#218. The real state of the economy


As this might be the last article to appear here before the festive season, I’d like to take this opportunity to wish everyone a very merry Christmas and a happy and prosperous New Year, and to thank you for your interest in, and your contributions to, our conversations about energy, the economy and directly-related subjects.

I’m particularly appreciative of the way in which our debates have remained firmly concentrated on the economy. We could all too easily have dissipated our energies on subjects which, whilst topical and important, are not those on which we can add value through specialist knowledge.

It seems to me that the economy – with its profound implications for business, finance, government, society and the environment – is of such importance that clarity of focus is invaluable.

This clarity is singularly lacking in what we might call ‘the public discourse’. The economic debate, such as it is, has become reminiscent of that old Western movie hero who “jumped on his horse and rode off in all directions at once”.

Behind all the partisan argument, the mystification and the theorizing about nefarious plots, the plain fact is that the economy faces challenges and risks without precedent in modern times.

This simple fact is all too often lost in a miasma of misconception, false nostrums and self-interest.   

One economy, two systems

We can add value in this situation because we understand two central realities that are neither known to, nor accepted by, the orthodox approach to economics.

First, we are aware of the critical distinction between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit.

Second, we recognize that the real or material economy is an energy system, in which prosperity is a function of the availability, value and cost of energy.

This understanding enables us to define the current economic predicament. The financial economy has grown rapidly, driven by unprecedentedly expansive credit and monetary policies.

The real economy, meanwhile, has decelerated towards de-growth, because the energy equation has become progressively more unfavourable.  

This has opened up a gap between the ‘two economies’ of energy and money. The wider this gap becomes, the greater are the forces trending towards a restoration of equilibrium. The take-off in inflation is a logical sign of the return of equilibrium, because prices are the point of intersection between the real economy and its financial proxy.  

In terms of anticipating the future, the forced restoration of equilibrium between the financial and the material economies is critical.

The energy economy, shaped by physical realities, cannot be made to align itself with its financial counterpart.

Therefore, the return of equilibrium must involve shrinking the financial system back into proportion with the underlying economy.

The restoration of the rational

If we’re to achieve any kind of orderly exit from our current predicament, it’s essential that reasoned interpretation prevails over notions rooted in misunderstanding, denial, wishful-thinking and, to be blunt about it, sectoral self-interest.

Regular readers will, I hope, permit me a very brief restatement of the three critical principles involved.

First, the economy is an energy system, because nothing that has any economic value at all can be produced without the use of energy.

Second, 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 the Energy Cost of Energy (ECoE), and is not available for any other economic purpose. Material prosperity is, therefore, a function of the surplus energy that remains after ECoE has been deducted. 

Third, money has no intrinsic worth, but commands value only as a ‘claim’ on the output of the material economy of energy.

It follows that, if the aggregate of monetary ‘claims’ is allowed to expand much more rapidly than the underlying economy of energy, the result is the creation of ‘excess claims’ which the material economy cannot honour.

To the extent that these excess claims are regarded as having ‘value’, the restoration of a viable relationship between the real and the financial economies must involve the process known as ‘value destruction’.

Measuring the gap

A very short set of statistics will suffice to illustrate quite how far the ‘two economies’ of energy and money have diverged.

Between 2002 and 2020, global prosperity increased by 29%, or $19 trillion at constant values. This calculation is sourced from SEEDS, a proprietary economic model which measures prosperity on energy principles.  

Over the same period, reported GDP rose by 84%, or $60tn, but most of this “growth” was cosmetic. It was a product of allowing debt to rise by $203tn (+160%), and broader financial liabilities to grow by an estimated – and astonishing – $435tn (+201%).

The latter equates to the addition of $7.20 of new forward financial commitments for each dollar of reported “growth”. This number would rise to almost $10 if we included the emergence of enormous “gaps” in the adequacy of pension provision.

The following charts put these relationships into context. The first compares GDP both with debt and with broader financial assets. These assets – essentially the liabilities of the household, government and non-financial business sectors of the economy – are estimated on the basis of data that is available for countries which, together, account for three-quarters of the world economy.

As you can see, an enormous ‘wedge’ has been inserted between GDP and aggregate forward financial commitments.

The second chart, which uses the SEEDS calibration of prosperity, shows a corresponding divergence between reported GDP and the underlying performance of the real economy.

This second wedge might look enormous which, indeed, it is.

But, as the third chart shows, the difference (shown in solid red) between prosperity (last year, $85 trillion) and GDP ($132tn) pales into insignificance – indeed, you might need to enlarge the chart to see it at all – when set against the chasm (outlined in red) that has arisen between economic output and the enormously inflated scale of forward financial commitments (estimated at $650tn at the end of 2020).    


A situation summarized

Three conclusions can be drawn from these figures.

First, most – nearly 70% – of all “growth” reported between 2002 and 2020 was the purely statistical effect of breakneck credit escalation.

Second, a long period of financial distortion has created an enormous gap between financial activity, reported as GDP, and the real level of prosperity, as measured in material terms.

Third, asset price inflation has been a corollary – intentional or not – of the ultra-loose monetary policies involved in the manufacturing of a simulacrum of “growth”.     

If we put this together, what emerges, as remarked earlier, is a severe disequilibrium between the monetary and the material economies.

The fundamental issue now is the inevitable restoration of equilibrium between the economy as it is and the economy as it’s been made to appear by financial expansion.

To understand how this is likely to unfold, let’s start by noting the difference between prosperity and GDP. Prosperity is a measure, calculated by SEEDS, of trends in the material output of the economy over time. GDP, on the other hand, isn’t a measure of output, but of economic activity.

Simply stated, goods and services are produced using energy, but are exchanged using money.

These are quite different things.  

One way of reconciling the divergence between GDP and prosperity would be to conclude that inflation has been understated over time. The SEEDS model assesses this using RRCI, the Realised Rate of Comprehensive Inflation.

RRCI remains a development project, but it indicates that official inflation (of 1.5% annually between 2000 and 2020) was understated against a comprehensive rate of 3.5%.

This difference mightn’t seem huge but, compounded over time, its effects are enormous.

There is, moreover, abundant evidence for the proposition that inflation has been significantly under-reported over many years.

Consumer inflation has been distorted by hedonic adjustment, substitution and geometric weighting.

Even more seriously, conventional measurement – including the problematic GDP deflator – excludes asset price inflation, which has been rampant since the GFC and the introduction of policies which have priced capital at negative real rates.

Probabilities of process

Reconciling reported activity with material prosperity is a worthwhile exercise, and it seems likely that RRCI will prove a useful addition to the suite of capabilities provided by the SEEDS economic model.

What matters most, though, is the process through which the restoration of equilibrium is likely to occur. Science-minded readers might usefully liken the impetus towards equilibrium to some of the forces that operate in physics.   

In practice, what this means is that the financial economy, and the financial system itself, are going to be compressed back into alignment with the underlying material economy of goods, services, labour and energy.

There are, in functional terms, two ways in which this can happen. The first is rampant inflation, whose macroeconomic effect would be soft default on forward financial commitments that cannot be honoured by a deteriorating underlying economy. ‘Soft default’ is what happens when obligations are met, but in money that has lost a large proportion of its real value.

The second is that the authorities might intervene to curb inflation, primarily by raising real interest rates back into positive territory. This would trigger hard defaults, where debtors fail to meet their obligations.

To a certain extent, how this unfolds is a question of process, on which two observations are pertinent.

First, the trend in the real cost of essentials is critical, because sharp rises in the cost of living are guaranteed to trigger public engagement in a policy debate to which, in normal times, they pay scant attention.

SEEDS analysis – which notes the connection between ECoE trends and the cost of energy-intensive necessities such as food, water, housing and necessary travel – indicates that the real cost of essentials is set to carry on rising markedly over time.

Second, it seems likely that policy actions will, for the foreseeable future, be a case of ‘too little, too late’. For reasons best known to themselves, policy-makers attach disproportionate importance to the prices of assets such as stocks and property, and miss-state the role of a “wealth effect” whose real significance lies in the promotion of credit expansion.

The heart of the matter

What’s really important, though, is that the process by which equilibrium returns to the relationship between the monetary and the material economies is going to have profound financial, economic, political and social consequences.

Both the ‘soft default’ of inflation and the ‘hard default’ of failures are likely to intensify.

Levels both of capital investment (in new and replacement productive assets) and of discretionary consumption (of non-essential goods and services) are set to contract markedly.

Economic issues can be expected to rise ever higher in the priorities of voters, implicitly displacing matters of non-economic concern. Any politician who fails to recognize the rising popular concern about the cost of living can expect to be marginalized.

What we have here is a dynamic whose logic seems inescapable, and whose quantification is imperative.   

You will not misunderstand me, I’m sure, if I say that our understanding of these issues gives us a competitive edge over interpretations founded on outmoded, ‘money-only’ nostrums which fail to recognize the essential materiality of the economy.

In short, our interpretation works, where orthodox alternatives do not.

The question for the year ahead is how we sharpen that edge, and put it to use.     

112 thoughts on “#218. The real state of the economy

  1. Dr Tim, it’s an excellent summary of the most important issues in real world economics. It rounds off another the year of outstanding analysis. Thank you very much for all the effort in producing these thoughtful articles.

    It’s looking like 2022 will be an interesting year to say the least. As you explore in the article, the big question is how will equilibrium be restored between the artificially inflated financial economy, and the real economy? I see mounting evidence that the everything bubble has grown so big that it will surely end with a bang rather than a whimper. I have previously made a number of postings about grossly distorted and inflated asset markets, particularly equities. I will conclude for the year (probably) with some insight I received a couple of days ago from the latest update of Robert Precther’s Elliot Wave Theorist.

    Precther posted 28 slides looking at various chart trends and sentiment indicators relating to US equities. The picture in view was unmistakable. There is full blown mania in US stock markets. He likened some of the goings on to the South Sea Bubble of 1720.

    Just to quote a few examples seen in the charts:-

    • The value of the Wilshire 5000 index is trading 2X quarterly GDP
    • NYSE margin debt is at record levels – over $700 billion and rising
    • Rydex leveraged bull/bear ration trading at 82X
    • Record call buying in options from both large traders (hedge funds, etc.) and small traders
    • Record positions in leveraged long ETF’s
    • Record trading volumes in Penny Stocks
    • Record dollar volume of IPO’s
    • Record deals raising capital for SPAC’s
    • Record valuation for money-losing Tech companies
    • Record % of money managers taking higher than normal risks

    Unfortunately the itemised statements above don’t quite convey the impact of the charts themselves. Some of these important metrics have gone hyperbolic over the past 12-18 months. It really is unprecedented and staggering. It looks like the professionals and the amateurs are both “all in”, and some of them will be leveraged to the hilt. When all the buyer’s have bought, only sellers remain. Who then, might be selling into this Mania? Well, I will end with a comment on the only chart of a bearish nature. It show’s a sudden and very big spike in the insider “sell versus buy ratio”. These insiders are corporate officers, who know what their companies are worth. Recently, they have been selling like fury, cashing in on the equity mania at a rate of 8 selling to every 1 that’s buying. The people who have the inside view are cashing out. I rest my case for the prosecution.

    All we need now is a suitable catalyst, and we could see absolute carnage in the markets. It could be domestic (e.g. the Fed cranking up interest rates) or it could be of a global nature (e.g. Systemic collapse/default in the Chinese property market). . My wish for 2022 is that it’s not something more malign like open conflict that triggers a financial meltdown.. The war drums have been sounding in 2021, and I hope that sensibility will prevail to diffuse tensions in 2022.

    • Thanks Neill, you are very kind. i thought it best to end the year with a clear summary of where I think we are.

      Without going into the details, I agree that we could indeed see carnage in the markets. That is the implication of “growth narratives” falling apart and ratings and forecasts being shot to pieces. “Tech”, or a lot of it, could re-tread the path of the dotcoms, and tech is really what’s propping markets up. Affordability, plus the outlook for rates, could join with other factors to deal a body-blow to property markets.

  2. Well done as usual, Dr. Morgan. Perhaps some people think that reversal towards equilibrium is an either/or affair. It seems to me that both hard and soft adjustments will be likely simultaneously. A massive financial and social crisis seems unavoidable.

    There have been several well known Dr. Dooms during the past half century – around the time I started derivatives based trading on Wall Street. Since then global population has doubled while non-renewable resource stocks have been harvested, easiest first.

    Several crashes and recessions have occurred, with central banks riding to the rescue with easy credit and recently with flat out money printing. Crunch time appears close, and as you say, you can’t eat money. My last partner on Wall St (late 80s before I retired): “You can’t make chicken salad out of chicken s**t.” I call that the vernacular law of entropy.

    • Thanks Steven.

      I think you know that I’m not a gloomy or a panicking type. In my first few days in the markets, straight out of Cambridge and very ‘wet behind the ears’, I heard that an EM government and a big US bank were both about to go under. An experienced colleague told me that these stories are weekly occurences. I don’t panic easily, or I couldn’t have worn the strategy hat in 07-09. Even now, I put always try to put calm analysis over a rush to judgement, and don’t predict collapse. As a professional, I’m sure you look at things this same way.

      I say this because I do agree with you about financial and social crises.

      What I’ve tried to do in this article is run a forensic analysis of the situation and put things in a rational framework. The aim is to be calm – but it doesn’t diminish my sense of foreboding.

  3. Dr. Morgan
    I look forward to each of your essays with anticipation.
    This text was an excellent assessment as usual.
    The ECoE (and EROEI) models clearly identify what I would describe as the primary threat to humanity. Strong words yes, but in a system using energy as it’s backbone, the removal of excess energy can only lead to one thing. Slow collapse. (Or maybe fast collapse after certain triggers ?)
    We seem to be seeing the effects of this in all the none-energy producing countries.
    Those unable to export resources or finished goods find themselves printing money to pay for their imported hydrocarbons. A terminal prognosis for an economy.
    I would say that the collapse has already begun, working from the outside (non energy producers) to the core (Energy and commodity providers).
    Your thesis clearly explains the current traits of the current system and the ramifications of the unfolding trend
    Thanks kindly for your work.

    • Thanks Gerry.

      This being the end of the year, I thought it appropriate to sum up where I think we are.

      As time has gone on, I’ve become ever more convinced that the point about material and financial equilibrium is crucial.

  4. Hey Bill, we have been trying to get you on our show with post-Keynesian Economist Steve Keen; https://planksip.me/ProfSteveKeen. You did agree to come on but we haven’t been able to coordinate a date. I will send an email now to you. Please could you check your spam folder to make sure you receive it? Thank you so much for the work you are doing.

  5. Hello Dr Morgan. Thank you so much for sharing your insights. I am a long time follower of yourself and other writers such as; Chris Martenson at Peak Prosperity, Gail Tverberg at Our Finite World, Charles Hugh Smith and others. I don’t think anybody does it better than you, Chris, and Gail. Your visions on energy and economy really do seam to grasp so much so clearly and logically. Again, thank you so much for sharing such thoughtful insights with us. Dennis Gaudet Revere, MA USA

    • Thanks Dennis. I have great admiration for Chris, Gail and CHS. I like to think we all push the boundaries in our different ways, and make our own contributions to an advancement of understanding.

  6. Very nice summary.

    You correctly point out that the disconnect between the material economy and the financial economy is going to resolve with great financial dislocation (in some form), but an even more devastating disconnect has been looming for many decades, the growing gap between the material economy and the ecological economy.

    Even if we didn’t use money as a medium of exchange for material goods/energy and thereby avoided the disconnect between finances and material production, we can’t avoid the fact that our material economy is eating into the natural capital that underpins the ecological economy.

    SEEDS is a great method of keeping track of the material economy and avoiding the distorted view of that economy from looking only at the financial economy. But SEEDS still uses monetary values as the primary means of measuring material economic activity. I wonder if you have ever thought about monetizing the totality of earth’s natural capital and monitoring the effect of our material economy on that capital base? What if natural capital is diminishing more rapidly than the ECoE is rising? We might have plenty of surplus energy, but prosperity would still plummet.

    I know that this whole topic is controversial, but if we want to really know the future prospects for the material economy, we need to look not only at energy sources and costs but at the effect of dwindling natural capital on that material economy.

    Here’s a good summary of the controversy:


    • @Joe C. I strongly agree with your point here. There are many weak links in maintaining civilization. Water, pollinators, soil vitality, biodiversity…are some examples. Energy is a major one, but there were many civilizations prior to the discovery of coal, then oil.

    • Thanks Joe

      You are entirely right about the ecology, but it’s not something I can measure. By emphasising the energy basis of the economy, though, we do help create a linkage between economic prosperity and the environment, something that conventional economic interpretation cannot do. SEEDS can, and does, project CO2 emissions and set these alongside prosperity. It’s not a complete answer, but it’s ‘better than what we have’.

      On a technical point, SEEDS calculates prosperity in energy terms, but expresses its output largely in financial language. Realistically, we will be ignored if we put our conclusions in, say, joules rather than dollars. The SEEDS approach recognizes the importance of the ‘financial’ economy, but then provides an independent benchmark in the form of energy-based prosperity. Again, this is something that conventional economics cannot do.

      I’ve steered clear of trying to work out how much material capital we started with, or how much we have left. First, I don’t see how we can measure it. Second, there are too many interconnections. Let’s say we had more energy than previously thought. This would mean we had more food production capacity, and our fresh water resource would increase as well (through desalinization).

      Ultimately, I come at this from a background in investment research, where I’ve always emphasized innovation, fundamentals and a comparatively long-term approach. This is why I emphasise that SEEDS is an economic model, not a system dynamics model like World3 as used in LtG.

      In investment research, one is (or should be) always trying to define and measure value, and compare this with price. With SEEDS, the aim is identify and measure prosperity, and compare this with perception.

  7. While not an economics type at all, you analyses make so much sense. Thanks. However, it is becoming increasingly obvious that “collapse” for so many on this planet, even in rich nations, is due to extremes of weather events, short and long term, that in turn are part and parcel of global warming. I shall not go into the cause of the latter, just to say it is a serious symptom of human “overshoot”. I know it may be too much to suggest that your excellent analyses are but a part of the ‘ecology’ of our debilitated planet and the life thereupon.
    Where the ‘soft default’ might probably be grudgingly accepted by most in the so-called developed world – the cost of essentials curtailing spending of non-essentials for more of us in that part of the world – the ‘hard default’ of lives at ‘best’ displaced, at worst ‘lost’, throughout the planet but most obviously in Third World nations and regions is too often ignored. [I have lost track of what the newest nomenclature is for this older concept!!] Neoliberalism contributes so much to that neglect.

  8. Hey Tim, two things.

    Firstly what do you and other people suggest that mere mortals like me should do right now. I’m self-employed with some government superannuation that I can’t touch and a decent but currently serviceable mortgage. What would be some sensible precautions for me and my wife to consider?

    Secondly, I think you need to get interviewed by Konstantin and Francis and from the Triggernometry podcast – https://www.triggerpod.co.uk/ as they are very interested in the current economic challenges.

    Keep up the great work.


    • @Tim Jones,
      Welcome, you will gain a lot of understanding of our predicament by reading Dr. Morgan’s work. This site does not take the output of the SEEDs analysis and translate it into recommended courses of personal action – it’s not really possible in any event. As Dr. Tim says, we are all in this together and there is no safe island somewhere where things are going to be different.
      However, while continuing to live in the world as it is, others have addressed strategies for coping with the changes coming our way. The main ideas of many of these suggestions areto get out of debt, “simplify,” downsize personal expectations to better match the new reality instead of fighting or denying it, be “small” esp. in terms of in terms of energy and dollar requirements, learn practical skills and improve and extend your personal relations with people in your neighbors and in your community. Charles Hughes Smith and Nicole Foss have written about this. As a one-off, you can also check the recommended strategies in “A Creeping Sense of Futility,” by Steve Ludlum at economic-undertowDOTcom.

    • I too am an Elderly Millenial who would like to translate the works of my favorite non-Cornucopian bloggers into practical maneuvers. I gotta live through this shit for the next 50 years. And yes, “we are all in it together”. Unfortunately the US has no supragroup (e.g. Dems) you can align with that isn’t at its base some Neoliberal nightmare. So… leaves you with doing some localized and personal things… While many say to get out of debt and be frugal, I think someone like Tverberg would say it’s not unreasonable to take out loans now and turn that funny money into goods today (while the supply chains are working moderately effectively). There’s a decent chance no one would expect you to pay them back unless of course the hard default is what the world chooses? … Anyway, I’d say use your funny money (via savings or loans) to buy services and products you couldn’t procure if SHTF. For example, dental care, insulating your home, installing a manual pump to your well if you live in the sticks, deep pantry, back up solar generator (not for the whole house, like 1000 watts), a decent bicycle, a bunch of supplies for stuff that breaks down… Obviously this is alarmist advice. I don’t know what else to advise? If you’re looking for financial advice, that’s a toughie. The market is so innerconnected, it’s hard to imagine some asset class that shines during The Final Flop. I still put a decent % of income into the vanilla ETF’s in my retirement accounts just in case we pull off a miracle. If somehow we are reduced to bartering in American Silver Eagles and ammo (like certain spheres fear and recommend as financial advice), the gig is up lol. We’re in the movie The Road at that point… Think about useful practical stuff you actually need (non-discretionary) and as the viziers from The Chicago School say “Pull That Demand Forward!” … I don’t particularly like saying this stuff. Of course I wouldn’t *mind* the Disney cruises, interesting jobs in Academia, and Teslas promised by Leviathan. But I’m not betting on it.

    • Jakob (and Tim)

      First of all, I don’t do investment advice here, as it’s a regulated activity. In any case, the circumstances of individuals differ, and my experience is in advising institutional investors, which is very different from private investors. So I have to stick to generalities.

      Also, there are few good choices. Assets look ludicrously over-valued, to me, and I think we have to expect rates to rise, albeit ‘too little too late’, because a bottom line for any nation state is that its money must retain credibility.

      Also, no state can afford to tolerate direct alternatives to its currency. That’s why private gold ownership was prohibited by FDR in 1933, and it’s one reason why I’m not a fan of cryptos.

      As a general proposition, companies on ‘un-sexy’ ratings, with strong balance sheets, earnings and cash flows, and selling things that consumers need rather than simply want, are in a better situation if conditions get tough.

      Here’s what I wouldn’t do – borrow and put money in the asset markets. You could face plunging asset prices and rising interest rates at the same time. I prefer to stay out of debt if possible, because that way you get to stay more independent. Do things on their merits – for instance, if you need a new bicycle, and you get plenty of use out of it, then there’s a case for buying it.

      We all need short-term liquid savings as a back-up. I’ve heard it said that enough to pay your outgoings for three months is a good idea.

      I favour resilience, but not anything like loads of tinned food, bottled water and guns. Bunkers seem to me like a waste of time. There are limits to how far individuals and households can protect themselves.

      But communities have a much better chance at it. Part of my distrust of neoliberalism is that it puts too little emphasis on shared endeavour. If you belong to clubs, societies, a church or other religious organizations, that for me is a strength.

      I seem to have heard somewhere that ‘we’re individuals in the good times, communities in the bad’.

    • @drtimmorgan

      Thank you for the considered reply, Tim. I can get a little too irreverent. Happy Holidays by the way.

      No, I wouldn’t advise getting loans to put more money in the stock market either.

      As a note, I am no prepper. Just looking for practical (financially-adjacent?) advice. Timing the market is a fool’s errand. Spending time trying to find value plays takes insanely tough skin (if it’s your own money). I was simply suggesting that if your physical “situation” isn’t where you want it to be or could be remedied by going into a reasonable amount of debt, that the “returns” could be outsized. For example, I purchased my first home last year in the dead of Covid (when interest rates went sub 3%). And purposely found somewhere outside of town (not too far), with a wood burning stove, and some other boxes I wanted ticked.

      As you’ve been saying, our global physical “situation” is finding an equilibrium. If one can adapt prior and assume the hyper-financialized “economy” is fading away… one should turn their digital chits into useful things. No? I mean, do it with the community in mind (although few Americans have that “soft asset” as we’re highly atomized).

      I left a liberal “enclave” and now live amongst a more… mixed crowd. Which has been fine (great even, no need to put out the dorky yard signs about how deeply you love Science, Abortion, etc).

      Your view about how we must focus on bulking up the “discretionary” economy really was a big “A Ha!” moment for me. Thank you so much for that. I guess all my “financial” advice (besides contributing to 401k appropriately) amounts to acquiring those discretionary items before they are price-inflated or simply unavailable. Is that selfish? What if the rest of your “community” is buying the usual schlock and completely unencumbered by our energy predicament?

    • Thanks Jakob

      Economics is only one input (though an important one) to the ‘financial decisions’ that everyone makes, and these financial choices are part, but not of course the totality, of what we might call ‘life decisions’.

      All that I, and we, can attempt here is to provide insights into economic and related issues. I’m glad if you find this useful.

  9. There are some that believe crypto will save us but it is just as reliant on energy availably as the fiat. The only thing that will save you is your luxury bug out bunker but that’s only temporary too. Our hopeless position cannot be denied much longer but we will continue to try as the biosphere shuts down.

    • Thanks. I’ve written (but still not published) a draft article called Bunker Mentality, about how hiding away in a bunker simply won’t work. It really is true that “we’re all in this together”.

  10. Hobnobs maker warns biscuit prices set to soar

    “Biscuit maker McVitie’s says the prices of many of its best-selling brands are set to soar.

    “The firm, which is owned by Pladis Global, said brands such as Jaffa Cakes, Penguins and Hobnobs could go up in price by as much as 5%.

    “It blamed staff absences, more expensive ingredients and higher labour costs which it says it has to pass on to consumers.

    “However, it said its “humble chocolate digestive” would be less affected”.

    We seem unlikely to get a sensible debate when “set to soar” means “could go up in price by as much as 5%”.

    I read this as “less than 5%”. UK consumer inflation year-on-year is already 5.1%.

    Really clear reporting.


    • OMG. We are really in the s**t when hobnobs are no longer available!!!! It’s the “beginning”!!!!

  11. Tim,

    Islam still has a prohibition on Usury & there was a ban on Usury in Christianity as well.

    The reason behind these bans hasnt gone away and my obvious point might be that we need to put ‘finance’ back in its place so it exists to service the real economy rather than run away out of control

  12. Dr. Tim,
    Another good article. I also found your reply to Joe C very informative and again indicative of how thoroughly you think these things through. Contextualizing SEEDs this way is very helpful.

    The thing that struck me hard in this article is that the huge wedge between the financial economy and the real economy is a measure of the extent to which we are lying to ourselves. It’s a terrifying thought, that we can do this to such an extent and that denial and our alt-reality is so powerful as to overwhelm the evidence of our own senses.

    • Thanks Tagio

      Of late it has seemed to me that the wedge between the real and the financial economies – and the inevitability of returning equilbrium – is the ‘big thing’ that we need to know about to make sense of our predicament.

      I’m as sure as I can be that we’re right about this. If so, and with all due humility, we understand something that the generality does not.

      One of my ideas for 2022 is to get a bit more specific – for instance, discussing sectors (such as government, households, corporates and financials), individual economies and specific themes. We certainly have the data to do this.

      I’d also like to find a way to make SEEDS data available, enabling readers, if so inclined, to develop their own ideas and try them out using the data. Selecting which data is a challenge, as SEEDS output is substantial.

      As I say, just ideas at this point!

  13. Seems that the economy is between a rock and a hard place.

    If interest rates go up (which they have in the UK) the debtors are going to feel the pinch. If interest rates stay at historically low rates then saver are experiencing a slow death as their savings pot shrinks in real term.

    I think Governments will fall on the side of savers and increase interest rates. This will cause defaults on mortgages that could cascade through the economy.

    Interest rate increases could cause an abrupt “collapse” whereas low rates cause a slower decline.

    But then there is always COVID to throw in the mix.

    What is clear is that things are going to change.

  14. Dr. Tim – thank you for a truly excellent piece that encapsulates the story superbly.
    I think that it is worth mentioning that here in the UK since the advent of the Anglo-American Financial Crash in 2007-08 the policy of successive governments has been one of severe financial repression (SFR), with negative real interest rates and payments from state to citizen increased either in-line with or below RPI, while payments from the citizen to the state have been rising close to RPI.
    In other words SFR is adding to the decline in the standard of living at a fair old clip.
    The general media coverage of interest rate has been rather disappointing in my view. While the media hailed last week’s increase in Base Rate as ‘good’ news for savers, no one seems to be mentioning that the real rate of interest has actually gone down!
    I calculate that it’s fallen from -0.7% in 2020 to around -2.25%. Quite, how that is’ good’ news for savers is lost on me.
    My best guess is that government will continue with SFR until something snaps.

  15. Dr Tim,
    I think your ideas for development in 2022 (as outlined to Tagio) make perfect sense, and are right on the money. I encourage you to follow through on these ideas.

  16. Great job as usual. Thanks for this year’s end statement.

    I’ve taken to looking for any sign whatsoever that the understanding of the economy that you have developed here is being understood and/or mentioned in other venues. Krugman in the New York Times (“The year of inflation infamy” 19 December 2021) reviewed inflation spikes since WW2 and tries to create a taxonomy of sorts. Except for mention of the oil embargo in the early 1970s, energy never gets mentioned. That was predictable given how finite resources are treated (mainly ignored) in economics. But at the end of the article was what borders on a radical thought:

    “Maybe the takeaway here should be how little we know about where we are in this strange episode. Economists like me who didn’t expect much inflation were wrong, but economists who did predict inflation may be right for the wrong reasons, and nobody really knows what’s coming.”

    That last part is exhilarating since it’s as close as I’ve seen Krugman (or any other writer in the NYT) come to admitting that something is missing from their understanding of how the economy works.

    I’m not expecting that he’ll start commenting on this site (if he’s even heard about it), but as I said, I look for signs that a paradigm shift might be happening and this looks like a small crack might have appeared for them. Granted that such a shift can’t change the inevitable downshift that is looming. But our response to that downshift is not pre-determined and that’s a reason to keep working on this topic.

    • Thank you for sharing this, Raymond – it is quite a remarkable finding. Good idea to systematically look for signs like this.

      And many thanks, Tim, for your highly important work and for running this wonderful site, and to all commentators for the many valuable contributions.

  17. I’ve very much enjoyed your excellent analysis over the last year Dr Tim. Here is an interesting excerpt from today’s Daily Telegraph:

    “Millions of households face a “painful” rise of up to £700 in their energy bills when the price cap is updated next spring, analysts have warned.

    With gas prices expected to remain high after surging this winter, Investec estimates the average capped bill could rise from £1,277 per year to £2,000 when the limit is reviewed in April.

    That represents an increase of 56pc or £723 – roughly £60 per month extra.”

    This is a substantial increase and brings to mind your point about the rising cost of essentials leaving much less for discretionary consumption. On top of this, we have to add food, utilities and transport cost increases. 2022 should be interesting!

    • Thank you.

      We’ve been discussing the rising cost of essentials here for quite some time – it’s a logical feed-through from rising ECoEs into energy-intensive goods and services.

      As well as squeezing the scope for discretionary consumption, the rise in the cost of essentials ought to exert progressively more influence on the political debate. At what point do voters start to demand action, and when do politicians start to respond to this demand?

      I’m not a politician but, if I was, I’d be looking at how to ensure that the essentials are available and affordable for as many people as possible. This is perhaps the single biggest challenge on the horizon.

      In British terms, there’s a historical comparison here with the introduction of state pensions and the creation of the NHS. The first tried to tackle poverty in old age, and the second to ensure that low incomes weren’t a barrier to health care.

      Ensuring that everyone has access to the essentials looks to me the next Big Project for governments, not just in the UK but throughout the world.

    • My combined electricity & gas monthly bill has risen by £80 this month, with a similar further rise predicted for January, meaning that our energy bill will rise by approximately £1,920 per annum from January 2022. So, that’s about £2,000 removed from discretionary spending or additional long-term savings for my family.

      Many friends and acquaintances have had similar experiences, which I think we can all cope with, but my involvement with a couple of local grant-awarding charities tells me that many lower-income families are really struggling right now.

      2022 is shaping up to be a tough year, unfortunately.

    • In Massachusetts, heating oil has risen around 50% in a year, natural gas rates doubled, and electricity rates will rise 25% total, with KwH rate up 50% with ‘delivery’ around unchanged. The state approves rate increases which are based on cost of fuels plus maintenance of the grid. N.gas has backed off 1/3 since the highs, but the rate won’t be revisited until mid 2022. Seems this is a global event.

  18. Interesting video from SRSrocco discussing the Energy Cliff and its relationship to the overall economy. The importance of Energy and the effects of increasing Eroi, concepts which readers here will be familiar with, are discussed along wealth preservation.

    At this time I would also like to thank you Dr. Tim, for sharing your work with us over the past year, your essays and the ensuing discussions have improved my knowledge and my understanding of the world we live in.

    • Thanks Johan, and thank you, also, for your contributions here this year.

      There’s been another big annual increase, this time of more than 10,000, in the number of different people visiting this site. Our commenters bring impressive knowledge to our discussions here, and do so with great courtesy and civility.

  19. I’m a pretty staunch supporter of oil and gas, I’ve worked in pretty much all of it, exploration, appraisal, production… I could bore you to tears about it. So I know a bit about energy, having worked at the sharp end for 25 odd years, and think our politicians have an egregious under appreciation of it’s importance to the world economy. That said, can anyone here explain why Switzerland, whose citizens appear obviously wealthy, has half the per capita energy consumption of the US? Not as if they make all that cash from banking either. Quite an important manufacturing country, and a strong chemicals industry.

    • Maybe I can answer your question. I am not from Switzerland but from Austria which shares a lot of similarities.

      I believe a main reason is that people here are not so dependent on cars as people in the US are. If you live in one of the cities most places important for daily life (shops, schools, etc.) are in walking distance. That’s also because of much higher building density here. There is also very good public transport – trains, trams, busses in the bigger cities.

      Another reason probably is that houses here are not as big when compared to the US. According to some stats the average house in the US is twice the size of one in Austria or Germany. Bigger houses need more energy.

      A third reason that comes to mind is that production of a lot of food happens closer to where people live. To be clear, we’re also shipping in a lot of the things we eat from all over europe. But a lot of the basic stuff such as milk, bread, potatoes comes frome relatively nearby (in-contry). And as our countries are not so big this translates into much shorter distances for hauling all the stuff when you compare it to the situation in North America.

    • Swiss citizen here…
      Certainly a rich country, some 14% of it citizens are millionaires, here are some reasons why : https://www.expatica.com/ch/finance/investment/why-is-switzerland-so-rich-1068261/
      Energy-wise : excellent public train system, powered 100% by hydro-energy, small sized country, so small distances travelled, next to none energy-guzzling-type heavy industries…

      BTW : half the US-energy-consumption is true of almost all of Europe, not just Switzerland. You guys are wasting the stuff ! And it is not that your quality of life is any better for it. Which US-prasident was it again that said “this nation is hooked on cheap oil”?

  20. Vulnerabilities
    Here is a tally of the vulnerability of the major centers of industry to non-renewable resource shortages. There are 17 specific resources identified. The source is Christopher Clugston in Blip: Humanity’s 300 Year Self-Terminating Experiment With Industrialism. And reproduced in Richard Heinberg’s book Energy on page 227.

    EU: 4 Extreme vulnerability; 8 High vulnerability; 2 Moderate vulnerability; 1 Low vulnerability; 2 No vulnerability
    US: 2 Extreme; 5 High; 1 Moderate; 7 Low; 2 None
    China: 0 Extreme; 4 High; 8 Moderate; 1 Low; 4 None
    Russia: 2 High; 2 Low; 1 Negligible; 12 None

    I suppose the first impression is that Russia is in a good geo-political situation, while the EU is very weak and the US is not much stronger than the EU. However, the table just preceding this one give the global tonnages of 5 essential industrial resources. From 1875 when Britain was the workshop of the world, to 1945 when the US was dominant, to 2015 and Chinese dominance, the increases in production are as follows:
    Iron Ore: 25 to 159 to 2300
    Cement: 5 to 50 to 4100
    Phosphate Rock: 750 to 10,900 to 241,000
    Gypsum: 500 to 9800 to 260,000
    Coal: 265 to 1072 to 4895

    The second table indicates the exposure of all the humans on the planet to resource scarcity, and should scare the professional pants off economists who think that the world can get along very well with no natural resources at all. While Russia might do pretty well as a completely independent country and economy, it doesn’t have the capacity to provision the entire globe at the rate we have become accustomed to…much less the fantasies of the economists.

    I will also note that there may be bottleneck resources, such as oil, which carry a disproportionate weight. And the Phosphate Rock numbers (along with the current crisis in manufacturing nitrogen fertilizer from natural gas), indicates that feeding the world will not be a walk in the park. I personally think that a complete overhaul of the agricultural sector is one of our most urgent projects…made worse by the destabilized climate.

    Don Stewart

  21. Hey Dr. Morgan a quick question:

    I know you hate to talk about politics, but how to you plan on changing anything or convincing anyone about SEEDS without it?

    • I don’t hate talking about politics – I just want to avoid partisan slanging-matches, and the politics of personalities, getting in the way of impartial and balanced debate. The laws of thermodynamics don’t vote.

      We’re going to have to discuss government, it’s on my list for early ’22, but i’m trying to work out how to do that in a non-partisan way.

    • “but i’m trying to work out how to do that in a non-partisan way. ”

      I wish you all the best in your search for the holy grail 😉

    • Big Picture
      I think one gets pushed, kicking and screaming, into Big Picture thinking. Just as Richard Heinberg was forced to sit down and read a whole pile of books in order to write about Energy. Just as Toyota came up with the “ask “Why?” five times” methodology for finding root causes. Not pleasant to contemplate, and probably thankless, but perhaps necessary?
      Don Stewart

    • The connections – in both directions – between government and the economy are obvious. If we’re right that the economy is going through a profound change, then the implications are extreme, particularly as most political leaders seem to have no idea of what’s really happening to the economy. This change, and this lack of recognition, may already be exerting an adverse influence on the quality of government.

      So there’s a case to be made that we have to address government.

      The challenge for me is to tackle this as objectively and as neutrally as possible, sticking to economic issues, and avoiding ideology, as far as I can.

      The challenge for readers will be steering clear of the politics of party and personality.

    • @Dr. Morgan
      If you take a very quick look at Richard Heinberg’s book and grasp his very inclusive definition of Power, then there are profound implications in terms of getting out of the narrow ruts of current economics and governance. He offers no guarantees that civilians or governors can get out of the narrow ruts. But he does present some evidence that some societies, some of the time, have been able to do so.

      So a foundational question is whether some rather simple modifications to the current society will suffice, or whether some more fundamental changes are required. If it is the fundamentals that need to change, then I suggest that a Big Picture is required.

      Don Stewart

  22. From BTL in today’s Guardian: –

    “I see the Russians are playing silly buggers with Europe’s gas supplies again.

    Chickens are coming home to roost around all the fine words spoken about reducing CO2 emissions.

    Words are easy and actions are hard. There is no way any first world society is going ‘net zero’ in the next hundred years or so. It’s a practical impossibility.

    Germany is burning more coal than it has for many years and is stuck with it, unless it wants to go nuclear again. The EU are on the cusp of declaring gas as a ‘green’ energy source. They are realising they are going to have to unless they want their economies to collapse.

    China went home from Glasgow and ‘clarified’ that their words did not mean hard targets, more like ‘aspirations’! Japan went home and started planning to increase its home produced energy supplies by investing in fossil fuel production as it realised it is far too dependant on other countries supplying it with fuel.

    In the UK, in the last couple of days, wind has been producing less than a gigawatt of power, or less than 2% of our grids energy demand. Coal has been providing more than twice this. Our interconnectors have been providing near to 14% of our energy demand.

    How reliable is this supply from other countries? Germany is struggling to keep on an even keel. France has a number of nuclear power stations out of commission for maintenance and is hard pressed to maintain its grid. Europe’s gas storage has fallen from 82% to 60% in the last year and it will be everyman for himself if things go bad this winter as far as wind and weather are concerned.

    The UK now has only half its gas needs supplied by home produced gas and has been disinvesting in gas production, new fields, fracking etc for years now, meaning in a short while only a third of our gas needs will be able to be supplied from home produced gas.

    We have very little gas storage and are utterly reliant on gas being streamed to us on a day to day basis. If some countries, for economic or geopolitical reasons, hello Norway, decided to cut our supplies our economy would collapse and the Covid death rate would be a minor irritation compared to the new death rate.

    Build more wind resource? Well we could quintuple our turbines and we would still have had less than 10% of our demand met over the last couple of days and that is before you stick all the extra load on the grid for electric cars and electric heating as gas boilers are banned.
    Turbines are a reducing benefit as well, we have already used a lot of the best spots for these and new ones are going to have to be placed where there is a reduced cost/benefit.

    Build storage batteries? Laughable!

    The worlds largest storage battery cost way over a billion. Its first phase can give 300 MW for four hours (FOUR hours!) and the second phase an additional 100 MW. (300 MW when the UK grid has been short of many gigawatts of power due to low winds recently.) The first phase lasted nine months before it had to be shut down because it was overheating and they have to be replaced about every fifteen years anyway if they haven’t exploded in the meantime.
    Totally impractical on cost alone and actually useless in maintaining a national grid beyond a few hours.

    Reality will impact on the UK when it gets close to having to implement all the things it needs to if it is to get even close to ‘net zero’ and the actual costs to citizens becomes clear to them. Any Government trying it will be out on its ear!”

    • You say energy when I think you mean electricity (which is about 20% of delivered energy.) The other ~80% is mostly coal, oil and gas.

      After the UK emptied many of its gas fields, it could surely have stored natural gas from abroad when it was ultra-cheap? (Unlikely, needs a coherent structure to government, which we probably only had from 1945-79; since then it’s a maze of outsourced contracts).


      What I read about capital and taxes makes me think that there is a huge ‘group of people and companies who should be taxed ‘merely’ as heavily as the bottom 5% (Universal Credit recipients are taxed at an effective ~70% marginal rate if they take a job and earn some income.)

      A few months ago I saw some marginal tax rates quoted, although I took the author’s word for it. They were

      Amazon, tax rate actually paid on UK profits 7.5%
      Newly-graduated students, i.e. repaying loans as well as paying income tax
      Ultra-high earners on £300,000 per year 47% (tax 45%, N. Insurance 2%)
      ‘Idle rich’ living on dividends 32.5%

      Not so much ‘flat taxes’ as regressive taxes.

      I think Warren Buffett complained about it in the USA 10 years ago and said he should pay more tax than his cleaner. Nothing was done.

    • @Mark Meldon,

      Please enlighten this yank on BTL. I’ve searched the Guardian, and find “Below the Line” but not an article with your topic. Most BTL results are old.


  23. Good article. I think the energy dynamic is only one of the problems we face.

    In spite of the impact of COVID, which has hammered birth rates everywhere, the population of US and European countries is actually increasing, even though white birthrates are declining. The reason is very high levels of immigration and high birthrates amongst immigrant populations. Whether you consider that a good or bad thing is a personal point of view. It could, eventually, bring ecological benefits. But I doubt it will do much for living standards.

    However, more and more countries are heading over a demographic cliff, with populations ageing and total birth rates declining. At some point, we may expect this to become deflationary because aggregate demand for goods and services will fall. However, with shrinking working age population, production will face pressures that will tend to reduce supply of many goods. If economies of scale decline and too few workers are available, then prices increase. This is on top of the effects of energy shortages, which will probably be inflationary.

    On balance, I think demographic ageing is likely to be inflationary. As populations age, the tax base shrinks as total wage base declines. But the liabilities of the government, in terms of maintaining infrastructure, health care and state pensions, will not decrease proportionately. People stop earning when they get old, but they don’t stop needing the things that keep them alive. This means that governments are likely to deal with the problem by inflating currency supply. Which is obviously inflationary. Declining demand with shrinking population, is inflationary because: (1) Working age population shrinks faster than total population (which places pressure on production); (2) People don’t stop needing things when they are old; (3) Prices depend on scale economies. If demand declines, the cost of producing a unit of X actually increases. Energy resource depletion is obviously inflationary and is a big inflationary driver right now.

  24. Mr Kurtz, I merely cut and pasted a readers comment from “Below The Line” in the Guardian’s Business new section from 22 December 2021 – I have no idea as to whom the author was.

  25. Thanks Dr. Morgan for another year of thought provoking and wise information.
    I understand the coming re-unification of the physical and financial economy by one method or the other though I think inflation will be the preferred default method. Those closest to the financial spigot will get theirs, all others be damned.
    This brings me to an unfinished thought I have that perhaps you might address in 2022.
    The masses have been fed the lip service ‘tax the rich’ for decades while wealth piles up at the top. With the cost of necessities rising by large percentages even beyond wage increases there seems likely that lip service will no longer suffice and taxing the rich ‘for real’ will be demanded without exceptions. The anger is there, you can feel it, while the political class seems aloof. No-one I talk to seems to understand that Trump was a symptom not the problem.

    • “Symptom” of anger at the rich? The only income bracket in which Trump got more votes than Biden was “100,000 US dollars or more” (at link).

      Trump is actually a symptom of electoral college bias toward small states, which happen to be more Republican. Any momentum toward taxing the rich will have to overcome people like Trump and the Republicans in the Senate resisting with all their might.


    • Ya want Trump? Well, Biden (just like Obama) gets you Trump.

      (Sorry, Dr. Morgan, I know its off topic, but couldn’t resist.)

    • Do I want Trump or Biden? Personally, I wouldn’t take Trump or Biden even as a ‘buy one, get one free’ offer.

      Seriously, though, when we do get on to the topic of government, i’m really hoping we can keep parties and personalities out of it.

      To paraphrase Bernard Shaw, ‘politics is too important to be left to politicians’.

      GK Chesterton said something to the effect that ‘socialists exist so that we never stop making new mistakes, and conservatives are there to make sure we never fix the old ones’.

    • OK:
      See Russel Brand on youtube, ” “We Were Sold A LIE!!!” No Wonder People Are ANGRY”

  26. Thanks Tim for facilitating an excellent knowledge sharing forum.

    It is encouraging that the periphery of energy economics is now closing in on the centre of mainstream economics. I’m absolutely sure this platform has facilitated this progress.

    I’d like to end my year here with the linked article below which provides an invaluable summary of the Net Zero (energy transition) debate with the author arguing that the political narrative that is essentially lobbying towards Zero Carbon is ‘energy blind’ since it fundamentally ignores that energy is the basis of the economy and that energy productivity is the basis of future economic stability.

    Similarly, the author argues that the political narrative that argues for fossil fuel continuity and therefore, to some extent rejects Net Zero is ‘ecology blind’ since it fundamentally ignores resource constraints and the entropy of energy productivity.

    In conclusion, he argues that both narratives are ‘reality blind’ because neither gives adequate consideration to the consequences of the ‘institutional growth imperative’ and how (per capita) growth is now hitting planetary limits, leading to peak human growth and ecological overshoot.


    Certainly in my mind, our global and national energy systems will need fossil fuel buffers for the foreseeable future with an urgent need to transform the ‘institutional growth imperative’ that is locked into institutional policy and strategy documents from the global to the local.

    At this stage, I’d be inclined to lobby for an imperative based on sustainability, resilience and sufficiency with an energy seeing, ecology seeing and reality seeing framework that is able to discern between essential and discretionary high, medium and low impact activities.

    This needed transition from the ‘institutional growth imperative’ to ‘?’ is, in my opinion, a debate still to be had which may be getting stalled politically because of the politicisation of sectoral self- interest. In other words, post growth partisan politics is now in the process of consolidating sectoral self interest as part of a great political realignment which started in the US and has now migrated to Europe.

    Once this great political realignment is complete, democratic politics will then decide which sectors will need to contract without even needing to explicitly mention post growth.

    Part of this realignment will be the political consolidation of ‘sound money’ in opposition to ‘MMT’, now we are sure that global inflation is a result of fiscal and monetary policy (leading to increased demand) which is hitting global supply chain bottlenecks (which provides a test case for actually existing resource scarcity).
    Whilst tax is promoted as a brake to ‘MMT’, which in strictly economic terms seems plausible. It does not take into consideration the Jevons Paradox, if applied to consumption expectations. That is to say, people will naturally maximise their consumption of energy and materials if given the opportunity and so ‘braking taxes’ will still result in political outrage. Thus, in my opinion, MMT is ‘human blind’.

    To finish, I’m very sure next year will be another intense year of shining an insightful light in long forgetten dark places in order to break down illusions, displacement and the desire to retreat.

    I hope EVERYONE has a very Happy Christmas and a Blessed New Year ❣️❇️🔅

    • Thanks Steve, very much appreciated.

      You won’t misunderstand me, I’m sure, if i suggest that, at the purely theoretical or intellectual level, our case is largely proven – by this I mean the concept of ‘two economies’, and the energy basis of prosperity. In these respects, there’s an alignment of logic and observation.

      From here, it gets tough, at least in this sense – we need to tackle ‘government’ without getting into the politics of party and personality.

      Best wishes to you and yours for Christmas and the New Year.

    • Presumably, ultimate responsibility and sovereignty lies with the People, especially within democracies.

      What I’m presently investigating is whether the growth imperative is hard wired biologically as a genetic representation of the maximum power principle.

      I don’t know of any laws or regulations that mandates the growth imperative, yet there it is, always at the heart of economic strategy and policy and documents. Thus, the growth imperative might be more than a cultural memetic.

      If this is the case, then the growth imperative can only really be managed on the supply side, which if effected by a government, may well cause distrust within the People.

      This might be termed a genetic paradox.

      If it is only a cultural memetic, then democracy allows the People to freely form their own political parties and freely engage in political activism to promote alternative ideas and imperatives, including degrowth.

      This leaves the problematic of how do the People convince one another to voluntarily contract their energy and material throughput without causing mutual distrust.

      This is commonly known as the Commons Dilemma.

      So it seems to me, whether the growth imperative is genetic or memetic, mutual trust would need to be developed as a human trait which requires deep transparency with one another.

      That is why I mentioned illusions, displacement and retreat, since these are the main defence mechanisms by which the People avoid deep transparency.

      Looking forward to deepening our shared analysis next year 😊

    • It might be suggested that “growth”, as an objective, has become a habit.

      The global economy has “grown” for at least 200 years, quite long enough for “growth” to be regarded as “normal”. This attitude has huge momentum behind it. Growth may have ended, but this is a comparatively new situation, and remains subject to widespread, indeed almost general, denial.

      Popular concern about the environment is of more recent origin, even though we can trace its roots right back to “dark satanic mills” and earlier.

      Ascendencies (“elites”) of wealth and power are an in-built feature of society, as are ascendencies of ideas. The latter tend to be more lasting. With ascendencies of power, we know that these have lifespans, and tend to be replaced in ways that, although tending to seem obvious in hindsight, usually come as a surprise at the time, particularly to the elites themselves.

      Ascendencies of ideas can last longer, with new elites often perpetuating many of the ideas of their precedessors.

    • As I understand it, the growth imperative is driven by feedbacks which equate to competition, the profit motive, marginal returns, efficiency, investment, innovation, productivity, economic stability and efforts to reduce unemployment to increase per capita prosperity.

      These traits have been in existence within humans (and other nonhuman biological systems) since the emergence of civilisations and all seem to derive from the maximum power principle in terms of accumulating biological power when resource constraints allow.


      In this respect, the growth imperative is still active under actually existing resource/energy constraint limitations which leads to increased biological pressures to compete, invest, innovate etc etc to increase efficiency, productivity, prosperity etc etc.

      As such, the growth imperative is indeed institutionalised. Examples include the “growth duty” in British legislation,[59] but also the Canadian Jobs and Growth Act, the African Growth and Opportunity Act or the European Stability and Growth Pact of 1997.

      These have of course been criticised as politically adhering to a dogma or ideology by some critics of growth.[60][61][62]


      This seems to indicate that the growth imperative is biological and genetic in nature, rather than memetic in origin, and therefore Degrowth requires policy that imposes artificial energy/resource constraints including constraints on fiscal and monetary policies and the availability of credit.

      In my investigations, this seems to lead to discussions about the ‘neutrality of money’.
      and debates about the ‘classical dichotomy’.
      in terms of the relationship between the financial economy and the material economy.

      I do not know the implications of the neutrality of money and the classical dichotomy, but they seem to mirror much of the discussion here.

      Hence, overall, I think we need to be clear what we are analysing. The Growth Imperative or the energetic and material limits to economic growth since the former can exist with the latter, especially in terms of maximising utility of already existing technologies through innovation and increased efficiency (including the emergence of virtual reality technologies) along with the rate (velocity) of energy transfer, route (investment) of energy transfer and efficiency (productivity) of energy transfer and how these energy functions distribute materials throughout the global economy.

      This may similarly apply to the rate, route and efficiency of money transfer depending on one’s view of the neutrality of money and the classical dichotomy.

      In this respect, my main analytical concerns are the ‘expectations dilemma’ and how these expectations can or cannot be managed by supply side constraints in relation to the maximum power principle and the associated growth imperative and whether supply side constraints can be feasibly implemented politically by the State, especially within democracies. If not, my working hypothesis is that naturally occurring energetic and material limits to growth will instead be managed by the Market in terms of the affordability calculus, so that the growth imperative (and therefore the maximum power principle) is ostensibly given as much freedom as possible with the implication that any inevitable poverty is projected as a lack of ambition, aspiration and opportunity within a social darwinistic meritocratic world.

      This hypothesis puts special importance on the perceived balance between the private sector and the public sector and levels of productivity in each.

      Of course, the growth imperative does not mean economic growth will be realised, but it also does not mean humans will not try. Similarly, it does not mean the People will automatically trust the State to fairly distribute ecologically scarce energy and materials for the benefit of all, especially with perceptions of ‘elites’.

      This leaves the political choice of a State managed economy or a Market managed economy and the precise balance between the two so that the (life affirming) growth imperative is provided adequate freedom within State prescribed or Market determined energy and material constraints without causing popular revolt.

      This of course describes the spectrum between the centre left and the centre right with the outliers of the Socialist Left rejecting the ‘capitalist’ growth imperative and the Libertarian Right rejecting the ‘socialist’ degrowth imperative.

      Certainly in the UK, this spectrum between the centre left and the centre right is heavily influenced by the alignment or disalignment with the EU Treaties with the former tending to stabilise the Federal EU project and the latter destabilising the Federal EU project. Hence the involvement/intrusion of American, Russian, Chinese interests in European affairs with different sectoral interests either supporting or opposing Brexit due to its destabilising impact on the Federal EU project.

      There will be much to consider in 2022 and in my mind at least, most especially the scientific/biological/ecological validity of the growth imperative. If it is hard wired, then economic policy must acknowledge and facilitate that.

  27. Selling DeGrowth

    The usual suspects talking about the extremely complicated and complex task of persuading anyone on the subject of DeGrowth. I will note that their references to the lizard brain versus the thinking brain is badly mistaken. Explaining why would take me too far afield…consult Lisa Feldman Barrett on how the brain, gut feelings, and emotions work.

    They all agree that simply presenting fact based studies is not adequate.

    Don Stewart

  28. Pingback: #218. The real state of the economy – Olduvai.ca

  29. To all,

    I just had an email from Nate Hagens whom some of you may know. He was a past editor of The Oil Drum, and is a top systems thinker concerned with many things this blog addresses. He is the founder and leader of this org:


    There is a sign up to receive updates from them.

    Happy Solstice! (2 days late)

  30. @Steve Kurtz
    Nate Hagens is indeed a voice worth listening to.
    His statement that “The world is energy blind . It uses up the capital while treating it as interest.”
    is the best analogy for the conundrum of the economics of surplus energy .
    Financial wizards and greenwashers ignore it to the detriment of us all.

    @Steve Gwynne
    Without any doubt net zero is a myth.
    Regarding “sound money” the books by Saifedean Ammous cover the topic very well.He is advocating BITCOIN as the solution to value retention. However, the extremely energy consumptive proof-of-work activity involved in BITCOIN on a planet where thermodynamics rules
    is completely overlooked.

    @Dr Tim
    Somewhat off topic your comments on price of Hobnobs . Their price may be increasing but I am certain the demand will be less in Glasgow where the foreign owner (Turkish?) of the former Mcvitties manufacturing plant is intent on its closure in early 2022 with 450 personnel facing job destruction. No doubt the price increases are as a result of additional transportation costs from some distant site. Although with UK currently importing electricity could the manufacturing loss be of some indirect benefit?

    Thank you Dr Tim for all your work on this blog.
    Have a well-earned rest during this very “unfestive” Yuletide.

    • Jomelco,

      Net Zero is a global/national political vehicle by which the human species (or the People) seeks (or doesn’t seek) to align the human ‘genetic’ growth imperative with the human ‘memetic’ of international liberalism in relation to the long term sustainability, resilience and sufficiency of the global energy/ecology system.

      If you can explain how the above is
      “a widely held but false belief or idea”, then I’d be most grateful. In particular, how is any of the above false.



    • Do we know the energy consumption of “cash”. There is a large armored car idling outside the hospital every morning. Interesting. So there is some energy required just to handle the “cash”. How much of the war department and various government activities have to be added, beyond just the cost of printing? American cash may be an order of magnitude more energy intensive than bitcoin.

    • The financial system uses sizeable amounts of energy – physical cash, huge computing power, dealing rooms, back-office functions – banks, insurance companies, brokerages, accountants, tax departments, treasury operations, finance departments of corporations……

      A lot of this is necessary, though a lot more can probably be scaled down or eliminated as deteriorating prosperity provides incentives for greater efficiency.

  31. @Steve Gwynne
    Re: Power
    I recommend a few books to consult.
    *Richard Heinberg’s excellent new book Power. Richard uses a definition of power as the ability to bring about change. There are many different mechanisms which can be used to bring about change…not just fossil fuels. For example, a band can play music which prompts people to get out on the dance floor, and politicians can use rhetoric which prompts riots in the streets. A very serious lifestyle medicine expert recommends exposing yourself to sunlight first thing in the morning, which resets one’s circadian rhythm.
    *Antonio Damasio’s new book, which is concise, traces the genetic propensity to seek a feeling of thriving, from single celled creatures to humans.
    *Lisa Feldman Barrett, at length in her professional books and succinctly in 7 and a Half Lessons About the Brain, describes how gut feelings meld with more cerebral calculations to merge and generate the feelings that Damasio cites, which in turn shapes our behavior.
    *David Graeber describes most jobs today as “bullshit jobs”. Independent surveys show that most people think their jobs are useless or positively damaging.

    I suggest that where this leaves us in terms of DeGrowth is that the only way to persuade people to do it is to give them experience of jobs they perceive as both good for them and their family and also their society and the ecosystems which supports all of us. The jobs must both further the goal of power in Heinberg’s sense but also must allow humans to live as we lived when we were hunters and gatherers…the original leisure society. I will immediately agree that the number of people on the planet now is a major obstacle to hunting and gathering. A resurrection of the horticultural society seems to me the most likely to succeed.

    Don Stewart

  32. While the stock market makes new highs, civilization is breaking down. S.F reports came first. Then Portland Oregon and NYC. Now L.A.


    Carjackings are increasing as well, with some progressive legislators recently hit.

    Happy Holidays to all, and Thanks to Dr. Morgan for his fine efforts managing this and educating us.

    • Thank you Steve.

      I see our efforts here as collaborative, with the knowledge of commenters matched only by their civility. Together, we’ve developed a compelling, logical and evidence-backed thesis which, I believe, explains the economy and related issues very well. The question becomes one of where we take it from here, something I’m sure we’ll discuss in early ’22.

      Meanwhile, very happy holidays to everyone.

  33. This poem probably means nothing to our host and most of the people here since you folks, would have no identity with the references to age. Still, it speaks to me.

    Old age hath yet his honour and his toil;
    Death closes all: but something ere the end,
    Some work of noble note, may yet be done . . .
    ‘Tis not too late to seek a newer world . . .
    Tho’ much is taken, much abides; and tho’
    We are not now that strength which in old days
    Moved earth and heaven; that which we are, we are;
    One equal temper of heroic hearts,
    Made weak in time and fate, but strong in will
    To strive, to seek, and not to yield.
    — Tennyson, Uylsses

    • Pintada,

      Perhaps you underestimate this group, and our host in particular. We are not easily pigeonholed. Some are grandparents, some have living grandparents. Some are leftists, some libertarian, some support big government…I appreciate the poem, and don’t need to quibble with the reference to an afterlife. It is from a different era.

  34. Can we really expect governments to instinctively endeavour to make sure unaffordable or scarce essentials are available to all? This smacks of naive 1945 Utopianism, in UK terms.

    A greater knowledge of both history and anthropology indicates that when essentials grow scarce, the ‘non-essential’ humans are repressed, frozen out or eliminated.

    What do the Rothschilds call such unfortunates in their videos? Ah yes: ‘inevitably redundant human capital.’

    Which list you are on, and kept by whom, will define the destiny of everyone here in the next few years (not decades, it won’t last that long).

    Just like the ‘selections’ at the camps. Oh, and they are going up too,now, thinly disguised.

    Innovation? How about the new Swiss suicide pods? Or the very lax euthanasia laws appearing here and there. And our wonder gene therapies……

    • If you mean a video like this…

      …the only conspiracy seems to be dedicated to including as many corporate platitudes as possible per minute of run time.

      There’s nothing but praise for “investing in human capital”, which in their view, is a prerequisite for corporate success in a world where “85% of the jobs in 2030 don’t exist yet”. The images in the video are all geared toward a wonderful techno-utopia to come, not liquidating the “unfortunates”.

      The real world of declining energy and other resources will create a bad enough future all by itself, so there’s no need to spice it up with “lists”, “suicide pods” and “selections” from secret cabals of wealthy and powerful conspiritors.

  35. Tim,

    It seems that the concepts of prosperity have not been fully grasped by the BBC.

    This news item https://www.bbc.co.uk/news/uk-59814598 today comments that; “Millions of families are facing a “year of the squeeze” in 2022, a think tank has warned. The Resolution Foundation predicts higher energy bills, stagnant wages and tax rises could leave households with a £1,200 a year hit to their incomes.” It seems to me that my expenditures on tax and essentials may very well rise without any “hit” to my income.

    • There’s a staggering gap between the consensus view and reality. By this, I don’t mean that the consensus ignores what we and others understand about the situation – there’s nothing new there – but that what’s already happening seems to make little or no impact on the consensus perception.

      Inflation IS rampant. Just look at energy bills, or stroll around a supermarket looking at how prices have risen, and product sizes have been reduced (“shrinkflation”). Even official measures, which tend both to lag reality and to understate it, are showing sharp increases. Energy costs HAVE soared. Real interest rates are ALREADY at record negative levels. Debt – household, business and government – HAS reached frightening levels. Discretionary purchasing power has ALREADY been battered.

      Yet all of this is dismissed as temporary, or blamed on covid. Everything will be fixed by windmills, or technology, or stimulus. Pressure on household incomes won’t prevent growth in discretionary sectors. Rates won’t have to rise, and markets can carry on defying gravity.

      “Peak delusion” matches “peak everything”.

  36. Paywalled but a recent article exploring different types of energy transfer (energy and material) efficiencies within our energy system according to the different imperatives of energy productivity growth and maximum power output (time efficiency) and material productivity growth and maximum utility output (resource efficiency).

    “The speed of entropy is controlled by the efficiency of energy transformations within a system. There are two types of efficiency. One is efficiency of time, where the systems that accomplishes the most work per unit time is the most efficient system, but in this system, resources are used inefficiently. Human dominated systems on the frontier operate where time efficiency predominates. It is the efficiency that results in maximum power output. Young or successional systems also operate to maximize time efficiency. The other efficiency is efficiency of resource use, accomplished by fully exploiting resources. Most mature systems operate where this efficiency is greatest”.


    • Some Recent Findings Relative to Hunting and Gathering vs. Agriculture
      I can’t give a precise reference, but some recent work suggests that the choice was mostly about time efficiency. Farmers spent less time procuring food, and thus had more time to spend on other things. But the farmers did not eat any more than the hunters and gatherers. Exactly WHY farmers chose to spend less time getting their food and more time doing other things (e.g., building substantial houses rather than putting up grass huts very quickly) has not been answered, to my knowledge. Westerners living with the Hadza in Africa observed a fire sweep through a village and burn some huts. The natives were unconcerned, saying they would build a new hut in the afternoon. There clearly is a choice, and one leads to GDP but the other does not. The concepts of “wealth” and “life satisfaction” are completely different.

      Don Stewart

    • Climate likely had something to do with it. In colder climates, survival depended upon a shelter more substantial than a grass hut! And it probably had to have provision for a fire place of some sort.

    • Don. Presumably, hunter gatherers didn’t have the ecological power of protective armies or the energy availability (of slaves and animals) to live as settled farmers did.

      As systems of governance and the abilities of States progressed, so did patterns of survival.

      I think even in ancient civilizations the division of labour meant the existence of a working class, a middle class and an upper class which had a higher per capita power output (energy productivity) and a higher per capita material output (material productivity) compared to hunter gatherer tribe which just had the working class and the upper class (elders).

  37. This movie on Netflix was roundly condemned by mainstream critics, but is a fan favorite:

    “Peter Kalmus tweets:

    As a climate scientist, I live in #DontLookUp every fucking day

    I felt seen

    … it’s satire but it’s also damn accurate … we need more climate storytelling like this”

    The movie’s plot is that a space object is about to crash into Earth, and the movie shows how the PTB do everything they can to avoid dealing with it.

    Don Stewart
    PS. Senator Ron Johnson said on television “what’s the point?” of vaccinations. A CDC official said about him that if he believes what he said, he is the dumbest person in the Senate….and that’s saying a lot.
    PPS. Charles Hugh Smith wrote this sentence in a work of fiction “I’m not saying she prefers lies…it’s more a willful absence of truth”. So somewhere between the polar opposites of ‘the public understand they are being lied to’ and ‘the public exhibits a willful absence of truth’ our compass spins around and a round.

    • Dear Don;
      I just finished watching the movie. I started it several days ago, and got disgusted a few minutes in — too real. Im glad I finished it because at the end DeCaprio, and the other sane characters ignore what is going on, collect some food, and have a nice dinner with friends and family. They figure it out, and spend some time doing what is really important.

      This essay
      ( http://witsendnj.blogspot.com/2014/09/five-stages-of-awareness-or-is-it-six.html )
      from several years ago sums my situation up very nicely, and fits perfectly with the last part of the movie.

      I am trying very, very hard to just live. I won’t be explaining to anyone why AGW is not 40 years away, or why Dr. Morgan is correct, etc.. It just isn’t worth the time and aggravation.

      Find some people that I like, find something simple that I enjoy (woodworking, stonework, exercise, reading, etc.), do a lot of cannabis, and alcohol, and maybe a little psilocybin, chill, and find (and stay in!) that sixth state. Call it a New Years resolution …


    • I watched the movie last night. Was funny and scary at the same time.
      Swap the asteroid for global warming and it stops being funny.

      Watched Charlie Brooker’s 2021 review straight after. Was hard to tell the difference!

      Happy New Year to one and all.

    • Mac10 is predicting a stock market crash!?!?!?!?

      Oh, yeah, he always predicts a stock market crash. Doesn’t make him wrong … 🙂

  38. @Steve Gwynne
    I suggest you take a look at Graeber and Wengrow. Early in the book they say that ‘equality’ is the wrong question to ask. Instead, they suggest that: is not the capacity to experiment with different forms of social organization itself a quintessential part of what makes us human?

    Blithely lumping all hunters and gatherers together into a class society is missing the point that Graeber and Wengrow make.
    Don Stewart

    • Don

      Isn’t experimenting with different forms of social organisation intricately tied to energy productivity and material productivity?

      Or are you suggesting that diverse types of social organisation can be absolutely or relatively decoupled from the energy basis of the economy?.

      Are you disagreeing that hunter gatherer tribes are based, in simplistic terms, on a working class and upper class stratum?

      What has ‘equality’ got to do with the actual physical process of energy productivity and material productivity?


    • @Steve Gwynne
      All of your questions are the subject of the book. They.begin by saying that they thought, like most everyone else thinks, that inequality was the question to ask. The book is a long and thorough explanation of why they think a focus on inequality leads one down dead end paths, and what they think the productive questions are. It would take us too far afield to explore the book in detail. I just point to it. But one clue is that a focus on eliminating ‘bullshit jobs’ would be a step forward. Hunters and gatherers have very few bullshit jobs. The jobs done by the children and the elderly are not the same jobs that healthy adults perform, but they all have meaning. The same an be said about male/ female job distinctions. The same can be said about a horticultural society.
      Don Stewart

    • Presumably if you have read the book Don, you can apply their arguments in your responses rather than asking another person to do the exact same.

      This request is obviously a loss in energy and material productivity.

      What metrics are these authors using to measure equality since for me, like Net Zero, equality is a political vehicle by which to organise society according to particular principles.

      This makes equality a form of deductive reasoning (or rationalism) which is in contrast to inductive reasoning (or empiricism).

      Do they explain why they reject inductive reasoning in favour of deductive reasoning when exploring human anthropology?

    • @Steve Gwynne
      If you read, or just skim, the book, your questions will be answered. But I don’t think a financial blog is the right place to dissect a 700 page book which is a reflection of 10 years of discussion between the authors. My hint that it is about productive work is a summary. Productive work societies have been found in all sorts of organizations. We can have an anarchist society or a top down society which is lost in unproductive bullshit jobs.
      Don Stewart

    • To be honest Don I have no clue what you are arguing for or against.

      You just keep refering any debate about contested ideas and principles to your most favoured book as if that is the sole authority on the matter.

      You have the book, what metrics are they using to determine that equality is a guiding anthropological principle in the formation of social organizations?

      Also what metrics are they using to determine whether a job is bullshit or not?

    • I’m with you here, Steve G. Hierarchy is biological. Societies have different ways of dealing with it. Geography and demographics influence that as they do with other cultural characteristics.

    • Further to hierarchy is biological, this interesting article explains how elite formations rise and fall in relation to their ability to adapt to changing circumstances and how performative media driven narratives, much of which is interpreted as ‘elite incompetence’ are strategic as part of a deeply interwoven elite rivalry as rising elites seek to coopt political narratives.


      Making sense of this performative reality (of competing elites using deductive reasoning using rational ‘climate change’ modelling for example) in relation to the actual reality (of elite power dynamics and empirical data) can be politically difficult to distinguish between.

    • Steve G., Palladium Mag. is new to me. I read another article there too. They are pushing responsibility and morality amongst the elite. (noblesse oblige is not new) One of the founders is a student at Yale. I also note that he is involved with The Long Now Fdn., which has Longbets dot org as a subsidiary. Interesting. I have made two longbets; won one, lost one.

      Thomas Homer-Dixon, who I’ve interacted with a bit over two decades, has a piece on the societal breakdown in the US.

    • Thanks Steven.

      In many ways, the competing narratives of the elite are in disarray, especially in relation to a thriving future.


      with narratives of declinism coming to the fore


      This seems to be driven by the elite rivalry between Progressive elites and Conservative elites with technocratic narratives based on rational modelling (deductive reasoning) leading to a legitimacy crisis in the social contract.


      These narratives lead to the conclusion of a Progressive technocratic autocracy underpinned by a statutory duty of care (as per rational climate change modelling).


      Overall, it becomes very difficult to unpick the performative from the actual.

      Certainly in the UK, the elite Progressive agenda is slowly but surely being rejected with the Conservatives struggling as a result of coopting much of the Progressive narrative.

      I think the reasons are that people feel that the UK is taking disproportionate climate change mitigation action which is resulting in perceptions of wasteful and unnecessary over spending on things like heat pumps, electric cars, carbon taxes on electricity bills etc whilst intentionally seeking to contract the carbon energy system by not deploying North Sea oil, Cumbrian coal and fracking, which many associate with the downturn in prosperity growth and a global energy crunch.

      The Conservative Right is now mobilising to reject Net Zero, reject climate change mitigation in favour of adaptation and shift towards a lean regulatory environment with a smaller state and lower taxes with an emphasis on private investment rather than others public.

      In terms of post growth elite manoeuvring, the battleground is now pretty much set, which I think is interesting since the post growth battleground has come to form around traditional Left Right distinctions with the Right elites promising freedom and prosperity and the Left promising security and wellbeing.

  39. Don’t Look Up
    With my movie critic hat on.
    I subscribed to Netflix against my better judgment just to see Don’t Look Up. My somewhat conflicted thoughts follow.

    Charles Hugh Smith wrote a fictional work about a financial scam, The Adventures of a Consulting Philosopher. In it, the Philosopher talks to his team about their digital program to foil the scam and save the world. His advice:
    *Facts have limited impact now, as they’re quickly degraded by counterclaims.
    *What seems to work is presenting people with a simple action they can take that boosts their ideal self, the self they seek to be.
    *For traders, their ideal self is a brilliant speculator who cuts against the crowd. For those seeking to signal virtue, a moral stance is their ideal self.

    The movie does illustrate the limited impact of facts. But I don’t see much in the way of what people can actually do…whether to make a financial killing or to signal virtue. (I am speaking about the multiple deadly threats which we can all sense, but tend to ignore in daily life…perhaps because we sense that there is not much that we as individuals can do about it.

    It may simply be true that we are at the end of a Markov chain of events from which there is no escape. The movie ends with all of the people who escaped from earth being eaten by the equivalent of dinosaurs.

    Don Stewart
    PS. Netflix lists the movie as #1

    • Hi Don,
      it’s interesting it’s #1 on Netflix, probably from audience ranking, but the mainstream media critics hate the film!

      before you cancel Netflix have a look for the Charlie Brooker productions;
      Death to 2020,
      Death to 2021,
      they’re his rather caustic end of year roundups and you might find them amusing,
      at this stage there’s not much we can do to change things so we might as well laugh at the sheer ridiculousness of it all : )

      other back catalogue shows to catch are the 2006 film by Mike Judge “Idiocracy”
      and a 2020 HBO tv series “Avenue 5”

      there’s also a 2016 CBS series “BrainDead” about alien ants arriving on a meteorite and climbing into politicians ears, eating half their brains and taking them over,

      they’re all quite well written, amusing and clever plays on quite how ridiculous society has gotten,
      usher in the New Year by laughing your head off at the stupidity of humanity!

      best wishes for the coming year


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