#239: Life after liberalism?

THE CESSATION OF GROWTH CHANGES EVERYTHING

There can be no doubt at all that the global economy is in very bad shape. For some, this portends a general “collapse”. This, however, presupposes that we don’t adapt to new conditions, and that we don’t learn from past mistakes. We have a pretty solid history of doing exactly that, even if we only arrive at the right conclusions after trying all of the wrong ones first.

Of course, to adapt to new conditions, and to learn from mistakes, we need to know what these conditions and these mistakes actually are. Conventional interpretations of economics are failing us through an inability to provide the information required for this understanding.

The view set out here is that we do have a greatly enhanced understanding of how the economy works. Orthodox economics may continue to cling to precepts first laid down in the eighteenth century – essentially, that the economy can be understood in terms of money alone – but broader thought has moved on, spurred by energy shortages, by environmental concerns, and by recognition that the ‘perpetual growth’ promised by the orthodoxy simply isn’t happening.

The big challenges now are two-fold. The first is to adapt society to an economy that, having ceased to grow, has now started to contract. The second is to redesign a financial system that is exposed to failure because it has been wholly predicated on the fallacious notion that the economy can expand in perpetuity.

Politics isn’t entirely a matter of economics, but it’s very nearly so. Socialist, social democratic, conservative, ultra-‘liberal’ and all other strands of political thought are all founded on particular conceptions of the economy. As Robert Lowe (1811-92) put it, politics is a contest “between those who have – to keep what they have got; and those who have not – to get it”.

Political parties might be described as ‘combinations of economic thought and self-interest’. In practical terms, what this means is that the invalidation of a party’s economic proposition reduces its platform to one of pure self-interest.

For example, politicians in the USSR might have been sincere believers in Marxist-Leninist economic dogma, but they would also have been cognisant of the privileges of Soviet leaders and officials. Likewise, even purist believers in extreme ‘liberal’ economics are not uninfluenced by the rewards that this ideology can provide, not just to its leaders but to its supporters as well.

Contemporary economic liberalism is founded on the proposition that unfettered markets best serve the public interest. As a principle, this is soundly rooted in Adam Smith. Economic liberalism is not threatened by an invalidation of the principle of competition.

But it is challenged on two other fronts.

One of these is the presumption that the economy can be understood in entirely financial terms, and is, on this basis, capable of delivering growth in perpetuity. The unravelling of classical, ‘money only, growth forever’ economics will thus be detrimental to the “liberal” economic proposition.

The other is the claim that, if “liberalism” isn’t very good at delivering equality, at least it compensates for this deficiency by delivering “growth”. As prior growth ceases and goes into reverse, this plank of the liberal economic platform will fail. The public will be left with ‘the inequality without the growth’.

We don’t yet know what political ideas and systems will emerge as we endeavour to address a contracting economy and a failing financial system. But we can be pretty sure that the future ascendancy won’t endorse economic ‘liberalism’.

In other words, a ‘post-growth’ economy will produce ‘post-liberal’ politics.

The duality of prosperity and money

A critical point about economic interpretation, as it’s understood here, is the conceptual distinction that needs to be drawn between two economies. One of these is the ‘real’ economy of goods and services. The other is the ‘financial’ economy of money and credit.

The principles underpinning this interpretation are simplicity itself. The first is that the economy which provides products and services is a material system, determined by the use of energy.

The second is that money, having no intrinsic worth, commands value only as a ‘claim’ on the output of the material economy.  

With this distinction drawn, a realistic appraisal is that, whilst the material economy of energy has ceased growing, the proxy economy of money has carried on expanding. This implies that, whilst economic deterioration may be manageable, the financial system is no longer fit for purpose, and will need to be re-designed.

Much the same applies to economic and political thinking. Extreme collectivism has been tried, and has failed. Extreme liberalism has now reached its equivalent point of failure.

Both of these failed extremes have been rooted in a particular view of the role of the market. For collectivists, the market doesn’t matter, and the economy can be operated on the basis of central diktat. This set of ideas failed in the Soviet Union and, prior to the Deng reforms, was failing in China.

The other extreme is the assertion that the market is all-important. Theoretical liberalism worships the market in much the same way that theocracies worship a deity – that is to say, extreme liberalism isn’t open to doubt about the principle that the market is all-important.

On the shoulders of giants

The irony here is that economic ideologies are variously rooted in things that great thinkers – such as Smith, Marx and Keynes – didn’t actually say. Marx, at least, knew as much, famously stating that “I am not a Marxist”.

The fallacies based on a misreading of Marx are not our priority here, because the unfolding event now is the failure of a ‘liberal’ economic ideology which claims to be based on the precepts of Adam Smith.

In this narrative, Smith is portrayed as a worshipper of the market, an advocate of uncontrolled market operation and an opponent of ‘the public sector’.

The snag is that this caricature misrepresents what Smith actually said.

Smith’s great understanding is that the market operates as a ‘hidden hand’, advancing the general good through the pursuit of individual aims. The public is provided with bread, for instance, not through the altruism of bakers, but through their striving to make a profit.

That is, the operative process driving economic betterment is competition. This remains a wholly valid conclusion.

From this, though, it follows that competition must be allowed to operate unfettered, a principle that we might summarize as markets that are ‘free and fair’.

For Smith, state intervention wasn’t at the top of the list of potential fetters to the beneficial working of the market. This is hardly surprising, because Smith wrote at a time when the state was very small indeed, and when the term ‘the public sector’ was not yet in use.  

Rather, the potential threats to free and fair competition existed, for Smith, in the realm of manipulation. The same competitive incentive that could promote the effective operation of the economy could also lead to self-serving distortion. Smith’s strongest invective is saved, not for the state, but for those market participants who strive to impose distortions, such as monopolies and oligopolies.

In short, Smith did not believe that markets could be free and fair if they were left to their own devices.

In modern terminology, we can state that Smith was an opponent of excessive market concentration and an advocate of effective regulation. Along the lines of “I am not a Marxist”, Smith might, had he lived long enough, have said that ‘I am not a deregulator’.

Effective markets are orderly, not a caveat emptor free-for-all, and they won’t stay free, fair or effective without supervision. The state is the only plausible provider of this supervision.

The realm of the material

The other thing to note about Adam Smith is that he was writing in a pre-industrial society. His master-work, The Wealth of Nations, was published in the same year (1776) as James Watt’s completion of the first truly efficient steam engine.

At the dawn of the industrial age, it would have been impossible for Smith – or Watt – to conceive the concept of resource limits as these are understood today. Where scarcity was recognized, it was scarcity of land, and of labour. The concept of energy or environmental limits could not be understood until we started to experience both.

Explaining the critical importance of the market under conditions in which the concepts of resource and environmental scarcity did not exist, Smith can be said to have laid the foundations for an economic orthodoxy which portrays the economy as a wholly financial system.

A big part of our problem today is that conventional economics hasn’t moved on from a perception which, after all, was laid down 250 years ago.

In numerous other fields of thought, ideas have moved on from precepts which have been challenged by subsequent events. Life scientists and technologists don’t insist on the observance of statements made in 1776.

But economics hasn’t moved with the times. The presumption remains that the economy can be understood in financial terms alone.

Unlike Adam Smith, we live in an energy-intensive economy. Aside from a few mills driven by water or wind, the dominant source of energy in his times was human and animal labour. This had been the case for millennia, so Smith can hardly be blamed for not knowing that this was about to change.

Today, we know that the supply of products and services is a function of the use of energy. If we didn’t know this before, recognition has been forced upon us by events, not just by the current energy crisis but by the events of the 1970s as well.

Even before the oil embargoes of the seventies, the centrality of energy to economic processes should have been obvious. For example, energy deficiencies drove Imperial Japan to fight a war with the United States, and American resource supremacy ensured the outcome. The aircraft, ships and tanks that helped win the war could not have been supplied without the then resource wealth of the American petroleum industry.

Conclusions about the critical importance of energy were expounded as long ago as 1957, by Admiral Hyman G. Rickover, USN, the “father of the nuclear submarine”. One of his observations should resonate particularly with anyone who understands the economy as a surplus energy system:

“Possession of surplus energy is, of course, a requisite for any kind of civilization, for if man possesses merely the energy of his own muscles, he must expend all his strength – mental and physical – to obtain the bare necessities of life” (my emphasis).

The emergence of constraints

We now know, then – as Smith could not – that the economy is a surplus energy system. We also know about the environmental issues associated with the use of energy. This knowledge should enable us to understand that all other materials – including food, minerals, plastics and even water – are products of the energy used to supply them.

Rather than adopt these realities – and to accept, as Admiral Rickover said, that “the Earth is finite” – orthodox economics has jumped through hoops in its insistence that infinite growth is made possible by the wholly financial character of the economy.

The principal plank of this platform is the assertion that demand creates supply – if sufficient financial incentives are provided, there is nothing that the market cannot deliver. If this is taken as a universal proposition, though, the implication is that financial demand stimulus can supply physical resources, of which the most important – the ‘master resource’ – is energy.

The hard facts of the matter are contrary to this proposition. The reality is that no amount of demand stimulus, and no increase in price, can produce anything that does not exist in nature.

It may be true that consumer demand can promote the supply of artefacts. If consumers want a new generation of smartphones, industry will supply them.

So far, so good. But, in a material economy, consumer demand is rooted in prosperity, whilst the ability of industry to respond to demand is dependent on the availability of resources.

The second line of defence for the ‘demand produces supply’ orthodoxy is substitution, meaning that, if a particular raw material is in short supply, market forces will combine with ingenuity to deliver an alternative.

This proposition is now being subjected to the stiffest possible test. An economy built on coal, oil and natural gas is being undermined by scarcity- and depletion-driven rises in fossil fuel costs, and by the worsening environmental consequences of fossil fuel reliance.

To pass this ‘test of substitution’, we would need to be able to transition from fossil fuels to renewables without economic contraction. We have discussed the implausibility of “sustainable growth” on previous occasions, so all that needs to be said here is that full value transition seems extremely unlikely.

In short, we probably can create a sustainable economy built on renewables, but this sustainable economy is going to be smaller – meaning less prosperous – than the economy that has built on fossil fuels.

Past falls in the costs of renewable energy cannot be extrapolated indefinitely, because physics dictates efficiency limits at the level of the individual wind turbine or solar array. Contrary to widespread supposition, technology operates within the parameters of physics, and cannot overcome those restrictions.

If we can’t overcome these limits to efficiency, what remains is a scale issue. If we can’t make wind turbines, solar panels or batteries that have infinite efficiency potential, then we need to build vast numbers of them to enable transition.

And this is where circularity comes into the equation. To build huge numbers of turbines, panels and batteries, we need correspondingly vast quantities of raw material inputs, including steel, concrete, copper, cobalt and lithium. Where these materials exist at all in the requisite amounts, their delivery is a function of the energy required to supply them.

For the foreseeable future, the availability of these resources depends on the legacy energy of fossil fuels. It’s not inconceivable that, at some future point, we may be able – for example – to extract, process and deliver copper, or steel, using renewable energy alone.

The problem with this isn’t feasibility, but efficiency. Renewables may replace fossil fuels in purely quantitative terms, but they can’t replicate the characteristics of oil, natural gas and coal. Oil, in particular, is energy-dense, storable and portable to an extent that electricity cannot match.

A troubled outlook

In past discussions, the SEEDS economic model has been used to provide projections for the scale and composition of the economy of the future. Rather than revisit these forecasting processes, let’s summarise what the key points are.

First, material prosperity will decline, because of the implausibility of replicating the energy value (and, for that matter, the energy flexibility) hitherto provided by fossil fuels.

Second, the real costs of energy-intensive necessities will continue to increase, as a consequence of this same energy dynamic.

Accordingly, the affordability of discretionary (non-essential) consumption will be subjected to relentless compression, as will the affordability of investment in new and replacement productive capacity and infrastructure.

These are the material or ‘real economy’ consequences of a deteriorating energy dynamic.

But there are financial, social and intellectual implications as well. The financial system is wholly predicated on perpetual economic growth. As this precept turns out to be fallacious, the financial system will need to be redesigned on very different assumptions. It’s hard to see how the existing financial system can give way to a new one without extreme trauma.

Intellectually, we should be prepared for the failure of an economic orthodoxy that has been created over more than two centuries of virtually continuous economic growth. Ideas are, to a considerable extent, products of their times and conditions. It’s no surprise that conventional economics has endeavoured to explain the growth that was visible to all participants in the process.

Hitherto, growth hasn’t stopped because of our inability to explain it effectively. Just as economists have developed financial theories about growth, the energy dynamic has carried on delivering growth itself.

In other words, the intellectual challenge has shifted, from explaining the presence of growth to explaining its absence.

Politically, the need to reinterpret the economy will undercut the political platforms of parties whose precepts are based on the old consensus of perpetual expansion driven by financial management.

Economically ‘liberal’ political movements are particularly exposed to this unfolding process. Their central assertion is that we need to accept the deficiencies of the market system – with inequality the most obvious such deficiency – because liberal market economics can be relied upon to deliver growth.

If this claim is invalidated – along with every other thesis founded on perpetual growth – any party which relies upon it faces the invalidation of its central principle.

Absolute monarchy, for instance, failed when the public ceased to believe in the divine right of kings, and when monarchs failed to deliver prosperity. This intellectual-material axis was at the heart of the French Revolution, a product both of new ideas and of hardship.

If economic liberalism is going to be seen as delivering inequality without the compensating benefit of material improvement, then its day has passed.

The task now – of finding an intellectual and political replacement for liberalism – is as challenging as the designing of a post-growth financial system.

298 thoughts on “#239: Life after liberalism?

  1. https://sonar21.com/will-the-united-states-and-nato-wake-up-to-what-happened-at-the-meeting-of-the-shanghai-cooperation-organization/

    (I post this from Larry Johnson just as background information for the question. The results of the SCO meeting drive this issue forward in my opinion.)

    This may have been asked already, but the conditions seem to have changed recently. How does SEEDS handle the concept of the death of the petrodollar and even the end of the dollar as the reserve currency?

    What should I watch for in the news given that I want to track the process?

    • SEEDS’ first line of analysis of economies is in local currency terms. SEEDS also calculates systemic inflation (RRCI) as an alternative to CPI and the GDP deflator. Divergent behaviour is significant to broad currency trends.

      A long-term indicator worth watching is the relationship between the US dollar at market values and the international dollar PPP. I wrote about this a while ago.

      I’m a little wary about suggestions that the USD might lose its reserve status. All potential successors have problems at least as great as those facing the US. An SDR-type basket seems the likeliest alternative. But the petro-prop – the pricing of oil in dollars – is of enormous strategic importance to America. We should not underestimate the ability and the determination of the US to defend this huge advantage.

    • I heard it stated recently that due to the existence of the petro-dollar the USA has virtually enjoyed free energy. I would assume therefore that the new BRICS currency will undermine this pyramid with very wide repercussions.

    • “What should I watch for in the news given that I want to track the process?”

      “We should not underestimate the ability and the determination of the US to defend this huge advantage.”

      and presto, border conflicts between countries that are near to Russia. Already, it seems that the SeeEyeA is stirring the pot on the Armenia/Azerbaijan border, and probably in the “Stans” and Georgia as well.

      from an inside view of a USA with a deep state populated by woketard sociopaths, I think that anything short of nuclear weapons is in their game plan.

      and I’m not certain about the “anything short” part.

    • Dr. Morgan mentioned, “… the relationship between the US dollar at market values and the international dollar PPP. I wrote about this a while ago.”

      Right, I remember that paper now … obviously, I didn’t retain it, and will review.

      Dr. Morgan said, “We should not underestimate the ability and the determination of the US to defend this huge advantage.“

      Presidents Putin, and Xi mentioned (and Davidinamillionyears agrees) that NATO will begin a dirty tricks campaign around the world. This presentation details the form those dirty tricks have taken in Armenia:

      I looked it up, and found that Armenia does not border Russia, but Azerbaijan does. Russia will be secure against ground attack if it remains close to Georgia and Azerbaijan so Armenia has no strategic value to the Russians.

      I cant see how dirty tricks in Armenia, no matter how successful, actually preserve the petrodollar. The same thing goes for our (yes, I voted for Biden – he’s the lesser evil they said, its your civic duty to hold your nose and vote they said, ) meddling in Taiwan and Myanmar.

      So, my question, Dr. Morgan is, do you know other ways that the US can preserve the “petro-prop”/petrodollar? Maybe some sort of market manipulation? I have no idea.

    • Yes, I think the relationship between the market and international (PPP) versions of the dollar is interesting.

      It seems to me that the strength of USD reflects, to a considerable extent, the strength of the US itself. For one thing – though, oddly, I’ve not seen this discussed elsewhere – there’s been a change of priorities by the monied elite. Previously, they wanted stock price escalation. But now they seem more concerned with the purchasing power of the dollar. As the Fed has raised rates and embarked on QT, we’ve not seen a repetition of previous “tantrums”. This makes things easier for the Fed.

      Then there’s the question of a lack of plausible alternatives to the dollar. JPY has been subject to enormous monetization of government debt. GBP is ultra-vulnerable, because the UK economy has been mismanaged, right to the edge of viability. The Euro has major structural problems, not least because it’s based on political ideals, not economic practicalities.

      As for the BRICs, I’ve never really bought the idea of these four as a bloc. For one thing, they’re too different. Economically, Brazil and Russia are very different from each other, and very different from China and India as well. China has huge financial problems, most obviously in real estate, not to mention its energy deficiencies. Slowdowns elsewhere – which we know have started – are bad news for any economy that emphasises exports. Russia’s rouble isn’t a major traded currency. SEEDS indicates that Brazilian prosperity has turned down.

      This leaves us with either SDRs, or a formally “international dollar”, semi-detached from the ‘domestic’ or ‘market’ dollar. There are huge practical impediments to either.

      USD may well be ‘the prettiest horse in the knackers-yard of fiat’.

      As a final thought, I always suspected that Saddam’s plan to sell oil in EUR rather than USD might have been a major factor in the run-up to war. There could have been big problems for America if Iraq – followed by other countries? – had started trading oil in currencies other than the USD. That’s speculation, of course – but not implausible.

    • @Dr. Morgan
      How can Russia (“a pimple on a gnat’s ass”, according to Obama) be escalated to “enemy” status and refusal to discuss items like arms limitations? I think it is the “Saddam Hussein” effect…the attempt to undermine the Petro-dollar.
      Don Stewart

    • Dr. Morgan says, “I always suspected that Saddam’s plan to sell oil in EUR rather than USD might have been a major factor in the run-up to war.”

      We know that WMDs were not the reason for Saddam’s death. And protection of the dollar, and the prevention of a viable African trading block figured heavily in the killing of Gaddafi.

      To sum up, I think the petrodollar is kept going through inertia, and brutality. I think that I would be very willing to be much poorer if the brutality would stop.

    • The Iraq war made no sense to me. There were unlikely to be WMDs, and Saddam was a very improbable supporter of terrorists. GWB might have been trying to finish a job left incomplete by GHWB, a one-term president, but that seemed insufficient motive somehow. The US was already at war in Afghanistan, which was an obvious base for the 9/11 terrorists, so he already had his “war on terror”. That’s what made me wonder about Saddam’s plan to price oil in EUR.

  2. Something i noticed last week that i think could be important: Two bands canceled tours. One in the EU and one in the US due to the cost of holding the events being higher then what they’d be able to make on it. Think on that with regards to what we talk about here. How did you go bankrupt sir? Slowly and then all at once!

    • quite excellent.

      we’ve been well educated here that the discretionary sectors must shrink in the face of declining prosperity.

      things like tours can be postponed or canceled “temporarily”, until economic conditions improve, in theory anyway.

      in the near future, more temporary closures will become permanent, as costs of essentials squeeeeeze out the affordability of non-essentials.

      que sera sera.

    • Conventional economics divides the economy into three sectors – households, businesses and government.

      I find it more useful to divide it into three segments – essentials, capital investment and discretionaries.

      As prosperity deteriorates, and the real costs of essentials rise, discretionaries (and capital investment) will decrease.

      This has already started to happen.

  3. I’m trying to crystalise a macro view,

    growth has ended, we are now entering an era of sustainability,

    Advanced Economies can grow at an ECoE of 5%, stagnate at 7% and decline at 10%,

    optimum complexity is relative to a given ECoE

    rising ECoE requires declining complexity to remain sustainable,

    EM’s find they start to stagnate at an ECoE of 10%,

    I think it’s fair to say that therefore, at the current ECoE of 10%, that EM’s represent the level of complexity that can be sustained at that ECoE,

    we ought to redefine EM’s as Developed Economies and the Advanced Economies as Over Developed,

    Tim has said in the past that renewables might only manage at best an ECoE of 20%, please correct me if I’m wrong,

    the current ECoE is 10%, the over developed world needs to decomplexify now to be sustainable at that ECoE,

    over the coming decades the over developed world and the developed world will have to jointly retreat to the complexity afforded by an ECoE of 20%, this will be sustainable,

    the under developed world ought to set it’s development targets on the level of complexity afforded by an ECoE of 20%,

    we all need to meet at the same sustainable level of complexity defined by the ECoE.

    • Good summary, except I’ve said that the ECoE of renewables might get down to about 12%.

      In advanced economies, prior growth goes into reverse once ECoEs reach c5%. The equivalent for EMs is c10%.

      Complexity is poised to unravel – indeed, that process may be happening now.

    • I think I understand why you express ECoE as a percentage, it’s a decimal format suitable for using in calculations,
      although unsuitable for use in calculations, fractions expressed as ratio’s are easier to visualise, the accelerating decline in surplus energy looks a lot starker,

      are these valid conversions of metric to imperial, ECoE to EROEI

      0.5% becomes 1/200th or 200:1 Dawn of the oil era?
      1% becomes 1/100th or 100:1
      2% becomes 1/50th or 50:1
      4% becomes 1/25th or 25:1
      5% becomes 1/20th or 20:1 Advance economies prior growth goes into reverse
      10% becomes 1/10th or 10:1 EM’s prior growth goes into reverse
      12.5% becomes 1/8th or 8:1 possible best case scenario for renewables
      20% becomes 1/5th or 5:1
      25% becomes 1/4 or 4:1
      33.3% becomes 1/3rd or 3:1
      50% becomes 1/2 or 2:1

      where ought we place 1776, Adam Smith and a pre industrial, land based, agrarian economy?

    • @Matt
      IMHO, the calculations based on the use of industrial energy cannot be usefully imposed on a system based on photosynthesis and networked living creatures. Much of agriculture in Adam Smith’s time used little industrial energy. So if you wanted to do the calculation of food calories produced by humans and the industrial energy used by the vast majority of humans, you would get a very high ratio. If you calculated the total value of the energy fixed by photosynthesis, the number would be much larger than the energy burned today in the form of fossil fuels.

      This has been one of my points, which I don’t think most people recognize. The photosynthesis system is vastly more complex than any system derived by humans. One small subset of that system, the microbes in the human gut, are just now being studied and we are beginning to get some understanding of the complexity of the relationships among those microbes (e.g., things like quorum sensing and gene swapping), and some dim ideas about the networked relationship between those microbes and the much smaller cellular content of a human.

      IF we return to a world with more reliance on photosynthesis, we will have to cope with much more complexity. Fortunately, since that is the world we evolved to live in, there are a very few rules which need to be followed and we don’t have to understand the rest.

      Of course, there may very well be a bottleneck between the Industrial system and the photosynthesis system we might wish to return to.

      Don Stewart

  4. For those of you unfamiliar with Immoderate Greatness: Why Civilizations Fail by William Ophuls, this is a fantastic SHORT book that boils things down wonderfully. He attributes failure to these points:

    1. Ecological exhaustion
    2. Exponential growth
    3. Expedited entropy
    4. Excessive complexity
    5. Moral decay
    6. Practical failure

    Some time ago I put together excerpts if anyone is interested. Of course, he includes the focus of this blog:

    “…energy is the sine qua non of complexity, anything that diminishes the quantity, quality or efficiency of energy threatens a complex civilization’s survival.”

    https://drive.google.com/file/d/1alDLi0xlB4eW-81koAzcc2n2EQwEjFg9/view?usp=sharing

    • yes we are seeing much of those first 5 points.

      within discussions about the collapse of IC, which is depicted as global civilization, the influence of national borders is usually underrated.

      the economy is a network, where each country is a node, and each node more or less connected to each other, with the interconnections varying greatly in closeness and strength.

      but I don’t fully buy into the idea that IC will collapse in its entirety all at the same time.

      recent history shows very clearly that some of the smaller weaker countries of the Periphery have been swiftly degrading economically, even to the point of what could be called Collapse, or your point #6 Practical failure.

      of course, it is not inevitable that this pattern will continue until every country has collapsed, but I am guessing that this pattern is likely to continue much longer, at least into the 2030s.

      the relative strength of national borders is why countries show varying degrees of those 5 points, some countries already much worse on certain points, and other countries better.

      adequate energy resources are the main ingredient in countries that remain in the Core.

      the loss of such resources would lead to economic doom, and the downfall of individual countries formerly in the Core.

      here’s looking at you, Europe.

  5. @Dr. Morgan
    I think I understand, at least dimly, how you perceive that the SEEDS model fits into the various types of models which might be constructed.

    What is unclear to me is HOW you perceive the model should be used and WHO should be using it. Is it primarily useful to corporate Boards, who may need to steer their enterprise either into a new emphasis or into orderly dismemberment? Is it primarily useful to venture capitalists who will find useful metrics which may guide investments which make the economics of new firms less reliant on fossil energy? Is it primarily useful to governments, as they realize that their current policies are past their sell-by dates? Is it primarily useful to investors who need to pull capital out of dead-end businesses and search for businesses which still have a future? Is it primarily useful to educational enterprises who need to revamp their curriculum and probably method of teaching? Is it primarily useful to families who need to revamp the household economy?

    The follow on question is HOW the various actors propose to remove obstacles to doing what they realize they need to do. For example, should governments adopt ever more detailed programs for mitigation, or should governments basically get out of the way of 8 billion people doing the best they can? Or will governments be best served by a long series of ad hoc responses?

    We may be entering a phase where selection pressures will “cull the herd”. There are theories of “abundance behavior vs. scarcity behavior”. Should governments and the general public zeitgeist accept that scarcity behavior will be the norm, and take defensive actions? Is it still possible to steer a course between Scylla and Charybdis? If so, will that course be found by 8 billion people searching and finding solutions to the very practical problems presented by external developments and their own, perhaps dysfunctional, preconceptions? Or will the course likely be developed as entrepreneurial business offerings solutions in a bottle or box or educational experience (e.g., look at all the businesses offering solutions to real and imagined medical problems such as obesity and diabetes).

    I don’t mean for any of this to be critical. The facts are what they are and we will be very fortunate if we can just avoid making them worse. But it seems to me that a diagnosis needs to be coupled with some course of treatment. And I don’t understand what your course of treatment looks like. Any light will be appreciated.

    Thanks…Don Stewart

    • Thanks Don.

      As you know, I believe that systems dynamics, superb though if often is, can be too long-term to attract action (‘we needn’t worry about this yet’), and rather broad-brush. Conventional economic models are based on ‘more of the same’, so cannot flag either fundamental changes or anything non-financial. SEEDS seems, to me, to fit between the two.

      If I were a decision-maker in government or finance, I think I’d be using SEEDS in the background, but perhaps not talking about it – I don’t think most voters, or most investors, are ready to hear what SEEDS is telling us. Therefore it’s a strategy/planning tool.

      On this basis, long-range thinking would include coping with a number of things – the decline of discretionaries, the problem of the rising costs of essentials, the need to re-design the financial system, and numerous other issues. These are longer-term than the next election, but shorter-term than ‘let’s leave that problem to the next generation’.

      This said, the medium-term has started to move into the near-term. The gap between long-term system dynamics and short-term economic modelling is a deficiency of interpretation, and that, I think, is what SEEDS can provide.

  6. @Dr. Morgan
    There are several actors which might respond to the interpretation:
    *governments
    *financially based businesses (e.g., corporations)
    *individuals and families

    Governments and financially based businesses seem ill-fitted to the task. Both have for the last couple of centuries been focused on growth, and that is now in reverse in most places. Corporations now thrive on swallowing their own tail through stock buy-backs and government (taxpayer) subsidies.

    Individuals and families are a lot closer to fundamental drivers of behavior, but use the most complex system in the universe…the human brain. While the brain is complex, it is also fallible. The brain’s design was primarily driven by the need to coordinate the activity of many organs and to move our body through the world, based on predictions of what actions are appropriate. But the individual in our current society is heavily limited by the actions of governments and financially driven businesses. So nobody has a blank slate.

    Biologists tell us that evolution works by jumps to an “adjacent possible”. For example, blind creatures do not evolve the eyes of eagles as one step. Instead, light sensitive cells begin the long road toward sharp eyesight. Is that the best way to think about the challenge? Just simply continue to deal with one thing after another, looking to make things better rather than worse?

    If that is true, then it seems to me that the two primary targets for your message should be governments and individuals and families. Governments because they need to stop limiting useful responses and stop subsidizing activities which makes things worse. Individuals and families because all 8 billion of them need to be looking for “adjacent possibles”.

    It’s quite possible that I am wrong, and venture capital may fund truly “green” initiatives. But unless the hard links between energy and income can be broken, the venture capital would simply be trying to minimize the losses of notional assets. Which may be evolution to an “adjacent possible”.

    Don Stewart

  7. Pingback: #239: Life after liberalism? – The Fourth Estate

  8. A reality check from history. Another in the series, how we can expect people to behave in collapse. (Apologies, I know collapse is not supposed to happen, unless you live in The Periphery. The West will be The Capital, and everywhere else the 13 districts.)

    Alice Friedemann’s latest:
    “In trying to understand what life might be like as energy declines, I’ve read a lot of books about failed and failing states, and what it’s like to live in war or civil war zones during and after wars. . . .

    Having seen horrifying WWII Holocaust footage since I was nine years old, and having read Goldhagen’s “Hitler’s Willing Executioners: Ordinary Germans & the Holocaust”, I thought I’d have no problem reading about German’s getting their comeuppance at the hands of the allies after the war ended.

    But reading the stories of survivors about brutal rapes, starvation, beating, suicides, and enslavement upset me so much there were some pages I skipped.”

    https://energyskeptic.com/2022/after-the-reich-the-brutal-history-of-the-allied-occupation/

    • There are two phases in this, I believe. One is when de-growth is happening, but denial continues. The second is when denial ceases to be possible. I’m concerned about the first, but mildly optimistic about the second.

      In the first phase, we’ll get governments committed to do anything to deliver “growth”. The new UK administration is an example of this. The UK hasn’t had meaningful growth – meaning “growth that isn’t a cosmetic product of credit expansion” – in a very long time, and neither have most other Western countries. These people don’t understand this, and don’t want to – amongst other things, “growth” is the justification for not tackling inequality.

      In the second, post-denial phase, is it too much to hope for better policies and improved co-operation? We, collectively, haven’t handed growth very well – it’s not impossible that we’ll do a better job with de-growth.

    • Meanwhile, Mr Biden has said that “I am sick and tired of trickle-down economics. It has never worked”.

      That should make for an interesting discussion with Liz Truss tomorrow!

    • “These forecasts are a vital indicator of the health of the nation’s finances, and provide reassurance and confidence to international markets and investors,”

      perhaps no one will notice (ha ha).

      GBP $1.13

      $1.12 or lower by Friday?

      to be continued…

    • The new UK government seems to be courting disaster. These seem the significant points ahead of Friday:

      – Truss’s policies amount to ‘trickle-down’ economics – a day before meeting her, Mr Biden said he is “sick and tired” of this.

      – She has conceded that there will be no post-Brexit trade deal with the US, now or later.

      – The chancellor’s plan for massive borrowing – part of it to fund tax cuts – will not be accompanied by the customary economic and fiscal forecasts from the OBR.

      – The senior permanent official at the Treasury has been sacked.

      The theme music for this? Well, either “Some people are crazy” (John Martyn), or “Past the point of rescue” (Hal Ketchum).

    • I know! Biden’s remarks seem highly significant and a public attempt to show the gulf between his and Truss’s thinking. She seems to confirm this but announcing the lack of a trade deal. Humiliating for the UK.
      At the same time, the commentators in The Telegraph apparently see no link and are cheering on the anticipated tax cuts and calling her a ‘real Conservative leader’. The Times has leaked something about a stamp duty cut.
      I really want to scream!

    • The economic policies of the Truss administration are madness, and are quite likely to end in disaster. Having said that she was opposed to “hand-outs”, she’s going ahead with a hugely costly energy price cap. Arguably that is appropriate, but there’s really no need to add to the cost by giving hand-outs to the better off through tax cuts.

      Rumours are that she’ll cut stamp duty to prop up house prices. I can’t see how the Bank of England can avoid significant rate rises, the subtext being ‘this government may not care about fiscal responsibility, but we’re committed to defending Sterling’.

      They don’t care about facts (hence no OBR economic and fiscal forecasts), or about expertise (hence the senior official at the Treasury has been sacked). They favour any kind of fantasy drivel about “growth” if it helps make the case for helping the greedy at the expense of the needy.

      The markets are likely to see this very differently. A “Sterling crisis” seems inescapable now.

  9. Pensions in the US
    Stephanie Pomboy on Adam Taggert’s show. Pension funds are in really bad shape after so many years of crazy monetary policy. She expects a market crash worse than 2008 because we are now more highly levered. As pension fund assets fall, their solvency will be imperiled. She puts the numbers at 12 to 15 trillion dollars. She doesn’t think either political party will allow the pension funds to stop operating, so a massive bailout will be required. Then followed discussion about other groups of people who will feel that they should be bailed out. Stephanie made some remarks about the “end of fiat”.

    One wildcard here is the failure of the PetroDollar, not because of something in the oil market or geopolitical maneuvering, but as a failure of the US monetary system. Should that happen, and a new global currency emerge which resembles the BRICS resource backed currency, then the US would get a double whammy: loss of the PetroDollar subsidy plus the pain of bailouts and the inability to continue to pile up debt.

    You can find Adam Taggart’s programs on YouTube.

    Don Stewart

    • in a few decades, almost no one will even know the meaning of the word “pension”.

      that $15 trillion can’t be all at once.

      do they estimate when the first insolvencies will begin, and how much?

      I think US debt will go way above $50 trillion, perhaps above $100 trillion, so that’s my perspective on a mere $15 trillion.

      kick this can down the road into the 2030s.

  10. Two Interesting Comments at Our Finite World
    I usually can’t stand the comments, but a casual look gave me two things to think about.

    Gail responds to EROI calculations with the retort that the only energy source worth considering (in terms of surplus energy) is one that is so cheap it can be taxed for the benefit of the general public. She says that such energy sources are exceedingly rare, nowadays….I like the comment because it gets us out of debating minutiae and into thinking about what energy is really doing for us.

    Second comment was about the supposed European natural gas storage. The argument is that having gas in storage is, in ordinary circumstances, useless unless there is incoming gas to push the old gas out of storage. While detailed information is lacking about the storage facilities, it is not a bad assumption that Europe won’t be able to get to the stored natural gas when inflows from Russia cease. Perhaps this commenter has got it wrong, but if I were European I would look for some assurances.

    Don Stewart

    • The commenter got it wrong. Natural gas is stored under pressure. It leaves the storage facility on its own.

      If a gas store required incoming gas to push out the “stored” gas, storage would make no sense; the net gas out of the storage facility would only equal the quantity coming in, so the stored gas quantity would remain unchanged and be forever trapped in place.

  11. Tim, in response to your comments on Truss:

    1. She has no political choice but to act on energy prices…..although the intervention is high risk. How long can it go on without impacting Sterling?
    2. Stamp duty land tax cuts. So another day, another absurd Tory attempt to maintain high house prices…..to which Tory MPs, their core vote and their ultra-rich donors are wedded. But which also provide ‘security’ for massive bank lending.
    3. The risk to Sterling is very high although whether Andrew Bailey does something about it remains to be seen. High interest rates spell doom for the housing market…..as the Tories and Bailey know from the early nineties. A general election is due by 2024 latest.
    4. The OBR has almost invariably been wrong in its forecasts. The (politicised) civil service is not Rolls Royce and poor performance is invariably rewarded with promotions, knighthoods, damehoods, assorted other gongs and much marking of own homework. So I am unconvinced that changing the top mandarin at the Treasury matters much.

    • As things stand, the UK is going over a cliff.

      The thing to remember is that the exchange rate constitutes existential risk. If GBP loses – say – half its value, the cost of imports doubles, and so does the cost of servicing foreign debt. GBP is already a very long way below its PPP-value rate (about $1.47).

      The critical nature of the exchange rate might not be understood – or dismissed as inconvenient – by the government, but the BoE is well aware of it. The BoE is in the absurd position of having to try to retrieve mistakes made by the government, and therefore needs to raise rates each time government policy undermines the credibility of Sterling. The property market is very important, but the exhange rate is even more so.

      OBR forecasts tend to turn out wrong, but that’s because they’re using an orthodox, money-only model (forgive me for saying that SEEDS produces much better forecasts……………).

      But OBR documentation for fiscal policy isn’t just about GDP forecasts. It does two other things. First, it produces fiscal analyses and projections. Second, it shows that some stats work has been done, and that the government isn’t ‘winging it’ with numbers ‘scribbled on the back of an envelope’. So the OBR’s input is important for credibility.

    • maybe you could revisit the subject of PPP, it’s the second time you’ve mentioned it in the last few days,
      I can’t say I understand half of what is happening but I’m definately picking up on your consternation and incredulity,

    • Certainly. PPP means ‘purchasing power parity’. It is calculated by comparing the prices of comparable goods and services between countries. Say the same basket of goods and services costing £100 in the UK costs $150 in the United States – on this basis, the exchange rate is £1=$1.50.

      We can think of this as a fundamental or value calculation. The market rate may be higher or lower, of course, reflecting market opinion.

      The IMF’s PPP rate for the UK was $1.468 for 2021 and $1.488 for 2022. Back in February, GBP was trading at $1.36. That was a pretty normal discount to PPP – after all, USD is arguably of higher quality than GBP, so a modest discount makes sense. But the current rate – now down to $1.134 – is a big discount.

      Yes, I think incredulity probably exceeds consternation. I can hardly believe that a government would do the things that the Truss administration is doing now. They are promoting ‘trickle-down’ economics, which Mr Biden dislikes – and has said so, a day before meeting Truss. They have no chance of a ‘Brexit trophy’ trade deal with the US. They have fired the top official at the Treasury. They have announced uncosted policies and are not going to present OBR stats analysis to back up Friday’s statement. They seem intent on arguing with everybody (and changing the agreed protocol on Northern Ireland will anger the EU and the US at the same time). They seem determined, in my phrase, to help ‘the greedy rather than the needy’.

    • I understand that she needed to take some sort of action on energy prices, despite saying the opposite during her campaign. This could easily have been a smaller and more targeted intervention. There were other options.
      The stamp duty reduction/ holiday seem yet another ‘bung’ to core Tory voters/ donors. Is it likely to make any difference at this stage with interest rates rising and other macro economic factors?

      The BOE seem to have been increasing rates particularly cautiously (compared to the Fed and even the ECB now). Do you think they will be forced into a large rise due to the fiscal policy that the government are pursuing? Is this even likely to reassure currency and other markets?

      Thanks for the clear explanation re PPP.

      The whole thing seems like some sort of exaggerated caricature of ridiculous decisions with a large crowd of right wing Tories cheering and everyone else feeling gobsmacked and fearful.

    • In some ways, the best Tory comparison with Truss might be Disraeli, whose great achievement in 1867 was to outflank the Liberals from the left. This wasn’t about principle, or policy – perish the thought! – but about winning at all costs. He once said “damn your principles! stick to your party!” Having made it to prime minister, he liked to say that he had “reached the top of the greasy pole”. This sort of cynical politician tends to say ‘these are my principles – but if you don’t like them, I have others….’

      Truss depends on the support of dyed-in-the-wool Tories, those whose greatest fears are falling house prices, a wealth tax, or increases in capital gains or inheritance taxes. Self-interest is everything – they don’t see things ‘in the round’, as governments should – and central banks must – do.

      I don’t share the criticisms that some others level at the BoE. They have an ultra-tough job. On the one hand, a slump in property prices could start to topple the debt-reliant, cross-collateralized house of cards that the British economy has become. On the other, they must act to prevent the catastrophe – not too strong a word – of a Sterling slump. It’s like walking a tightrope.

      I’ve thought about doing an article about this. The pluses might be using SEEDS analysis of the UK economy, and bringing a global rather than a national perspective to it. On the other hand, though, I don’t see how I could steer clear of party politics, which I try to avoid, and the politics of personality, which I dislike even more.

    • I cannot help but think that a quotation from J.A.K. Galbraith encapsulates the present situation in the UK rather well: ‘If there must be madness something be said for having it on a heroic scale’.

    • “On the one hand, a slump in property prices could start to topple the debt-reliant, cross-collateralized house of cards that the British economy has become. On the other, they must act to prevent the catastrophe – not too strong a word – of a Sterling slump. It’s like walking a tightrope.”

      Yes but wasn’t this mess partially of their own making? If the bank was truly independent when the Pols were calling for something like this i woulda told to shove their head where the sun don’t shine.

    • It’s interesting that when the BBC discuss the value of the pound vs the dollar , their simplistic explanation is that it affects people holidaying in the U.S. One wonders if this trying not to panic people, or, I suspect, lack of real understanding on the effects on import prices and all the effects that Tim has regularly explained on this blog.

    • I’ve noticed that. I find the idea that the main effect of a tumbling Pound is what it means for tourists very strange. For one, what about the cost of imports, and the carrying costs of foreign-denominated debt? For two, how much overseas tourism do they think there’s likely to be, with the costs of essentials rising and discretionary affordability being crushed?

  12. @Joe Clarkson
    I have never really thought about the thermodynamics of storing natural gas. I see that there is a large literature on the subjects of both gas and air. If you know the approximate efficiency of the compression/ decompression cycle as a fraction of the energy contained in gas at regular atmospheric pressure, I would appreciate knowing it.

    I can see that it is not like enhanced recovery of oil by pumping water or steam into the cavity, because with the oil it is a one time operation. With the natural gas, it is a recurring process.

    Is stored gas delivering 90 percent of the original energy value, or 20 percent of the original energy value? I have no idea.

    Thanks…Don Stewart

  13. @Joe Clarkson
    I did find this tidbit:
    “Working gas capacity makes up slightly less than 50% of the total. The rest goes to the base (or cushion)gas, i.e. the permanent v olu m e of gas in a storage reservoir necessary to maintain adequate pressure and deliver ability rates during the withdrawal season.”

    So I suppose that if we can store 100 units of gas under pressure, then we can access about 50 units before we have to restore pressure with more gas being pumped in.

    Don Stewart

    • Yes, the pressure of the gas in storage would drop to zero if an attempt were made to take all of it out. Most of the “cushion gas” could probably be extracted, but only very slowly and it would require a lot of repressurization.

      I don’t know whether gas storage percentages that we read about (Europe being at 80% storage capacity, for example) are on top of the cushion gas or whether the cushion gas is included even though it can’t be extracted normally. One would think that storage capacity would be measured by what could be extracted using normal methods. That would mean excluding the cushion gas.

    • yes I agree that these things aren’t clear, but it’s reasonable to assume that the % “full” would ignore the cushion gas, since the cushion gas is essentially lost forever, as it’s just a sunk cost for originally filling the cavern with minimal pressure.

      I’ve read that the CH4 can be pressurized up to 200X (best case), and that the cushion gas at the end of the winter is at minimal pressure, whatever that is. Don’s reference suggests that about 50% of the stored total remains, but I’ve seen a source that says that the end-of-winter remainder is about at atmospheric pressure, so what remains after the 200X pressurized gas is released over the winter is only about 0.5% of the “full” amount.

      interesting details, but I will attempt to focus on the highest essential:

      I’ve read that even 100% “full” EU storage only provides about 20 to 25 % of their winter needs, and so without the usual 24/7 continuous flow from Russia, the EU will not have enough gas for their usual winter needs.

  14. We agree on the fundamentals but I do not attach too much importance to Biden’s utterings on economics. His aversion to trickle-down economics does not extend to Hunter’s bank account and in any case is pure rhetoric. His Wall Street and Silicon Valley donors have already made sure that their tax privileges remain untouched.

    As for the US trade deal, it was never really on offer anyway…..not least because it would have been grossly one-sided like the Extradition Treaty. For the same reasons, the EU has no US trade deal…..something which those complaining about the lack of a UK-US deal never mention.

    And one reason for the change at the top at the Treasury is apparently the failure to deal with massive Covid-related fraud. If correct, this would be a very rare example of poor Civil Service performance being sanctioned.

  15. This is a very big deal. In keeping with President Putins legalistic approach to everything, and given that the SMO doesn’t seem to be going fast enough four oblasts will be welcomed into the Russian Federation. A partial mobilization of the actual Russian army has already been announced.

    https://sonar21.com/game-changer-in-ukraine-referenda/

    BTW: I dont like vlogs because they take up too much time. I would rather post text, but …

  16. I just read about a statement that V. Putin made in a speech earlier this month:

    “The economy of imaginary wealth is being inevitably replaced by the economy of real and hard assets.”

    He may be in over his head with military adventurism, and he may be struggling to keep his country afloat in the wake of western sanctions, but he does seem to grasp the essentials of surplus energy economics. Maybe he reads this blog!

    • IF the targeted regions currently in Ukraine vote to become part of the Russian Republic, then some of Russia’s strategic interests are furthered. For example, the Black Sea route to Africa is facilitated. The Turks, of course, still control the bottleneck between the Black Sea and the Mediterranean. But I don’t think the Turks have tried very hard to restrict passage by Russian ships.

      The big loser is the West, which opposed free elections in the name of the indivisibility of Ukraine. And invested billions and killed countless people for that rather abstract principle. I told my wife that the seceding provinces should write a Declaration of Independence:
      “We the people of Donetsk (etc.).” and so forth, with references to Nature and Nature’s God and all those other good words. With specific allegations against the Kiev government.

      If it becomes a fait accompli, then all the money and all the deaths will seem tremendous tragedies brought on by hubris in the West.

      In the preceding referendum, the two countries which comprise Donbass voted to be independent states…not part of Ukraine nor of the Russian Federation. But after 6 years or so of trying to make that work, and getting nothing but rejections and aggression, they probably now see the advantage of membership in the Russian Federation.

      Time will tell….Don Stewart

    • I think that the referendums planned for the Russian occupied parts of Ukraine are going to make things interesting.

      If they vote to join Russia, what is Ukraine’s next move?

      If Ukraine continues to attempt to regain those territories then they will be directly attacking Russian land. Or that is how Russia will see it.

      This will “allow ” Russia to expand the SMO and target infrastructure deep inside Ukraine.

      The mobilised 300,00 reservists are probably going to be sent to defend those occupied/newly Russian territories. That or for a bigger offensive into the heart of Ukraine?

      Russia seems to have been quite restrained up till now. Compare Russia’s actions to those of the US/Coalition in Iraq. In Iraq all the critical infrastructure was totally destroyed. Water/power/bridges/communications etc. Nothing was off limits.

      Seems like things in Ukraine are about to go up a gear

    • @John Adams
      I don’t think Russia has any interest at all in the parts of Ukraine not already occupied. From talking to Russians, I believe they think it is an unretrievable mess and do not want to become responsible for managing it. They have the parts with a high percentage of what Zelensky called “Russians” and which he promised to expel.

      There might be some fancy footwork by the EU, with the EU promising that if they vote for independence, the EU will agree to consider them for membership…while shielding them from the rest of Ukraine. But I don’t think Brussels can think that clearly.

      The Donbass experience after the Minsk agreement should convince anyone that the promises of the Kiev government are only on paper. So the EU would have to take some positive stance to sway the vote, I think.

      Don Stewart

    • I can’t see how referenda can take place under current conditions, and I can’t see how the West will accept the results as free and fair if they’re conducted by Russia. With respect, I struggle to see Russian actions in Ukraine as “restrained”.

    • http://en.kremlin.ru/events/president/news/69390

      The referenda are ongoing now, and will be done by next Monday. Anyone that is not a Russian at heart has had plenty time to leave the four oblasts in question, and so the vote will be overwhelmingly pro Russian. The extra 300,000 men that were just called up will be ready to fight by the new year, or perhaps earlier.

      But, actually, I think significant progress will be made by the Russian forces already in the field because the gloves will come off Tuesday or Wednesday.

    • Im sorry, I was incorrect. The referenda will be finalized on the 27th, not Monday so the new rules of engagement for the Russians cant begin until the 28th or so.

  17. What do you think of the rising interest rates in the western world? Given the excessive debt of consumers, companies and governments this seems quite dangerous.

  18. Dr. Morgan,
    You mention in your article about the evolution of renewables to achieve process capability.
    Do you have examples of any current technologies where renewables achieve process temperatures and heat densities required to form industrial outputs such as glass, steel, aluminum…

  19. I propose that, as he did with Covid, our host ban discussions of the war with Russia via Ukraine and its associated topics such as whether Putin is an evil genius or a good guy battling the evil West, whether Russia is imploding, etc, what is the latest military strategy, where is it all going, etc.

    The effects that the war and the sanctions have or are likely to have on energy and economies may be germane to the focus of this blog, but arm-chair war gaming is not.

    Being clairvoyant, however, I will tell you how it will all end, to end the suspense. No, I don’t know who will “win,” but whoever “wins,” this will be true:

    Millions of dollars will be spent/wasted, huge resources and amounts of oil and other energy will be expended, hundreds of millions if not billions in wealth in the form of infrastructure will be destroyed or irreparably impaired, never, in our increasing ECoE and depleting resource world, to be rebuilt or replaced, and hundreds of thousands if not millions (or, in the event of an all out nuclear war, billions) will be killed, maimed, injured, uprooted and psychologically scarred, all in order to determine which very small group of individuals living in what small part of the world gets to control what’s left (Russian oil, gas and coal being the biggest prizes) and gets to be Les Grande Rentiers, living at the expense of the rest of humanity.

    Everyone, even the rentiers, will be worse off, there will be less energy and fewer remaining resources, but, and this is the most important thing to humans and why we are forever at war somewhere or other, those who emerge victorious and remain or become the gatekeepers entitled to exact toll charges (in olden days sometimes called “tribute” and in modern economies usually called “taxes,” “interest” or “profits”) to what remains of the world’s resources will, relative to the rest of humanity, be Presidents, Prime Ministers, Lords and Ladies, aristocrats, elites, oligarchs, whatever your favorite terms of endearment for grand hierarchs are, most highly elevated over everyone else well and truly below them, who control and have access to no resources, not even to feed themselves or have a roof above their heads, without paying the toll charges.

    • Tagio:

      On not discussing the war, I am moving towards your point of view.

      The world is heading into an economic crisis without precedent. We need to be discussing this, not the war in Ukraine.

      I believe that our collective knowledge – of the economy as an energy system – puts us in a unique position to interpret this process. I would add that, in my opinion, SEEDS is a powerful tool for quantifying this situation. I further believe that SEEDS projections are being borne out by events. This is where we ‘add value’.

      With covid, the decision was relatively straightforward – this topic could easily have drowned out discussion of critical issues in energy, the economy and finance, and I didn’t think we could afford to let this happen. There were, and are, plenty of other fora for discussing covid.

      I’m now going to tighten criteria for any discussion of the war between Russia and Ukraine. We really need to avoid expressing views that Mr Putin is either a devil incarnate or an angel of light.

    • “The world is heading into an economic crisis without precedent. We need to be discussing this, not the war in Ukraine.”

      Which is exactly why the “war” happened when it happened. Along with other things that will not be named……

    • @tagio

      The economic implications of the fallout from the conflict are relevant though.

      Russia selling Oil and Gas in rubles and the BRICs countries setting up an alternative means of exchange are direct threats to the petrodollar.

      That is HUGE!!!!!!

      The conflict in Ukraine is a proxy war between the US and Russia. Any previous threats to the petrodollar have been met with force, but this time the adversary has nukes!!!!!

      The referendums in Donbas etc will change the whole nature of the conflict. That is relevant to the global economic picture.

      Something has to give. Either Russia loses/collapses or Europe does.
      Or Europe breaks from the US and lifts sanctions.

      It’s all speculation, but then that is what we are primarily all doing on a range of topics here on this blog.

      But I will now to the consensus, if Ukraine is deemed off limits.

    • It’s not a question of putting the effects of the war off limits. What we need is to screen out ‘Putin is evil’ or ‘the West is evil’. Plus, it would be regrettable if our core themes of the energy economy and money-as-claim were drowned out.

  20. @John Adams
    The EU demanded that Russia sell gas to them at spot prices, rather than long term contracts. Russia initially agreed, but when the spot prices went through the roof, everything got awful in a hurry. I had no idea why Europe wanted spot prices.

    As I was doing my cursory search of natural gas storage yesterday, I got a glimpse of the problem. Gas needs seasonal storage. There is high demand in winter, but low demand in summer. The wells tend to produce at the same rate all year long. The storage is designed to store during the summer what will be needed in the winter. I saw quite a few articles on playing for profit the seasonality in supply, demand, long term prices, and spot prices. I heard that some financial guys persuaded the EU to buy at spot prices because they could get it cheaper than they could get it through speculators or long term contracts. In other words, it wasn’t actually antagonism toward Russia, it was instead a gamble which went horribly wrong.

    If I were advising the EU, I would recommend the prompt acceptance of whatever the breakaway regions decide they want to do, return any Russian assets which were seized, and make peace with long term contracts. I realize that is a deep hole to get out of, but the first rule is to stop digging. The rise in fossil fuels prices is going to be hard enough to deal with, and having a fairly good relationship with suppliers is an essential element toward survival. The alternative of reducing Russia to a colony looks out of reach, to me.

    BTW, did you see Indi from Sri Lanka’s article about India and Pakistan demanding reparations from Imperial Britain to the tune of, as I recall, 40 trillion dollars? Colonies sometimes come back to bite the colonizer.

    Don Stewart

    • @,Don Stewart

      “BTW, did you see Indi from Sri Lanka’s article about India and Pakistan demanding reparations from Imperial Britain to the tune of, as I recall, 40 trillion dollars? Colonies sometimes come back to bite the colonizer.”

      I didn’t see that particular article, but I did read the one about the Queen’s death. Not very complimentary.

      $40Trillion!!!

      Trouble is, I think we’ve already spent it.

      I just hope China can’t remember the Opium Wars!!!!!!!

    • @John Adams
      Yes…I saw it.
      The problem is that Eve bit that apple. So I think that all the evils of the world should be charged to the female race…except for my wife and daughters, who are blameless.
      Don Stewart

    • I did read the South Africa want a precious gem returned to them which is set in the royal crown.

      The final unravelling of the last vestiges of Empire perhaps?

      (Don’t think they’ll give it back though!)

  21. Are we now being allowed/ecouraged to discuss the purely political and military aspects of the war in Ukraine? I seem to remember that that kind of comment was discouraged, if not completely forbidden. Now they seem to be a large percentage of the comments.

    • Respectfully, Joe, I may be wrong, but I think that these issues have profound economic ramifications, to wit:

      1. The Russian leadership has set up a series of rules about the use of nuclear weapons. One of those rules allows the use of nuclear weapons if the territory of Russia is attacked directly. After the 27th, Donbas will be Russian territory. Imagine the economic ramifications.

      2. The Russian economy is: a. On the brink of collapse; or, b. Doing just fine. Which is it?

      3. The sanctions are directed at the Russian leadership, or at the innocent people of Russia. Which is it?

      4. The sanctions are working, or the sanctions are destroying the economy of Europe. Which?

      Notice that these are all economic issues of rather large import. If Europe had not put the sanctions in place would the Sterling crisis be as far along as it is, or would the UK have more time to solve its problems (Not that Truss can solve any problems.)?

    • Pintada – War, Casualty, Truth, etc.

      Your questions are relevant but the state of information re the Ukraine situation is a black hole, so it wouldn’t do much good to surmise at this point. We have to be patient and wait for concrete outcomes.

      I only realised this week that this is the first time in my life I followed a conflict with much interest – and virtually every commentator/commenter around has taken a side. Nowhere is “the church in the middle of the town” (nice phrase used by a French guy someone referenced here a few months ago)

      Conversations between opposing supporters are mostly gainsay. The bifurcation is clear. I guess this is the nature of war.

      BTW I did read Tagio’s most excellent comment and Tim’s reply before posting this 🙂

  22. Dr. Morgan
    I suggest that a dissection of what went wrong in Ukraine and the European energy debacle is called for in the context of declining net energy for the whole world Without making angels or devils of anyone. The various actors had different motives, and those motives changed over time. I believe it is also a fact that many of the actors had objectives which were simply not realistic in the context of the real world.

    Some questions to ponder:
    *Beginning with Ronald Reagan, the US pursued a policy of arms limitations agreements with Russia. As those agreements expired, the US refused to discuss replacement agreements with Russia. Why is the US taking that position, and how does it make the energy challenge more or less threatening?
    *Dividing countries into smaller pieces has happened many times. Sometimes it solves problems, or at least controls outright violence. Why has that solution gotten such strong push-back over the last couple of decades? (E.g., Britain, Spain, China, Ukraine, Belgium, potentially the US). My hypothesis is that the government debt is a big factor. If a country can be divided and the surviving parts do not acknowledge “full faith and credit”, then the financial system falls apart.
    *The Minsk Agreement was an attempt to resolve the conflicts in Ukraine with a “federation” approach. Donbass would gain considerable control over their political and economic affairs, but would remain part of Ukraine. Russia wanted the Kiev government and the Donbass leadership to negotiate the details, but Kiev flatly refused to sit at the same table as the Donbass leadership. (That should have been a sign that the Agreement would never work.). So Russia, in consultation with the Donbass leadership, negotiated the Minsk Agreement with the participation of Europe. I believe the US stood on the sidelines. As the years passed, none of the elements of the Minsk Agreement were actually implemented. The apparent goal in Kiev and Europe and the US was reconquest by a much expanded military in Kiev. What did Kiev and the West think they were gaining by an expanded war? Is expanded war a logical way to react in the context of declining free energy?
    *Natural Gas as a “bridge fuel”. It seems clear that oil, even expanded to include tar sands and light, tight oil, is in decline. More particularly, the free energy from oil is in irreversible decline. Natural gas still has several decades to go until it begins to decline sharply, but more costly LNG may come to dominate over pipelines. Since it is clear that the size of the economy permitted by fossil fuels is considerably larger than the size permitted by wind and solar, then if the goal is preservation and perhaps expansion of the economy, then it seems that European access by pipeline to economical Russian gas in long term contracts can make any transition easier. So why is Europe seemingly shooting itself in the foot? Is it just a gamble for total control by reducing Russia to colonial status? If colonial status is the goal, what are the realistic chances of achieving that? Or is ignorance of the facts a better explanation?
    *Degrowth as worth the price. It seems that some elements of the German government have decided to welcome the shrinkage in their economy brought about by restriction of natural gas imports from Russia. Based on how we see global events playing out, does that strategy make any sense?
    *And for the grand finale…Is the goal of perpetual growth on a finite planet even a sane goal to strive for? In 2022 in particular, what is the likely outcome? Can we identify certain countries or industries which are canaries in the coal mine? As one example, is Russia’s attempt to expand trade with Africa doomed to failure? Will China’s Belt and Road initiative collapse? And what are the prospects for the most important person on the planet, (namely, Me) to die peacefully surrounded by happy and prosperous offspring?

    It seems to me that considering this rather short and simplified list that we are trying to untangle spaghetti. I certainly don’t have a secret folder which contains written instructions on how to untangle everything. But sober examination may help.

    Don Stewart

    • I have a fine line to judge here. Events involving Russia are relevant to energy and the economy. But we don’t need distractions along political lines – admirers and critics of Mr Putin – or armchair strategy. This means that I have to do more moderation.

  23. Well the BOE has decided on a 0.5% rate rise today.

    I was expecting a 0.75% rate increase the same as the Fed but perhaps they are trying to fool the public that they are not mirroring the US to keep the pound more stable against the dollar?

    I find it amusing that all Western central banks such as Australia, New Zealand, Canada and now Europe are raising rates all at the same time just as they all lowered rates in tandem and expanded credit into the system to a completely irresponsible level over the last decade.

    Does this not show us that they are all taking orders from a central source?

    Anyway, I think we are very close to the pound getting whacked like a rogue wise guy siphoning off ill gotten gains without his bosses knowing.

    The intellectual and moral bankruptcy of the UK establishment is at a point now with me where I am close to outright anger and I am an easy going guy.

    Like you have mentioned Dr Tim they are doing everything possible to try and ensure the property owning class that are ruling parliament keep their ill gotten gains off the back of QE and artificial low interest rates way way below the natural rate.

    It’s an economy based purely on financialisation that has already impoverished a lot of its citizens.

    It’s obvious to everyone at this point what they are trying to do by their actions. I am sure the reduction of stamp duty on property prices rumoured to be announced soon is true and it will probably be reduced again next year to keep it going a little longer.

    I am expecting another scheme to be announced such as 50 year mortgages or something.

    I was very surprised to see the “help to buy scheme” ending in March 2023 as this will effect house prices negatively.

    I’m wondering if they have something in store that will replace it.

    “Delayed deposit scheme”. No deposit needed for the first 10 years. Don’t be surprised if they introduce some new socialised/subsidised scheme to maintain property prices.

    They are completely delusional about the situation the country is currently in.

    What’s coming down the pike in markets is going to completely floor them especially if they continue these reckless policies.

    • I think we need to be clear about what we know, what we can contribute to the debate, and where our focus needs to be. We need to concentrate on deteriorating prosperity, rises in the real cost of essentials, discretionary compression and soaring financial risk.

      The UK is taking extreme risks. Truss was chosen by a tiny sliver of the population – and even they might, given the choice, have preferred Johnson. She was not Tory MPs’ first choice. She has inherited an economy that’s falling to pieces. She is staking everything on a bizarre idea of how to generate “growth”. She seems to be in conflict with everyone from Joe Biden and the EU to the experts in her own country. Her policies are Toryism at its worst – help the greedy, do nothing for the needy.

      The FX markets will pass the decisive verdict on this desperate gamble.

    • I agree, Mark, but don’t know what to do about it.

      Globally, the economy is deteriorating rapidly, and the financial system is at extreme and worsening risk. Here, we understand the real nature of what’s happening, and have the ability to model and quantify it using SEEDS.

      But where is the focus on these fundamentals, and what more can I do to make this information available?

    • @Mark Meldon
      The Toyota Production System, which eventually had a huge impact on businesses across the globe, featured an effort to find the root cause of some observed problem and to systematically fix the root cause so that near zero defects would result. This was popularized with The Five Whys:
      Fact: The container ships off Long Beach have disappeared
      Why: Because consumers have stopped spending
      Why: Because the Covid subsidies have ended
      Why; Were Covid subsidies necessary?
      Root Cause (according to one doctor): “If everybody was eating enough green vegetables the COVID crisis, and all those deaths, could never have happened.”

      Now I happen to subscribe to much of what this doctor says. Other people will come down to “The 2020 election was stolen from Donald Trump”.

      My point is not to argue about which explanation, among the many others which might be offered, is the most explanatory of the observed facts and our best scientific theories. My point is that we will continue to produce faulty vehicles unless we can get to root causes. Arguably, speculators who play very short term markets won’t be interested in fundamentals…but real humans should be. I will note that the Toyoda family still had a huge influence on the company back in the day. The stock market may have a different set of goals.

      I do happen to subscribe to free energy decline and excessive debt as huge real world problems. No solution is comprehensive which doesn’t deal with them. But alone, they are symptoms and not solutions in the real world (IMHO).

      Don Stewart

  24. Tim: To your question, “what more can I do…”, I’d say:

    1. Keep doing what you are doing. It’s meaningful now, potentially extremely consequential very soon. Keep refreshing the analysis with new data, providing time-stamped-text that is current (I hate writing that, but folks these days think something written in 2019 is from an ancient mind), and continue engaging in these replies where your writing is a bit more pointed.

    2. Continue providing concise synopses of SEEDS which, I know, is a more complicated analysis system than can be covered in one post. I had ask a while ago for shorter, pithier text. You responded, wonderfully, with text that we can cut-and-send. I wish my colleagues would read in full your posts, but the excerpts I send have altered their thinking. I think we’ve said here that “Things change slowly, then all at once”? That’s what I’d bet will happen with the broad comprehension of the effects you have uncovered. Later than we’d like, or need. But so it goes.

    3. Keep “working the language.” Keep working on getting the right order to the sub-arguments, finding the right phrases (i.e., “help the greedy, do nothing for the needy”), and trying things out on the regulars who read your posts. It’s a “bully pulpit” we’ve been given by WordPress.

    4. Write something that is aimed specifically for the Resilience.org website.

    5. [Also reluctant to write this one.] Write a new book. Maybe done easily by following what Kris De Decker did for his lowtechmagazine.com site. He’s released on-demand publications of his posts, currently in 3 volumes. They look as if there is no new writing involved, just layout and minor editing.

    Mainly, keep at it.

    • Thanks Raymond, much appreciated.

      My assumption all along has been that we need to work out how things really function, discuss it, and use modelling to give us the informational ‘ammunition’ that we need to make our case. I have a bias towards reasoned, courteous, logical and constructive debate.

      I can certainly do ‘more pointed’ – as an analyst, and latterly as strategist and head of research, that’s exactly what your City and Wall St clients (and colleagues) demand. When you write a research note or report, you have to assume that most clients will only read the front page – and perhaps only the title.

      For example, if I was writing a note about current UK economic policy, it might be entitled something like Uncontrolled demolition (actually, I’d do better than that – maybe Trussed-up for the chopping-block – but you get my point).

      I have sometimes pondered about a change of format – readers get a brief synopsis plus a downloadable stats summary if they want to look into the subject further.

  25. Pingback: Toryism at its worst – help the greedy, do nothing for the needy. | ORCOP.COM

  26. Just been getting my head round the petrodollar thanks to some posts others have left here.

    It’s a clever trick to get the rest of the world to trade in the one commodity that everyone needs above all else, in the currency that only you can create!!!!!!!!

    I’ve never realised what a huge advantage this gives the US. The rest of the world has to sell its wares to the US to get their hands on $US. The US can just create the $US at will.

    Effectively a form of tribute.

    Brilliant!!!!!

    All masquerading as “free trade” and backed up by an iron fist.

    Far better than the colonial model, where for example, Britain had to actually garrison troops in foreign lands. (Though the US does a fair bit of garrisoning itself))

    • All masquerading as “free trade” and backed up by an iron fist.

      There is indeed a great deal of advantage in having the world’s reserve currency, but free trade is more than a masquerade. The US has a very large and powerful navy (more tonnage than the next ten navies combined and superior technology too), an “iron fist”, which it has used to ensure that anyone can ship anything just about anywhere over the world’s oceans. Without the US Navy, a lot of countries would be tempted to exact tribute by controlling shipping near their shores. The US prevents anything like that and prevents a lot of piracy, too. Sometimes hegemony isn’t all bad.

      If the US really wanted to maximize tribute, all it would have to do is control ocean shipping. It may come to that, especially with large scale attempts at sanctions-busting on the rise. We may see the US exert control over Russian oil shipments by sea in the near future. If the US feels it needs to take that step, something it has never done before, it will probably also mark the end of seven decades of free trade guaranteed by US sea power.

      It would also mark the end of a rules-based world order for trade, something that would greatly reduce the necessity for a global currency and thereby diminish the importance of the dollar. But a world with no free trade would mean the quick collapse of a lot of industrial civilization. I’m all for it for environmental reasons, but those countries chafing under the rule of the dollar should be careful what they wish for; they might not like the result.

    • @Joe Clarkson

      “The US has a very large and powerful navy (more tonnage than the next ten navies combined and superior technology too), an “iron fist”, which it has used to ensure that anyone can ship anything just about anywhere over the world’s oceans. Without the US Navy, a lot of countries would be tempted to exact tribute by controlling shipping near their shores. The US prevents anything like that and prevents a lot of piracy, too. Sometimes hegemony isn’t all bad.”

      True, but the same could have been said of the Royal Navy before. But Britain like the US had a big navy to secure it’s interests around the world. The US navy isn’t a benevolent force, it is there to most definitely defend/protect American interests.

      Free trade or globalization, or whatever you want to call it, IS the US policy/interest. Making sure that everyone can get access to oil and be able to sell stuff in order to get the $USs to buy the oil is the US interest.

  27. @davidinamillionyears – Spot on! (Prediction made on Tuesday)

    GBP/USD 1.1192 and falling.

    Will there be a point where intervention is required?

    • Actually, 1.118…..

      Unless Mr Kwarteng doesn’t, after all, do what the market expects, the only possible intervention would be an emergency rate rise.

  28. But an emergency rate rise is surely only repeating the 1992 Black Wednesday experience? If it is a serious rate rise, it cannot stick ……not least because a General Election is only two years away and the Tory Party will move heaven and earth to keep house prices high. They know, and Andrew Bailey knows, what happened in the early 1990’s when they let house prices fall…..from a much lower peak. Labour would not be any better……their London and Oxbridge ‘progressive’ voter base are very wedded to house price inflation too.

    • 1992 was different, because the government was trying to defend a specific exchange rate against the DM. To be sure, raising rates can’t be guaranteed to work. There are cons as well as pros to high property prices.

      This situation, though, isn’t about what anyone wants. It’s about what’s feasible. If markets don’t swallow the Truss/Kwarteng plan, GBP slumps, gilts slump, rates rise, property prices fall, the cost of imports rise, and so does the cost of servicing foreign-denominated debt. The nightmare outcome is a “Sterling crisis”. What we’re watching now is a huge gamble.

      PS

      I’ve just heard Mr Kwarteng’s speech. Unless I missed it, he didn’t give overall costings, or how his plans are to be funded. Perhaps there are supporting documents yet to be released.

    • It seems, based on the Treasury supporting document, that the deficit is expected to rise by £72bn in what remains of fiscal year 2022-23. There seem to be no numbers for next year, where tax changes imply a further increase in the deficit. Of course, we don’t have public spending projections yet.

    • Was just watching the budget speech live too. It’s great entertanment if nothing else. They went full Tory. Just cut all the taxes they can that benefit business and the rich. Scrapping the additional rate entirely..

      Everything that is said on both sides of the bench is indicitave of a total lack of understanding about the role of energy in the economy! Even now the opposition talking about the old ideas of workers creating all the value in the economy.

  29. Thanks Tim and I agree entirely on the fundamentals. I was simply focussing on what is politically feasible: the Tories and Andrew Bailey will be dragged kicking and screaming into a serious rate rise which would trigger a drop in house prices. They will cross their fingers and hope they can sidestep a Sterling crisis. Today is simply a pre-election giveaway. Difficult to defend on both equitable and economic grounds…..even though it would benefit me! In todays’ world, April 2023 feels a very long way away……

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