#185. The objective economy, part two

ARE DISCRETIONARY PURCHASES NO LONGER AFFORDABLE?

When somebody makes a discretionary (non-essential) purchase – pays for a leisure activity, for instance, or a consumer gadget, or a holiday – the assumption is that he or she ‘can afford it’. But the World economy runs on continuous infusions of credit, which makes the world “afford” subject to increasingly severe qualification.

This discussion presents an analysis of prosperity (as opposed to credit-financed ‘consumption’), in conjunction with assessments of taxation, and of the cost of household essentials. It indicates that the average person can not now afford discretionary purchases. Moreover, his or her ability to afford liens on income – the household counterparts of the streams of income now so critically embedded in an increasingly financialized economy – has to be open to very serious question.

As we near the point where we exhaust our ability to inflate economic ‘activity’ with perpetual credit injection, we are poised to make two very disturbing discoveries. The first is that swathes of discretionary activity are no longer affordable on a sustainable basis, to the point where sectors supplying these purchases are to a large extent living on the life-support of financial manipulation.

The second is that a large proportion of asset valuations – where they involve discretionary suppliers, capitalized streams of income, and property – are hanging by a thread.  

Introduction

In the previous article, we went in some depth into the workings of the economy as an energy system, concluding that prior growth in prosperity has gone into reverse as the energy equation has deteriorated. The aim here is to explore some selected implications of the onset of “de-growth”.

This can best be done, not by looking only in a ‘top-down’ way at institutions, systems and enterprises, but by following a ‘bottom-up’ rationale which starts with the circumstances of the ‘average’ or ‘ordinary’ person.

The central realities are (a) that this ordinary person’s prosperity is shrinking, and (b) that conventional definitions of economic output and individual income greatly overstate the economic resources to which he or she has access.    

There is a sequence of hierarchy in how the ‘average’ person spends his or her income. The first calls are taxation, and the cost of household essentials. Next come various liens on income owed to the financial and corporate system – these are the household counterparts of the streams of income on which so much corporate activity and capital asset value now depend. ‘Discretionary’ (non-essential) spending – everything from leisure and travel to the purchase of durable and non-durable consumer goods – is funded out of what remains, after these various prior calls have been met. 

Putting these two facts together leads to some striking conclusions. Because discretionary consumption comes last in the pecking-order of spending – and because a large and growing slice of apparent ‘income’ is no more than a cosmetic product of financial manipulation – then it follows that the underlying and sustainable level of discretionary expenditures is far lower than is generally assumed.

In essence, discretionary sectors of the economy are now on life-support, kept in being only by the drip-feed of credit and monetary stimulus. Additionally, the ability of households to sustain the stream-of-income payments to the financial and corporate sectors is hanging by a thread.

This means, first, that, as and when credit and monetary adventurism reach their practical limits, whole sectors of the economy will contract very severely.

Second, it means that we have reasonable visibility on the processes by which asset prices will slump into a new equilibrium with much-reduced economic prosperity.

Critical path

These findings have profound implications, so much so that it’s important to understand the analytical route by which they have been reached. This discussion follows a path which starts with a top-down examination of how the ‘real’ economy of goods and services actually functions, translates this into what it means for the ‘average’ or ‘ordinary’ person, and proceeds from there to various findings relevant to business, finance and government. This analysis is informed by the proprietary SEEDS economic model, which presents energy-based analysis in the financial ‘language’ in which, by convention, debates over these issues are conducted.      

If you’re new to energy-based interpretation of the economy, the ‘big picture’ is simply stated.

Essentially, the dramatic growth in economic output (and in the numbers of people supported by that output) since the 1760s has been a function of cheap energy from coal, oil and natural gas.

More recently, three trends have undermined this dynamic. First, fossil fuel energy has ceased to be ‘cheap’, in meaningful, energy-margin terms.

Second, this cost increase is taking away our ability to maintain (let alone to further increase) the supply of fossil fuels.

Third, we have reached – or passed – the limits of environmental tolerance of an economy powered by fossil fuel energy.

This means, either that we find an economic replacement for oil, gas and coal, or that we adapt ourselves to the ending of the fossil fuel prosperity dynamic. The authorities, who are aware of the environmental but not the economic implications of this situation, are pinning their hopes on transition to renewable energy sources (REs).

The environmental case for transition to REs is undoubtedly compelling. But the belief that REs can replicate the economic impetus of fossil fuels, far from being ‘proven’, is simply an assumption, based primarily on wishful thinking, and, far from success being assured, the probability of it happening is actually very low.

Considered in ECoE terms, whilst the costs of RE supplies are falling, they are unlikely ever to be low enough to replace the fossil fuel growth dynamic. The building out of RE capacity continues to rely on inputs which only the use of fossil fuels can provide. We cannot – yet, anyway – build solar panels using only solar energy, or construct wind-turbines using wind power alone.

Moreover, we should not assume that REs can ever be a like-for-like replacement for oil, gas and coal. An economy powered by REs will not replicate the one built on fossil fuels. The push to replace internal combustion engine (ICE) transport with electric vehicles (EVs) is a case in point. Whereas the properties of petroleum favoured the development of cars, RE-provided electricity is likely to work far more effectively as a power source for public transport.

Even if (and it’s a big ‘if’) RE electricity can replace the quantity of energy used by ICE vehicles, batteries cannot replicate the characteristics of the fuel-tank.  If we try to ‘buck the physics’ on this – if we insist on clinging on to cars, rather than switching to trains and trams – then we risk, not only a costly failure, but also an environmental disaster caused by mining the materials necessary for the requisite supply of batteries.

In parenthesis, it’s only fair to note that the authorities very probably don’t anticipate like-for-like replacement of ICE cars with EVs, but they can hardly tell voters that car ownership is set to fall markedly.

Economic conditions – the personal factor

Where this top-down situation leaves our ‘average’ person is with deteriorating prosperity. It might not look that way to him or her, but this is because both macro and micro perceptions have been obscured by the use of financial ‘innovation’, which has included sub-zero real interest rates (by which people are paid to borrow), and monetary expansion (which back-stops this escalation in debt and other obligations).

Wages and other forms of income have continued to increase, but only because we have been taking on between $3 and $5 of new commitments in exchange for each dollar of apparent “growth” in GDP and, therefore, in incomes. A point will, inevitably, soon be reached at which we have to renege on some of these promises, either by walking away from them (‘hard default’) or by devaluing them through inflation (‘soft default’). The idea that this somehow ‘doesn’t matter’ is a fiction, because one person’s debt is another person’s asset, and because broader promises (such as pensions) form the real basis on which people plan their lives.       

The deterioration in prosperity has been experienced first in the Advanced Economies, and prosperity per capita has been falling in almost all Western countries since the early 2000s. The high levels of complexity in these economies carry extensive maintenance costs, meaning that prior growth in prosperity goes into reverse at comparatively low levels of ECoE (between 3.5% and 5.0%). Less complex EM (emerging market) economies enjoy greater ECoE tolerance, but they, too, have now reached the ECoE inflexion-points (between 8% and 10%) at which prior growth in their prosperity, too, goes into reverse.

This, of course, means that the average person – first in the West, latterly in the EM countries – gets poorer. So far, at least, the rate of deterioration in top-line prosperity has been pretty gradual, but its effects on the average person are leveraged by taxation; by the priority that must be given to household essentials; and by the liens on income created by the increasing financialization of the economy.

Here’s a simple illustration of this leverage effect. A person has an income of $100. Of this, $35 goes in tax, $40 must be spent on essentials, and a further $15 goes out in interest, rent and various subscriptions and stage-payments. This leaves $10 of discretionary income for the person to spend as he or she wishes.

If this representative person’s income falls by $5, from $100 to $95, it’s mathematically true to say that he or she is worse off by ‘only’ 5%. But, because of the leverage in the equation, his or her discretionary spending capability has slumped by 50%, from $10 to $5.

This person may – and, in the real world, increasingly does – counteract this ‘discretionary squeeze’ by taking on extra debt, or by stringing out (staging) payments for purchases that hitherto would have been paid for up-front.

But all that this does is to increase the future cost of debt service and other liens on income.      

Taxing times

Where fiscal issues are concerned, the prosperity problem for households is leveraged by governments’ failure to set policy based on the realities of prosperity.

In the group of sixteen Advanced Economies (AE-16) modelled by SEEDS, aggregate taxation increased by an estimated 40% in real terms between 1999 and 2019. Since recorded GDP rose by a very similar 41% over this period, the apparent incidence of taxation – measured conventionally against GDP – has been remarkably static, seldom varying much above or below 36% over the past two decades.

When we look past credit-inflated GDP to prosperity, however, the burden of tax has risen from 39% in 1999 to 49% last year.

As this pincer effect has rolled on – with taxes rising whilst prosperity erodes – relatively modest decreases in prosperity per capita have been leveraged into much more extreme falls at the level of disposable (“left in your pocket”) prosperity.

The most striking illustration of this effect is France, where prosperity per capita peaked in 2004, at €30,910. Since then, this number has declined by a comparatively modest 6.2% (€1,910) in real terms, to €29,000. But tax per capita has increased (by €3,000 per person) over that same period. Accordingly, the disposable prosperity of the average French citizen has fallen by a dramatic 34% (€4,920), from €14,700 in 2004 to just €9,570 last year. Popular anger at this state of affairs is palpable.  

In few other countries has this leverage effect been quite so extreme, but declines in disposable prosperity per person have, nevertheless, been pretty striking, falling by 28.2% in Spain since 2001, by 28.0% in Britain since 2004, and by 17.4% in the United States since 2000 (see table 1).

Table 1.

Essential pressures

The adverse leveraging effect of taxation has fiscal and political implications, of course, though what interests us here is its impact on consumers.

This impact is, moreover, compounded by the growing slice of prosperity accounted for by the cost of household essentials.

SEEDS doesn’t monitor essentials spending on a country-by-country basis, but does carry out this exercise in the single instance of the United Kingdom. Over a twenty-year period ending in December 2019, average wages in Britain increased by a nominal 77%, outstripping CPI inflation (of 49%) such that, in theory, the wage-earner was better off by nearly 10% over that period.

However, the essentials index (TMUKEPI) rose by 96%, such that wages measured against household essentials decreased by almost 10% between 1999 and 2019. It’s also noteworthy that, whilst the average cost of domestic rent rose by 8% in real terms, the real cost of mortgages fell by almost 20%.

Since a sizeable part of the cost of household essentials is linked to commodities traded globally – most obviously, to foodstuffs, materials and, above all, energy – it’s a reasonable inference that these broad patterns have been replicated elsewhere in the Advanced Economies. From this, we can deduce that non-discretionary purchases, whilst they account for perhaps 37% to 40% of household expenditures, already absorb somewhere between 50% and 55% of prosperity.

If this calculation is correct, it would mean that the combined burdens of tax and household essentials are already close to, and may in a number of instances exceed, per capita prosperity. If these costs seem to remain affordable within incomes – but not within prosperity – the explanation lies in the credit effect of inflating incomes (and aggregate GDP) by purchasing “growth” using incremental debt in a ratio of 3:1.     

In short, indicative numbers suggest that, over the past five or so years, the combined burdens of taxation and essentials have come to absorb all of the prosperity of the average person in a growing number of Western economies.  

What this in turn means is that the average household increasingly relies on credit expansion to fund all discretionary (non-essential) purchases. In this context, ‘debt’ includes the individual’s share of all government and corporate (as well as household) borrowing. Albeit at one remove, government borrowing pays for services that would otherwise have to be funded by taxation, whilst corporate borrowing helps fund the incomes of employees, and may also serve to reduce the end-user cost of purchases.   

As set out in table 2, perhaps the most extreme example of this credit effect is Ireland. Since 2004, the annual pre-tax prosperity of the average Irish citizen has decreased by €3,000 which, at 7.4% and spread over fifteen years, may seem a comparatively modest decline. Over the same period, though, his or her share of the country’s debt has soared from €82,000 to €198,000. This means that, on average, the average person’s share of debt has increased by nearly €7,700 in each of the past fifteen years.     

Table 2.

Conclusions

It’s a reasonable guess that the central conclusions of this analysis will not contradict many readers’ intuitive perceptions of what has been happening.

We know that increases in income have been more than matched by increases in debt. We know that, increasingly, households are taking on financial commitments in addition to traditional obligations such as mortgages and rent. We know that taxes on the ‘typical’ household haven’t fallen to mitigate these pressures. We know that the real cost of household essentials has risen, and it will come as no great surprise that there is a corollary between rising household credit and continuing expenditures on non-essential purchases such as leisure, travel and gadgets. We also know that many other indicators of hardship chime with these observations.

In this context, it’s necessary to be clear about what we know, and what we infer. Observation over time confirms that financial ‘innovation’, and outright increases in debt and other obligations, are being used to sustain increasingly illusory ‘growth’. Our understanding of the energy basis of all economic activity should reinforce our confidence that rising ECoEs lie at the root of what began as “secular stagnation”, but has since turned into something a great deal more serious. SEEDS monitors real-terms taxation in countries accounting for about 80% of the World economy and, if we cannot calculate the costs of household essentials on a country-by-country basis, we have data sufficient for reasonable inference on this component.

We need to be somewhat nuanced in the conclusions that we draw from a diminishing, and perhaps vanishing, aggregate capability to fund discretionary purchases without resort to spiraling credit.

For one thing, inequalities between households affect the overall situation. Whilst the ‘average’ person might not be able to make discretionary purchases without using credit, there will be some below this average who already rely on credit to pay for the essentials, whilst others are in a better position, and can still make discretionary purchases without going into debt to do so. To take just one example, the interpretation presented here doesn’t imply that air travel will ‘collapse’, but does indicate that it will contract, suggesting that providers will need to carry fewer passengers, and charge them higher fares.

This said, there can be no disguising the underlying trends, which point towards overall contraction in discretionary sectors, and also highlight the vulnerability of any activity or asset which depends on income streams derived from increasingly squeezed household prosperity. Logically, the industrial landscape can be expected to rebalance away from discretionary activities, whilst a sharp correction in asset prices is likely to be led both by decay in discretionary components and by a degradation in the scale and reliability of ‘income streams’.        

164 thoughts on “#185. The objective economy, part two

  1. Kate Raworth talks to Circular Economy


    During the first 10 minutes Kate explains why the concept of the single number for GDP was born, how its inventor recognized it as misleading, and what we need to do instead. She talks about the power of graphics to lead to understanding. She refers to some charts put together by Leeds University. I had not seen those charts before, and recommend them to anyone else who hasn’t seen them. Briefly, you can put one country on the left and another country on the right and display the various metrics…from alarmingly high to woefully low. There was an extensive discussion on this site about Ecuador. It is easy to put the UK or the US on the left and Ecuador on the right and get a pretty good snapshot of the differences between the countries. For example, the UK and the US are both in overshoot in terms of Phosphorus and Nitrogen, while Ecuador is within the sustainable zone. I would imagine that the difference is mostly in the way agriculture works in the countries on the left and Ecuador on the right.

    https://goodlife.leeds.ac.uk/countries/#United%20States

    The thought that occurs to me is that when Dr. Morgan’s financial risk measurement is available, it could easily be incorporated into the diagram.

    Don Stewart

    • The components of the SEEDS financial risk measurement tool already exist – the questions are (a) how to weight the various risks, and (b) whether to publish it.

  2. Leeds Charts, Financial Risk
    As an example of how potential for change can be visualized, go to the Leeds charts and put the US on the left and Costa Rica on the right. What you see in the US is gross overshoot in many aspects. Besides gumption, it would take a lot of money (resources) to materially change the chart over the next decade. Costa Rica presents a more reasonable challenge. A little expansion of Agroecology to replace industrial agriculture, stopping the conversion of forests to grasslands to feed cattle headed for McDonald’s in the North, and slow down the usage of raw materials to build new stuff (decades ago they needed to slow population growth…I don’t know about now.).

    Put those facts together with the facts on financial risk. Could Costa Rica reasonably manage the financial shift into the sustainable zone? I’m pretty sure the US cannot do so. From what Dr. Morgan has said, the UK and Ireland are already basket cases, and so cannot finance anywhere near the response which is required…other than print parliamentary statements of objectives. Thus a reasonable conclusion might be that government collapse in the US, UK, and Ireland is a prerequisite for doing anything about the situation. But perhaps not in Costa Rica…but I don’t have any financial data on that country.

    Don Stewart

    • John Michael Greer makes relevant comments
      Greer in his last two posts takes on the Great Reset as a corporate sponsored exercise in wishful thinking. I’ll give you two quotes which are relevant to the ideas from me presented above:
      “There are ways to have some of the advantages of a commune without landing in the same predicament as Bronson Alcott et al.; one of the reasons why fraternal orders such as the Masons, the Odd Fellows, and the Grange exploded in popularity right when phalansteries were crashing and burning, for example, is that they provided the extended community and the mutual aid that communes claimed to be able to offer, without the fatal economic flaws.”
      “(One of these days I should tell the story of how the Grange, a fraternal order of farmers, broke the power of the railroad monopolies in late 19th century America.) ”

      I propose that instead of trying to ‘reform’ politics to somehow reconcile the deep divisions as democracy tries to address the problem of degrowth (without any understanding of what degrowth entails), we should divest many responsibilities from governments to ‘made to purpose’ organizations like the Grange. Thus, the basic ‘non-money cooperation based’ organizations are the extended family, a neighborhood, and a handful of made to purpose organizations with clear purposes. The ‘money based cooperation’ probably does need a reliable central government (I’m skeptical that Bitcoin can replace the monetary authorities.) Chuck Marohn of Strong Towns sees himself as ‘a pretty conservative guy’, yet as a small town Minnesota native he still understands the problems inherent in having a railroad monopoly controlling access to the wider world. He says that if ‘taking orders and filling them and delivering them’ is a natural monopoly (as Amazon seems to be proving), then it should become a common carrier and be regulated the way the railroads were regulated as a result of the work of the Grange and other rural interests. So Marohn would use the antitrust laws to separate out the monopoly part of the Amazon empire, but leave things like cloud services as competitive. Marohn’s idea is definitely not corporatist, is pro-technology but with a clear eye, and is pro-competitive for the broader economy. It does not require the universal surveillance and subservience that Greer rages against.

      Don Stewart

    • Very interesting, Don. Thanks. Although I would argue that the wedges on democratic quality should be reversed for the US and Ecuador.

    • Don, the challenge for any country that has sustainability within its reach is going to be maintaining its advantages when faced with the massive migration that will occur out of neighboring countries in overshoot when fossil fuels decline i.e., maintaining border integrity. The same problem will exist for the relatively small number of sustainable regions within a country that is in overshoot as a whole.

      Thanks for the Leeds link, very useful. For me it was interesting to contrast a country that looks great on paper and has numerous advantages over the U.S, namely Uruguay, with Ecuador. Uruguay is seriously in overshoot on fundamental aspects of food production, such as phosphates and nitrogen. I suspect this has a lot to do with the fact that in the last decade, many farms have switched from the production of quality beef based on grazing cattle to intensive industrial monocrops for export such as soybeans, olives, and fast growing trees for paper production. Since the 2008 financial crisis, UY has been a favorite place for rich investors from other countries to buy up farmland. They love these large flat countries with abundant water and sunshine because they can see large $$$ from industrial monocrops.

    • That article by Blair Fix is good.
      But his newest article is even better.
      https://economicsfromthetopdown.com/2020/12/03/as-we-exhaust-our-oil-it-will-get-cheaper-but-less-affordable/

      here is a taste

      “Scenario 2: Oil prices collapse

      Scenario 1 imagines a Hotelling-like explosion of the price of oil. Assuming that oil production declines (as peak-oil theories predict), this price explosion is intuitive. That’s because almost everyone equates affordability with low prices. If a resource gets less affordable, we assume it’s because the price went up. Almost no one thinks of the alternative — that a resource could get less affordable because your income goes down.

      We don’t think about this alternative because it involves something that few living people have experienced: the continuous contraction of income. Think about it this way. Most people are used to the annual ritual of asking for a raise. You may not get the raise, but no one (not you, not your boss) is surprised that you asked for one. That’s because for the last two centuries, growing incomes have been the norm. So asking for an annual raise has become a custom.

      Now imagine an alternative reality. In it, asking for a raise is unthinkable. Instead, each year you beg your boss not to lower your income. Most years you’re unsuccessful. And so year after year, your income declines. The price of oil declines too, but not enough to offset your losses. And so oil gets cheaper, yet is increasingly unaffordable.

      This alternative reality sounds like dystopian fiction. Yet if current trends are any indication, it’s the future we have in store. To see this fact, look at Figure 9. As with Figure 7, Figure 9 plots the growth rates of income (nominal GDP per capita) and the price of oil. The difference, though, is that Figure 9 shows real-world trends. I’ve plotted here the smoothed historical growth rates of US nominal GDP per capita and the price of oil. (Dashed lines extrapolate the recent trend into the future.)

    • Many thanks for your replies, Jim and Jeff
      The position taken reminds me of the kind of debate that was had at The Oil Drum with the vast majority taking an Erlich style stance proclaiming that the oil price would skyrocket to infinity and beyond. There were a few notable dissenters – TAE and Gail Tverberg among them – who argued that we would see oil price deflation. After the 2008 crash, when oil reached $147 a barrel , there has been a concerted effort to get hitherto untapped reserves – Shale Oil – into play by means of fracking. This has been done through unlimited QE – which has been used primarily for speculative purposes – and historically low interest rates which has allowed said fracking operators to pile up gargantuan amounts of debt as they have never made a profit and suffer horrendous depletion rates. All to give the illusion that the USA is energy independent – it isn’t due to the fact that Shale Oil is very light it needs heavy oil for US oil refineries to process it.
      The Covid pandemic has highlighted the problems inherent in the oil and gas sector – the big players have been bingeing on buying back their own stocks – ExxonMobil has spent $20billion on buybacks for example – whilst the frackers are going to the wall or are organising shotgun mergers in a desperate attempt to stave off bankruptcy. When the smoke finally clears we will have a clearer view as to who is still standing and what state they are in.
      All in all, we are on the next dogleg down

    • This is something that we might discuss here before too long.

      My first thought is that ECoE is critical here – there’s no point in accessing a barrel of oil (or any other form of energy) if you need to expend 101 units of energy to access 100 units.

      Thus defined, it is from surplus energy that material prosperity is derived. How we codify, trade and distribute this prosperity in financial terms is a second-order question.

      SEEDS addresses this challenge in a strictly sequential way. The first issue is how much value we can access through energy after ECoE has been accounted for. The second issue is how we express this situation in monetary terms. Understanding and modelling the energy/money interface is complex, though essential, but the order of sequence is clear.

      We can ‘cut, slice and dice’ prosperity in all sorts of ways using the human artefact of money, but it leaves the fundamental equation unchanged. If consuming, say, 101 units of energy to access 100 units is value-destructive, then this remains the case whether you “spend” $10.10 to get oil “worth” $10.00/b, or $101 for oil “worth” $100/b.

  3. I see in The Guardian today that Boris Johnson has pledged to reduce the UK’s carbon emissions down by 68% of 1990 levels by 2030 now.

    A part of me wonders if he’s savvy to peaking energy and the inevitably and involuntary decline we will be thrown into. Because I have no idea how they imagine they can achieve any of this smoothly.

  4. Generation IV and Generation V nuclear energy which proports to burn more nuclear waste to generate energy will be coming online to try to make up this shortfall in surplus energy.

  5. Hello Dr Morgan
    I have read through the comments and one big area of mostly discretionary spending has not been mentioned- Children. With falling discretionary spending people will have smaller families or no families at all. This will shrink the population over the long term and skew the age distribution of the population upwards, reducing the work force and increasing the number of elderly dependents. When this happened in the crisis years in Russia in the 1990s, there was sharp contraction in population and life expectancy. A population contraction may release resources to stabilise or recover a former standard of living, or at least ease the rate of contraction. However it will also provoke political and economic problems for our current Western establishments who will push mass migration to replenish the working age population as a solution to a shortage of (cheap) labour, profit/taxes and an excess of dependents maintain, when the reality is that there are not enough resources any longer to sustain a larger population. When you have the majority of a population getting poorer for many decades they are not going to welcome the competition, cultural as well economic, from new migrants. Russia was lucky in this regard, nobody wanted to move there when the Soviet Union collapsed, there were better places to go at that time. Will the West be lucky in this regard when collapse proceeds along its way? I expect big fireworks between the affluent and the rest as both try to preserve their standard of living. The affluent by boosting economic activity by the mass immigration of labour, the rest by minimising the number of people the wealth available has to be shared between.

    • Russian immigrants
      Dmitry Orlov has commented on a number of occasions about the number of immigrants the ‘new Russia’ has absorbed. Many are Russian speakers who were living in what are now independent countries but have lost the ‘Soviet’ organization. The advantage in that case was a common language and a common culture. I’ll agree that it is a lot harder to absorb immigrants who do not speak the native language and who have quite a different culture. My wife tells stories about the first immigrants from the Caribbean who moved into her neighborhood. They spoke Spanish and threw kitchen garbage out the windows…practices which were unexceptional at that time in the Caribbean…but not acceptable in the place they were moving to.

      Don Stewart

    • Philip, I think you touch upon an important point, and one to which too little attention is being paid. After all, the whole Brexit saga in the UK was set off by the population there being fed up with too much immigration. They did not vote for Brexit based on economic reasons.
      So if any government were to increase immigration to fill needed jobs, ( although in the UK with whole legions of Under- and Unemployed – I cannot even guess for what jobs the immigrants would be needed, there is after all no industry for them ), I can see that as setting the Cat among the Pigeons.
      I think that immigration and de-growth, once it really gets going, will be a very explosive mix.
      As you point out, it worked OK in Russia because they have totally different demographics, but in a country like the UK it will result in open gang warfare.

    • It seems to me that immigration, along with redistribution, are going to be two of the defining political issues in de-growth economies. An acid-test of political systems, leaders and parties is likely to be how they respond to these pressures.

      As prosperity deteriorates, large numbers of people in poorer countries are going to be driven into abject, below-subsistence poverty. Quite logically, they’re going to want to move to somewhere better. People in wealthier countries, whose own prosperity is declining, are going to have misgivings about huge influxes, suspecting (a) that this will drive wages downwards, and (b) that it will over-stretch public services. You can see some of this in support for “Brexit”, though I always read the “Leave” cause as being more anti-establishment (and anti-globalist) than anti-immigration.

      How will governments react? Despite all the evidence to the contrary, many decision-makers and policy-influencers still think that lowering wages benefits economies by making them ‘more competitive’. Others will see a need to respond to popular opinion, whilst still others may react ideologically against those wanting to restrict immigration.

      With all established elites through history, the question eventually arises as to whether (a) to reform, making concessions to popular demands, or (b) to ‘hold the line’ and ‘tough it out’ in the belief that dissatisfaction won’t lead to unrest.

  6. Complex System and Oil
    We can look at oil demand as an indicator of economic activity.
    *Strand #1“Asian demand is absolutely roofing right now,” Amrita Sen, co-founder of consultant Energy Aspects Ltd., said in a Bloomberg TV interview. “If this momentum continues, we could actually see the oversupply disappear a lot earlier than what we’re expecting.”
    *Strand #2 Continuous speculation that EU and US demand for oil will pick up in the 2nd quarter of 2021 as the vaccine eliminates all the Covid 19 restrictions.
    *Strand #3 Doubt that the vaccine really works…
    https://www.theautomaticearth.com/2020/12/pcr-tests-and-covid-vaccines-are-useless/

    My suggestions:
    *The ‘war on China’ has not worked. Instead, in combination with the stimulus payments and subsequent boom in purchases of material goods as opposed to services, it has inflated the balance of trade deficit.
    *The business about the vaccine reflects a great deal of ignorance and confusion with a very few exceptions. (What you are now about to read is the opinion of an amateur who tries to listen and understand…so buyer beware.). The whole business with infections which are not particularly lethal (e.g., Ebola was very lethal…common colds are not) is to gain immunity through an escalation process. Understand ‘immunity’ as “will become infected but will effectively suppress the infection via the immune system”:
    #robust immune system involving (in the case of Covid) nitric oxide from leafy greens, N Acetyl Cysteine from a common supplement, supplemental Zinc from a multivitamin, and Quercetin from raw onions (e.g., red onions and green onions on a salad) or one of several effective supplements, along with good health habits resulting in an adult with no chronic disease (currently less than half of Americans).
    #controlled exposure to the virus. Controlled by wearing a mask (which dilutes the exposure) and by avoiding crowds indoors. The goal is to teach the immune system about the novel invader with controlled exposure…just as our immune system learns about the annual flu viruses and one gets a scratchy throat for a few hours and then the symptoms vanish.
    #The use of a vaccine which introduces controlled exposure using genetic material from the virus.

    The obviously ‘best’ choice is the robust immune system plus controlled exposure through behavioral change. The end result of that strategy is a robustly healthy population which will likely be well prepared for the next virus that makes its way on to the stage…as well as dealing with challenges such as Degrowth.

    Early on, the governments in most Western countries opted for the hope of a vaccine, and were willing to accept that billions needed to be spent on the vaccine and that the vaccine would do nothing to treat the underlying problems. Asia, meanwhile, had had experience with behavior change and with tracking and tracing and opted for that approach.

    I believe it is clear that we can draw 3 conclusions:
    First, the best choice would have been to achieve healthy people.
    Second, the next best choice was the Asian plan.
    Third, the worst choice was the Western plan, which has resulted in immense damage to the medical system and the economy and has ripped confidence in governments to shreds.

    Whether an individual chooses to have themselves injected with the mRNA of the virus or instead prefers to work on their own immune system and robust health while using behavioral mechanisms to control exposure is up to them. I don’t think draconian measures can restore confidence in governments.

    It seems to me that the current debacles in the US federal deficit and trade balance are a result of severely flawed choices relative to the virus. In light of the precarious financial status of many Western governments, and the precarious financial status of many Western citizens, I don’t think we have the leeway to make too many more poor choices.

    Don Stewart

    • Governments which have lost all confidence can still go on buggering everything up, just as in the late Soviet Union.

      I fear that is our likely future.

      The level of censorship being imposed at present can only exacerbate this problem: foolish policies hailed by a compliant and ignorant MSM, while all intelligent criticism and alternative strategies even from distinguished and qualified people – are crushed or ridiculed.

      Look at what is happening to Mike Yeadon, the ex-Pfizer researcher, and to others.

  7. IMO the likely initial response to degrowth – already happening for some time now – is going to be consolidation and concentration of ownership of assets. This of course is the wrong direction, since what we really need is re-localization and de-centralization, and it will make “transition” (ha ha) much more turbulent (read: deadly and violent) and far worse. See this article for the disturbing trend of consolidation of arable land ownership and farming. https://www.counterpunch.org/2020/12/01/dispossession-and-imperialism-repackaged-as-feeding-the-world/

    “The world is fast losing farms and farmers through the concentration of land into the hands of rich and powerful land speculators and agribusiness corporations. Smallholder farmers are being criminalised and even made to disappear when it comes to the struggle for land. They are constantly exposed to systematic expulsion.

    In 2014, the Oakland Institute found that institutional investors, including hedge funds, private equity and pension funds, are eager to capitalise on global farmland as a new and highly desirable asset class. Financial returns are what matter to these entities, not food security.”

    The only “good” news is that these money-sick bozos want land that is conducive to industrial farming and large monocrops – large expanses of essentially flat and irrigatable land, leaving arable but relatively hilly land for those of us who still want to obtain some form of ability to feed ourselves (e.g., land in the Andes, ancient Peruvian-style terrace farming on steep hillsides, rolling hillsides in Vermont, Western Massachusetts, upstate NY etc.). But that won’t be enough to feed everybody when industrial agriculture fails and the soil of vast flatlands have been rendered dead and unproductive without annual inputs of fossil fuel fertilizers and pumped water.

    • In Ecuador, from what I have read, small farmers (campesinos?) are supported by subsidized crop insurance, seeds, and fertilizer. Also, the government has been helping all small farmers to ensure legal title to their land. Six large irrigation/flood control projects were completed by the previous administration (2007-2017) and additional projects are in the works. Recently, the indigenous claimed that they produce 90% of Ecuador’s food in order to emphasize the political clout of small farmers and fishermen in the country. In the past, they, campesinos, workers, and students have effectively protested and halted neoliberal governmental actions. Ecuador, Peru, and Chile are now working together to create and patrol a large, protected ocean zone off virtually the entire west coast of South America. The United Nations supports the extension of Ecuador’s protected ocean zone to the Galapagos Islands some 600(?) miles from Ecuador’s coast. National food and water security are apparently top political, economic, and environmental priorities in Ecuador.

    • Historically, the tougher mountain tribes – Basques, Kurds, Swiss, etc – used to raid the lowlands for goodies, or hire themselves out as mercenaries at profitable times of the year.

      Like raiders from the steppes or the desert, one of the most ancient dynamics.

      If one is aware of the dire state of most lowland soils, exhausted and degraded by the Oil Age, it’s amusing to watch the rich pile in thinking they have bought long-term security.

      References to ‘prime farmland’ in the UK, at huge prices per acre, also make one laugh.

      I am not inclined to pity them.

  8. I just found out there’s been a general strike in India protesting about Modi’s neo-liberal policies and privatisation,
    it started on the 26th of November and seems ongoing,
    I’ve seen figures suggesting 250 million people are involved,

    yet if I do an internet search there’s no mention of it in the Western news sources?
    I’m using DuckDuckGo too.

  9. My opinion about the current state of science and the challenge of Degrowth:
    *Lisa Feldman Barrett is correct that the brain is a prediction machine which ‘knows’ only what the sense organs are telling it, and it gets an enormously compressed amount of data.
    *While I haven’t heard much about it, my opinion is that the compression tends to follow well worn channels…like a river. To get out of the channel, there has to be a once-in-a-hundred years flood which cuts a new channel. E.g., to get governments off their addiction to GDP (and thus tax revenue) growth, a disaster must occur which makes GDP feel ridiculous.
    *Nora Bateson is correct about ‘warm data’:
    “I can only create the conditions in which sense makers and their world are re-re-linking, finding new circuits of impressions, memories are re-wiring.
    To sense-make our way into understanding the world differently, so that it might be possible to behave differently, is to go into the difficult task of non-prose, non-explicit exploration and let the body, memory, and mind re-find their reflections in the surrounding world. It just is. No amount of logic will help someone to quit smoking, no amount of education will convince someone to change their beliefs.”
    *As an example, see this interview with Valter Longo, the world’s leading expert on fasting and longevity. He refers to the brain ‘learning’ that a periodic fast makes one feel better and is not a sign of impending starvation and thus the metabolic rate should not be reduced to conserve calories. (Cutting the metabolic rate undercuts the effort toward weight loss.). The brain is making predictions based on its previous experiences. And it is all about how it feels…warm data.
    https://www.valterlongo.com/fasting-and-medicine-with-professor-valter-longo/

    Unfortunately, Degrowth is not some shiny new objective for our society. One of my early childhood memories is going to the Atoms For Peace programs put on by the Eisenhower administration in the 1950s. They promised us a world of energy ‘too cheap to meter’. What’s not to like about that? Those of us who have experienced at least some of the elements of Degrowth, as I did when I went to work on a small farm with an extremely frugal farmer at a ripe old age, have some things to look forward to. But young couples being evicted from their apartment, carrying a baby in a blanket, have nothing to look forward to in terms of their brain making sense of their situation. In my old home town, an 18 year old single mother and recent high school graduate killed herself, after leaving a truly depressing series of Facebook posts. She had gone to work in a restaurant which was probably shut down by the pandemic. I don’t have any ‘happy thoughts’ that might have led her to choose life…at least any which would be convincing to her given her experiences.

    Don Stewart

    • A terrible story to read; my little sister killed herself at only 16 due to emotional pressures she could not face.

      In this case, I suspect the words ‘The restaurant’s open again and you can have your job back’ would have made all the difference to the poor girl. With money and work almost anything can be faced.

      Those who have advocated, against all reason and evidence, these continued lock-downs, and still attempt to terrorise the public with scare stories about a comparatively weak virus, will have a great deal to weigh down their souls when their own time comes, damn them.

  10. A provocative essay on how we in the West got to where we are:

    “Part of the reason for this dysfunction is that voters in the West are still, by and large, living the dream of consumer paradise in a pampered world. But they also feel ashamed of the despoilation of the planet, of their wealth compared to the poverty of the “Global South,” and their privilege compared to the plight of the exploited minorities on the wrong side of town. Nevertheless, they still want to consume more and crave the latest technological innovations. That dream world is being disturbed from every direction. They just don’t know who to trust to ensure a “good life” or who will care about their future. This is life at the cul-de-sac of the belle epoque of The Great Moderation.

    And then came COVID…”

    https://quillette.com/2020/11/25/a-loss-of-direction-and-the-rise-of-populisms/

    My quibble is that the authors assume that we can reason our way out of the evident decline. But, referring to my previous post on how brains actually work, my guess is that experience in a world of Degrowth is likely to increase the depth of the river channels.

    Don Stewart

  11. Things are getting serious (I guess we have to lie)
    *Fixation…a new book by Sandra Goldman talking about how we urgently need to get back to fixing broken tools, and how to do that
    *Eating Like our Planet Depends on It by Grace Gershuny….we can’t keep devoting valuable farmland to growing corn and soybeans to fatten factory animals
    *Green Growth vs. Regrowth by Beth Stratford…”Degrowth” is a bugaboo which artificially separates people who ought to be allies…the Green New Deal and decoupling and perpetual growth advocates
    *Degrowth and the Unmaking of Capitalism by Giuseppe Feola and Olga Koretskaya…’from profit centered to wellbeing centered’
    *On Laudato Is and Fratelli Tutti and the Terminal Decline of Patriarchal Civilization…if you are a fan of biblical wisdom as a guide for behavior, click through and watch the linguistic analysis of the ‘man in charge’ story in Genesis. If you think turning the world over to females somehow changes everything…think again.
    *Critical Metals Supply: Industry and Government Just Couldn’t Be That Shortsighted, Could They?…of course they can
    *Democrats Biggest Weakness in the New York Times today….the working class, with the exhibit of the precinct breakdown of Trump vs. Biden in Georgia…which boils down to the prosperous vs. the not prosperous, as I have previously noted. It’s not about Red State vs. Blue State. The prosperous people in Georgia see the world about like the prosperous people in Minnesota or California. Same for the non-prosperous.
    *The Self-Sufficient Backyard for the Independent Homesteader by Ron and Johanna Melchiore. A first approximation, but what is actually needed is a self-sufficient neighborhood.
    *Actuaries for Sustainable Health Care, led by Ken Beckman. The dollars and sense of removing the smoke and mirrors from the extravagantly expensive sick care system and replacing it with a system which incentivizes both doctors and patients to heal the chronic diseases with lifestyle. The opposite of Medicare for All…Universal Responsibility with strong monetary incentives as the only solution. Order of magnitude savings in some cases…instead of a hundred thousand dollar cardiac case with a 5000 dollar doctor fee, no cardiac case and pay the ‘health care team’ 10,000 dollars

    I have already made my own convictions pretty clear. How anyone gets through the thicket of misunderstandings and deliberate lies and actually wins elections or brings about street revolutions I leave to wiser heads.

    Don Stewart

  12. Three of the biggest industries providing GDP
    are the subject of provocative comments today. See Ugo Bardi on the subject of drones, and how quaint carrier groups seem to be, but how Western governments, in love with huge, expensive toys, are likely to continue to pursue them. See Charles Smith on the bankruptcy of the US due to medical costs and unrestrained money printing to sustain financial speculation. (I’ll just add a note that the return on junk bonds has reached a record low….indicating lots of cash desperately looking for yield.)

    The question of the day is whether governments can take an axe to huge industries and still survive. Or whether they might prefer to keep on keeping on and risk going down in flames (or the guillotine?)
    Don Stewart

    • I can only say that I, for one, don’t feel I know enough, yet anyway, about the vaccines, particularly their efficacy, and their freedom from adverse effects.

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