this to the test. Instead of trying to find water, food, energy (perhaps firewood), or materials with which to construct shelters, and perhaps to build wheeled barrows and a boat, we could instead sit around exchanging tokens, such as brightly coloured pieces of paper, or cowrie shells. As the saying goes, ‘good luck with that one’.’
      I would add: At some point there would be financial innovation with the creation of ToFEx – Token Forward Exchange – that would allow a smaller group to engage in ‘betting’ on future value using ‘puts’ and ‘calls.’

    • An excellent suggestion Kevin, thank you. There will always be speculators that will engage in activities which exploit the needs of the general public, and of course ‘futures’ are a crucial factor in this as agriculture is at risk of the full fury of the elements, they are called markets.

      There is a very real need for the farmer to forward sell his produce in order to secure a return of some certainty at harvest time. I have written about this in my book and quote the wonderful fable about the native tribes and the American city traders who deal in monkeys and how they fool the natives into believing that they can profit from the traders activities. This video explains the scam:

  5. Competitive Edge
    (I wrote this a while ago, but hesitated to publish. But since Nate Hagens and Art Berman and others get into some of the same subjects, here it is…)
    Efforts to achieve health define the largest industry in the world in terms of expenditures. Food, medical, fitness, all the varieties of sexual attraction, mindless television after a long day’s work, and so forth and so on are parts of our body’s innate drive to seek homeostasis. The opportunities for a competitive edge include at least the following:
    *getting ahead of the curve in personal terms…doing it better for yourself and immediate family than other individuals, families, countries, etc. “Better” including less expensively with less addiction and better insight and more adaptive potential
    *leveraging the desire of other people for health to sell them something
    *making a career in something which people think will help them achieve health…e.g., a heart surgeon or a psychologist prescribing anti-depressants or a weight reduction counselor or a corn and beans farmer selling soybeans to huge Chinese pig factories.
    *cornering a market for something essential, such as a privatized water system
    *owning a profitable business capable of turning oil and gas, or wood, into products people are willing and able to pay for

    In other words, correctly understood, the search for health or homeostasis is pretty close to being a definition of life itself. It applies from the level of microbes to the level of nation states and to abortive efforts such as the United Nations sponsored climate conferences. Neo-liberal economics boils everything down to a massive program of consumerism. Consumerism has no obvious limits, but the search for homeostasis implies that there is a solution which involves trade-offs: effort vs. returns; long term vs. short term; individual vs. a holobiont of symbiotic actors, etc. And we can see outliers in the ‘consumerism as solution’ paradigm: the Buddha, Zoroaster, Jesus, Thomas Merton, etc. Even the Unabomber. The Plains Indians who fought Custer at Little Big Horn, trying vainly to hold on to their low input lifestyle. There was a guy in San Francisco who lived at least several years with no income at all.

    We know that many ‘diseases’ are the bodies’ attempt to achieve homeostasis in the face of a toxic world. See, for example, the interview between Dr. Kara Fitzgerald and Dr. Dale Bredesen focusing on Alzheimer’s. Note the hostility with which the Establishment has greeted Dr. Bredesen’s demonstration that Alzheimer’s can at least be stopped and perhaps reversed. We can see that a stripped down medical system may perform as well as a bloated medical system…see the reference below to the Cuban health care system…is that where a Degrowth world will end up by necessity? And note that Dr. Naviaux, who discovered the Cell Danger Response, is seeking to redefine goals as the promotion of health, rather than ‘whack a mole’ medicine. Finally, we come to the issue uppermost in most people’s minds on this blog: what about commercial energy? Opinions of smart people vary from ‘fossil fuels are dead men walking’ (Philip Verleger) to ‘a new hundred year resource cycle’ (Goehring and company).

    What is the advantage of looking at the search for homeostasis rather than continuation of consumerism? Are they actually different? I think it is similar to the discovery that ‘for every action, there is an equal and opposite reaction’. It changes our understanding. Cuban doctors are not a result of an Angel visiting Fidel and giving him a vision of a healthy population. They are simply the best response Cuba can make as a poor country being endlessly persecuted by a powerful United States. If, as most people here expect, the US and many other countries are on a Degrowth trajectory, then Cuba may point us toward likely outcomes. If people in the US could buy conventional health insurance for 10,000 dollars per year, or Cuban health insurance for 800 dollars per year, I am pretty sure what most people would select. The entire weight of the Establishment is exercised to prevent that choice from being available. If people who are 80 years old, and thus approaching the prime years for Alzheimer’s were able to enroll in the Bredesen’s program and pay a thousand dollars per year for Alzheimer’s insurance, or else pay probably 100,000 dollars per year for conventional coverage, then I am pretty sure the Bredesen program would be selected overwhelmingly. The entire weight of the Establishment is brought to bear to obscure the choice and make sure that people are not allowed to choose.

    What does this have to do with commercial energy? I’ll distinguish between oil and gas and nuclear and solar panels, which I will label ‘commercial’, and the energy made in our cell’s mitochondria when we eat food. While food is commercial, mitochondria cannot be paid in dollars. But energy has been the key to the evolution of life as we know it…from fermenting archaea to oxygen powered mitochondria through the economies based on wood and fossil fuels and passive heating and cooling and nuclear and photovoltaics and windmills. Work from scientists such as Dr. Morgan and Tim Garrett show us that the modern economy is strongly tied to the consumption of energy, and articles remind us that Germany has not succeeded in unhooking itself from fossil fuels despite spending an awful lot of money.

    Is there any prospect that human life can continue if fossil fuels decline? If there is, I suspect that the history provided by Dr. Zach Bush in the link following, and the book Breath by James Nestor provide us with the clues. Bush tells us how holobionts emerge as organisms under stress seek new combinations which will work in the new environment. Nestor shows us how breathing more slowly has multiple health and longevity benefits. It is not a coincidence that religious and spiritual movements have emphasized the breath. How can it be that less breathing is good for a human or other animal, when we are oxygen powered. The answer turns out to be that we get more bang for our buck when we use the oxygen more efficiently, and when we accumulate more carbon dioxide between breaths. If we look at Nature, then I suggest that Nature suggests looking very carefully at new ways to organize to achieve clearly defined objectives and also very carefully at the proper speed with which to work toward our objectives. Driving may not be better than walking, and perhaps the trip isn’t really necessary at all? On the commercial side of the equation, if people want new solutions, then there are opportunities. Perhaps that is why Apple could buy Exxon-Mobil from petty cash?
    Don Stewart

    Philip Verlager
    https://www.niskanencenter.org/i-am-a-climate-optimist/
    “The oil, gas, and coal businesses are hurtling toward extinction in Europe, the United States, Canada, and much of Asia today. In many cases, the shareholder-owned companies have chosen to commit the corporate equivalent of suicide. ”

    Goehring and a Polish name which I won’t embarrass myself by trying to spell.
    http://info.gorozen.com/webinar-100-year-extreme-what-a-new-commodity-cycle-could-mean-for-your-portfolio?

    https://www.drkarafitzgerald.com/2020/09/02/addressing-root-causes-of-neurodegenerative-diseases-with-dr-dale-bredesen/
    Leading off will be Don Fitz, author of Cuban Healthcare: The Ongoing Revolution, published by Monthly Review Press. It thoroughly reviews the system, its history, and how it works today. (Per capita, Cuba spends about 8% of the US per capita cost of healthcare, but has higher longevity and lower infant mortality.) Don started digging into Cuban healthcare some years back when his daughter announced that she wanted to be trained as a Cuban doctor, and was. He’s visited Cuba multiple times, got an inside look at the system, warts and all, and continues to follow Cuba and it’s healthcare system. Don received a Ph.D. in 1974 from the University of Texas at Austin and was a research psychologist for 25 years at St. Louis State Hospital. He is active in Green Party politics.

    For a two hour firehose of information about how life got started and works on Planet Earth, see:
    https://zachbushmd.com/knowledge-virome/

    • That was funny. Living in a petri dish, we cannot really blame Don for our current situation. I wish we could. It would make things a bit easier.

    • I understand that our dear host wants to keep comments on topic, but I wanted to say that I find your health related discussions very illuminating!

    • There’s a balance to be struck, which is why ‘guidelines’ for discussion are a better idea than ‘rules’.

      Our ‘central space’ might be defined as:

      – The economy as an energy system – something which the ‘conventional’ interpretation still fails to recognise.

      – The environment – we will never understand this critical issue until we recognise that energy is the common factor linking the economy and the environment.

      – Modelling the energy/economy/environmental system – our ‘competitive edge’ here is our ability to go beyond theory into quantifying, modelling and projecting the energy-based system.

      – Engagement – it’s imperative that these understandings are presented in ways that are accessible, objective, impartial, and as jargon-free as possible.

      Beyond this there are many related issues, obviously including government, finance and business. The balance to be struck is to ensure that we don’t go too far from the central issues.

    • Thank you, Tim, for elaborating the main topics. There is finite time-space in our lives and the planet.

    • Maybe your 7 billion + followers should have taken steps before they started consuming healthcare.

  6. Another chapter in the book, how humans deal with real problems. Tim, do you think we can adopt the brilliant strategy the oil industry used to deal with the plastic waste problem for the ECoE problem and “advertise our way out of it”?

    Read it and weep. I know it will involve unimaginable suffering but really, the oil industry can’t die fast enough.
    https://www.npr.org/2020/09/11/897692090/how-big-oil-misled-the-public-into-believing-plastic-would-be-recycled

    • Yeah, this has been my suspicion for a long time. You just can’t take generic plastic waste and turn it into something useful. You got all kind of elements mixed in, paper, ink, food leftovers, metal etc. You would have to have people sorting it out piece by piece and wash it. Not remotely feasible. So they shipped it off to China who just would burn it or dump it somewhere in the environment. Until even they didn’t have the stomach for it.

      Now the mountains of indestructible plastic are so many, the problem is too big to face, both in a practical sense and in a political sense. The proposed solutions will be the same old story of new technology and research, building stuff to run around and collect plastic bits out of the ocean and such.

  7. An article on ZeroHedge refers to Jim Ried making the case for cyclicality and identifies five ‘Super Cycles’ over the last century and a half (in which exist the business cycles) as follows:

    Cycle 1: The first era of globalisation (1860-1914)
    Cycle 2: The Great Wars and the Depression (1914-1945)
    Cycle 3: Bretton Woods and the return to a gold-based monetary system (1945-1971)
    Cycle 4: The start of fiat money and the high-inflation era of the 1970s (1971-1980)
    Cycle 5: The second era of globalisation (1980-2020?)
    Cycle 6: The Age of Disorder (2020?-????)

    Reid’s categorization needs fine-tuning, in my view.

    Cycle 5: The era of financialisation and Globalisation II’ (1980-2007).
    Cycle 6: The Age of Discord (2007 onwards).

    Cycles 1-5 were founded on abundant or sufficient surplus energy. Cycle 6 onwards is, therefore, the first era where the structural driver of declining surplus energy is in progress and negating, and where monetary dysfunction on a global scale – universal fiat – has, or is likely, to become critical.

    In other words there is a constellation of factors coming together at criticality that suggests the degree of discord and disorder that lays ahead could well be of a magnitude that, quite frankly, I am finding too scary to contemplate.

  8. Dr Morgan should perhaps write ‘A New Robinson Crusoe’, in which the hero is a shipwrecked economist, preferably the winner of a Nobel Prize.

    Or for even more fun, that Varoufakis man: he could spend much of his time trying to erase inequality and searching for evidence of patriarchy and fascism on the island….

    Elon Musk is another candidate, but he is, of course, beyond any satire.

    • My late father told a story which, in this context, you might enjoy.

      A physicist, a chemist and an economist are shipwrecked on a desert island.

      The good news is that they have a huge stock of tinned beans washed ashore with them. They have lots of water and firewood, and they have plenty of knives, forks and plates. They even have saucepans.

      The bad news is that they have no tin-opener.

      The chemist says: “put the tins in the water, and the tins will rust away, leaving the beans for us to cook”.

      The others object that this would take years, by when they would have starved.

      The physicist says: “put the tins in boiling water, and the pressure will increase, bursting the tins”

      The others object that this would scatter the beans over ten square miles, and pepper everyone with shrapnel.

      They both turn to the economist.

      He says: “Assume a tin-opener……”

  9. A Scottish lady around my age (75) who has been living on the BC coast in Canada for some decades offered this one as a follow-up:

    A man in a hot air balloon realized he was lost. He reduced altitude and spotted a woman below. He descended a bit more and shouted, “Excuse me,can you help me? I promised a friend I would meet him an hour ago, but I don’t know where I am.”

    The woman below replied, “You are in a hot air balloon hovering approximately 30 feet above the ground. You are between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude.”

    “You must be an engineer,” said the balloonist.”I am,” replied the woman, “How did you know?”

    “Well,” answered the balloonist, “everything you told me is, technically correct, but I have no idea what to make of your information, and the fact is I am still lost. Frankly, you’ve not been much help so far.”

    The woman below responded, “You must be in Management.””I am, “replied the balloonist, “but how did you know?”

    “Well,” said the woman, you don’t know where you are or where you are going. You have risen to where you are due to a large quantity of hot air. You made a promise which you have no idea how to keep, and you expect people beneath you to solve your problems The fact is you are in exactly the same position you were in before we met, but now, somehow, it’s my fault”.

  10. Anyone seen the BP report The Guardian has on their front page right now?

    https://www.theguardian.com/business/2020/sep/14/global-oil-demand-may-have-passed-peak-says-bp-energy-report

    Nothing to worry about. We don’t need to extract any more oil because batteries and fully dispatchable, always available, cheap renewable electricity will save us right now.

    I often wonder how many people realise just how horribly out of whack the scale of the problem is and our meagre moves towards even considering it, to say nothing of actually dealing with it.

    • ‘We don’t need to extract any more oil because batteries and fully dispatchable, always available, cheap renewable electricity will save us right now.’
      That is what a lot of people seem to believe! They really do – I despair.

    • Any way someone can get a copy of their study? They say 1 of 3 scenarios showed demand continuing to rise.

    • BP is sugar-coating what is in fact a really amazing admission from a very large OilCo in the know. The real message here is that: you folks aren’t getting anymore oil than what we’re are producing now. “Demand has peaked,” meaning, since supply is supposed to balance demand, supply has also peaked. BP is just making it sound like some kind of choice based on intelligence and wisdom, that humans in fact don’t ever exercise when it comes to being able to party hearty. Anyone who thinks about this message for more than 15 seconds would be terrified at the implications, without the renewable energy sleight of hand leading one away from the scene of the horrific accident.

      And I notice that the statement that oil will be replaced by clean electricity doesn’t actually say that it will be sufficient to maintain current lifestyles. Yes, true, there’s going to me more electricity from so-called renewables! (For a decade or two)
      Let’s leave it at that! People will assume what makes them comfortable.

    • I’d say that some oil will be replaced in this way, but not, remotely, all of it.

      It’s a sobering thought that roughly 97% of all transport worldwide continues to be powered by oil.

  11. Great work here Tim. I’ve been a follower for quite some time and believe you have a great model here with SEEDS.
    Having built three “off grid” homes over the last fifteen years I can say with confidence that even a modest western life style won’t work without FF. Living just shy of 45N in Canada the weeks from mid October to February are the tough ones. My first home had a 1kw wind turbine and 1.5 PV. The one we’re in now is 5.4kw PV only. The turbines are mechanical and don’t produce the advertised output. It is interesting to see the debate about running the world on renewables. You may want to check out the discussion on the Arctic sea ice forum, I don’t participate in it but find it very amusing.
    https://forum.arctic-sea-ice.net/index.php/topic,3286.msg286348/topicseen.html?PHPSESSID=830a1ae4a224b780a484eaebfa0551fd#msg286348

    • this is reality,
      I tried running an electric car, it was a logistic nightmare and cost me a fortune!

      a guy I worked for was living in a caravan whilst saving up to buy a house, we stuck a load of lead acid batteries in the back of a small van, put solar panels on the roof and strapped a scaffold pole to the outside with a small wind gen on the top,
      it was a really interesting experiment, he was either economising on electric when the wind was low and the sky was cloudy or desperately trying to burn off excess when the volt meter got a bit high!
      we found that in November neither the wind blew or the sun shined,

      there are plenty of armchair experts who talk up renewable energy and EV’s but as soon as you actually try to do it in real life you discover it’s a lot more expensive, complicated and unreliable than you ever imagined.

      I gave up on the EV and take the bus or train now,
      the guy I worked for is in a house hooked up to the national grid.

    • Thank you, and welcome, as I think this is your first comment here.

      We discuss all sorts of things here, but the single most important thing for me is the SEEDS model – my own opinion is that the only way we can model the economy effectively, and link it to other issues such as the environment, is from an energy basis.

    • “I can say with confidence that even a modest western life style won’t work without FF.”

      “LONDON, 19 February, 2020 − Virtually all the world’s demand for electricity to run transport and to heat and cool homes and offices, as well as to provide the power demanded by industry, could be met by renewable energy by mid-century. This is the consensus of 47 peer-reviewed research papers from 13 independent groups with a total of 91 authors that have been brought together by Stanford University in California.” https://web.stanford.edu/group/efmh/jacobson/Articles/I/CombiningRenew/100PercentPaperAbstracts.pdf

    • Techno-optimism run wild! I wonder what % of the 47 do cradle to grave analyses of the materials and energy embedded in RE infrastructure, and the years to rebuild them when they wear out…

    • “LONDON, 19 February, 2020 − Virtually all the world’s demand for electricity to run transport and to heat and cool homes and offices, as well as to provide the power demanded by industry, could be met by renewable energy by mid-century.”

      Mid century is only 30 years away. Not a long time to replace such a huge amount of infrastructure. I can see technical solutions that appear to make this workable. Energy can be stored very cheaply as heat in insulated rock or water bodies, which human beings have ample uses for. Hydrogen can be stored as gas in gasometer and then burned in a gas turbine. Freight can be transported by rail and pipeline. But I am sceptical that all of this can be developed and paid for by mid century.

  12. As I have previously posted links for two articles in Hubert Horan’s series on the fate of the airline industry, I will also link of the fourth installment, which includes a video interview of Mr. Horan. Consistent with your prediction and belief, Tim, the travel industry as we knew it pre-pandemic is dead and is not coming back.. Airlines, capital markets and politicians, however, refuse to believe it.

    “After five months absolutely no one from the industry, capital markets or government has put forward any proposals suggesting they understand the crisis or have any idea how it might be solved. Their favored approach seems to consist of nothing more than a determination to protect the industry’s pre-pandemic competitive and ownership status quo. The “rapid demand recovery/industry fundamentals haven’t been affected” narrative was designed to protect the status quo, and the need to protect the status quo explains why the narrative remains strong even though it was completely, totally wrong.” . . . .

    “Thus, to finally answer Izabella’s question, yes, it would be entirely possible to lay out “solutions” for the industry crisis, but that would serve little purpose given the huge obstacles to getting any such solutions implemented. The critical problem isn’t figuring how to restructure an industry where supply and demand are totally out of whack, or how to prevent airlines from collapsing during that restructuring process. The critical problem is how to overcome the political power that gives incumbent airline owners and senior management nearly totally control of the current process, has totally delegitimized society’s broader interest in competitive and efficient airline service, and has paralyzed efforts to keep the industry from falling into the abyss.”

    https://www.nakedcapitalism.com/2020/09/hubert-horan-the-airline-industry-collapse-part-4-total-paralysis-continues.html

    • We were discussing the concept of “peak travel” here – before the pandemic – and pouring a lot of cold water on the consensus (which said that, by 2040, we’d have 75% more vehicles on the world’s roads, and would be taking roughly 90% more passenger flights).

      The near-term future for aviation might involve carrying half as many passengers at twice the price, though I’d expect them, first, to get into a price war, thereby getting rid of excess capacity by driving the weakest to the wall.

    • All exactly right my dear taglio and thank you for your efforts in explaining this dilemma upon which the airline industry is pilloried – on their own petard. They have suffered over whelming over-reach IMHO and will have to rely on extreme cutbacks to establish a more moderate operating baseline — this will be painful – and other industries are experiencing similar conditions i.e. retail, the high street and malls et al.

      The excess and low-cost energy of which we have been beneficiaries in my generation has now come to an end, as Tim explains so well. I fear for our Gen Xers who will be taking the helm, before too long, within a maelstrom of economic chaos.

      God help all who sail in her!

  13. I’ve spent the majority of today watching presentations by this guy,

    https://jancovici.com/en/

    he doesn’t sugar coat the pill in the slightest,

    my only positive takeaway from listening to him is that I’m two thirds of the way through my lifespan and I’ve not fathered any children to worry about,

    he confirms pretty much everything I’ve come to understand about our predicament and adds a few additional twists,

    the video above is a presentation to students at the ESSEC International Business School in Paris,
    I wonder how many of the students went out and got blind drunk after this lecture!

  14. If you want realistic – although fairly pessimistc – forecast of post fossil life then try excellent YouTube presentation by Dr Eric Cline on why the Bronze Age Collapse – in 177BC – matters today. A sudden global collapse caused by a perfect storm of events hitting a complex, close coupled cosmopolitan and globalized world-system dependent on long distance logistics chains:

    And also see similar excellent presentation from series “Fall of Civilizations”, entitled “The Bronze Age Collapse – Mediterranean Apocalypse”:

    Civilizations rarely transform themselves under major stress, they usually collapse.

    • Yes, Gavin and check out 536AD – a massive super volcano changed the world as they knew it for good and ushered in the Black death pandemic:and a new global order:

  15. According to a Barron’s report on the 14th, “France will move forward with its planned deployment of 5G telecom networks despite detractors who would prefer “the Amish model” and “going back to the oil lamp”, President Emmanuel Macron said Monday.”

    Really, why would anyone participate or engage in politics with this level of discourse, sheer stupidity, brow-beating and intentional extreme mischaracterization? The disdain evinced by and the substance of the statement speaks volumes about the supposed theory that government rests on the “consent” of the governed.

    (As to which, if you still believe in the idea of representative government, see Lysander Spooner’s No Treason No VI The Constitution of No Authority, where he lays it out in a highly legalistic way why the idea of the authority of laws over anyone is complete nonsense. A complete myth fabricated to justify and manufacture “consent” to human power relations.)

    Charles Hugh Smith has an excellent theory on why we have such terrible political and corporate management these days: the competent have long ago left the scene, and only a few noble people trying to make it all work (who will eventually burn out) and the incompetent are left. He and his two compatriots explore this idea in Salon 21, “We need a fix, and nobody can fix it,” on youtube under the axisofeasy channel. Really worth listening to.

    • The Macron quote is utterly lamentable., seasoned with his usual graceless arrogance.

      The brightest and the best do not go into politics; and if they were to try the system would probably eject them.

      Nor indeed do they, on the whole, stay in academia: those with real energy and ability tend to go out into the world.

      Which brings us to where we, most unfortunately. are….

      As for laws, we might make an exception for tribal laws governing simple societies, often wise and very practical, taboos included.

  16. On the subject of civilisational collapse, high-spending Middle-Eastern countries dependent on oil income (Saudi Arabia being a particularly worrying case) are likely to undergo violent revolutions. SA is particularly scary because it contains the most important Islamic holy sites and its version of Islam is at odds with that of Iran. One can foresee a major conflagration in the region with high-tech weaponry with no real ‘steady-state’ solution. Nearer to home, Russia is also vulnerable.

    • Dr. Ian,
      I agree with your assessment of Saudi, they have a young, aspiring, population who have grown up on state benefits, and are unlikely to willingly accept any cuts, ( although maybe some necks will see the sharp side of the sword ).
      However, I do not agree that Russia is as susceptible as you suggest. Sure, the CIA and its minions are actively trying to subvert it, but so far they have been unsuccessful. As has been discussed here on Dr. Tim’s blog, Russia is a vast country full of resources, including energy. They are also world leaders in Nuclear.
      As the western world collapses around our ears, I see Russia being able withstanding much of this. They will not be unscathed, but they will fare much better than the UK, ( if it still is a U-K by the end of 2020 ) .The Germans will still buy Russian gas, the English will still buy Russian oil ( pretending that it’s Dutch), and the rest of the world will still buy Russian wheat, and to crown it all, I am considering buying a Lada.

    • Climate change has become highly political and people’s opinions on the subject one way or the other tend to be driven by political persuasion. It is a stupid way of looking at the problem, but if humans were clever, no civilisation anywhere would have collapsed.

      This NASA report shows average global temperature increasing by 1C since mid 20th century, inspite of declining solar irradiance.
      https://climate.nasa.gov/blog/2953/there-is-no-impending-mini-ice-age/

      The impending decline in fossil fuel production is no bad thing from a climate change point of view. Its just a shame that humanity was unable to make the transition to nuclear energy before it happened.

    • There ‘should’ be no argument between ‘left’ and right re ‘climate change’?
      “For climate change, there are many scientific organizations that study the climate. These alphabet soup of organizations include NASA, NOAA, JMA, WMO, NSIDC, IPCC, UK Met Office, and others. Click on the names for links to their climate-related sites. There are also climate research organizations associated with universities. These are all legitimate scientific sources.

      If you have to dismiss all of these scientific organizations to reach your opinion, then you are by definition denying the science. If you have to believe that all of these organizations, and all of the climate scientists around the world, and all of the hundred thousand published research papers, and physics, are all somehow part of a global, multigenerational conspiracy to defraud the people, then you are, again, a denier by definition. 

      So if you deny all the above scientific organizations there are a lot of un-scientific web sites out there that pretend to be science. Many of these are run by lobbyists (e.g.., Climate Depot, run by a libertarian political lobbyist, CFACT), or supported by lobbyists (e.g., JoannaNova, WUWT, both of whom have received funding and otherwise substantial support by lobbying organizations like the Heartland Institute), or are actually paid by lobbyists to write Op-Eds and other blog posts that intentionally misrepresent the science.”
      https://thedakepage.blogspot.co.uk/2016/12/how-to-assess-climate-change.html

    • Science has a history of being wrong most of the time James. Currently witness our own Niall Ferguson. They pilloried Galileo didn’t they? I’m not saying that the science is wrong just that it isn’t always right.

  17. Article in the Telegraph today by Russell Lynch where he laments that The BoE are unlikely to embark on any cut in interest rates or further quantitive easing despite the fact that inflation is below target. He cites downward wage pressures as one of the reasons. Given that real incomes are down about 1% over the past year he doesn’t appear to acknowledge that any inflation would be bad news for those who are already struggling. That’s before we consider the possibility of tax rises.

  18. Dear Johan
    Thank you; good points about Russia. And they do have quite a lot of foreign reserves to stabilise the next few years. I sincerely hope that you are right. An unstable Russia is not in the Western interest! Kind regards, Ian

  19. One other factor that will ensure Russia stands in good stead is gold. The country has the fifth largest national official reserve.

    The United Kingdom, by contrast, may soon fall-out of the ‘Top 20’. We are 17th, behind Kazakhstan and Uzbekistan and sandwiched between Saudi Arabi and Lebanon.

    Since the start of the millennium £UK has just gained promotion to the Championship League of Currency Debasement Against Gold , which consists of countries where debasement is between 500% and 999%. The figure for the UK is 710.5%.

    If the UK were to suffer a currency crisis we’d be in very big trouble indeed, especially given our reliance on imported fuel and food.

    Meanwhile, much of the MSM has been consumed with outrage about ‘Last night At The Proms’. As the saying goes: you couldn’t it up.

  20. @ el mar, I wish I knew! I have opted out of political action, political parties, the political mindset and the idea of the “savior state” (as Charles Hugh Smith puts it), but as you see, I still haven’t completely “let go” because I still get outraged when I hear this nonsense and I continue to be shocked at the unbelievable decline in the level of intelligence, literacy, competence, rhetoric and general all around conduct of our politicians. It’s the old Lily Tomlin joke: “No matter how cynical I get, I can’t keep up.”

    Now I just have to opt out of city living for rural living with some acreage in an area with enough growers that can feed itself if push came to shove, and I will have done about all I can, but man is that hard. Boston (where I live) is quite the bubblicious bubble. As matters have emerged thanks to Covid, it’s WAY better than NYC, which I got out of about 6 years ago and which, IMO,will never recover from this.

    The Charles Hugh Smith youtube salon I cited above has a great discussion about knowing when it’s time to leave.

  21. “……the MPC [monetary policy committee] had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates”.

    Exploring something – even something as outright daft as negative policy rates – is one thing, but making this fact public is the height of idiocy.

    With the economy battered by the mishandling of the Covid crisis, and “Brexit” talks very tricky, does the UK really need to raise any more negatives around GBP?

    https://www.zerohedge.com/markets/pound-tumbles-after-boe-said-it-discussed-implementation-negative-rates

    • Considering where the BP was six months ago, this is just a small consolidation after a 10% rally. I expect it to underperform the Yen and Euro, but it should be OK vs the $US.

    • Base rate has been lower than inflation for 12 years and less than 1% for 11.5 years.
      https://www.bankrate.com/uk/mortgages/bank-of-england-base-rate/

      Things have gone from bad to worse. What do these people think that negative rates will do for them that zero rates did not?

      One thing I don’t understand about negative rates. What is to stop someone or some institution taking out a loan of £1million, leaving it in a very safe bank account and then just living off the (negative) interest on the debt? Presumably, if the money is safe, anyone could do that and never need to work. Why bother trying to make something to sell, when you can get paid for being in debt? Negative rates would seem to undermine meaningful economic activity.

    • Negative real rates are an absurdity, and negative nominal rates would be even moreso.

      This is a situation in which, in the West at least, real expansion in economic output has ceased, but the authorities’ obsession with “growth” is such that they will accept seemingly any absurdity in its pursuit. What results is purely cosmetic “growth”, driven to some extent by anticipatory consumption, by inflated income from asset-related activities, and by the infusion of credit into the system to ‘buy’ growth at rates of 3:1 and worse. It is fostered by a mistaken convention, rooted in the eighteenth century, that the economy is wholly a monetary system, and can expand indefinitely on the basis of monetary manipulation.

      In this context, future trends are predictable, and some – those with at least an intuitive understanding of these follies – can’make out like bandits’.

    • Nice idea TonyH, but I think negative rates apply to central banks and their inter-bank loans and bonds and not to the general borrower. The effect though is not predictable for mortgages which I understand fall within the mandate. Dutch mortgagees, for example, appear to be benefiting.

  22. Politicians, even if they do not fully understand that real growth -now dead – was the underpinning of the gim-crack financial system which has been built over the last two centuries, seek even illusory growth as they really have nothing else to offer on the hustings, and their economic advisers all concur that it is still possible.

    They can deck it out with Green trimmings, too, and talk of the rich rewards of the ‘New Industrial Revolution.’

    When this shifts, as it must wen swathes of the population fall into poverty, to a rhetoric around redistribution, both they and the electorate will be astonished to discover that the wealth to be redistributed is mere enchanter’s gold, that turns to rusty old iron in the light of day, and not much of it.

    Although that iron would be of more use than the immense paper fortunes which have blown up and even increased during the pandemic.

    When will the day of reckoning be?

    • Quite so.

      If the public reads that a certain person is “worth”, say, $10bn, they might easily conclude that he or she could reasonably be asked to contribute maybe $2bn in tax (“it’s only 20%”) to the public purse.

      But he doesn’t actually have $10bn, or even $2bn, in money. The calculation of his wealth refers to the nominal value of his stockholdings. These can only be turned into money if somebody is prepared to buy them from him for cash – and this, if it can happen at all, would be likely to involve a far lower price. Similarly, a certain company might be said to be “worth” $Xbn but, again, that’s purely notional, not cash.

      The economy does not “gain” billions when markets rise, or “lose” billions when it falls. We cannot monetise stock markets as a whole, and we can never sell the whole of a country’s housing stock (to whom?).

      In short, asset values are purely theoretical (I use the term notional). Debt, though, is all too real, in the sense that “Borrower B is legally obliged to pay the sum of S to lender L by date D”.

    • Quite so Tim and all correct, except the debtor can always default on the debt and the ‘asset’ on the other side disappears into a puff of smoke. Notional indeed, as you say!

      One way to avoid this is to issue perpetual bonds which some governments have done by issuing 100 year bonds with negative yields – crazy stuff but not really real eh?

      The financial problem today is that the ‘time-preference theory is negated by virtually zero interest rates:
      https://www.investopedia.com/terms/t/time-preference-theory-of-interest.asp

    • Looks to me that there are elements of truth in both views. Reasons include that a decreasing minority (% wise) has savings to invest, and future goods likely don’t increase sufficiently to keep up with population driven demand.

  23. 2 snapshots of our ECoE-constrained world:

    1) Bloomberg article today, Gas Companies Are Abandoning Their Wells, Leaving Them to Leak Methane Forever. Illustrates the fact that “profits” are in fact a creature of law, not some kind of natural financial fact or law. They exist only because our laws permit companies to externalize costs. Let that sink in: they exist only because our laws permit companies to avoid the consequences of their own actions. IOW, our “representative” governments create the conditions that make them possible, and which offload the costs to the general public and the environment.
    https://www.bloomberg.com/news/features/2020-09-17/abandoned-gas-wells-are-left-to-spew-methane-for-eternity?srnd=premium

    A twitter thread by an engineer examining why a deadly CA wildfire killed 85 people and destroyed a town where his grandparents used to live, because the electric company, Pacific Gas & Electric, did not replace C-hooks holding up the lines for 95 years. https://twitter.com/TubeTimeUS/status/1306369172499177472
    a) same point about profits;
    b) an illustration why we won’t ever update the electric grid – the energy and financial cost are now unaffordable. We’ll just do patchwork triage as long as we can. I find it astounding, but at the same time completely predictable, that the digital titans who see a beautiful digital information and panopticon future are so disconnected from the reality of the state of the electric grid that makes it possible.

    • Some more editorial comments. Near the end of the twitter thread, Tube time says this:
      “i noticed in the comments that some people advocate nationalizing the electric company. it sounds nice but it’s not a panacea: a government agency and a private company are just groups of people. what’s important is *how* you organize them and set up accountability.”

      Tagio comment: Well then we’re well and truly f**d. The whole practical point of acquiring status is to avoid the consequences of one’s own actions and accountability to anyone, particularly lower-order humans. We have now achieved a pinnacle in human history in this regard, where the billionaires and wealthy corporations automatically receive bailouts for their losses directly from the central bank and/or immediate stimulus packages from government. I view this as the crowning achievement of human civilization. It’s what the “elites” have been working for since the dawn of civilization.

      There won’t ever be any legal accountability. The whole point of laws is to immunize “elites” from consequences (other than token responsibility such as the $4M fine that PG&E paid) and create private profits and socialized losses. There will only be the accountability of nature and the laws of thermodynamics.
      ·
      “Sep 16
      if you think of PG&E (the organization) as an emergent intelligence, it was set up to optimize only one metric (profit) and utterly failed to take into account another metric (risk).”

      Comment: Just substitute “humanity (the species)” for “PG&E (the organization),” and you have a pretty good epitaph for humanity. .

  24. Here’s a question for consideration, any thoughts gratefully received.

    Ignore companies with excessive market shares, and those in regulated sectors. Ignore, too, those operating government contracts and, perhaps, those financial sector companies benefitting from inflated asset markets.

    Out of what remains, how many are actually making profits?

    To be sure, many have been hit by the pandemic crisis, but many sectors have been contracting since 2018 – when according to SEEDS, the global ‘real economy’ turned down.

    • Good question Tim. Regrettably there is not a definitive answer because most financial reports are fudged and window dressed to such an extent that relying on these gives little indication of profit,

      If you take into account off-balance sheet items, SVPs etc, reverse factoring and all the other many ‘financial engineering’ activities, even GAAP results are unreliable IMHO. Even outright frauds like WireCard are covered up and ignored by the Big Four.

      Of course the Zombies are fairly easy to spot, but what about the hidden ones? Stick to hard assets like agriland, property, bullion (under the bed because THEY will come for it eventually) and TS Bills for trade is my advice; avoid these manipulated stock markets like the plague in these volatile times.

      A revealing video exposing the dysfunction (to put it mildly):
      https://www.rt.com/shows/renegade-inc/379579-uk-finance-curse-suffer/

    • Thanks.

      To simplify, I was wondering if we could identify sectors (rather than individual companies) which were, or were not, profitable, even before the coronavirus.

    • Sorry Tim, I misunderstood – it’s a band wagon of mine – all this accounting manipulation!

      Sectors? Good question. From what I read Tech and Comms is a go, but most Unicorns will fail IMHO when distress hits the markets. SoftBank is a disaster waiting to happen and Tesla is a joke so autos are out and transport generally. Maybe Utilities will remain good as they have been solid dividend yielders – captured markets and all that. Food and Staples should hold up generally but I would avoid retail. Retail property is always sound in the long term but commercials will have to re-engineer their models, especially Malls et al. Renters will be under pressure but Construction looks fair for the moment.

      Just a few thoughts of the top of my head. I suppose we will need to focus on those things which will be needed rather than wanted in the New Emergent Economy with much less consumption and leisure/travel.

  25. In times of great stress, the human default is to numb themselves, so all drugs will see surging use as long as people have any resources left to pay for them, so big pharma and the booze conglomerates should be doing well, while bread & circuses are always a go. (The masses comforting themselves with junk food & the likes of netflix) DIY will become a necessity as people no longer afford essential services like maintenance & self-sufficiency items like food seeds, rain barrels, hand tools – no more electric lawn-mower, etc.

    In the race by countries with the financial credibility to get away (for now) with debasing their currencies by competitive devaluation via digital gifting to the elites of newly conjured ‘wealth’, there will be a massive first-mover advantage. China might have realised that as with physical gold, if everyone holding paper tokens tried to redeem ‘value’ at the same time by buying useful things with cash, it’d quickly become obvious the claims were greater than the resources they target. Apparently China recently started building up huge inventories of essential goods it doesn’t make, like a year or so of total national need and this may be just excellent, sensible planning for supplier disruption from the unending covid-response fiascos, or political risks alone.

    But it may be recognition that before the music stops and no paper money is acceptable for items of real value, the first to buy as much as possible – at whatever price – can garner the biggest stash of the planet’s remaining essential resources for free.

  26. Cheap low maintenance transport. Look at societies that already operate at a much lower energy level such as those in Latin America. Bicycles (already growing because of covid), and small engine motorcycles and scooters. 90cc and 125cc motorcycles are ubiquitous in places like Quito.

    • Also adding to FI Warrior’s excellent list, as a distraction / entertainment, video games, which are already very profitable, and can be both played as a social activity or alone.

    • And a word of warning when evaluating stocks, tagio. David Stockman has some words of advice today:
      “Of course, these deleted GAAP charges reflect the consumption of real corporate resources, such as purchase price goodwill that gets written off when a merger or acquisition goes sour, or the write-down of investments in factories, warehouses, and stores that get closed. As such, they absolutely do diminish company resources and shareholder net worth over time.

      But for decades now, Wall Street has so relentlessly and assiduously ripped anything that smells like a “one-timer” out of company earnings filings with the Securities and Exchange Commission (SEC) that it no longer even knows what GAAP earnings actually are.

      And it pretends that these discarded debits (and credits) to income are simply lumpy things that even out in the wash over time. They do not.

      If ex-items reporting was merely a neutral smoothing mechanism, reported GAAP earnings and “operating earnings” would be equal when aggregated over several years, or even a full business cycle.

      Yet during the last 100 quarters, there have been essentially zero instances in which reported GAAP earnings exceeded “operating income.”

      So, in aggregate terms, several trillions of corporate write-downs and losses have been swept under the rug.

      During the second quarter of 2020, for example, GAAP earnings reported to the SEC totaled $145.8 billion for the S&P 500 companies, while the ex-items earnings curated by the street posted at $222.3 billion. That amounts to the deletion of nearly $77 billion of write-downs and mistakes, and it inflated the aggregate earnings number by more than 52%.

      The game is all about goosing the earnings number in order to minimize the apparent price-to-earnings multiple, thereby supporting the fiction that stocks are reasonably valued and that nary a bubble is to be found, at least in the broad market represented by the S&P 500.”

      Sort of says it all, doesn’t it?
      https://www.theburningplatform.com/2020/09/19/david-stockman-on-how-the-stock-market-got-to-be-out-of-touch-with-reality/

    • Makes perfect sense.

      This said, completion of SEEDS mapping makes it pretty tempting to assemble a mix of longs and shorts that would ‘shoot the lights out’ as the extreme irrationality embodied in current markets crumbles in the face of the relentless juggernaut of reality…..

    • How true doc. However, the proceeds of this effort would be:

      A. Profits in fiat currencies
      B. Destruction of these currencies while taking ‘profit’

      There’s no easy way out.

      Seeds does have charm, but it is the enemy of fiat currency.

      Now what?

  27. Well Tim, we all look forward to the first SEEDS-based hedge fund, launched by you or with you, at least, as its’ very well-paid advisor.

  28. http://howtosavetheworld.ca
    The End of Ideas

    In response to Joe Clarkson, I penned a rather long article talking about some of the fundamental changes which are occurring in the world of science, and our society’s seeming inability to apply those insights to solve our myriad problems. We will see if it gets published. In the meantime, Dave Pollard has written about the lack of imagination in our current leadership:

    “Often glamourized as alt-culture technology geeks, the current cohort of technology multi-billionaires (I needn’t name them) are basically kids who grew up with television, video games and other devices that offered them no practice in imagining anything daringly new. So IT is essentially an industry that makes its billions remixing old ideas and adding a high-gloss SFX varnish to them.”

    I tend to agree with most of Dave’s points, including the likelihood that it is only collapse that will shake us so fundamentally that we will have to go back to basics and re-invent human societies.

    Don Stewart

    • Peter,

      What will be positive aspects of the increased demand from another billion or two people selling slices of a shrinking pie? Check out footprint network dot org We are currently using 1.7+ times Earth’s output by reducing stocks after than regeneration of renewable resources, and non-renewables must be recycled to stay even!

    • Steven, I don’t think the earth’s population of consumers will increase, in fact it is reducing in the developed nations, so total resource consumption should fall as the economic depression deepens IMHO

    • Peter,

      I humbly suggest that you consult with demographers and scientists. What you “think” will be radically altered unless you continue to have blind faith in an intelligent designer. That design hasn’t been going too well according to The UN, The Union of Concerned Scientists, The Royal Society, etc..

      Sir Martin Rees, past President of The Royal Society says it’s 50-50 humans go extinct this century. He realized we were overpopulated 2 billion ago when he wrote _Our Final Century_. I reviewed it for the UK journal Futures in 2004. See:

      Kurtz, S. B. Futures, 37(1), 97–99. doi:10.1016/j.futures.2004.03.016
      url to share this paper:
      sci-hub.tw/10.1016/j.futures.2004.03.016

    • My understanding, though I stand to be corrected, is that the annual rate of increase in the global population has slowed from 1.3% in 2000 to between 1.0% and 0.9% now, and the population might stop growing in c 2050.

    • Absolutely correct about the slowing growth rate, Tim. However, population momentum keeps the total expected number rising at least until mid-century. Science indicates overshoot occurred last century. What’s so good about adding another couple of billion on top of a few billion too many already?

      Hans Selye’s General Adaptation Syndrome explains how life forms reduce fecundity during hard times. Two examples for humans were before the French Revolution and during the Irish Potato Famine. As soon as things got materially better, fecundity shot back up to the prior levels. This is well known in animal species too. Some actually kill excess offspring to try to insure survive of the existing family.

    • @Austrianpeter
      You might be right to think that some tinkering can fix the system. But I doubt it. What I see is a profound dysfunction in the way the actual economy (at least in the West and the Western wannabes) works and continuation of the “Venetian mindset”…perpetual growth supporting positive interest rates. BW Hill was the first person I heard talk about “thermodynamic depletion”. That is, despite having enormous amounts of energy, a barrel of oil was no longer producing growth. While Nate Hagens talks about the “equivalent man hours” all the time, I don’t think he has ever addressed the question “Then why can’t we use the barrels we have to generate growth?”. Even if ECoE is 10 percent, we still have 90 percent of an enormous number of energy slaves. But we can’t get the price of oil even up to the cost of production. The obvious suggestion is that we have let distortions sap our potential for effectively using the slaves. If that is, indeed, a correct assessment, then tinkering with the money system probably won’t solve the problem. Given the power of embedded wealth, it probably requires a collapse to get any fundamental change. Whether “collapse” is scary or not may depend on one’s situation. When Imperial Rome collapsed, some peasants were better off…while some reverted back to the Dark Ages. (e.g., in Britain). There are probably subsistence farmers around the world who would welcome the end of centralized governments which tax them and deliver nothing as they pursue imperial aspirations.

      And I think that the assessment of mineral and energy requirements to build a ‘green economy’ that I linked to justifies the conclusion that it is B.S. One can fall back to the position that ‘it will suck, but it is the best we can do’…but I think that implies collapse of the political and economic system we have in the US, at least.
      Just my opinion….Don Stewart

    • Thanks Don and a great summary of one possible direction of travel. At present it seems that I don’t have enough information to make a reasonable prediction and we know that “making predictions is dangerous, especially about the future” to paraphrase a well known sportsman.

      I’m tired of having called TEOTWAWKI so many times only to be frustrated by yet more QE or whatever! So this time I am assuming that TPTB will find yet more gems in their lockers to go on robbing us blind, for the rest of my life anyway.

  29. I remember seeing an individual advertising the work of a David Fleming under one of the previous articles on this website and decided to follow up. It turns out that he is a rather pivotal figure in the development of the UK Green Party and one of the few people in the world to be talking and campaigning about peak oil back in the 1970s so a rather forward-thinking chap. See this article he wrote back in the 1990s for instance: http://www.feasta.org/documents/review2/fleming.htm.

    On my background reading on this fellow, I came across a rather salacious article written in a small Indian independent news agency known as Counter-Currents. It seems to be a rather ramshackle operation and I cannot vouch as to the veracity of their reporting. From what I’ve garnered, they seem to be anti-imperialist leftists with a considerable ecological bent. Anyhoo, this article seems to imply that successive US administrations have been placing pressure on the International Energy Agency to skew their data in their annual World Energy Outlooks. This has been going on ever since a report of theirs in 1998 indicated that global economic growth was going to be brought to an end due to difficulties in expanding access to cheap energy via issues with oil production. As we all know, the global economy is an energy system but this article seems to insinuate that the research team purged thanks to US involvement had accumulated convincing empirical evidence of this back in the 1990s.

    What’s more, the current Executive Director of the IEA, Fatih Birol, is a survivor of the US-mediated purge of the IEA and confirmed to David Fleming personally that the “unidentified unconventional oil” included in IEA reports since 1998 were bogus figures according to this article. I know that you have decided to abandon IEA figures for future global energy supply, Dr Tim, but the allegations made by this article that the IEA has been deceiving governments around the world and effectively disincentivising renewable energy investment for decades via the hyping up of oil reserves don’t exactly seem implausible to me.

    Here is the article in question: https://www.countercurrents.org/badal250510.htm.

    • Thanks, this is very interesting.

      For the record, the consensus view – as published immediately pre-pandemic – was that primary energy supply would rise from 13.9 bn tonnes oe in 2018 (and 14.1 bn toe in 2019) to 16.6 bn toe (+20% vs 2018) in 2040, with the fossil fuels component increasing from 11.7 bn toe to 13.4 bn toe (+14%).

      ECoE considerations alone make this implausible. The SEEDS projections show total energy supply in 2040 at 14.2 bn toe (+2%, i.e. effectively flat), and fossil fuels at 10.8 bn toe (-8%).

  30. Alice Friedemann on Electric Vehicles
    http://energyskeptic.com/2020/ev-cars-and-utility-scale-energy-storage-batteries-are-not-likely-to-materialize/
    Some of the same themes that were in the talk I linked to earlier. I don’t have any numbers, but expanding the battery industry would require diverting the fossil fuels from today’s uses to building the mines and factories and so forth. Which would reduce supply of the fuels needed by the non-energy economy. It would essentially require a war footing. I don’t think it is likely.

    In terms of competitive edge, I suppose one might sell Tesla short…but that has been suicidal thus far. It’s beyond my pay grade.
    Don Stewart

Comments are closed.