#203. Surplus Energy Economics


In recent discussions here, it’s been suggested that we need a brief explanation of Surplus Energy Economics (SEE). This is an interpretation which states that the economy is an energy system, not a financial one. This is the understanding which informs the SEEDS economic model.

The timing is certainly appropriate, as established economic conventions are being confounded by adverse trends which financial tools are proving wholly unable to counter. In this context, it’s not at all surprising that interest in SEE and SEEDS continues to increase.

Energy-based analysis reveals that, where the West is concerned, the scope for further economic expansion disappeared between 1997 and 2007, and that the same thing is now happening in the EM (emerging market) economies.

The principle SEEDS metric for economic well-being is prosperity, which the model calibrates both in aggregate and in per capita form. On the latter basis, the average American was (as of 2019) 6.6% poorer than he or she had been back in 2000, British prosperity had declined by 10.6% since 2004, and Canadians had become 8.6% poorer since 2007.

These findings are, of course, quite different from the conventional line, mainly because governments and central banks have resorted, perhaps in all good faith, to credit and monetary policies which have sustained a simulacrum of “growth” even though prosperity is now deteriorating.     

The economic narrative of modern times is that, ever since “secular stagnation” was first noted (but not traced to its energy causation) back in the 1990s, the authorities have tried successive financial ‘fixes’ which have succeeded only in confirming that the economy, being an energy system, cannot be revitalized by monetary ‘innovation’.

‘Credit adventurism’, which led directly to the 2008-09 global financial crisis (GFC), has since been compounded by ‘monetary adventurism’, which has put the monetary system itself at great and increasing risk. We can be certain that the search is on for ‘gimmick 3.0’ – and equally certain that this, too, will fail.

The greatest single error made by conventional economics is the assumption that, if we understand money, we also understand the economy. This fallacy has driven an ever-widening gap between a financial system that has been growing exponentially, and an economy that has ceased expanding, and has started to contract.

In the interests of brevity, some of the implications of SEEDS analysis can only be noted here in outline. First, as prosperity per capita declines, so will the scope for funding public spending without recourse to ever-increasing government debt.

Second, just as prosperity has deteriorated, the cost of essentials has continued to increase, leveraging relatively gradual declines in top-line prosperity into far steeper falls in discretionary prosperity. This in turn means that a large and growing proportion of discretionary consumption has become dependent on continuing increases in debt.

Third, the calibration of prosperity reveals that levels of financial risk are far more severe than they appear on conventional metrics which use credit-inflated, ECoE-ignoring GDP as the denominator.

Each of these factors makes it seem unlikely that the energy basis of the economy will gain official recognition any time soon. Properly understood, the last real opportunity for a “reset” came – and went – back in 2008-09, when we opted to side-step the market implications of dangerously excessive credit.

The only practical alternative now is to try to buy a bit more time before ultra-loose monetary policies trigger a hyperinflationary slump in the value of money, and/or attempts to head off surging inflation trigger asset price collapses and a cascade of defaults.  

Fundamentally, the aim now must be to minimize the economic consequences of a seemingly inescapable failure of the financial system.    

Two interpretations, one reality

Essentially, there are two ways in which the working of the economy can be explained. One of these is the conventional or orthodox explanation, which states that the economy can be understood wholly in terms of money. The alternative, summarised here, is that the economy is an energy system.

If it were true, the monetary explanation would mean that there need be no end to economic growth, because money is a human artefact which is wholly under our control. Some proponents of traditional, money-based economics have been explicit about the absence of physical or resource limits to economic expansion.

It might be contended that the economy has indeed expanded enormously since the publication, in 1776, of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, the founding treatise of Classical Economics.

The alternative explanation is that it wasn’t Smith’s magnum opus, but the completion of James Watt’s radically more efficient steam engine – also in 1776, and also in Scotland – that really triggered two centuries of rapid economic growth, because it gave us access to the vast quantities of energy contained in coal, oil and natural gas.

The contest between these two schools of thought is reaching a climax now, because two factors are undermining the fossil fuels dynamic. One of these is the recognition that continued reliance on oil, gas and coal threatens to inflict irretrievable damage to the environment.

The other is that depletion – the practice of using highest-value energy resources first, and leaving costlier alternatives for a ‘later’ which has now arrived – is eliminating the ability of fossil fuels, not just to drive further growth, but even to maintain the economy at its current scale and complexity.         

The view set out here is that this contest is already all but over, and that increasingly desperate reliance on financial gimmickry – plus the increasingly blind faith placed in technology – demonstrate the failure of an interpretation which insists that money, rather than energy, determines the size and shape of the economy.

In principle

The energy-based interpretation of the economy is founded on three principles, each of which is validated both by logic and observation.

The first is that the economy is an energy system, because nothing that has any economic utility (value) at all can be supplied without the use of energy.

The second is that, whenever energy is accessed for our use, some of that energy is always consumed in the access process. This ‘consumed in access’ component is known here as ECoE (the Energy Cost of Energy).

The third principle is that money has no intrinsic worth, but commands value only as a ‘claim’ on the output of the energy economy.

Each of these principles seems incapable of refutation. We know, for example, that an economy deprived of energy would grind to a halt within days, and would collapse within months. We know that we can’t drill an oil well, manufacture a wind turbine or a solar panel, or build an electricity grid without using the products of energy. We know that no amount of money will help someone adrift in a lifeboat, lost in a desert, or in any other way cut off from the process of exchange.   

The first set of charts puts these issues into context. The left-hand chart shows how dramatic increases in population numbers (from less than 0.7 billion in 1776 to 7.8 billion now) – and in the economic means of their support – have been driven by an even more dramatic increase in energy use. For most of that period, energy supply has grown more rapidly than population numbers, enabling prosperity to improve.

The situation now, though, is that trend ECoEs are rising rapidly, which has two adverse consequences for prosperity. The first is that rising ECoEs reduce the economic value obtained from each unit of energy consumed.

The second is that growth in energy supply is likely to cease, because producer costs are rising just as the prosperity of consumers is being undermined. This suggests that increased output of renewables and other non-fossil forms of energy will, at best, do no more than offset a decline in supplies of fossil fuels, leaving total energy availability broadly flat.

This means that, for the first time since the start of the Industrial Age, energy use per person will trend downwards. The deterioration is set to be even more marked at the level of surplus (ex-ECoE) energy per capita, which is the real driver of prosperity.     

Fig. 1

Financial consequences – the high price of denial

Perhaps the strongest evidence for the deterioration of the energy-based economy is the sheer extent – indeed, the outright desperation – of the financial gimmickry that has been necessary in order to sustain a simulacrum of “growth” as rising ECoEs have undermined economic prosperity.

As we shall see, prior growth in the prosperity of the advanced Western economies goes into reverse at ECoEs between 3.5% and 5.0%. Globally, these effects started to undermine growth between 1990 (an ECoE of 2.6%) and 2000 (4.1%). This was the period in which observers first identified a deceleration which they labelled “secular stagnation”.

This phenomenon has not, of course, been understood in energy terms. Rather, decision-makers have resorted to increasingly desperate, dangerous and futile financial innovations in an effort to counter it.    

The first recourse was to ‘credit adventurism’, making debt easier to access than it had ever been before. Since 1995, reported “growth” (of 116%, or $71 trillion) in GDP has been far exceeded by a 247% ($235tn) escalation in debt. This means that each dollar of “growth” has been accompanied by $3.30 of net new debt.

Another way of looking at this is that, whilst annual “growth” averaged 3.3% between 2000 and 2020, annual borrowing averaged 10.8% of GDP. What was happening was that output and growth were being inflated artificially by the pouring of increasing amounts of credit into the system.

SEEDS analysis reveals that underlying or ‘clean’ output – known here as C-GDP – increased at an annual rate of only 1.6%, rather than 3.3%, through this period. Even this average number masks a steady deterioration in clean growth.

These compounding effects mean that reported economic output has now been inflated far above its underlying equivalent. Essentially, the insertion of a ‘wedge’ between debt and GDP has driven a corresponding wedge between reported (GDP) and underlying (C-GDP) economic output.

Fig. 2

Needless to say, ‘credit adventurism’ has exacerbated financial risk. The artificial inflation of reported output has resulted in the understatement of risk calibrations, such as the ratio of debt to GDP, meaning that risk has become more opaque just as it has become more extreme. At the same time, the deregulatory processes involved in credit expansion have combined with ultra-loose monetary policy to weaken the link between risk and return.

This exercise in ‘credit adventurism’ necessarily culminated in the global financial crisis (GFC) of 2008-09. Rather than accept the market consequences of this process, the authorities opted to compound credit with ‘monetary adventurism’, through the adoption of supposedly “temporary” expedients including QE and ZIRP.

It does not require hindsight to recognize that, during the GFC, the last chance of a meaningful “reset” came and went. The adoption of ‘monetary adventurism’ has created a wholly unsustainable situation, in which real (ex-inflation) interest rates have been pushed permanently into negative territory – which means that people and businesses are paid to borrow – whilst saving is deterred. Other consequences of this process have included a dramatic, artificial inflation of asset markets, and the creation of a severe disequilibrium between asset prices and all forms of income.

Fundamentally, this has suspended the operation of a ‘capitalist’ system which, of course, requires positive real returns on capital. The necessary process of ‘creative destruction’ has been halted by a dynamic which keeps non-viable (‘zombie’) businesses afloat.

The effects of these processes extend far beyond debt itself. Since 2002, the broader category of financial assets – essentially, the liabilities of the government, household and corporate sectors – has expanded at a rate of $7.20 for each dollar of “growth” in GDP. Meanwhile, the crushing of returns on invested capital has contributed to the emergence of huge shortfalls (“gaps”) in the adequacy of pension provision.

In overall terms – and well before the onset of the coronavirus crisis – we had reached a point at which each “growth” dollar is being bought with $3.30 of new debt, $3.90 of other incremental financial liabilities and $2.50 of additional shortfalls in pension provision.

It would not be too much of an over-simplification to assert that we are taking on close to $10 of new liabilities in order to manufacture each $1 of “growth”

The irony is that, of the supposed $71tn “growth” recorded since 2000, fully 60% ($40tn) has been purely cosmetic, with real economic expansion totalling only $26tn over that period.        

Fig. 3

The decisive factor – ECoE

From the foregoing, it will be obvious that the critically important dynamic has been the relentless rise in ECoEs, a trend that has put an end to economic expansion, and has already started putting prior growth in prosperity into reverse.

The history of the economy in recent times can best be understood as an attempt to use financial policy in a failed effort to ‘fix’ an economy hamstrung by a factor – rising ECoEs – that conventional economic interpretation wholly fails even to recognize.   

For most of the Industrial Age, ECoEs have trended downwards. We don’t know what ECoEs were back in the 1770s, but we do know that they were high. They declined steadily over time, reflecting three operative processes.

The first of these was geographic reach, exemplified by the way in which the petroleum industry, from its origins in the Pennsylvania of the 1850s, expanded in pursuit of lower-cost supplies around the World.

The second was economies of scale, a facet of the rapid expansion of the coal, oil and natural gas industries.

The third driver was technology, which progressed from the simple extraction, processing and transport methods of the early Industrial Revolution to the far greater sophistication of the modern energy industries.

The ECoEs of the fossil fuel industries probably reached their nadir in the two decades after the Second World War, when ECoEs seem to have been at or below 1%. This drove the particularly rapid economic expansion of that period.

Latterly, however, the benefits of reach and scale have been exhausted, and depletion has started to drive ECoEs back upwards. Fossil fuel ECoEs reached 2% in 1984, 3% in 1993 and 5% in 2003, and are now close to 12%.

Since fossil fuels still dominate energy supply, overall ECoEs have risen relentlessly, from 2.6% in 1990, and 4.1% in 2000, to just above 9% now. As we shall see, complex advanced economies need ECoEs that are below 5%, and EM (emerging market) countries require ECoEs that are no higher than 10%.  

It’s abundantly clear that there can be no financial ‘fix’ for rising ECoEs. Equally, we cannot overcome higher ECoEs by using ever larger gross (pre-ECoE) quantities of energy, because rising ECoEs undermine the economics of energy supply itself. Unless the rise in ECoEs can somehow be halted and reversed, economic prosperity must follow a path of continuing decline. 

Supposed solutions to the ECoE problem fall into three categories, none of which is persuasive.

The least feasible of all is that we can somehow “de-couple” economic activity from the use of energy. This is impossible, of course, because the economy is an energy system. The evidence for “de-coupling” has been described by the European Environmental Bureau as “a haystack without a needle”. Only in the kind of alternative universe described by conventional, ‘money-only’ economics can we live on money, detached from physical (meaning energy-based) goods and services for which money can be exchanged.

The second delusion is that ‘there’s a technological solution to everything’. This is an era in which extravagant (and generally extrapolatory) claims are made for technology. The hard reality, of course, is that the scope of technology is limited by the envelope of physics. This is why, for instance, efforts to use shale resources to turn the United States into “Saudi America” have been such a costly failure.

Third, it’s asserted – and often simply assumed – that transition to renewable sources of energy (REs) can push overall ECoEs back downwards. Whilst there are compelling environmental and economic reasons for promoting RE expansion, the ECoEs of REs are unlikely to fall much below 10%, which is nowhere near low enough to prevent deterioration in an economic system built on ECoEs at or below 2%. Apart from anything ese, transition to REs will require enormous resource inputs, most of which can only be made available through the use of legacy energy from fossil fuels.    

The prosperity connection

The SEEDS economic model enables us to identify the levels of ECoE at which Western prosperity turned down, and to measure and predict the equivalent inflexion-points for EM economies.

In the Advanced Economies, prior growth in prosperity per capita went into reverse at ECoEs between 3.5% and 5.0%. This happened in Japan in 1997 (at an ECoE of 4.4%), in the United States in 2000 (4.5%), in Italy in 2001 (4.8%%), in Britain in 2004 (4.5%) and in Canada in 2007 (4.0%).

Latterly, the same thing has started happening in EM countries, too, including Mexico in 2007 (at an ECoE of 5.1%), South Africa in 2008 (6.1%) and Turkey in 2018 (8.7%).  SEEDS analysis shows that, in general, EM prosperity turns down at ECoEs of between 8% and 10%.

Latest data indicates that Chinese prosperity may not now turn down until 2025-26 – by which time ECoE is likely to be between 9.6% and 9.9% – though intervening increases in prosperity are likely to be very modest. The greater ECoE-resilience of the EM economies reflects a lesser degree of complexity, which means that upkeep of existing systems can be accomplished at lower levels of surplus energy.

There are, of course, local nuances around the connection between different countries’ ECoEs and their prosperity inflexion-points, but the ranges cited here – 3.5% to 5.0% for Western countries, and 8-10% for EM economies – are validated by comprehensive analysis.

For the World as a whole – and as the following charts illustrate – prosperity per person has been on a long plateau, during which continued growth in the EM economies has cancelled out Western deterioration. This helps explain the widespread perception that EM countries have been ‘carrying’ global growth since the GFC.

It would be a mistake, though, to assume that this EM resilience can be a continuing facet of the global economy. Rather, lesser complexity explains why countries like China and India have been able to carry on improving their prosperity pending their arrival at higher (and hence later) inflexion points.

Critically – and with most economies now past their economic climacterics – global prosperity per capita seems now to have turned down decisively from a plateau that has lasted since the early 2000s.

As the third of the following charts shows, the essence of the situation is that the World’s average person is now getting poorer, a problem compounded by an unfounded, blind faith insistence that no such thing can possibly be happening.                   

Fig. 4

109 thoughts on “#203. Surplus Energy Economics

  1. “The only practical alternative now is to try to buy a bit more time before ultra-loose monetary policies trigger a hyperinflationary slump in the value of money, and/or attempts to head off surging inflation trigger asset price slumps and a cascade of defaults. ”

    For the ordinary bloke then; precious metals and canned food as inflation hedges?

    • As a general proposition, there’s a limit to how much self-sufficiency is achievable in complex societies. This is why I’m not a ‘survivalist’ or a ‘prepper’. We really are “all in this together”, and ‘best outcomes’ require that we persuade decision-makers to act wisely, on the basis of reality.

  2. In the US, middle class people are buying guns and ammunition, fearing an uprising by desperate people. Dehydrated food has a very long shelf life, so I’d get more of that than canned goods. If the grid goes down, civilization as we know it crashes. No money machines, money transfers, liquidation of paper assets, refrigeration, most types of heating…Let’s hope that somehow the system holds together for the sake of our progeny.

    • In strictly economic and financial terms, the US (and the UK) are not necessarily in a worse plight than comparable countries. But both look increasingly dysfunctional, with an above-average insistence on out-dated nostrums and an extreme reluctance to face up to economic reality.

  3. Review of Life After Fossil Fuels, by Alice Friedemann

    Review of Reclaiming Hope From the Dismal Science by Tim Jackson

    The second review acknowledges that it is possible to live well, but quite differently than we now live. But the reviewer is skeptical that we will actually make any moves in that direction. The first review portrays our future as carved in stone by physical reality, that a few of us can live comfortably in that future world, but it won’t include very many of us.

    I would characterize both books was generally in line with Dr. Morgan’s notion that growth and financial capitalism are over, but the book by Friedemann is considerably more pessimistic about alternatives to fossil fuels at anything like current volumes.

    Don Stewart

    • From Chris Smaje’s Small Farm Future blog:
      “The physicist Robert Davies made the nice point to me that while physics is a ‘hard science’, sociology is a ‘harder science’, because understanding the behaviour of matter is as nothing compared to understanding the behaviour of human beings. Nobody can possibly say how these complex intersecting crises will pan out. For sure, nobody can say that they’re certain to pan out well.”

  4. I can’t recall when I came across your site, but despite never commenting I have been reading your articles for some years, and am always pleased when I discover you’ve penned another post. Not being an economist, I’m an engineer by profession, I came to the view years back that the economy is a thermodynamic process, “work”. Energy of course is another way of describing work at the point of production, an energy transfer. So if we look back in time the earliest work to maintain a hunter gatherer lifestyle, was to extract energy from another organism containing greater volume of energy. Fire increased the potential, and we have been seeking greater levels of energy density ever since. The culmination of this trend was nuclear energy.

    Mistakes in the nuclear sector have led to it being difficult to sell to a population with little understanding of the process, and a fear of a massive accident, plus the lack of interest in liquid fluoride thorium reaction and a never ending quest for fusion have lead to a cul-de-sac in energy supply beyond the energy density of hydro-carbons. Coupled with a growth in idealised lifestyles envisioned by so called green environmentalists is now leading us down a path to almost certain doom.

    The foregoing is a brief resume of the energy side of the problem, there are some foundational energy systems which might hold an answer to the problems we face, two which spring to mind are the Safire Plasma Reactor and the ”Suncell” in development by Brilliant Light and Power. The latter seems to be ongoing in perpetuity, the former is still in early stage development. Wind and solar are simply a retrograde step, to take us back to the eighteenth century in energy density terms.

    A final note on the energy side, the notion that hydrogen can come to the rescue tells you all you need to know about scientific progress post Faraday, Maxwell, Heaviside, et al.

    • Thank you.

      When we consider, not just environmental issues, but the relentless rise in the ECoEs of fossil fuels, it seems clear that we do have to expand renewables.

      But the fallacy lies in claims that this can be done without reducing prosperity. Wind and solar simply can’t replicate the economic properties of energy-dense fuels like oil.

      This is a world heavily reliant on wishful thinking and assumption. For example:

      “‘Green’ energy can replace FFs for quantity and quality”.

      “We needn’t make lifestyle changes – for instance, we can replace ICE cars like-for-like with EVs”

      “Technology will solve every problem”

      “We can stimulate the economy to endless prosperity”

    • Hey @parlington – I’m an engineer too. If you’re interested in meeting online to find things we disagree about, for the purposes of learning and sharpening our reasoning, hit me up: gregory.j.bell at gmail com

  5. Yes I totaly agree this so called green energy is driven by people don’t have do work that is relevant to our economy. We must go after more mucilage enegy,I rely on the four big coal or oil burning.Ineas looking yesterday at the worlds largest oil field in Canada which I tried in 1982 to work on,this was not to be.The Americans state there is another 200 years of supply left, trust that lot not to be left windmills etc they belong to Holland. I am yours truly Terence aHargreaves@ hargreavesterence@gmail.com

  6. It seems non-intuitive that for instance Turkey would only experience a downturn in prosperity in 2018 (8.7%) when it imports 75% of its energy, and other countries experienced a downturn long before. Is this simply because Turkey had little prosperity in the first place compared to countries which had their own fossil energy source such as UK?

    • First of all, it’s perfectly possible, under normal conditions, for economies to grow or sustain prosperity whilst relying on imported energy. Apart from providing greater security in extreme circumstances, the advantage of being a net exporter of energy is that the associated costs are incurred at home. This introduces what we might call a ‘trade premium’ into the ECoE situation, but it doesn’t mean that economic conditions are necessarily terrible for net importers and wonderful for net exporters.

      Turkish prosperity has grown (until recently) from a low base. Reported growth in GDP has been very largely genuine, in that Turkey hasn’t had to pour huge amounts of debt into the system to prop up its GDP. Turkey has a less complex economy than, say, the UK, needing less surplus energy for system maintenance, and leaving more available for growth.

      This makes it unsurprising, to me, that the model shows Turkish prosperity increasing until ECoE reached 8.7%.

    • You are welcome.

      Right now I’m working on some SEEDS data summaries, to be published here. It seems a good idea to produce the ones for Turkey and the UK first.

  7. Tim, further to the question about importing energy, how can a country’s ECoE be measured when imports and exports exist? It seems they wouldn’t “own” a high ECoE in FF provided by another country.

    In one of your charts, there’s been a crossover of ECoE between REs and FFs. How is it possible that ECoE is higher for fossil fuels than REs, when fossil fuels are 100% of the ECoE of REs? Seems REs would always be “FF plus”

    • On your first point, energy is energy, whether produced at home or imported. The question becomes one of trade costs and benefits.

      With REs, the relationship is between energy accessed and energy consumed in access (ECoE). The observation that the ECoE component comes from another energy source doesn’t ‘hijack’ this relationship, but influences its balance.

    • Hmmm… that doesn’t really explain how a country could have an individual, calculable ECoE. What gets charged to them as energy cost?

    • It’s important to remember that RE energy cost is mostly front loaded. Even if 100% of the energy to produce a solar module comes from FFs, its ECoE will depend on its lifetime return of energy. For example, if the energy cost of production and installation of one module is 1000 kWh, but it returns 10,000 kWh over its life, then the ECoE is 10%.

      While it is easy to count up the energy production of a solar module, determining the energy cost is far more difficult, since an almost arbitrary boundary has to be drawn around all the processes (and their energy use) involved in the manufacture and installation of a module. For example, how much of the energy use of the technician who drives to the site of module installation and installs the module can be attributed to the installation process? We can count almost all of the gasoline he uses, but how much of the energy from his breakfast or the energy cost of manufacturing his car do we include?

      The simplest way to get around boundary issues is to just compare monetary price with return. If the solar module costs $200 and returns $2,000 worth of energy, we can estimate is ECoE as 10%.

      In past decades, several studies have shown that the embedded energy (another name for energy cost) of manufactured products is fairly accurately found by using monetary cost. This relationship breaks down for primary energy materials, though, which makes it easier to determine the ECoE of a solar module or wind turbine than that of a barrel of oil or a tonne of coal.

      Dr Morgan has not revealed his exact methodology for calculating ECoE except to say that it involves looking at relative costs, which seems accurate enough to me, especially for determining relative changes over longer periods of time.

    • Joe,

      RE costs are not limited to front load. Infrastructure usefulness is finite. Energy is required whether recycling or transporting to landfills. There is also a cost to the environment in both cases: energy usage in recycling where economic, and, if dumped, fiberglass, plastics, metals, etc affect soils, water, and air.

    • Steven,

      You are absolutely right, but the end-life energy costs of renewables are a small fraction of the original manufacturing and installation costs, hence my use of the qualifier “mostly” with “front loaded”.

      And while there will be wear and tear on renewable energy equipment and ongoing maintenance costs, if enough of the original product can be recycled at end of its functional life, a new iteration of renewables my be able to use those recycled parts to create “new” equipment that might have a lower ECoE than the original brand new equipment.

      Blades may need to be replaced on wind turbines, for example, but foundations and towers should last for many decades if properly maintained. The same is true of generators, gear boxes and nacelles. We would normally have to go through a few generations of equipment evolution and replacement to know what the ultimate ECoE will be. Right now, we can only make approximate estimates.

      This is not to say that the ECoE of renewables will allow them to be a drop-in replacement for fossil fuels. I personally expect high-tech renewable manufacturing to collapse with the rest of modern civilization. We will still have some renewables available afterward, particularly wood, sail, and low-tech hydro and wind (think wooden water wheels and old Dutch wind turbines).

  8. Dr Morgan would you please comment on the work of Michael Hudson, President of The Institute for the Study of Long-Term Economic Trends (ISLET). Thank you.

  9. Hi Tim, long time reader first time commenter.

    Just wondering have you ever read Howard Odum’s work? A lot of what you do is getting close to is similar to his work on environmental accounting. The biggest takeaway from Odum is his focus on emergy rather than energy, in that energy goes through processes of concentration and transformation which makes it more useful and flexible. Fossil fuels are a great example in that they started out as sunlight hitting the earth, which was concentrated in the bodies of plants and animals, and then further concentrated bu the geological processes of the earth over millions of years. This is why renewables will never replace FF’s, they would have to use an insane amount of energy (geological and temporal scale) to concentrate the diffuse sources of wind and solar to get anyway near the transformative power of FF’s. Coal and oil are already the greatest battery we will ever have.

    He also shows quite elegantly that all systems, whether they be the solar system or the global economy, follow very similar rules of energy and one can accurately make predictions based of these rules. For example it is obvious that civilisation would form along large river valleys (China and India) of archipelagos (Greece) due to the ability of these environments to concentrate energy from a large area (Himalayas and Aegean respectively) into a specific location.

    One of the things I found most interesting that Odum mentions is that cancer is something that can appear in all systems at all scales as a competitive overgrowth of one part of the system due to an excess of energy inflows, which overrides the systems defences and can eventually cause a pulsed reset in the entire system. Algal blooms are one example, stock market bubbles another. Humanity really is a cancerous overgrowth on the earth as we have an excess of energy from FF’s that is allowing us to overgrow enough to damage the entire earth system, but also may be setting the stage for a pulsed explosion of life for the future. Think about it, from the perspective of plants, humans unlocking all the stored carbon in fossil fuels and warming the planet is beneficial, and past geological periods when temperatures were much warmer led to the earth consisting of lush jungle from pole to pole. We are currently in an interglacial in an ice age, perhaps Gaia wants to go back to the greenhouse?

    The conclusion I take from his work is that what we are going through is basically the same as bacteria in a Petri dish or locusts in a plague. We will consume the energy from FF’s as quickly as possible in a frenzied pulse (which we have since the 1800’s), then die off as the energy falls away. Then some other system will build on our ruins. This isn’t the apocalypse, but probably something closer to the fall of the Roman Empire on a global scale, and all that would need to happen is a modest uptick in the death rate globally to make a big difference to population over the time period of centuries. To think we can enact polices to change course is probably hubris, and better to accept and adapt and realise this is how systems in our universe work, with slow buildups of production and storage followed by frenzied pules of consumption (forest fires, supernovae, pandemics, weekend partying, large ungulate grazing etc etc etc…).

    Keep up the good work!

    • Thank you.

      On your concluding paragraph, it seems to me to depend on how we handle it. I’d have to admit that, in most instances, this varies between ‘not very well’ and ‘very badly’.

      A rational economy, confronted with FF depletion and the environmental issue, wouldn’t be building ‘larger than necessary’ cars, or allowing unrestricted air travel, but we still are. Back when I was in the UK I recall two news stories in the same week – (a) certain types of wasteful light-bulb were to be prohibited, and (b) a new runway was to be built at the country’s largest airport. We still see these contradictions all the time.

  10. Alice Friedemann continues to drive stakes in the heart of the Renewable Energy zombie
    “Computer chip fabrication plants need to run continuously for weeks to accomplish the thousands of steps needed to make microchips. A half-hour power outage at Samsung’s Pyeongtaek chip plant caused losses of over $43 million dollars (Reuters 2019). Intermittent power will kill microprocessors.”

    It is very common for some of my best friends to point out that if one determines how much land is actually devoted to growing food for direct human consumption, there is way more land suitable for agriculture than any realistic projection of population. What that equation is missing, I think, is the fragile nature of the economic and production system which makes available all the rest of the supply chain. If there are no chips and thus no communications networks and the current generation of almost all equipment fails to work and there are no thermostats in houses and Wall Street is deserted, and so forth and so on, we revert back to hunting and gathering. Which requires a relatively small human population with lots of wild animals and semi-wild land growing food for direct human consumption. And that doesn’t describe the world of 2021.

    Don Stewart

  11. Hello, I’ve recently discovered your writing and find it refreshing and intuitively persuasive. I’m a layman who has been reading of oil depletion since Campbell and Laharrere wrote in SciAm and of course generally back to Limits To Growth, etc.

    I’m interested in reading more on your ECoE calculation. Is there a page or a download that outlines how you determine the number?

  12. @GBell
    I think it is a mistake to think of the oil market, in particular, as being ‘owned’ by a country. Even in those countries with a national oil company, the company usually sells to the highest bidder. The countries that have a heavily subsidized local oil consumption are dwindling in favor of market prices for everyone. An economist would describe a subsidized local oil consumption plan as forgoing the profit which might have been obtained by exporting the oil…thus a financial loser.

    Oil is unusual because it is so easily transportable, and is especially cheap with pipelines and tankers. Coal is not quite as transportable, and gas has been a pretty local commodity up until LNG, which is considerably more expensive than pipeline gas.

    So, as a first approximation, a country like Singapore can produce no primary energy at all and still be prosperous and not pay an excessive penalty in terms of ECoE. The biggest factor in the sensitivity of their economy to ECoE is the degree of complexity they have developed and thus the leverage on primary energy consumption. A country with a lot of waste (e.g., the US) and a high degree of complexity (e.g., Singapore) are vulnerable to rising ECoE.
    Don Stewart

    • All I’d add to that is that a country like Singapore imports a lot of energy already embedded in goods purchased from overseas.

  13. @GBell
    A little more on complexity. A day or two ago there was an article on Zero Hedge describing Russia’s trade approach with Africa…which is completely ignored by the Western press. The article detailed the burgeoning commercial relationships between Russian companies and companies in African countries. Now an interesting observation is that if Russia has an ECoE of around 5, which implies either more efficiency or less complexity or both, then Russian companies will have an advantage over companies in the UK or the US. I’m not an expert on this topic, just putting two and two together to form a hypothesis. I would not be shocked at all if Biden attempted to disrupt the Russia/ Africa trade.
    Don Stewart

  14. I have question for Dr Tim, if you have time, or anyone else who comments here if they like. It relates to interest rates as determined by central banks but more specifically the Boe. On Thursday rates were kept at 0.1%. It must be now be a decade or more that interest rates in the UK have been close to zero or negative in real terms. Given the perilous state of that economy and the gargantuan amounts of debt (government, household etc) even modest rises in rates could be catastrophic I would have thought. Are there any scenarios where the central bank could ‘lose control’ of interest rates and what is the likelihood of this happening?

    • Negative real rates are indicative of an economy in very deep trouble, and dependent on continuity of credit expansion. Last year, the UK government ran a huge deficit, which was understandable, and arguably necessary, but sums matching that deficit were created by the BoE, i.e. all-out monetization.

      Internally, there’s no reason why a central bank need lose control of rates – if bond yields rise, they can buy bonds using newly-created money, pushing prices up and yields down.

      But the dangers are FX markets, and inflation. The comparative resilience of GBP reflects the lack of alternatives – if you sell Sterling, what do you buy instead? – but inflation is a very real danger, and can require higher rates as a response. That’s the vulnerabiity of running an economy on credit.

      GBP has reflected market perceptions that, having got ahead of the pack in vaccination, the UK can make an earlier return to “growth”. The snag is that most, perhaps all, of this “growth” is the cosmetic effect of credit injection, much of it now monetized. It’s possible to use fiscal policy to head off parts of the inflationary risk, but I can’t see this (or any other) UK government doing so.

    • is the market perception of the efficacy of the vaccines more important than their real effectiveness?

    • If you mean financial importance, then yes. With cheap money pouring into the system, markets have an ‘optimism bias’ on almost everything. The true weakness of economies, and some economies in particular, seems to be not understood, or deemed not relevant in markets inflated by monetary policy. One might regard this all-pervading optimism as a worrying sign.

      Vaccines themselves are what we might call dangerous ground, especially for those of us who lack the requisite specialist knowledge. On the one side are conspiracy theorists, convinced there’s some kind of nefarious plot behind the vaccines, and indeed behind covid-19 itself. On the other, there’s an official line that the vaccines are some kind of magic bullet.

    • Richard, Dr Tim’s reply has summarised the position well.
      I maintain a record of the UK Real Rate of Interest since the start of the new millennium. As we know, we’ve been in Severe financial Repression (SFR) since 2008. The figures that I use are: CPI for the year from statista and BoE Base Rate at the end of the year.
      The highest negative real rate occurred in 2011 when the figure was -4.0%. There was a single year when rates turned positive. That was in 2015 at +0.5%. Last year the figure was -0.7%.
      I put the figures into graphical form to bring home to my children through visualisation the remorseless reality of the situation – ‘The New Long Emergency’. They have been quite shocked, and so they should be!
      This year? I’ve no idea, but I’d be very surprised indeed if rates were ever to turn positive in real terms any time soon.
      I fear very much that we’ve reached the point where one can paraphrase a famous quip: ‘One path leads to disaster; the other path leads to catastrophe. Let’s hope that the MPC choose wisely’.
      I think that the Big Story is the duration of Emergency Rates, and the compounding effect of negative real rates. That’s a story that the MSM largely ignores. They find it too slow, lacking in immediacy and not sufficiently ‘eye-catching’.

    • Your quip puts me in mind of an exchange in the UK Parliament. Disraeli was making flowery use of words like ‘catastrophe’ and ‘disaster’. Gladstone pushed him to be more specific. Disraeli replied – I quote from fallible memory – “If Mr Gladstone fell in the Thames, that would be ‘a catastrophe’ – if someone fished him out, it would be ‘a disaster'”.

      Your rates narrative is descriptive of an economy dependent on perpetual stimulus, a label that can be applied with equal force – though for rather different reasons – to the United States.

      As you might know, I’m using SEEDS to trial an alternative, whole-economy inflation model, which I’ve called ‘RRCI’ (realised rate of comprehensive inflation). These are preliminary results, but the UK and US numbers for 2020 are, respectively, 9.0% and 5.2%.

      It’s noteworthy that the official broad measure – the GDP deflator – for the UK last year was 5.7%. RRCI is showing modest (though rising) inflation in some Western economies, but dangerously high levels in some emerging economies.

    • there has been hyperbole at either end of the vaccine debate,
      extraordinary claims against and extraordinary claims for vaccines,

      I’ve not been convinced by any of it and have followed my own counsel.

    • …I’m increasingly persuaded that rises in the cost of essentials will form the fissure that cracks the myths.

      This is probably obvious to others, but it has occurred to me that with 2019 a local maximum in global energy/output, we are getting a hint of the future.
      After global energy peaks there will be an increasing shortage of essential physical goods (foremost food), and as bad as inflation would be, the shortages themselves could not be remedied.

    • Indeed so. I think we’re seeing the shape of the future. Many essentials are highly energy-intensive, worsening the pressures as ECoEs rise. As the cost of essentials rises, and as financial ‘innovation’ fails to solve this problem, discretionary prosperity will contract, and discretionary consumption will shrink.

      The frightening thing is that anyone – governments, businesses, investors – relying on conventional, ‘economics is money’ interpretations has no idea about this.

    • Right now, my focus is on the ‘how?’ of transition from the fallacy of “growth” to the reality of deteriorating prosperity. I mention this because I’m increasingly persuaded that rises in the cost of essentials will form the fissure that cracks the myths.

      Food commodity prices, which are tracked by the UN’s FAO, are a critical indicator. These have increased by almost 40% over the past year.

    • Would it be correct to assume that there are two components contributing to raising commodity prices? One from deteriorating prosperity (because of ECoE, meaning a “real”, i.e. energy-related or physical effect) and one from too much money going around, i.e. inflation as something that is independent of ECoE?

    • First off, prices in the short term can reflect many factors, which is why prices can fluctuate a great deal even though the underlying fundamentals only alter gradually.

      Deteriorating prosperity affects affordability, setting a long-run price maximum (though markets are subject to the above short-term variations). ECoEs determine a long-run price minimum below which producers lose money.

      I should also have mentioned currencies – all other things being equal, a fall in the value of the dollar means that dollar commodity prices rise.

  15. Hi Tim,
    Can you explain please how you identify and calculate prosperity in your model or provide a link to same?

    • The simple answer is that the model first identifies ‘output’ – this corresponds to the gross level of energy used, and is calculated financially as underlying (‘clean’) economic activity (‘C-GDP’).

      Then ECoE is deducted, being the difference between ‘output’ and ‘prosperity’.

  16. How much does solar actually cost?
    But a major new study of the economics of solar, published in Harvard Business Review (HBR), finds that the waste produced by solar panels will make electricity from solar panels four times more expensive than the world’s leading energy analysts thought. “The economics of solar,” write Atalay Atasu and Luk N. Van Wassenhove of Institut Européen d’Administration des Affaires, one of Europe’s leading business schools, and Serasu Duran of the University of Calgary, will “darken quickly as the industry sinks under the weight of its own trash.”
    From Michael Shellenberger

  17. “Based on projected rising demand, the natural production decline from existing wells and decreases in drilling activity and industry investment – especially in the US – the world’s oil needs could outpace production in 2022. An undersupply potentially could put upward pressure on costs, impacting consumers, manufacturers and, generally, any process that utilizes oil…

    “Let’s translate this into something more relatable. Global oil production for February 2021 was estimated at 93.6 mb/d, which was less than global oil demand of 96.7 mb/d, per EIA. The decline of global production from existing fields therefore equates to a range of 3.7 mb/d to 6.6 mb/d, with and without investments in existing fields.

    “For 2022, global oil production is expected to increase to 100.8 mb/d in response to higher demand. The natural oil production decline range therefore equates to an additional 4.0 mb/d to 7.1 mb/d.

    “The key question is where this new production will come from. The most immediate source would be to bring oil spare production capacity back on stream. In January, EIA estimated that OPEC had 6.7 mb/d of crude oil spare production capacity, and the Russia and Caspian region’s production was 1.7 mb/d below its highest output of 15.0 mb/d in December 2018. Consequently, OPEC and Russia and Caspian producers might be able to raise their production by 8.4 mb/d – only about half of what’s needed.” https://consciousnessofsheep.co.uk/2021/06/23/mere-statistics/

    • Not to argue, just mention. Yesterday I saw an article which claimed that with the rise in the price of oil, the shale industry will get a 70 billion dollar payday this year. The article then goes on to speculate about whether the shale industry will be willing to pocket the cash or revert to their drill/baby/drill philosophy. At the present time, it seems that Russia and the Saudis are willing to pocket the cash. But Iran is ready to open two new fields when restrictions are lifted. So a reasonable guess is that we will very likely see a price increase in oil which will cause some pain either by reducing demand or causing inflation or both. But if Iran is successful and if the shale people revert to maximum drilling, and if the CBs raise interest rates, we might see a significant crash in oil prices and in economic activity.

      My crystal ball is cloudy….Don Stewart

    • Watkins’ final sentence is Those who have vociferously agitated for fossil fuel consumption to be rapidly brought to an end, might want to consider a warning from Aesop’s fables: “Be careful what you wish for, lest it come true.” Fossil fuel consumption will eventually end no matter what we do, so the important modifier in his sentence is “rapidly”.

      The choice now is between preserving a modern civilization for a few more decades and preserving a habitable climate for thousands of generations of humans to come (not to mention all the other living creatures). To me the choice is easy, so yes, I wish for “fossil fuel consumption to be rapidly brought to an end”, regardless of the consequences. Tomorrow would be just fine for that wish to come true.

    • Tomorrow may be a bit too rapid, because global food production and distribution would be disrupted and that would lead to a very unpleasant situation for everyone. Perhaps a little bit later – but we would have to prepare for it, most importantly.

    • Martin,

      I don’t think you have to worry about fossil fuel use ending tomorrow, but “tomorrow” has been put off for many decades now and never seems to come.

      The last two years before the pandemic, worldwide CO2 emissions rose at an average rate of about 1.7%. If that rate continues into the future, we will emit as much CO2 in the next 40 years as has been emitted since the fossil fuel era began. Atmospheric CO2 concentration would then reach around 550 ppm, a level that would end civilization. That’s without any natural feedbacks adding to the concentration.

      There is good reason to believe that the maximum safe level is 350 ppm, which we passed in 1989. When I was born in 1948 the level was about 305 ppm and when “The Limits to Growth” was published in 1972 the level was around 325 ppm. It’s time for this inexorable increase to stop.

      You are right to say that we need to prepare for the end of fossil fuels, but really serious preparation has never been attempted. And remember, the longer our lack of preparation goes on, the more people there will be at risk.

      All in all, if by some miracle fossil fuel use ended tomorrow, it would be “unpleasant”, but it would be for the best. We’re in a real predicament when the best thing that could happen would be a sudden collapse of modern civilization.

    • Joe:

      Let me start by agreeing with you about environmental risk, but stressing that the only way to transition to REs is to use legacy energy from FFs to create RE capacity. An optimal solution might be to use FF energy to build solar panels and wind turbines, and of course to keep food and water supply going, but to cut back drastically on all non-essential uses of FF energy.

      This, despite seemingly sincere conversion of governments on the environmetal issue, simply isn’t happening.

      If governments are serious about the environment, where is the 1.5 litre limit on car engines, the mandating of all-hybrid vehicles, the rationing of air travel, the investment in trams and other forms of public transport, the regeneration of cities to reduce travel distances? We ban some types of light-bulbs, limit the size of vacuum cleaner motors and insist that TVs switch themselves off, but then go ahead with new roads and new runways.

      The reason governments don’t act effectively, of course, is that they’d be turned out by voters if they did. But what does that say about us, the electorate? The attitude seems to be ‘I’d like to save the environment, but not if it means giving up my SUV, or my multiple overseas holidays’. The words “petulant” and “selfish” come to mind.

      If that attitude doesn”t change, both the environment – and, because of rising FF ECoEs, the economy as well – are toast. I try to be an optimist. But that requires faith in the public thinking – and being persuaded to think – in rational terms.

    • Joe,

      of course, this is all true, and I agree with you that “something” should happen sooner than later. It is just that we are in a real dilemma: our economies and societies still depend so much on fossil fuels and, at the same time, it is more than overdue that we get way from fossil fuels. But how? Nobody knows the answer to that. Chris Smaje offers some interesting thoughts, but – of course – no answers:

  18. Does SEEDS give a hint of a timeframe for peak energy and peak surplus energy?
    Intuitively, these would coincide with peak oil production.

    • Total energy supply is, of course, a matter of projection and forecasting. My own view is that fossil fuel supply will contract markedly, and that increases in RE and other supply will offset this loss, but not by enough to push the total upwards to any material extent.

      With surplus energy we’re on safer ground. There is no feasible way for total energy supply to offset rising ECoEs. Surplus energy supply is at or past its peak. Surplus energy *per capita* is already falling. It seems highly probable that *total* energy per capita, too, is now in decline.

  19. Dr Tim, you make a fair point when you state: ‘I’d like to save the environment, but not if it means giving up my SUV, or my multiple overseas holidays’.
    Attitudinal positions and behaviour is a complex area, but I think that here in the UK the issue of thin-gauge plastic carrier bags illustrated a broader and deeper truism, if I can put it like that.
    Bags were available ‘free’ at the point of use, and attempts to reduce usage of them through persuasion and exhortation had little effect. Large scale use fell markedly only after a charge was introduced.
    If we cannot get major behavioural change over a simple act of voluntarily reducing usage of plastic bags then the future is going to be quite a challenge.
    I think that we can pull-out a number of strands. Current lifestyles, with an emphasis upon convenience, are valued very highly. Many people seem prepared to make changes, but only if the detriment to existing convenience is minimal, and they will go to quite extraordinary justifications to supress cognitive dissonance to maintain existing patterns of behaviour.
    Perhaps there is a variation on your phrase: ‘We need to save the environment, and other people need to give up their SUVs and overseas holidays!’. This is captured by the belief: ‘I have valid justifications for maintaining my existing lifestyle, while other folks have flimsy excuses’.
    One of my favourite phrases comes from Charles Hugh-Smith: ‘Sorry, but the lifestyle you ordered is no longer in stock’.
    My reading leads me to conclude that the statement is going to apply to more and more people – myself included!

    • Ultra-thin shopping bags became available through a technology known as metallocene catalysts – you might remember how much thicker these bags used to be before this technology.

      It seems to me that ability to change varies between countries, with economic policy norms part of the process, particularly where extreme liberal doctrines have promoted self-gratification and, frankly, greed, as being socially acceptable. I try to steer clear of national stereotyping, and I’m certainly not prepared to venture into ‘national average IQs’! But I do think that economic ideas, fostered by governments, do have a bearing on countries’ ability to respond.

      Amongst advanced economies, this makes me particularly pessimistic about the US and the UK. Different criteria apply in emerging economies, where the necessary level of sacrifice is likely to be smaller (it’s easier to give up things you never had).

  20. I agree that any solution available today is subject to the general population’s acceptance of reality by way of willingness to take pain for the sake of their children and children’s children. but since selfishness has been held up in ‘Western countries’ as the pinnacle of civilisation (and the only way to ‘be the best you can be’) by the cult of neoliberal ideology for a couple of generations now, effectively this portion of the planet’s cooperation is lost.

    Any useful changes will therefore probably come from cultures that are entirely different in valuing the collective over the individual instead, as common sacrifice would seem normal for them. Or in places where public opinion didn’t matter because they have negligible power, like in the autocracies that are increasingly spreading across the globe.

    So if a more geopolitically adept and far-sighted leader was presently in charge of a country that had any significant remaining fossil fuel reserves and a lot of power, they’d be wise to use that only for themselves and as productively as possible. By this hoarding, they’d be richer and also more resilient because competitors wanting to attack to steal their resources would struggle to get enough FF to even attempt the heist. (Putin comes to mind) That way, Roman empire style, you could preserve the lifestyle for a while longer within your defendable territory, while keeping out the barbarians until they died out. When the world settled back into a balance with a much reduced population matching the new carrying capacity, you’d be in a much stronger position than before.

    • Extremes are usually, dare I say always, bad economics, and bad for society as well.

      ‘Extreme liberalism’ – my preferred term – promotes greed, weakens social cohesion, validates inequality, and promotes the nonsensical idea that there’s a “price” or “money” solution to everything.

      Likewise, ‘extreme collectivism’ asks us to believe in an all-wise state (all-wise? -Nixon, Trump, Biden? Blair, Johnson, Hancock?)

    • @Dr M, Ahhh, salty humour for a monday morning Sir. If word of ‘hancockgate’ has already reached your distant shores, then our Eton’ers here are already making Britain great again. And who said they couldn’t keep a single promise 🙂

  21. Dr Tim – I think you’re right. The promotion of individualism to supreme deity has shifted attitudes and behaviours that I believe are contributing factors in destabilising democracy and polarising politics.
    Bill Bonner once wrote: ‘America’s majority expected its leaders to ‘do something’ to make sure they got what they expected, instead of what they had coming’. I suspect that holds true today, and applies equally to the UK.
    Perhaps our current form of democracy is rather ill-equipped to deal with crises that are real, but rather abstract and whose worsening impact is slow-burning.
    I consider that the situation in the UK to be extraordinarily fragile, with the nation collectively enjoying a standard of living that it is not earning – and almost no one in authority seems to notice, or care!

    • Indeed.

      Without getting into party politics, I see little or no recognition of economic reality in the UK, either amongst politicians or the wider public. Once de-growth kicks in, attitudes, not just to inequality but – hopefully – to self-gratification as well might change.

      I do to some extent follow the public debate in the UK, but I’ll pull a veil over what I think about it.

  22. One Potential Way of Thinking About the Transition Away from Fossil Fuels

    Some months ago I posed the question: “If fossil fuels are so valuable in terms of the potential to do work, why are they so cheap?” Gasoline at a gas station sells for less than plastic bottles of water….why is that? How is it possible?

    Goehring & Rozencwajg Associates
    110 Wall Street | New York, NY 10011
    (Referred to as G&R for the rest of this article)

    G&R believe that the world is just now crossing a watershed great divide. From the time of Colonel Drake’s well up to today, oil has been in surplus relative to the demand for it. Everyone here understands supply and demand curves, and we know that if the supply exceeds the demand, the price can fall to ridiculously low levels, as oil did about a year ago when it sold for less than zero for a brief period. Up until today, oil sold for far less money than would be predicted by someone looking at the inherent value in terms of potential to do work (a sort of Marxist thinking as opposed to financial market thinking.).

    The low price led to grossly wasteful practices when viewed from the standpoint of anyone who values the environment which gave birth to humans and an uncountable number of other species. One exhibit for that effect is grossly overpowered and tricked out automobiles.

    A second effect of the low prices is the pollution generated by the use of the fossil fuels. We not only have CO2, which everyone wants to talk about today, but also sedentary behavior and the creation of junk foods which deprive us of health and the creation of the pharmaceutical industry which fails to solve the chronic disease problems created by our unhealthy lifestyle, and the chronic stress with no relief which exacerbates our problems.

    Our knee-jerk reaction is to try to formulate some top-down response involving nation states and high level conferences and scientific research…but also magical thinking along the lines of our future on Mars.

    Those who recognize the stupidity of the conferences and moving to Mars, and who are of a ‘religious’ bent, may talk about ‘great awakenings’…humans will somehow transition to a new state of being in the world. (e.g., the authors of Bright Green Lies).

    The more likely scenario, in my opinion, is that humans will continue to think the way humans have thought for the last few centuries, but will be forced to change behavior as the G&R transition forces prices for the fossils upward…the negative image of what happened to the price of oil a year ago. Many things that we take for granted in the OECD countries will simply become unaffordable: big cars, economies based on globally traded very complex assemblages of parts, recreational air travel, a food system which requires us to burn more calories than it produces burnable calories, pharmaceuticals rather than lifestyle, and so forth and so on. That transition won’t be pretty. Over the last few billion years, very few species have been able to make major transitions… most have gone extinct. But Life has survived species extinctions. We are currently in the sixth mass extinction…largely due to the pollution effects enabled by the fossil fuels…and the survival of humans and our pet inventions such as cattle and domesticated grains is doubtful. “Tame’ doesn’t usually rhyme with ‘anti-fragile’.

    Is there any way in which humans might evade the most-likely scenario? If there is, I suggest it will be found in Network Science. A century or so ago ecologists began to talk about ‘keystone species’. For example, a dam building beaver enabled a very complex society dependent on a controlled supply of water to evolve and flourish. The same analytical tools are currently being deployed to help us understand the complexities of the trillions of microbes which live on us and in us and throughout our environment and on which all life depends. For an excellent layman’s level discussion, see Emeran Mayer’s book The Gut-Immunity Connection. (Emeran wrote about the Gut-Brain Connection five years ago….the focus of the current book is really the network involving the gut physical structure, the microbes, the brain, the other organs, the behavior of the human (e.g., exercise and diet and stress reduction), the complex signaling which coordinates everything, and related matters important for avoiding chronic disease. The current book is more comprehensive than the title would suggest.)

    It might be possible for humans to emulate the ‘keystone species’ approach adopted decades ago by the ecologists and the systems biologists, and it’s current generalization into network science, and work out a ‘prosperous way down’. That was the last project of the Odums. Now, both Howard and Betty are gone, but we have a few people who are both smart and wise. My base case assumption is that we will continue to do dysfunctional things like create more ‘liquidity’ and give the phantom money to people who already have way too much money. But there is a non-zero chance for real change.

    Don Stewart

    • Don, I really love your posts. I do
      I have learned so much about microbes and mushrooms from you, things that I never knew or even thought about, and it taught me that there is just so much to learn in life, that I am just going to have to come back an re-sit the exams at the end of it.
      That said, I fully understand you point about FF’s being too cheap wrt the work that they do for us. But how do we change that ?
      If we increase the price to reflect their true contribution to society, who is going to profit from that ? Do we create a new class of oil barons that will make Bill Gates look like a pauper ?
      As I see it, FF’s are cheap because they are “easily” accessible, Yes, it is getting increasingly difficult as we move ahead to the future, but our available technology allows us to produce FF’s at a fraction of what they actually contribute to our economy.
      How do we pay what we owe to mother Earth, without making some people in our society perversely rich, and thereby handing them control over our society which they should not have. And also, in an open market with FF’s being available from multiple sources, we cannot throttle supply in a sort of “benign” manner to prevent wastage.

    • @Johan
      As I see it, we are in the position the Limits to Growth study from back in the 1970s predicted we would be: the ‘pollution’ is overwhelming the good stuff. It may be true that we have crossed the Continental Divide in terms of demand now exceeding supply…which would drive the real price of fossil fuels upward. If it is true, then the main thing that policy makers need to do is allow the feedback to work its magic. People only change behavior when they must, and all of the ‘magic money’ has been aimed at convincing people that there is no need for change. Charles Smith’s post today ends by saying that the Fed (and other CBs) have gotten themselves into a box canyon and the only way out is collapse. (I won’t try to characterize Dr. Morgan’s position…but I don’t detect very much optimism.)

      If we do, indeed, face a period of wrenching change, then the attitude regarding what we have been forced to leave behind may be the difference between survival and death. It is quite possible to find meaning in growing one’s food and sharing with neighbors and restoring habitat on a stream and raising children to respect reality. It is not necessary to grieve for Las Vegas…and I don’t think it is helpful.

      One very serious problem with adjusting to a much more physically limited future is the concentration of assets in so very few hands. I was listening to a small farmer a couple of days ago. In his neighborhood, the massive money printing by the Fed has resulted in a huge amount of farmland being bought up by the recipients of the Fed’s largesse. The ONLY way that a Small Farm Future (a la Chris Smaje in the UK) can work is if land ownership is very broad. Otherwise, we are looking at serfdom.

      I don’t pretend to know all the answers. As I said, there ARE some smart and wise people among us. But their voices are muted by what officialdom has created, with more or less acceptance by the public.

      A question for you: Why are anti-depression pills NOT working? The technological answer is that it’s a very complicated hormonal manipulation which is required, and we just haven’t got the right balance as yet. But suppose the answer is different. Suppose it is that the society we have actually created DESERVES to be viewed with depression? My money is on the latter…our brains are extremely complex prediction machines and brains play a very large role in generating the hormones.

      Don Stewart

    • First of all, the latest piece from Charles Hugh Smith is superb – https://www.oftwominds.com/blog.html

      What we’re talking about now is (a) a worsening risk of financial collapse, which doesn’t necessarily (though it could) mean economic collapse; and (b) the failure of what is sometimes called ‘the Anglo-American economic model’.

      For energy reasons well understood here, “growth” has gone into reverse. From the late 1990s, the US and the UK led a charge to “fix” this non-financial (energy) problem with a “deregulatory” loosening of credit policy. When this went horribly wrong, they decided to evade market consequences by a massive monetary gamble that’s now, and inevitably, going bad.

      This tells us a lot about decision-making in America and Britain, and about a financial system built on Anglo-American lines. The search, assuredly, is now on for “gimmick 3.0”. Extreme collectivism failed, in the USSR, in 1990-91. Extreme liberalism, principally in the US and the UK, is failing now.

      Other countries need to watch and learn from this, and might be able to prevent the same thing happening to them.

  23. what sets humans apart from the natural world is our intellect,
    what troubles us most at this moment are the consequences of applying that intellect in the form of social and technological constructs,
    our artifices are clever but not neccessarily wise,
    reality and the finite nature of the space we occupy has caught up with our activities,
    we are faced with seemingly irreconcilable contradictions,
    we got what we wished for but also the unintended consequences,
    frankly we’re just not as smart as we like to imagine ourselves,
    our Achilles heel is our ego and hubris,
    our strength is the humility that comes with surrender to reality and the clarity of vision this can bring,
    everything is a psychological problem because it’s our erratic intellect that’s got us into this mess,

    irreconcilable contradictions place people under psychological duress,
    it can lead to depression or psychotic breakdown,
    this process can be described in psychology as Metanoia,
    a creative destruction of self image and personality potentially leading to a rebirth with a rebuilt personality and expectations that comport with reality and many contradictions reconciled,

    I propose that Western society at large is in the process of a collective Metanoia with some people having already passed through this portal of psychological rebirth, some still within the process and others adamantly resistant to entering it’s portals,


    all I can suggest is that we be kind to each other and also remember to be kind to ourselves,
    these are troubling times but the only way we will get through it is if we relax and allow ourselves to move forward,
    peace will only come when we are all at peace with ourselves,

  24. Could some of the problems with understanding what is happening be laid at the feet of the educational system. The business models that are taught in schools and universities are all based on the fallacy of growth for growth’s sake. So corporate law and all business schools all start out from a false point and base all on that premise. No small wonder folks have a problem wrapping their heads around it.

    • I suggest that the underlying reason for “our” perception that there is a lack of “understanding what is happening” is because we think that “intelligent” people think like we do. By “we” I mean those of us who believe that the world model of degrowth which underlies the writings of Tim Morgan, Tim Watkins, Gail Tverberg, et al, is how things really are.

      It is to do with vested interests. Those who do not seem to understand “our” world model have a vested interest and mindset which is based on growth. Of all kinds. They see (perhaps unconsciously) growth as an essential part of their present and future lives. For the time being they cannot imagine any other way of thinking. Degrowth is beyond the pale.

      I wonder if more time should be spent explaining the mindset which underlies our thinking?

    • Vested interests are going to be a huge issue going forwards.

      First, like anyone getting less prosperous, our economies are going to have to devote more of their resources to the essentials, reducing the scope for discretionary consumption – and, but for monetary gimmickry, this would already be happening. The discretionary sectors are huge, and influential. Whole sectors have been created, and enormous fortunes made, particularly since ultra-cheap money was adopted in 2008-09.

      Second, efforts to contain the cost of essentials will require removing government from many activities which rank quite low on the various criteria of what is ‘essential’. Many interest groups are going to hate and resist that, too.

  25. It would help if the entire economic system didn’t actually incentivise waste. A surprising (for a ‘rich’ country) % of the UK’s population already can’t afford some of just the essentials being destroyed to hold up the ‘value’ of these products in question:


    If future generations survive, this is the legacy that we, the current ones, are leaving them, the last of the FF we could have used for a soft landing or transition to a sustainable lifestyle, we burned, we didn’t even waste it on a hell of a last party.

  26. Re: Vested interests.
    Maybe someone should develop a programme to make those with a vested interest in growth aware of their own mindsets?
    Starting with: Is this what you believe??
    I suspect that most folk don’t know what they don’t know!

    • An odd thing about the current situation is that ‘the wealthy’ – whether ultra-rich, or simply comfortably off – seem to think that they’ll remain as rich, or richer, in the future, as they are now.

      That’s actually not possible. But, since some forms of wealth will be far more resilient than others, it’s surprising that they’re not at least trying to understand it.

    • Yes, but what would prompt them to understand it if they don’t know they don’t understand it?

    • These are bright people, so surely they see the glaring contradictions in the current situation? Deeply negative rates, dependency on stimulus, a ‘capitalist’ economy without real returns on capital, 13 years of “temporary” ZIRP (the list goes on)……

    • Having been there myself, as a seemingly bright bureaucrat, and then after 25 years becoming aware that I was peddling nonsense. I can understand.
      The career paths of the professions have underlying mindsets which are developed in further education, which are geared to the achievement of professional standards and qualifications. Then, to advance up the hierarchies you have to abide by the aims and standards of your particular profession.
      I was a transport planner, working within an ethos of conventional benefit/cost planning. With implicit assumptions about growth and discounted future costs. It is over 40 years since I left to paddle my own canoe, but the top-down ways still prevail.
      The disintegration of the establishment has to be seen to be happening before vested interests are questioned and mindsets changed.
      Degrowth will be a “natural” process, we just have to let it happen, and plan our own futures in response to future happenings. A different kind of growth, of happenstances, is now taking place, from the bottom up.

    • Degrowth will be a “natural” process, we just have to let it happen, and plan our own futures in response to future happenings.

      Barry’s right, and future “happenings” are likely to be dramatic at times. Some things, like a major war, are almost certain but the timing is very hard to know. Pandemics are in the same category as war. Huge impact, almost unknowable timing.

      What I am really interested in (and read this blog for clues about) is the possible timing of a major financial or monetary crisis. How long before a debt crisis, FX crisis, or other major event like the dollar losing reserve currency status? Even a good estimate as to whether these kinds of events will precede or suceed natural crises like extensive crop failures from global warming would be valuable to know. Perhaps they are as unpredictable as pandemics?

      Planning for the future would be so much easier if we knew what it would be!😊 In the meantime, so as to not be caught off guard, the safest thing to do is assume that everything bad is going to happen very soon and prepare accordingly. Why that isn’t also the mantra of every government, I’ll never know. They should be at least as savvy as the Boy Scouts.

    • As Keynes said, ‘markets can remain irrational longer than you can remain solvent’.

      It’s helpful to know what you want to get from this site – where SEEDS is concerned, only the tip of the iceberg gets used here.

      I can’t pinpoint the ‘when?’ – nobody can – but I’m working on the ‘how?’ and the ‘where?’ of it, which might point us towards the ‘when?’

      The ‘how’ is that the cost of essentials rises whilst prosperity decreases, and aggressive monetary policies will fail to fix this squeeze. The scope for discretionary consumption, already propped up by credit expansion, will fall sharply.

      The ‘where?’ looks increasingly likely to be the US and the UK.

    • Dr Tim said “It’s helpful to know what you want to get from this site – where SEEDS is concerned, only the tip of the iceberg gets used here.”

      I get an understanding of what is going on in the surplus energy real world.

      The results from SEEDS tells me how this impacts on the UK. Especially related to the rest of the world.

      The discussion is helpful in fathoming out possible futures and pointing me to other sites of the same ilk.

      I regard this site as the very best meeting place of like-minded individuals, who all seem to take the surplus energy model as fact. As it is! I don’t understand much of what is said, but that doesn’t matter. I get the drift. As an 84-year-old with no grand-children, I no longer have any vested interests – thank goodness. I sometimes wonder what the vested interests are of some of the contributors!

      I have found what is said about discretionary and essential particularly useful in helping me to guess how things may develop in my locality. Where I sense the future ways may be emerging – if only I could see it!

      Thank you Tim.


    Tim Jackson has recently released his book “Post Capitalism”.
    He takes the discussion right back to 1968 which is roughly in line with Dr Tim’s energy related curves. I am still following his discussion but one early point appears to be the ‘cheap’ energy benefits were directed to arming US and UK. An ‘industry’ that is certainly labour intensive and hugely energy consumptive. He is also fully aware of the ‘unfortunate’ outcome of the Reagan/Thatcher era.
    His YouTube interview at Davos 2020 is well worth viewing.

  28. Dr Tim, I can never remember whether arguments should be taken from the general to the particular or vice versa. The following comment is vice versa, and illustrates the great predicament and responses facing us all, but writ small. It is in the context of the consequences now arising from our great energetic binge of recent centuries.

    The ‘executive summary’ is simple and brief: how many of us will willingly move from plan A which is working, albeit imperfectly, to plan B which at present is just a concept (unrecognised by most) and requires – even if accepted, enacted and well managed – not only dismantling plan A, but also extraordinary upheaval and diminished comforts right now in return for undefined and uncertain benefits sometime in the future?

    Particular instance: I reside in a location that less than two years ago was under bushfire threat for many weeks. Fate unfolded leaving our household unscathed. Questions arising: Could I have resisted a fire front? No: an ember attack? 50/50 probability. Was I well prepared? Yes, a bit amateurish, but with good water storage reserves and an awareness of what actions and endurance would be needed. Our dwelling is forty years old in excellent condition and almost perfect for comfortable passive habitation for past climatic conditions. But, is it a fit and safe place to reside for the next two decades? Well, as Ugo Bardi so aptly states, no one knows, because the future hasn’t happened yet. But let me give the place a rating of say, 65% suitability. (Make that 70% – or is that because my recall of 47+C and a breath-singing howling gale has faded somewhat?)

    Do I pursue: Plan A: ‘add on’ improvements to this house, using my increased knowledge of what would be most effective – aimed at raising the bushfire survival probability to 70/30 or even 80/20 and ensuring tolerable comfort levels during far more frequent 45+C temperatures. Add more solar panels to better maintain battery charge so I can continue to achieve around 90% continuous supply even with increased use of Aircon, (seldom used at present). That is about the best that can be done with this house in mitigation of probable climatic changes and consequent threats. Rating increases to 80%.

    Or: Plan B. Dismantle this house, dig deeper into the slope, construct a truly passive house with green roof etc, self contained water and sanitary services, reduce power requirement so near 100% continuous solar supply achieved. Aim – to maintain comfort levels in even the most extreme and threatening conditions. Rating moves up to 95%.

    Plan A, even so soon after our recent trauma would be considered excessive by almost all local people, all of whom fully shared our experience. Plan B would be regarded as utterly ridiculous bordering insanity. I mention this not because I am influenced by these views, but as a measure of what degree of inertia or resistance or persuasion needs to be overcome or exerted if changes of the magnitude required are to become accepted as necessary, and then implemented.


    Two years ago we experienced extreme seasonal heat following years of exceptional drought, culminating with the fires. This past summer and autumn has been mild, wet, and the country is verdant. Memories are short.

    “comfort” above equates to freedom from intolerable cold, heat, or thirst.

    Resources are currently available to pursue either of the scenarios. Imminent Inflation or collapse stripping those away is a major concern.

    Actuarial tables give me another 11 years survival.

    Not expecting responses: just thought it may be useful to pose such questions in personal terms, suggesting that until a majority of us see and feel the issues in such a manner and then take the necessary pre-emptive action as individuals, then collective action at group and greater levels is most unlikely to occur. I fancy that everyone who may read this are already well aware of this.

    • Sorry, please delete second posting: still needing to cut and paste, unseen results until posted.

    • @pozzi43

      Question: are you unable to sell your property for a fair/reasonable price? Why do you choose to stay in a locale where such extreme temperatures, droughts, fires…are likely? We’ve moved several times in the past 30 years, but always in the northeast US (New England) and Canada (Ottawa) None of our areas were subject to the conditions you describe. We do have cold winters, but insulation upgrades are inexpensive, and firewood covers half or more of our heating.

  29. “Supposed solutions to the ECoE problem fall into three categories, none of which is persuasive.”

    Decoupling, technology, and renewables. And yet these are the threads by which, seemingly, the elite decision makers in government, business, and academia want to hang. As I reflect on the misguided logic that has brought us to this pass, I am seeing a culprit. I believe that education of the elites has produced specialists who are fatally unwilling or incapable of thinking outside their chosen specialty. Understanding of the economy as an energy system is inherently a multidisciplinary problem. But modern graduate schools reward specialization, not broad multidisciplinary analysis and thinking. Cheap (low ECoE) energy promotes such specialization of individuals AND industries. This specialization has been useful for several centuries, but now becomes a liability.

    Rising prosperity rewards decisions to specialize, falling prosperity increasingly fails to provide these rewards, but the rewards are not obtainable anywhere else. Momentum just keeps everyone pursuing useless specialties. By the time we collectively notice, many resources will have been wasted. I think it may be analogous to business decisions that have historically favored efficiency over resilience. They become unable to react when conditions change, and improvisation is required.

  30. What Tom Murphy, the Do The Math Physicist really thinks
    Growth is a wolf in sheep’s clothing; it has brought much benefit thus far but will ultimately ruin us if prioritized;
    Collapse is a legitimate risk whose dismal and fringe perception prevents many from acknowledging;
    Technology is unlikely to “save” us, and in fact may not be compatible with long-term success of the human species;
    Unless we start prioritizing nature and ecosystems (our life support on this finite planet) over ourselves, failure is likely;

    • at the simplest level it’s growth that’s got us into this mess, we’ve overgrown and overshot all sorts of boundaries,
      further growth just brings forward collapse,
      a retreat to sanity is the only escape,
      but I wonder if we could retreat fast enough now?

    • considering the age of the entrants I think it’s encouraging that they’re thinking about stuff like this,
      obviously as they learn more about physics and engineering they’ll encounter the realities that will confound their optimistic ideas,

      actually wind powered cars are already a thing, I’m sure you’ve seen sail powered beach yachts,


      they can get up to quite a lick when properly handled,
      but they’d never be practical urban transport,
      it would be a good hack to get you across a deserted, featureless plateau with a prevailing wind,
      or maybe a trip from London to Scotland on the M1 in a post apocalyptic doomscape scenario?

      I suppose a company sponors a competition like this and then has to pick from the ideas suggested,
      when there are no simple solutions that can be devised by the finest minds available the likelihood of a primary school kid stumbling upon a genius idea is rather remote.

    • actually if you want to get that little girls idea into a broader context have a look at these articles published by the Grauniad, supposedly a progressive paper with an interest in environmental matters,



      who looks sillier, United Airlines, Michael Cole, the chief executive of the European operations of South Korean carmarker Hyundai, The Grauniad or an 11yr old girl from Medway who was asked to come up with an answer to a silly question?

    • Sounds like an impossibility, a perpetual motion machine with no friction losses.

  31. Wolf Street and Inflation
    During the time of the Pandemic, the average transaction price for a new vehicle has increased from 35K to 40K. Similar very large increases in the prices of existing houses. But the magic of government computation of inflation shows little to nothing due to hedonics and people’s perception of what their house might rent for. But the Fed is now sucking money out of the system with Reverse Repos. Meanwhile, Russian CB is making hawkish noises.
    Interesting times….Don Stewart

    • Matt,

      The weather this year so far in the U.S. has me thinking that the highly deleterious effects of climate change on food production are happening much faster than the models predict, and that it won’t be too many more years before we start having really serious food supply problems.

      Here in the northeast U.S. we had an unseasonable cold spell in May in low 40’s degree range with winds for several days – this stunted my squash and tomatoes – and two 4- day periods of temps in the mid to high 90s. It doesn’t take too many of these short intense periods – whether cold, heat, or torrential downpours – to decimate food production.

      This appears to be the result of the slowing jet stream, caused by a declining differential in temperature between Equator and North Pole. Air masses stay longer in an area, allowing them to pick up excess heat or cold or excess humidity.

      Given the broad geographical extent of these hot and cold spells, moving north (or south) several hundred miles does not achieve moderation of the climate – the extremes come and sit on you. The recent heatwaves in the Northeast have extended from Virginia to New Hampshire. On the West Coast, the heat extremes have set records in B.C. Canada. In other words, climate migration is going to be a rush to a few select “sweet spots,” not a diffusion over vast areas.

      “Nature” is on her way to taking care of its human problem.

  32. Discretionary being the key. Gap having decided to close all 91 UK retail outlets over the next 8-12 weeks being an example of this.

    Having traveled back into central London a couple of times a week (mainly for post work socials) for the last month or so, many businesses must know this is the last dance. The utilisation rates of all the venues we visited is 50% at best, I am sure I have spent at least 20% less than I would have just because of delays getting in or slow service or lack of appropriately spaced seating (which is a must to be served anything!). Having been born and raised in this great city it is truly shocking at which has happened to it

    • Indeed so. I’m currently working on an article looking at exactly this – the impending slump in discretionary consumption, when the credit prop ceases to be feasible.

      Inflation in essentials seems to be getting a grip now – noticeably in ‘shrink-flation’, i.e. the same price but smaller pack sizes. The butter that I buy – or rather, used to buy – has recently gone down from 250g to 200g.

  33. Hi Tim,

    Regarding the inflation in essentials, have you noticed world natural gas prices particularly UK and European natural gas prices?

    At the beginning of July 2018 a therm of gas was about 55p, at the same time in 2019 it was 30p and last year about 15p it’s now about 88-90p. Given that most space heating and a significant amount of electricity generation uses natural gas that’s bound to have an impact?

  34. @ Steven.
    Fair question. Our location is regarded as about the most equable in Australia. We are closely surrounded on three sides by water, the ocean about 1km distant with a warm current from the north all year round. Past records show us as frost free, with low humidity, temperatures above 36 C very infrequent, annual rainfall averaging around 1100 mm. Where better to go?

    Our problems come out of the interior of the continent. Vast stable anticyclones allow heat to accumulate for weeks on end, then the blocking systems break down allowing the super-hot air to rush to the oceans – most often to the south, or south east, occasionally west over the mountains – to us. If there is one spark amongst that gale of air then the country is in flame, as our region is heavily timbered with eucalypts.

    These past risks are understood and have been accepted as tolerable. But the interior is becoming warmer and drier, as a general trend. Past normals and averages are regularly being exceeded on the high side, and the science tells is to expect this trend to steepen. The extraordinary catastrophe of two years ago will remain an outlier, or so I hope, as I expect do all Aussies. But I’m not content with hope alone.

    I already had a thorough objective understanding of the risks prior to the experience, and had prepared accordingly – and was comfortable with that. However, now that I have seen it, felt it, tasted it as well I have no hesitation in taking the next steps. I just wonder whether it is lack of this extra dimension in our collective understanding, or more particularly amongst those groups controlling BAU that is blocking the essential changes so clearly expressed in columns such as this. If so, the question becomes how can such visceral understanding be imparted, short of having the complete and universal experience?

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