#198. The Theseus gambit


According to Greek mythology, Theseus, having killed the Minotaur, found his way back from the heart of the Labyrinth by following a thread given to him by Ariadne.

There are two lessons – in an earlier idiom, morals – to be taken from this story. The obvious one is the wisdom of taking a thread into the maze and using it to find the way back out. The less obvious lesson is that the thread Theseus followed was reliable, a guide which, like real gold, would pass an ‘assay’ of veracity.

Our current economic and broader circumstances merit comparison with the Labyrinth – we’re in a maze which has many complex blind-alleys, routes to nowhere which tempt the unwary. If we’re to fashion a reliable thread that can be followed through it, we need to apply the assays of logic and observation.

The thread followed here starts with the purposes of saving and investment, purposes which pass the assay of logic, but fail the test of observation. This points to dysfunction based on anomaly, the anomaly being that the practice only conforms to the principle in the presence of growth.

Postulating that the economy is an energy system rather than a financial one also passes the assays of logic and observation, and confirms we have a thread that can be followed to meaningful explanations and expectations.

An assay of logic

Capital theory is as a good a place to start as any. This theory is that, in addition to meeting current needs and wants, a sensible person puts aside a part of his or her income for the purposes both of having a reserve (“for a rainy day”) and of accumulating wealth. The flip-side of this process is that saving – as ‘economic output not consumed’ – provides capital for investment. This theory would apply, incidentally, even if some form of barter were substituted for money.

For this to work, the saver or investor must receive a real return on investment that is positive (that is, it exceeds inflation), and this return must be calibrated in proportion to any risk to which his or her investment is exposed. The user of this capital must earn a return on invested capital which exceeds the return paid to the investor. Any business unable to do this must fail, freeing up capital and market share for more efficient competitors.

This thesis rings true when measured on the ‘assay of logic’ – indeed, it describes the only rational set of conditions which can govern productive and sustainable relationships between saving, investment, returns and enterprise.

But it’s equally obvious that this does not describe current financial conditions. Returns to investors are not positive. These returns are not calibrated in proportion to risk. Businesses do not need to earn returns which exceed appropriate returns being paid to investors. Businesses unable to meet this requirement do not fail. 

When logic points so emphatically towards one set of conditions, whilst observation leaves us in no doubt that contrary conditions prevail, we don’t need to venture further into investment theory in order to confirm the definite existence of an anomaly.

To discover the nature of this anomaly, let’s look again at capital theory to discover the predicates shared by all participants.

The investor needs returns which increase the value of his or her capital.

The entrepreneur needs returns which are higher again than those required by the investor.

The shared predicate here is that the sum of money X must be turned into X+.

For the system to function, then, the shared predicate is growth.

Logic therefore tells us two things. The first is that a functioning capital system absolutely depends on growth. The second, inferred-by-logic conclusion is that, if the system has become dysfunctional, the absence of growth is likely to be the cause of the dysfunction.

Observed anomaly is thus defined as a property of dysfunction, whilst dysfunction itself is a property of the absence of growth.

You don’t need a doctorate in philosophy to reach this conclusion. All you need do is follow a logical sequence which (a) defines anomaly as intervening between theory and current practice, and (b) identifies this anomaly as the absence of growth.

We can confirm this finding by hypothesis. If we postulate the return of real, solid, indisputable growth into this situation, we can follow a sequential chain which goes on to eliminate the anomaly and restore the alignment of theory and practice.     

Testing the thread

The deductions that (a) dysfunction exists, and (b) that this is a product of the lack of growth, take us on to familiar territory. If you’re a regular visitor to this site, you’ll know that the basic proposition is that the economy, far from being ‘a function of money, and unlimited’, is in fact a function of energy, and is limited by resource and environmental boundaries.

Using logic and observation, we can similarly apply the ‘assay of rationality’ to the propositions informing the surplus energy interpretation. There are three of these propositions or principles, previously described here as “the trilogy of the blindingly obvious”.

The first principle is that all of the goods and services which constitute economic output are products of the use of energy. If it were false, this proposition would be easy to disprove. All we’d have to do is to (a) name anything of economic utility that can be produced without the use of energy at any stage of the production process, and/or (b) explain how an economy could function in the absence of energy supply.

The second principle, applied here as ECoE (the Energy Cost of Energy), is that whenever energy is accessed for our use, some of that energy is always consumed in the access process. Again, if this proposition were false, its fallacy could be demonstrated, simply by citing any example where energy can be accessed without the use of any energy at any stage in the access process.

The third proposition – that money has no intrinsic worth, and commands value only as a ‘claim’ on the output of the energy economy – ought, if false, to be the easiest one to disprove. We would need to do no more, as a thought-exercise, than cast ourselves adrift in a lifeboat, equipped with very large quantities of any form of money, but with nothing for which this money could be exchanged. If this experiment succeeded, the ‘claim only’ hypothesis would be disproved.

The inability to disprove these propositions means that the theory of the economy as a surplus energy system passes the assay of rationality. Application is a much more complex matter, of course, but the next test is to see how theory fits observation.

The assay of observation

From the mid-1990s, and as the following charts show, global debt started to expand far more rapidly than continuing growth in reported GDP. Available data for twenty-three economies – accounting for three-quarters of GDP – shows a corresponding trend in the broader measure of ‘financial assets’, which are, of course, liabilities of the non-financial economy of governments, households and private non-financial corporations (PNFCs).

There is reliable data showing yet another correspondence, this time between the GDPs and the unfunded pension obligations (“gaps”) of a group of eight economies which include global giants such as the United States, China, Japan and India.

Let’s be clear about where this takes us. We’ve already identified the absence of growth as the source of financial dysfunction. We’ve now seen parallel anomalies in the relationships between GDP and liabilities.

These divergent patterns can be explained – indeed, can really only be explained – in terms of exploding financial commitments distorting reported GDP. Put another way, there are compounding trends whose effect is to ‘juice’ and to mispresent reported economic output.

This observation accords with the logical conclusion, discussed earlier, that the relationships between saving, investment, returns and enterprise have been distorted into a dysfunctional, anomalous condition by the absence of growth. The only complication is that we have to look behind reported “growth” numbers to make this connection.

What, though, explains the absence – in practice, the deceleration, ending and impending reversal – of growth itself? The right-hand chart indicates that what was happening at the start-point of observed economic distortion was a rise in ECoEs.

The assay that we’ve undertaken has shown the validity of the concepts of output as a function of energy, ECoE as a characteristic of the output equation, and money in the role of ‘claim’. This in turn validates the linkage identified here.

Fig. 1

 Once again, let’s apply the test of hypothesis. Assume that a new source of low-cost (low ECoE) energy is discovered. Prosperity would increase, and real growth would return to the system. The observed anomalies in capital relationships would disappear.

This, remember, is purely hypothesis, because the discovery of a new source of low-cost energy is at the far end of the scale of improbability. We can thus conclude that dysfunction and anomaly will continue, to the climacteric at which the monetary system described by capital theory reaches a point of failure.

The clarity of defined anomaly    

For anyone who isn’t a mythical hero, venturing into the Labyrinth, confronting the Minotaur and finding our way out again sounds like a terrifying experience. There are clear analogies to the present, in terms of the uncertainty of the maze, and the fear induced by the unknown. We may not have Ariadne’s thread, but we can fashion a good alternative by opting for rationality, applied through logic and observation.

The results of this process do seem to have the merit of clarity. Comparing capital theory with observed conditions identifies a dysfunction or anomaly that can be defined as the absence of growth. This in turn can be explained in terms of a faltering energy economy. Take away the predicate – growth – and the financial system becomes dysfunctional.

This interpretation helps to clarify the roles of the various players in the situation. Taking the ‘elites’, for example, we know that the defined aim of all elites is to maintain and, wherever possible, to enhance their wealth and influence. We can infer that, if we can identify the dysfunctionality of capital theory and observed conditions, so can they.

Likewise, we know that the defined aim of governments is the maintenance of the status quo, and we can again infer that they, like we, recognize the essential dysfunction as ‘the failure of the predicate’.

To this extent, we can demystify the behaviour of elites and governments. We can also make informed judgements on their probabilities of success. (These probabilities are low, for reasons which lie outside the scope of this discussion).

A similar application of logic and observation tells us that anomaly cannot continue in perpetuity. We can hypothesize the resolution of the energy-ECoE problem, but examination of the factors involved suggests that any such resolution, even if attainable, is unlikely to happen in time to restore equilibrium to the financial system. There are equations which relate the investment of legacy energy (from fossil fuels) into a new energy system (presumably renewables), and these equations give few grounds for optimism where current systems are concerned.

If rationality can take us this far, it surely makes sense to adhere to it. The probabilities are that global prosperity will contract, meaning that systems predicated on growth will cease to function. The logic of the situation seems to be that, when old predicates change, we need to fashion new systems based on their successors. 

54 thoughts on “#198. The Theseus gambit

  1. I’ve just listened with Microsoft Edge’s read aloud feature. I set you to Guy as the female voice Aria just felt wrong!

  2. Dr Tim – Wow! An absolute classic, in more ways than one! Thank you. For an 11-Plus failure, like myself, I have a leaning towards your ‘Janet & John’ version when you said: ‘We’re up over-shoot creek without a paddle’ and when you observed something along the lines ‘When you think about the policy response of governments, it’s not Marx or Keynes but Alice in Wonderland’. Only joking, this latest piece is a stunning and convincing exposition of the situation. Once again, thank you.

  3. Hi Tim, Thanks a great piece. Funny while reading it I was thinking it would be good to listen to it some way. I will read again as it is so good and clear and look forward to the well informed comments that I always learn from.
    Thanks again for your hard work.

  4. Thank you, Dr. Tim, for another well-argued piece of work. Investment is a conundrum and, perhaps, the key to it (or the thread!) can be found in earlier investment thinking. Before professors, stock market price series, and computers came together in the 1950s, that is. My old friend Russell Taylor pointed out long ago that the theories that emerged from academic investment studies emphasised the scientific rationality of stock market pricing, thereby encouraging hard-bitten business bosses to entrust the management of their pension funds to a new breed of asset managers.

    Unlike to stockbrokers of old, these managers took the view that risk essentially involved doing worse than alternative asset allocation choices on a relative basis, rather than losing capital or income. As a result, the “eternal portfolios” that were thereby conceived had rather different needs from investors worried about family funds and fortunes.

    Stockbrokers, rich themselves like their clients, knew that investment was about purchasing an income [on which to live], as well as gambling for fun, and gain. This was the basis of what was later known as the Fed model: 40 per cent bonds for living expenses and 60 per cent shares for lower income and some hopes of capital profit.

    The reality of investors’ desires is evidenced by the history of the past 13 years. The more that central banks pushed money into the markets, driving down yields on cash and safe-as-cash investments and pushing investors to buy more equities, the harder investors looked for high-yielding returns – whether from junk bonds, new types of investing such as government guaranteed infrastructure projects, or lumpy and illiquid investment sources such as aircraft leasing, green energy, or even artistic royalties.

    The illiquidity risk (should have) persuaded investors to purchase these types of assets through closed-ended funds, rather than open-ended products such as unit trusts, and indeed the last dozen years saw a remarkable flowering of investment company issuance.

    But the original buyers of this type of investment manager have another lesson to impart for today. They knew that regular income each year was what kept them rich, and income from bonds was surer than dividends and capital growth from shares.

    In the latter part of the 19th century, newly rich Europeans needed income in excess of that which was available from bonds. What’s more, they also needed a growing income – whatever we believe now, inflation was a problem back then. The managers of F&C trust, launched in 1868, came up with an answer that was then followed by their successors. Their solution was as follows: buy the high-yielding bonds of emerging market economies (in those days the US, British empire countries such as Australia and India, or even South American republics), at a sensible valuation (such as 6-8 per cent at a time when gilts were selling at 3 per cent), check out long-term prospects, and diversify between countries and regions.

    To this they added a focus on garnering income, then appended a little excitement with shares such as US railways. They were also sure to never forget the compounding effect of a growing income, and so never took risks of a capital loss.

    For those who cannot believe that such principles have any relevance today, a look at the portfolio and record of Personal Assets Trust will persuade them otherwise. Investment is about portfolio design, based both upon today’s and tomorrow’s circumstances, and the agreed objectives of managers and clients combined. The efficient market hypothesis may keep pension fund trustees entranced, but it wont make them rich.

    Practical investors are risk averse, however risk is designed. And investors are facing levels of risk unprecedented since 1940, here in the UK.

    Compounding is about patience but also avoidance of unnecessary loss. The FTSE may be cheap, or even good value, but since the outlook for the UK’s future in unclear, the outlook for UK asset prices is unverifiable. Best to diversify internationally through global investment managers such as F&C, Witan or Alliance Trust. Safe, rather than sorry, is the watchword of the best of the old-style investment trust managers, and that should do for us as this tricky moment.

    None of the above should be construed as investment advice, but, sometimes, looking at the history of investing and remembering first principles is common-sense.

    • Mark, two of my favourite reads are the book ‘Where are the customers yachts?’ and ‘The Story of The Gotrocks’ by Warren Buffett. I rate ‘A Short History of Financial Euphoria’ by John Kenneth Galbraith as one of the best books for keeping one’s ‘feet on the ground’. Every decade or so, one could very easily add a new chapter!

  5. “Put Not Your Trust in Money” by John Newlands is a good history of the investment trust industry, but badly needs updating and “Devil Take the Hindmost” by Edward Chancellor is excellent, too, Kevin!

    • Thank you, Mark. I read Chancellor’s book, which covered a lot of ground. I shall look-out for Nelson’s.

  6. Thank you Dr Morgan.

    Re:Fig 1

    I dont see absolute proof that Rising energy costs are intrinsically linked to debt.

    In 1997 we had ,in my view the most radical left wing (by stealth) government in the Uk. Debt and spending soared under Brown in the 2nd term reflecting a global relaxation around the notion of sound finances..third world debt was cancelled etc. These are pretty big changes accompanied by structural changes to central banks to facilitate the spending binge..
    Clinton was in the White house signing the North American free trade agreement which would laid the foundations for outsourcing and an economy built on debt/consumption.
    More proof please that the correlation isnt just coincidental.

    • Well, starting with the UK, I’d certainly not agree that Brown and co. were left wing. On the contrary, ‘New’ Labour adopted the same policies as the Conservatives, and went further on outsourcing, privatization and, most seriously of all, de-regulation, which they called “light-touch” regulation. They wooed the City with the “prawn cocktail offensive”, and said they were “intensely relaxed” about people becoming “filthy rich”. When selling Britain’s gold reserves, they pre-announced the planned sale, thereby ensuring the lowest possible price. In any case, I doubt that what was happening in the UK was indicative of the global situation.

      In the US, this was the time at which de-regulation included ditching Glass-Steagall, allowing banks to own brokerages.

      On both sides of the Atlantic – and elsewhere, too – policy started to emphasise credit creation, amidst much talk of “secular stagnation”, meaning deteriorating growth. I would also point out that oil prices soared between 2000 (if memory serves, $20/b) and 2007-08 ($147/b). I’ve long argued that oil price rises were central to the causation of the GFC.

      Accepting that there isn’t a connection between the energy equation and credit expansion would involve (a) finding another dynamic behind “secular stagnation” and the response of credit loosening, or (b) putting the latter down to sheer idiocy.

  7. https://en.m.wikipedia.org/wiki/Model_villageAnother good piece Tim.

    I still find it striking the correlation between global debt, G23 financial assets and the rising ECoE of fossil fuels.

    I certainly understand that decreasing surplus energy increases the costs of essentials which in turn reduces discretionary income. Thus in order to maintain standards of living, debt is taken on which further reduces discretionary income but creates financial assets for others.

    However, without growth, then financial liabilities become harder to honour and the financial sector starts to implode. So to avoid that in the short term, monetary stimulus is deployed with the hope that this stimulus results in productivity gains, along with state assisted productivity investments.

    However, any productivity gains, setting aside the innovation of low ECoE energy production, will always be thwarted by the relentless rise of the ECoE of fossil fuels. Therefore monetary stimulus will at most only slow down the rate of degrowth with some stimulus resulting in productivity gains and some not. Thus we can expect debt defaults to begin the dezombification of the economy, delayering and decomplexification of supply chains in the name of efficiency as well as the increased frequency of bottlenecks as the real economy of fossil fuel dependent commodities such as microchips, cement and renewables can’t keep pace with monetary stimulus investments. Hence the metaphor of the Labyrinth.

    The likely consequence therefore is economic Darwinism whereby a scrabble for growth will result in a commodity supercycle with commodity prices rising rapidly and financial markets seeking out capital productivity gains as well as markets and multinational corporations seeking out profitability in low wage economic environments and low tax economic environments.

    Therefore under these conditions, I’d expect to see the rapid deployment of Special Economic Zones in order to provide growth zones for the financial sector.

    These may in time incubate a new type of economic system based on corporate welfarism entwined Paternalistic Corporatism which provides employees with universal basic services.

    Just a thought anyway!

    • Thanks Steve, and the connection between debts, ECoEs and financial assets is indeed striking. Your observations are, as so often, pertinent and thought-provoking.

      I’m at an early stage in think around “what do we [everyone] do about this?”, but I’m convinced that our methods of interpretation, tying in economics with energy, ECoEs, the environment and finance are, if not right, then at least “less wrong” than the alternatives.

    • Reasonable scenario, Steve G. Some of this has been ongoing since corp. bailouts many decades ago, and socio-economic safety nets set up in many (well to do) countries. Add in migration pressures to where the grass is greener, and the future does not appear to require sunglasses.

  8. Well done, Dr Tim. Prosperity is a per capita condition, and population growth is a challenge as throughput growth in economies slows. As well, negative feedback from the physical system serve as a drag on well-being. Shrink we will…probably the hard way.

    • Thanks. You probably detected a wish on my part to get to the fundamentals with this one, as a contrast to so much speculation, conspiracy theories, false reassurances vs prophecies of gloom, and masses of detail that actually proves nothing.

  9. Again a very clear and convincing account!
    As always the question is whether we can construct a no or limited growth economy, what it would look like (presumably akin to something out of the 18th C) and how to get there. Or do we head for the hills….

    • Thanks David

      The question you raise is one that I’m pondering. Essentially I’m trying to visualize a post growth economy and work back from there t how we get to it.

  10. Tim, an excellent display of logic.

    I think we can assume that at least some members of western governments understand the significance of cheap energy and especially low cost liquid fuels. The invasion of Iraq was predicted by an understanding that non-OPEC oil production was close to peak. Due to sanctions, Iraq’s oil production was far beneath its potential in 2003. Richard Heinburg speculated that the Bush administration had intended to install a friendly puppet government, that would allow US investment in oil extraction and also keep Iraq out of OPEC. It seems feasible enough and it occurred just two years before the global peak in conventional oil production.

  11. “We can infer that, if we can identify the dysfunctionality of capital theory and observed conditions, so can they.”

    I am not so sure that we can infer that. I think many people have a framework through which they see and interpret events. If something falls outside of this framework, they just look away, ignore it, or assume that it must somehow migrate back into their framework. Not consciously, it just happens. This I see as the big challenge, to get everyone, elites included, to expand their framework of allowable events to include current events and their consequences. I fear the forces of denial, wishful thinking, and unfounded optimism are too strong to be disturbed. Thanks for another illuminating and stimulating piece.

    • When considering what “they” – elites, governments, markets – know, let’s list what we know:

      – The capital system (and broader economy) is dysfunctional. I think they must know that, and are well aware that rates less than inflation, and economies dependent on subsidised borrowing, are abnormal.

      – The causation is the lack of real growth. My feeling here is that they probably do know this.

      – This lack of growth, in turn, is a function of a weakening energy dynamic. This, I think, is the piece that they don’t understand.

  12. Is there a rough relation between rate of growth and ECoE? I’m thinking about whether the proportion is wrt ECoE or wrt rate of change in ECoE.

    If cost is entirely constant I suppose we could use energy to build more energy-extracting machines and so thus produce ever more goods and services. But then we need to consider how fast the energy extracting machines will wear out and need to be replaced. In the most general of senses maybe we can characterize that last part (machine replacement) as cost of energy (ie the amortized cost to turn energy into the actual services and goods we need, rather than just the machines that can produce the goods).

    Declining ECoE certainly seems to mean growth is possible.

    Constant ECoE seems like growth could be possible?

    Increasing probably never works in the long run because machines always wear out. Without infinite life machines, increasing cost is bad.

    In a nutshell: is constant ECoE consistent with constant rate of growth or with no growth?

    Is declining ECoE associated with some flat rate of growth or with accelerating growth?

    I ask because you mention that if ECoE went back down we could resume growth. But I wondered if, eg we had fixed 4% ECoE that never changed, if we would eventually plateau and have no growth or some constant rate of growth forever.

    • There are two measures and two equations here.

      The first one is output, a reflection of how much energy we consume, and how each unit of energy is turned into economic value.

      The second is prosperity, which is output minus ECoE.

      Output is now barely growing at all. Conversion efficiency has been flat (at best) over a long period. The ECoE deduction is increasing, putting downwards pressure on prosperity.

      Globally, and ignoring covid for the moment, total prosperity continues to creep upwards. But population numbers are growing more rapidly than prosperity, so the average person is getting poorer.

  13. Where Do We Want to Get To?
    We are biological and social creatures who must exist within physical laws. In order to select any reasonable destination we must take a broad view…because we are so exceedingly far off target at the present time in the Industrialized World. I do have some suggestions for reading which may orient us…not necessarily persuade us entirely…but at least have us look at the right questions.

    First is Alice Friedemann’s current post at Energy Skeptic, where she reiterates her physical reasons why neither fusion nor renewables are going to save us. The future, as she said elsewhere, is North Korea.

    Second is Eat Like the Animals, by David Raubenheimer and Stephen Simpson. I particularly recommend the section starting on page 111 which discusses how primates differentiated into specific niches, one of which we occupy. All of the other branches on our human section have gone except for one: us. When the environment changes rapidly, we tend to go extinct. And, for better and for worse, we have learned how to manipulate the environment and have wrought extremely rapid change which we are woefully unprepared for. Both our food environment and our larger environment…and the results are disastrous. We have had power but very little in the way of wisdom. Beginning on page 131 they tackle the question: “Why, when we have the ability to create whatever food environment we want, have we created so much unhealthy nutrition, disease, death, inequality, and environmental degradation?

    Third is Herman Pontzer’s book, Burn, which examines our personal, social, and environmental systemic risks (always starting from energy). Most mammals get a 40:1 payback when they look for food, human hunters and gatherers get a 10:1 payback, and modern agriculture gets 1:8. But exogenous energy ‘saves’ us, because a hunter-gatherer expends 10 kilocalories per mile, while a diesel freight train expends 1 kilocalorie per mile. And so we get Dunkin doughnuts for 25 cents per 100 kilocalories and apples for 37 cents per 100 kilocalories. So poor people, especially, have the impression that they cannot afford good food, which leads to much criticism of ‘elites’ eating fancy diets by right wing commentators criticizing ‘farm to table’ and so forth. (If you want to infuriate them, interrupt their diatribe and point out you worked on a farm, and what you harvested went directly to the communal lunch table.). And so we avoid discussing the real problem by invoking political correctness from either the right wing or the left wing…neither of which is going to resolve the problem.

    Pontzer has a very sober discussion of the urgent need to decarbonize and the enormous challenge to our way of life. His approach: “Out of the chaos comes order when we view ourselves as just another species in just another food environment, albeit a rather peculiar one.”

    Don Stewart

  14. Hello Tim.
    Thank you for the essays you write to enlighten your readers.

    So, to get this right in my head, the increasing costs of energy have ended growth, which has driven down capital returns, and in turn interest rates (there is less demand for investment funds). But with much lower interest rates borrowing has ballooned! The borrowing though is not going into new capital investment but into existing capital investment of stocks, bonds, property, and art, which as it already exists is much less of an investment risk. The borrowing inflates the existing assets price which provides a return, justifying the borrowing. To conclude the end of growth has crushed returns for new investment but provided conditions of low interest rates for a borrowing binge against existing assets which inflates there price providing a return on investment! A ponzi scheme or what! Running ponzi schemes in the short term inflates GDP for very little energy cost but neither do they create any real wealth! We live in an age of illusion.

    A ponzi scheme being a fake investment where those who get in early and out early make money, but the later investors are left holding an empty bag as there money was used to pay off the early investors. When the current borrowing binge and its asset bubble end many people will be left holding empty bags.


    • That’s pretty much it, the global economy is for the most part now a giant ponzi scheme and we are unwittingly prisoners of jenga, in that if you stop a pyramid scheme everything collapses, but if we keep piling on debt the house of cards becomes more unstable and liable to crash. Those who’re running the scheme get richer through insider-trading and everyone else is collateral damage until they look to share the pain. (Interesting that in the widespread protests in Colombia right now the people are calling for UBI)

      There is another massive advantage as well as having the world’s reserve currency, it is to belong to the high table of currency globally. So the US and it’s biggest vassals, like a G10, support each others currencies and then print simultaneously. Using the threat of sanctions and/or military force, they then force the rest of the world to accept their pieces of paper in exchange for the planet’s remaining precious resources. With this extortion racket, you live a higher standard of living at the expense of everyone else and its also been going on for years. Smart countries will shrink their populations asap now to build resilience.

  15. Interesting article written exactly two years ago: Half of all Americans are now poor. People that would have been Middle class in the 1980s are now struggling to afford the basics of life, even when working more than one job.

    The author explains that one reason why this is not readily acknowledged, is that no one wants to admit that they are poor. There is a stigma attached to it. Calling someone poor in the US is interpretated as describing them as being inadequate or lazy. No one wants to admit to being poor even to themselves. So pride gets in the way of even acknowledging the problem.

    No one really wants to talk about this problem, because the topic is uncomfortable for most people. It challenges their inbuilt belief systems. When this issue is discussed, it is always framed from a social justice perspective, as a way of criticising unequal wealth distribution, with an implicit finger pointed towards the wealthy as a cause of the problem. There is never any serious scientific analysis as to why this is happening; why education and healthcare is unaffordable and why wealth is increasingly concentrated into the hands of the few.

    I think part of the problem is that the sort of people that tend to campaign and write about rising poverty, are not the sort of people that are well equipped to understand how the world around them really works from a system point of view. They tend to be journalists, political activists and social scientists. And they tend to look at things from a social justice and ethical perspective without understanding the real mechanics of the world they live in. A physicist would stand a better chance of getting to the root of the problem, but a physicist would be involved in the discussion.

    • As prosperity deteriorates, poverty is going to become an ever bigger problem.

      The immediate situation looks most acute in emerging countries, where rapidly rising food prices are a particular problem for those who already spend a large proportion of their incomes on food. This can be expected to drive rising rates of migration, and to increase risks of social unrest. Hunger and revolution have been closely related throughout history.

      There’s a lot of focus, and rightly so, on discrimination against minorities, but the US seems to be developing a system biased against a majority, i.e. those who are neither wealthy nor traditionally considered “poor”. A particular concern has to be the lack of a state health care system of the kind taken for granted in much of Europe. Mr Obama tried to tackle this, perhaps not in the most effective way, but the problem was, and is, interest groups. Albeit from a distance, I’m increasingly worried about the outlook for America.

    • This is 100% in agreement with what John Michael Greer writes in his post on “A Sense of Déjà Vu”: https://www.resilience.org/stories/2021-04-09/a-sense-of-deja-vu/

      “Every round of the cycle we’ve discussed in this post has driven a sharp decline in standards of living for most Americans, and despite a great deal of handwaving and statistical manipulation, those declines have not been made up in the intervals of relarive stability that followed each crisis. Most Americans are much poorer today, in terms of the quality and quantity of goods and services they can purchase with the incomes they are able to earn, than their equivalents before 1973, and noticeably poorer in the same terms than their equivalents before 2008. They will be poorer still when the next round of crisis is over.”

      Really disturbing, and of course exactly what deteriorating prosperity means.

  16. We can thus conclude that dysfunction and anomaly will continue, to the climacteric at which the monetary system described by capital theory reaches a point of failure.

    To my mind this the most important sentence of this post. It immediately raises the question, “What then?”

    If the monetary system fails, the global market economy grinds to a halt. Do we have the capability of managing an international and very complex emergent system, most of which is not now under the control of any particular entity, by methods that would usually be called a command economy? Can we rebuild a global monetary system in time to prevent cascading failures in supplies of essential goods? If there is any doubt that the answers to these questions are an unqualified “Yes”, then that doubt should prompt folks to consider what they would do if they had no access to money.

    I have long considered these questions, believe that the answers are very probably “No”, and expect that monetary system failure will be catastrophic for those who are totally dependent on money for their procurement of food, water and shelter. That prospect, together with the realization that it will be impossible to “time” monetary failure (it could happen very suddenly at any time), has led me to prepare for a life without money. It’s not easy, but I encourage others to do the same.

    • You’re quite right about this, but let me turn this round slightly.

      The economy itself is an energy system, but money itself is a human artefact, created by us and under our control. We ought to be able to manage it, but we’re failing to do so. There’s an analogy here with our failure to manage the human component of climate change. Obvious measures – smaller car engines, hybrids, build trams instead of roads, ration flights – are beyond our ability to act, so we opt for complex gimmicks.

      In finance itself, the issue of the affordability of homes for the young isn’t tackled by the obvious route (letting prices fall), but by the counter-intuitive gimmick of making borrowing easier (which actually increases prices).

      So this brings me back to the lack of rationality in the situation. The financial system is likely to fail. Things can struggle on for longer than one might expect, but right now there’s a frightening sense of things falling apart, and a lack of awareness and/or of preparedness to act.

      I agree that the economy of trade, and the supply of essentials, cannot cope with monetary failure. I’d argue that the USD is critical here, and the omens for the dollar are bad. (Don’t let markets fall! Don’t let anyone default!) All over the web, from the reasoned/non-alarmist to the ‘end is nigh!’ points of the spectrum, there’s a recognition of where this is heading. There may or may not be answers, in practical terms. But there isn’t the awareness of the situation, and/or the willingness to respond.

    • I’ve written about the technicals pointing to a declining dollar for over a year, and have had around half my investable assets out of the buck despite living in the US. It has not collapsed…yet. Perhaps it will continue in slow motion, but I fear the day when it does occur to the bulk of global investors that it’s not the safest port in a storm. 30% declines in a year in major currencies have happened before. BWZ is the safest alternative I know of along with a much smaller amount of physical gold (sovereign coins).

      In the past I’ve bought individual foreign sovereign and top grade agency bonds, but now I don’t want to exceed 2 yr avg duration in case rates rise sharply at some point. I do have 20% in State of MA tax free bonds with 6 yr avg maturities which add to our social security income to cover living expenses. If the whole global monetary system fails, billions will die prematurely, me included. Supplies of meds will cease flowing. My thyroid, blood pressure, and heart meds stabilize my 76 yr old body so I can do a fair bit of strenuous stuff. Without them it will be dicey. Food (some basics), firewood, and water will likely be available longer than the meds.

    • I’m curious Steven.

      Presumably US monetary and fiscal stimulus is presumably increasing the US trade deficit (aka resource grab etc) which is depreciating the dollar.

      I’m wondering if this is partially intentional so that after importing all the raw materials for a post carbon economy, a depreciating dollar makes the export of post carbon finished goods cheaper.

      Presumably a depreciating dollar is also good for foreign dollar denominated debt and import substitution.

      Do you have any further thoughts about a depreciating dollar? 😊

    • Steve G,

      “US monetary and fiscal stimulus is presumably increasing the US trade deficit (aka resource grab etc) which is depreciating the dollar.”

      Weaker $ is partially a result of the trade deficit. Agree that both stimuli increase spending which includes imports. Natural resources are not the main component. See:

      What Are the Major U.S. Imports?
      Machinery (including computers and hardware) – $386.4 billion
      Electrical machinery – $367.1 billionElectronic Equipment were one of the top U.S. Exports in 2014.
      Vehicles and automobiles – $306.7 billion
      Minerals, fuels, and oil – $241.4 billion
      Pharmaceuticals – $116.3 billionpharmaceuticals
      Medical equipment and supplies – $93.4 billion
      Furniture, Lighting, and Signs – $72.1 billion
      Plastics – $61.9 billionplastic bottles
      Gems and precious metals – $60.8 billion
      Organic chemicals – $54.6 billion

      “I’m wondering if this is partially intentional so that after importing all the raw materials for a post carbon economy, a depreciating dollar makes the export of post carbon finished goods cheaper.”

      Highly unlikely in my view, as the materials are consumed quickly, and not stored. Many items are already entering shortages incl. rare earths, helium, and conventional high grade crude oil.

      “Presumably a depreciating dollar is also good for foreign dollar denominated debt and import substitution.”

      Payback in depreciated dollars helps the US Govt. as well as all $ debtors. As to imports, it makes the sellers(exporters) worse off in the US as the buying power received is lower. They will raise prices to try to offset any rise in material/energy./wage inputs.I don’t know what you mean by substitution except temporarily making $US sourced stuff a bit cheaper in cost vs other options.

      “Do you have any further thoughts about a depreciating dollar?” 😊

      Only that the Empire is in slow decline, and Reserve status will likely be challenged this century.

    • My current hypothesis after reading the latest JEREMY WARNER article


      is that US monetary and fiscal stimulus is a covert resource grab for all the necessary materials to proceed with a post carbon transition. Hence the commodities supercycle.

      The timing also takes advantage of the $70 price of oil which presumably is a reasonable price considering the rising energy costs of energy.

      The paradox of course is that this resource grab may well increase the demand for oil. However forecasters aren’t expecting an immediate rise in oil price so possibly oil producers do understand that affordability is key, especially in terms of sustaining the discretionary economy.


      For me, a rational future scenerio will require increasing fossil fuel rationing along with price controls since the availability of essentials is paramount to styme social conflicts and societal instability.

      The rich countries will at least seek to preserve similar if not decreased standards of living but poorer countries will remain poor and effectively powerless in the face of land grabbing and resource grabbing. We might well see a die back in poorer countries with progressive politics in continual outrage but with no actual policies since any realistic polices will require voluntary self-impoverishment.

      Thus Conservative Darwinistic politics will continue to dominate under the rubric of national sustainability, resilience and sufficiency. From this point of view, diminishing energy returns will be shared unequally with cheap materials being grabbed from poorer countries to support the development of special economic zones within a two tiered global economy.

      As Don has inferred previously, without a high density energy substitute then low density energy systems will have to do so electrification will proceed apace with printed money being used to covertly land and resource grab.

      That’s my speculative opinion.

    • Steve G, Did you see my response re “resource grabs”? It has happened for millennia as invading hordes took whatever they deemed valuable. Currently it continues, mainly via political pressures. It mainly goes into current production.

      Rationing will be a last resort in the developed world in my opinion. (think war times) That would be forced degrowth.

      Conservative (current definition) pols have no monopoly re addiction to growth. I’ve heard none anywhere speak of going on consumption diets. Left leaners preach economic growth just as much.

  17. Another excellent read and the comment section is, as always, informative.Thanks to all!https://dothemath.ucsd.edu/2021/05/to-what-end/

    Recent reflections on the long-term trajectory of the human enterprise have somewhat transformed the way I look at most activities. Specifically, I refer to the dual realizations that on 10,000 year timescales ultimate success is effectively synonymous with true sustainability, and that the human race stands in blatant breach of contract with evolution and ecosystem parameters—fueled by a mad grab of one-time finite resources. The net effect is that most human activities today promote ultimate failure rather than ultimate success.

    As such, when evaluating a proposed or ongoing effort, I ask myself the question:

    To what end?

  18. Some food for thought. Elon Musk’s SpaceX has already reduced the cost of reaching Low Earth orbit by a factor of 20 over the Space Shuttle and his new fully reusable rocket will reduce it by a factor 1000 overall.

    Space travel is set to become cheap. It is difficult to overestimate the potential importance of this development. It is entirely possible that human resources will evolve beyond the limits of our single, burned out little planet.

    • Here’s some food for thought, too:

      Assume that it costs almost nothing to venture into low earth orbit. Anyone could go there for the price of a subway ticket. Why would anyone go? I suspect that experiencing weightlessness and enjoying the view would be enough for almost everyone. There’s not much to do in low earth orbit but work on equipment monitoring the earth or the heavens. Low cost access to near space would make satellite installation ultra-cheap, but there is almost no reason for a person to hang out there.

      Now assume that it costs almost nothing to go to other planets. Why would anyone go? Mars is the closest planet to being habitable by humans, but Mars makes Antarctica look like paradise. And if we are assuming that it is easy to get to Mars, why wouldn’t we assume that it would be easy to fix anything wrong with “our single, burned out little planet”? Despite Earth’s real problems, it would be so much easier to keep Earth habitable than make Mars habitable, there is no rational incentive for more than a handful of humans to go to Mars (if that many).

      I fear that all this talk of interplanetary travel and escape is just a mechanism for avoiding the tackling of earthbound crises. We aren’t going to colonize Mars. The sooner we all concentrate on our survival here on Earth, the better.

    • Joe, I don’t think that we should use space colonisation as a way of avoiding our problems here on Earth. High Earth orbit could serve as a manufacturing centre for solar power satellites providing power to Earth. Humans would live in space colonies that would use rotation to simulate gravity. Martian cities may be built under domes, but that need not imply hardship. And it will be an opportunity for people that want to build a new life on a new world. All this may sound as fantastic right now as our world would appear to a man in the fifteenth century. Yet here we are.

      When Britain built a global empire, it had nothing to do with avoiding its problems back home. I don’t know if anyone looked at it in that way at the time. It was about accessing new resources. And it was precisely those resources that led directly to the industrial revolution. Most of those places were far away and oceans had to be crossed to access them. It all looked very difficult in 1500. But by 1800, Brittania ruled the waves.

      What would the European nations look like today if they had focused, in an insular way, on their problems back home, without wasting their time and energy on the resources that global empire would have brought? Can you honestly see them being better places?

      I think our situation today is not so different. The Earth is a bit like Europe in the fifteenth century. Insular, overcrowded and slowly running out of resources. Our first scouts have reached the new worlds (Mars, the moon and asteroids) revealing them to be rich in resources, but wild and hostile places. What should we do? Should we conserve what little we have remaining, huddling onto a finite planet, until entropy robs us of what finite resources remain and we return to the stone age? Or should we venture into the new frontier of challenge in the solar system? I think concentrating our attention on the Earth, will do nothing to even delay the inevitable. On a finite planet, human prospects point in only one direction. Our resources are depleting and our planet is overcrowded. We need to push out into the wider solar system, finding new places, new resources, developing new technologies and social constructs along the way.

      That is the best way to help our situation on Earth. Trying to stay where we are to conserve resources, is a bit like a starving man refusing to venture out of bed to look for food, out of fear for burning precious calories. Staying in bed is warm and comfortable. But that man’s survival and long term comfort, depend upon his going to the shop and buying food for a start. We have the capability now to leave the place we grew up in. Staying in that place is not safer, but more dangerous. Unless we can transcend its boundaries, the Earth is destined to become a prison for mankind, as we eventually lose the ability to leave it. Not a future that I want for my children or anyone else’s.

  19. Updates to Life After Fossil Fuels
    Alice Friedemann gives some handy references to recent articles extending or amending her book. Also, some new calculations. For example, see her elucidation of how the base case forecast for oil demand was computed (it assumes a huge shift to renewables starting immediately) and examine her oil supply projection if there is no new capacity development.

    As I write this, I am surrounded by people stressing because of the cyber attack on the Colonial pipeline, which shut off fuel transportation for a week or so. Now the ransom has been paid (according to several sources) and fuels are moving again…but some experts say it will take a week to sort things out so that people don’t need to worry about getting their tank filled.

    I do think that elements of the governments understand the importance of oil. I think they do not know what to do about it, other than pursue something that sounds like it might work. What they don’t want to hear is that relocalizing the production of food perishables needs to be an urgent priority, that the formation of depression-like federal agencies to take an active role is essential, and that refurbishing water transportation is essential. The US government is probably thinking a lot about looting third world countries for resources….no, make that ‘ensuring democracy’.

    Joe Biden is, by accounts from many people, strongly committed to Neo-Liberalism. Establishing federal agencies to take active roles, following FDR’s example, is anathema to him. What is left is two options to bring about huge investments in renewables:
    *Make it the most attractive thing for the trillionaires to invest in
    *Steal from other countries (e.g., using the reserve currency to accomplish his goals)
    There is also the possibility of WWIII, but that is so dangerous that it is impossible to think about, for a civilian.

    Since Biden doesn’t want to put tax money into the renewables, he must somehow guarantee returns on the trillionaire’s capital, or else force them to invest with punitive laws.

    To me it sounds like a debacle in the making.

    Don Stewart

  20. “For the system to function, then, the shared predicate is growth.“

    Can I naively challenge that assumption/conclusion, upon which so much of the argument rests?

    Not every investor succeeds in getting his return (or even his money back), even when solid growth is happening.

    Similarly, couldn’t risk be rewarded with returns in a zero-sum, no-growth environment? I invest in company A that I think can eat company B’s lunch. They do, taking revenue from company B, allowing them to return my principal plus interest.

    Returns across the population of investors would be zero, but I’d still be personally willing to invest because I’d be willing to pit my intelligence and investment-picking prowess against others – the same attitude I need to have in a growing economy.

  21. “…it would be so much easier to keep Earth habitable than make Mars habitable, …”

    Beautifully put Joe.

    If only some celebrity scientists would band together, do some back-of-envelope calculations and show the world how ridiculous this distraction is.

  22. Question to several contributors comments re extra terrestrial exploration/settlement.

    Please confirm if all quotes about declining costs of these activities are expressed in $ terms. If so, surely this is irrelevant and misleading: energy cost/return, as discussed at this forum must be the key determinant of resource allocation.

    Note: I am for some reason unable to post directly into “responses”, so am attempting to copy and paste without the result being visible to me.

    • I’m sorry you can’t post directly, and don’t know why, but you have, of course, nailed the issue. There aren’t analogies here with colonization, because the settlers of the past could find the (nutritional and other) energy they needed both at their destination and, often, en route.

      The SEEDS model shows that the US economy is in the type of economic trouble that leads to dysfunctionality, and confirmation of this is surely visible in a host of financial conditions. This can’t be escaped by space travel.

  23. @ El Jeffe – ” ‘New’ Labour adopted the same policies as the Conservatives”

    After leaving office, Thatcher was once asked: “What was your greatest legacy?”
    Her reply – “Tony Blair”.

    Sums it up perfectly.

  24. Steve St Angelo has a deep interest in silver as it pertains to energy.
    He’s the only person I know who thinks of precious metals in terms of embedded energy value.

    Well worth a listen.

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