#245: 2023 – Navigating the narratives

FACING FACTS, RELYING ON REASON

At the start of 2023, an impartial observer could easily conclude that ‘the world has gone mad’. This is most evident in what is sometimes called ‘the public discourse’. Where our economic prospects are concerned, what we are witnessing must rank as the most extreme case of collective denial ever experienced.

Few would dispute that the economy went badly awry last year. In concrete terms, there were widespread and severe falls in living standards, whilst the cost of mortgages and credit rose markedly. Asset prices started their descent from absurdly over-inflated levels.

But there’s a lot that didn’t happen in 2022, but may be lying in wait in the year ahead. Air has started to leak out of the “everything bubble” but it hasn’t, thus far, actually burst, as most bubbles do. We’ve yet to see a cascade of defaults on credit commitments, though this could be a logical corollary of asset price slumps (which impair collateral), and of declining household disposable incomes and falling corporate profitability, most obviously in discretionary sectors.

This is for real

This isn’t intended as a forecast, and we cannot rule out a gradual retreat from the excesses fuelled by a combination of economic deterioration, cheap credit and cheaper money.

Rather, the point is that we need to take this very seriously indeed, and that’s the intention here. The world is awash with “narratives”, and this combines with two factors – the rapidity of change, and the highly elevated levels of risk – to require a focus on what we can know, rather than on what we can only speculate about.

Where “narratives” are concerned, the orthodox line remains that, once the pandemic and the war in Eastern Europe are behind us, the global economy will return to perpetual growth, with technology delivering a shiny new world of prosperity powered by limitless amounts of climate-friendly renewable energy.

This, both in detail and in toto, is at the far end of implausible. Growth in material prosperity has gone into reverse, and claims to the contrary are in direct conflict, not just with logical analysis, but with the lived experiences of millions as well.

De-globalization is already underway, and the much more serious process of the de-financialization of the economy comes next.

This situation presents us with choices. We can participate in collective denial, or we can analyse the economic and broader situation from a rational point of view, founded in first principles. The latter approach is preferred here. Effective analysis of the economy is perfectly possible, but its results are unpalatable to what we might term ‘the generality of opinion’.

The facts of the matter are simply stated. The harnessing of abundant, low-cost energy from coal, oil and natural gas triggered two centuries of remarkable economic growth. Now, though, fossil fuel energy has ceased to be low-cost and can be expected, in consequence, to become a lot less abundant as well. With no complete replacement available for the energy value hitherto sourced from fossil fuels, the economy can only contract.

In no particular order of priority, our second problem is the environmental and ecological harm inflicted by historic and continuing use of carbon energy. On the basis of fossil fuels, the economy has evolved into a dissipative landfill system. Energy is used to process raw materials into products whose ultimate (and usually rapid) destination is disposal. This involves the conversion of energy from concentrated into diffuse form. The latter is waste heat which, in a system powered by fossil fuels, contains climate-harming gases.

None of what we are experiencing now has happened without prior warning. The remarkably prescient The Limits to Growth (LtG), published back in 1972, used system dynamics to forecast declines in industrial output and the supply of raw materials, combined with a worsening in what was then termed “pollution”. These warnings were very largely ignored, not because they were wrong, but because they were inconvenient.

At a humbler and less ambitious level, the SEEDS economic model provides a nearer-term, financially-calibrated interpretation which accords with the prognosis of LtG.

SEEDS draws two important distinctions. One of these is the difference between economic output and material prosperity. The other is the distinction between the ‘real’ or material economy of energy and the ‘financial’ or proxy economy of money and credit.

The interpretation and projections produced by SEEDS are unsettling, in that they involve a continuing deterioration in material prosperity and the fracturing of a financial system entirely predicated on the assumption that prior growth in the economy could never go into reverse.

A series of outcomes follows from this. The first is that, whilst prosperity erodes, the real costs of energy-intensive necessities will rise. This process of affordability compression has two principal effects. One is that consumption of discretionary products and services will contract, and the other is that payment streams from households to the corporate and financial sectors will be undermined.

The latter takes us into the financial system, where successive exercises in denial-gimmickry have created an enormous bubble in asset prices, and a gigantic network of interconnected financial commitments that cannot be honoured. Where these liabilities are concerned, we don’t even have complete data, let alone plans for managing a contraction which seems likely to be disorderly. One consequence is that, whilst the onset of ‘de-globalization’ has started to gain some notice, the process of de-financialization has not.

As assumptions degrade, narratives proliferate

During two centuries of rapid economic expansion, various observations have taken on the status of certainties. Quite naturally, people have come to believe that economic expansion is the natural order of things. Few may pay much attention to announcements about rising GDP – the metric which purports to measure prosperity – but it has long been taken for granted that the material circumstances of individuals and families will improve over time, and that children will be better off than their parents were at any given age.

What we have been experiencing in recent years has been the rapid degradation of such certainties. How individuals react to this dislocation necessarily varies. Some take a “Pollyanna” stance, embracing denial, and accepting the line that growth will resume once the sheer bad luck of a pandemic and a war in quick succession is behind us.

Others, translating “Bond villains” from book and screen to real life, seek someone to blame, which could be anyone from Mr Putin to schemers plotting in the shadows. Still others side with Cassandra, predicting imminent collapse and dusting off the old sandwich-boards of “The End is Nigh!”

It seems likely that there’s a large and growing fourth strand of opinion which, whilst uncommitted to any of the above, is mystified and increasingly suspicious. For many, bafflement and mistrust may be just a few short steps from anger.

The approach preferred here is that of rational analysis and informed debate. I believe that the best process for the advancement of understanding is courteous, informed and reasoned discussion, and I am deeply grateful to everyone who has contributed to our conversations over the past twelve months. A notable milestone was passed in 2022 when, for the first time, more than 80,000 different people from around the world – to be exact, from 154 countries – visited this site at least once.

The immediate plan is to set out a comprehensive statement of what we know about the economy and the financial system from the energy-based perspective. This cannot be accomplished in a single article, but it seems important that we codify our understanding.

Finally, it’s worth remarking that the dissipative-landfill model isn’t some kind of eternal verity. It isn’t the only way to manage the provision of goods and services to the public, and it didn’t exist in anything like its current form before the Industrial Revolution.

The pre-industrial economy might be described as sustainable, but there are two big snags with trying to create “sustainable 2.0”. The first of these is that the global population now numbers eight billion, up from about 660 million in 1776, when the first efficient mechanism for converting heat into work was unveiled.

The second is that the immaterial end-product of the dissipative-landfill system is a set of entrenched attitudes, assumptions which are now colliding with the reality of resource and environmental limits.

Life in agrarian times wasn’t a bucolic idyll and, in any case, we can’t go back to it. What we can do is to analyse the unfolding situation objectively, looking for rationally-based visibility on how events are likely to unfold.

Whilst anyone can leap to conclusions and assumptions, knowledge can only be reached through plodding and faltering steps.

222 thoughts on “#245: 2023 – Navigating the narratives

  1. @Davidinamillionyears.

    ‘the party is not over’.

    With respect, I’d suggest that, in overall *NET energy* terms, it very much is over.

    • really?

      I know Mr. Sri Lanka and a few others have made an exit from the party in recent years, but I’m here in the Core, in the northeast USA.

      where in the Periphery do you live?

    • @Davidinamillionyears.

      I’m not isolating any particular county/Region, it just is what it is, physics.

      “The future is already here – it’s just not evenly distributed [*yet*]

      The Economist, December 4, 2003”
      ― William Gibson

    • yes 20 years later and it’s still not evenly distributed.

      life is not fair etc.

  2. This article made me think about the crucial role of Diesel and the existential threats posed by dwindling future supplies, as per Alice Friedemann’s work.

    https://www.bbc.co.uk/news/business-64248564

    Potentially, this innovation could be a game changer. The technologists behind it are focussing on greenhouse gas reductions, but the benefit they don’t identify, is that it could be an effective countermeasure to avoid supply chains collapsing when “The Trucks Stop Running”. At least in the medium term.

    The technology allows heavy diesel engines to run on a mixture of 90% hydrogen and 10% diesel. I’ve always been very sceptical over the potential for a hydrogen fuelled transport, but maybe there’s something in this.

    • It’s interesting, certainly, and could be preferable to using hydrogen as way of powering electrically-powered vehicles.

      The problem, though, is making the hydrogen, which can be done using either natural gas or electricity, the latter being the preferred technology in environmental terms. The widespread assumption is that wind and solar are going to give us abundant electricity at extremely low cost. This isn’t plausible in terms of the required raw material/energy inputs.

  3. @davidinamillionyears
    While you are correct in your statement re: tar sands in canada and venezuela and the blending benefits of the same. What you don’t seem to realize is, that despite the enormous reserves that exist in these 2 locations, the extraction method of tar sands is not only extremely costly with an extremely low EROI (most experts say as low as 4/5:1). Remember ind civilization requires a minimum 12:1. Secondly regardless of the size of the reserves, the extraction method restricts the amt of production that can be achieved (serious bottlenecks).
    That in conjunction with the fact that most honest analysts have predicted that peak shale is immanent.
    Thus I would hate to burst your bubble, but I think your 2030 timeline is somewhat optimistic.

    • The issue here is the inability of technology to breach the physical property limits of the resource. Fracking has made shale more economic to produce than the same resource was in earlier years, but it has not turned American oil or gas into Saudi Arabia – that is simply not possible within the very different (and inferior) properties of the resource. Basically we’re talking ‘three Ps’ – porosity, permeability and pressure.

      Conventional oil is produced, at first, under primary reservoir pressure drive. As pressure drops, we then introduce secondary recovery techniques, such as water and gas injection, followed by tertiary processes known as enhanced oil recovery (EOR). Shale production effectively skips the first two stages and starts as a form of EOR. This means that no subsequent production enhancement options exist. This is why output from individual shale wells drops by 50%, or more, in the first year of operation. More wells need to be drilled if output is to be maintained, let alone increased. This puts operators on a costly ‘drilling treadmill’, undermining the economics of shale operations.

      Shale has produced a lot of hydrocarbons, but has been a painful experience for investors, including the big oil companies which committed to it.

    • The best analogy i heard with regards to fracking ” Its similar to a drunk on a sunday and you can’t get any booze so he goes to a spot on his carpet where he spilled some and trying to suck up what he can with a straw”

    • “Thus I would hate to burst your bubble, but I think your 2030 timeline is somewhat optimistic.”

      of course it’s reasonably optimistic.

      here I will make an appeal to the SEEDS graphs which show not too much downside through 2030. Unless I am misinterpreting them, that is what I see.

      surely there are no guarantees, and degrowth could accelerate exponentially, and especially in the smaller weaker countries, where I don’t happen to live.

      the 2020s are 30% in the history books. So far so good.

    • I think I’d like to qualify this in one important respect.

      SEEDS is showing a relatively gradual decline in global aggregate prosperity, though this is exacerbated by rises in the real costs of essentials. In this sense, we could think of the global ‘real’ ceconomy contracting at a rate that might be manageable.

      But the same isn’t true of the counterpart ‘financial’ economy. It is, of course, worrying in one sense that struggling households are having to resort to credit in order to make ends meet. But it’s worrying in another sense that they are able to do so – who would lend additional money to those who are obviously going to be hard-pressed to repay it? For the most part, banks don’t do this, but other lenders do. These lenders are unregulated, and the scale of their activities isn’t even monitored in full (jurisdictions have a choice about whether or not to aquire and submit the data).

      This means a financial crisis, on a scale dwarfing the GFC.

    • “SEEDS is showing a relatively gradual decline in global aggregate prosperity…”

      the graphs have great value, at least this optimist thinks they do.

      but of course a bigger faster stronger GFC 2.0 would devastate the global economy, regardless of the physics of tiny annual ECoE rises and the meager 1% decline in c + c production.

      could be soon, I’m not worried (yet).

    • @Tim.

      ‘ Shale has produced a lot of hydrocarbons’…

      Fair to say that primary/conventional hydrocarbons facilitated the extraction from shale?

    • “Fair to say that primary/conventional hydrocarbons facilitated the extraction from shale?”

      I also agree, about speaking in the past tense.

      though additionally, the reality is that it continues to be facilitated in 2023, and will continue for X amount of years.

    • @David.

      I was referring to the energy density of the primary/conventional hydrocarbons allowing access to the shale rather than timeframes, no high density (?), then no access to shale, as is the case for everything else extended from high energy density, indeed… including the primary itself.

  4. Hydrogen
    Since hydrogen as a replacement for diesel is in the news again, I will repost Sabine Hossenfelder’s analysis of hydrogen as a fuel.

    Her conclusion is that hydrogen requires more energy to produce than any source other than nuclear might provide. Nuclear, of course, comes with its own problems. I suppose some may want to add fusion to the list of potential energies required to produce hydrogen fuel.

    Don Stewart

  5. Albert Bates looks at recent climate work and suggests that humans may be suicidally stupid.
    https://peaksurfer.blogspot.com

    This ties in, I think to a trifecta of bad events:
    *The suggestion by Nate Hagen’s and Art Berman than “we know how to run a civilization on electricity…just not the civilization we have”
    *The suggestion by Dr Morgan that fuel depletion may be only the second act, compared to financial collapse in the first act.

    Don Stewart

    • yes the primary energy economy mainly based on FF looks more stable, with c + c only declining about 1% annually since the 2018 peak of 84 mbpd.

      coal and natural gas production seems to be at record highs, though the ECoE of coal is certainly higher than ever.

      overall ECoE of FF is certainly rising, but at a very miniscule annual rate.

      the secondary financial economy is wobbling severely, and who knows how long TPTB can keep it from collapsing.

      derivatives, shadow banking etc.

    • David:

      My reading is that aggregate fossil fuel supply is on a plateau, from which I’m expecting a relatively gradual decline. But the annual rate of increase in ECoEs is significant. You are right, though, to look at the real economy of energy as in comparatively slow decline, exacerbated by a trend rise in the cost of essentials.

      So yes, the immediate risk is in the financial rather than the material economy. There are two connected issues here. The first, and more obvious, is liability exposure. We don’t even have full disclosure on how big this is, though we know it’s huge.

      There seems to be a phenomenon of what I call ‘agency lending’ – loan decisions made by those who are not the owners of the capital. Who is lending to struggling households? Presumably not banks because, as the saying goes, ‘to get a bank loan you need to prove you don’t need it’.

      But the second problem is the financialization of almost everything. Rock stars can sell their back catalogues to buyers anticipating a forward stream of revenues. Sports leagues sell TV rights, sports stars sell image rights, media and tech acquire perrsonal data, and everyone thinks they’ll get their money back from future advertising, subscriptions, streaming, you name it.

      But discretionary affordability is already subject to worsening compression. Subscriptions are an easy saving for households, just as advertising is a simple economy for businesses. Households struggle to ‘keep up the payments’ on a whole raft of stuff.

      We can work out where sector exposure is, but it’s the financial exposure behind it that’s hard to identify.

  6. US Status
    http://www.shadowstats.com
    The liquid money supply is still inflated relative to real production. Thus, inflation can be expected in general. Relative to energy prices, the end of the raiding of the strategic petroleum reserve may reverse the recent lower energy prices.

    It will be interesting to see how gasoline and diesel prices react to the slowing economy. In previous years, a slowdown in the economy led to sharp reduction in fuel prices, as the refineries continued to operate at high levels while consumption declined. Since there is no effective way to store gasoline or diesel in large quantities, other than the strategic petroleum reserve, the elasticity of demand tends to be very high. (All that is my own observation…believe me at your peril.)

    Relatively new is the elasticity in the supply;. The extremely rapid decline in shale when drilling stops is quite unlike the slow decline in a conventional oil field. So if prices fall, and oil companies save their money to distribute to investors, energy production could decline rapidly. We could see a “Gail Tverberg Scenario”…prices too high for consumers and too low for producers.

    Don Stewart

  7. ShadowStats and the Dichotomy in the US
    With the surplus liquid money floating around, it is easy to come up with a stock market rally which convincingly kills the bear market. Thus, we could get higher stock prices along with deteriorating real economic activity.

    On the other hand, there is a lot of fear arising out of looking at the fundamentals of the physical economy, along with the political malfunction in the US. As Shadowstats notes, the utilization rate has not recovered to its pre-Pandemic level. And the labor force participation rate is still down.

    Some previous Presidents and Fed officials said “housing IS the economy”, and housing is a victim of the high interest rates.

    Dr Morgan recently noted the disconnect between the real economy, and the monetary economy, and I suggest that we are seeing that right now in the US.

    Don Stewart

  8. A major breakdown in Pakistan’s power grid has occurred. The BBC report (linked) points towards it being caused indirectly by an affordability crisis at a national level.

    Similar story to the collapse that hit Sri-Lanka last year, with dwindling foreign reserves available to buy fossil fuels. That’ situation has lead to the practice of shutting down large parts of the grid network overnight, and it looks like the daily grid re-start has gone badly wrong.

    https://www.bbc.co.uk/news/world-asia-64369144

    • thanks for that.

      this seems to be the pattern in recent years for smaller weaker countries, though Pakistan is by no means small population-wise.

      Lebanon, Sri Lanka, Pakistan… once a country starts having affordability issues with importing (critical) FF supplies, it’s only a matter of a short time until the essential nature of energy resources shows up as crises.

      the financial problems lead to the energy problems.

      we may see more of this as 2023 unfolds.

  9. Wolf Street on the collapse of advertising in the “tech/ social media” sphere:
    https://wolfstreet.com/2023/01/22/the-wolf-street-report-whats-behind-the-mass-layoffs-in-tech-social-media/

    I noticed a similar trend among the people with podcasts. I didn’t realize the extent to which podcasts had become monetized, and the elaborate machinery which facilitates the monetization. The article I read said that podcasts as a business are still growing, but the glory days are behind it and the advertising budgets are cramped.

    I would say that Dr. Morgan’s take on the fragility of this business model is on the money.

    Don Stewart

    • Yes, I heard that the other day, it’s very good.

      My view on this, as you’ll know, is that we’re in a situation of severe affordability compression. This is particularly adverse for anything that relies on advertising or subscription income. There’s a lot more downside for tech, and conventional media, and this time some of the big ones will be hard hit. The ad/subs business model is being degraded, perhaps failing altogether.

      This is part of the broader theme of “de-financialization”, as I’m calling it. Almost everything has been financialized – you name it: sport, entertainment, media, every organisation seemingly wanting to collect user info so they can package it, the list is almost endless. As mentioned earlier, buying up rock stars’ back catalogues, broadcast rights, image rights. The term is ‘capitalizing forward revenue streams’. As discretionary spending heads down, there’s a lot that can unravel very quickly. Where tech downsizing is concerned, I think ‘we ain’t seen nothing yet’.

      Behind this is a network of liabilities and this, too, could unravel.

    • Point taken about the scale of the lay-offs being pretty modest – so far. But then the downside in these sectors is only just starting. We have a drastically over-financialized economy that has entered severe and unfolding affordability compression. Most people still think the economy can return to perpetual growth……..

    • We will see. My point about stock prices is that it was the price of Tesla stock and Amazon stock, and Google stock which allowed them to gobble up smaller companies. Now that their stock prices are falling, they need to keep the price as high as possible not to be gobbled in turn. And announcing layoffs has been a reliable way to keep the price higher than it would otherwise have been.

      I once worked for a big company which was unable to generate operating profit. But it had acquired a lot of building and leases. It generated pretty good paper earnings by selling off the property for a little while. Of course, the real estate market now is quite unfavorable to the tech industry being able to to do that same trick.

      Think about Wolf’s thesis that Musk showed the other exec’s that they can fire most of the work force and still turn out product. That observation will also be made by corporate raiders, who will acquire companies with low stock prices and gut them.
      Don Stewart

    • I don’t comment on individuals or companies, but it’s hard to see how the three you mention could be taken over – they’re simply too big. My point is that big tech, along with mainstream and social media, will be in the eye of the storm that I’m calling “de-financialization”. Falling ad and subscription revenues is only part of this process. If I wasn’t working on a multi-article assessment of the economy on energy principles, I’d be writing about de-financialization.

      With lays offs, yes, announcing cuts may boost stock prices, but is this is likely to be only temporary, unless they make a succession of such announcements?

    • Andy Grove said “only the paranoid survive”. In my experience, the people at the top are short term, and might be described as “paranoid”. They see enemies or incompetents everywhere. Middle managers SOMETIMES have more strategic perspectives.

      It might be worth thinking about the fates of Sears, Roebuck and JC Penny in the US. Big companies with dominance who fell to financial adventurers. I would not be surprised that Big Oil’s embrace of hydrogen (isolated using natural gas, of course) is, at least in part, a ploy to try to keep the price of the stock up and deter raiders. Every American football team knows that a series of fakes are necessary to gain the long yardage.

      Don Stewart

    • In a sense, we have only ourselves to blame for short-termism. As voters, we want immediate solutions and, as investors, we want instant gains. There’s a tendency, perhaps in most people, to prioritise the urgent over the important. Political leaders are tied to electoral cycles, and corporate bosses to the quarterly results calendar.

      From my perspective, this short-termism compounds the economic, financial and broader problems posed by the reversal of growth.

    • @ Dr Tim,

      Yes indeed, the calls for perpetual growth still ring out. Today’s headlines from the Daily Mail proclaim “2.5 Trillion reasons the UK must go for growth” This relates to yesterday’s data release from the Office for National Statistics, which shows national debt hitting a record level of £2.5 trillion. If you say it fast enough, Trillion doesn’t sound that much different to Billion. What’s a few noughts between friends?

      Link to ONS data release below, for anyone who has the fortitude to look at this stuff.

      https://www.ons.gov.uk/economy/economicoutputandproductivity/output/articles/ukeconomylatest/2021-01-25#borrowing

    • Indeed. So how is Britain (or any other country) supposed to “go for growth”, as the Mail puts it? The usual answer is to cut taxes and, unless public spending is reduced by at least a corresponding amount, actually increase debt. There’s a popular idea that economies can boost “growth” in the future by borrowing in the present. Businesses can do this, but economies can’t.

      In the UK instance, stated at constant values, GDP increased by £560bn between 2001 and 2021. But total (public and private) debt increased by £2.9 trillion over that same period, meaning that each £1 of “growth” was bought with £5.22 of borrowing. I put “growth” in quote marks because most of it was the cosmetic effect of spending borrowed money and counting the ensuing increase in transactional activity as “growth”.

    • @Tim.
      ‘ In a sense, we have only ourselves to blame for short-termism’

      Whilst it’s fair to say that ‘we’ have all been born ensconced into a system we had no hand in influencing, it’s also true to say that only a minority have had the privilege of agreeing and implementing what should, and shouldn’t, be the fundamental drivers of this operating system, most of the participants within it, didn’t ‘design’ GDP, compound growth-interest, planned obsolescence, chrematistics, derivatives, constant PR-advertising, tickbox ‘education’ (indeed, even the expensively educated have no idea regarding the premise of this site) etc etc…

      For most folk, enough would of been plenty.

    • Quite so.

      At the moment I’m compiling my multi-article piece on SEE and where we are, so I’m reflecting on why the obvious realities of finite consumption, finite resources and finite environmental tolerance have struggled to gain recognition. LtG predicted this situation right back in 1972, and evidence of economic deceleration has been apparent ever since the 1990s.

      We’ve tried anything and everything, however irrational, however harmful, rather than accept that growth has decelerated towards contraction. We ‘liberalised’ credit, enacted QE, ZIRP and NIRP, none of it has worked, the economy has turned down, and we – or those who make the decisions – still can’t face it.

      The word I keep coming back to is “childish”, in the sense of throwing toys out of the pram if we don’t get our own way. I know us ‘ordinary’ folks don’t get much of a say in this, but how many would vote for politicians who told us the facts about post-growth?

    • @Tim.

      Essentially, it all boils down to greed, childish or otherwise.

      ‘ how many would vote for politicians who told us the facts about post-growth?’…

      Has become a mantra repeated by politicos, the same ones that simultaneously bemoan the rapidly increasing inequality and overall breakdown, ergo…the real-time realities/facts of… ‘post-growth’.
      Apparently, it’s all down to ‘focus groups’. Again, most folk would be content with enough.

  10. Readers here may find Gail Tverberg’s Jan 9 post, “2023: Expect a financial crash followed by major energy-related changes” interesting.

    “After central bankers brought about recessions in the past, the world economy was able to recover by adding more energy supply. However, this time we are dealing with a situation of true depletion; there is no good way to recover by adding more energy supplies to the system. Instead, the only way the world economy can recover, at least partially, is by squeezing some non-essential energy uses out of the system. Hopefully, this can be done in such a way that a substantial part of the world economy can continue to operate in a manner close to that in the past. . . . .

    I believe that a financial crash is likely sometime during 2023. After the crash, the system will start squeezing down on the less necessary parts of the economy. While these changes will start in 2023, they will likely take place over a period of years. In this post, I will try to explain what I see happening.”

    https://ourfiniteworld.com/2023/01/09/__trashed/

    Gail refers to the coming squeeze on “non-essential energy uses” rather than to discretionary economic activity. That’s an interesting shift in perspective. For example, “discretionary” suggests that things like travel, eating out at restaurants and purchasing fancy clothes just to be fashionable will be cut. “Non-essential energy uses” includes that, of course, but would also include activities that we don’t think of as “discretionary” but which are nevertheless not really “essential.” Things like working from home more and commuting less (for white collar workers), or turning down the heat on one’s thermostat from 68 degrees F (20 C) to say, 64 degrees (18 C), and wearing warmer clothes indoors. In theory, both terms could cover the same thing, but I think “non-essential” implies a broader approach. Of course, as a matter of priority, purely discretionary will go at a more rapid rate than refining the hitherto “essential.”

    • I’m not quite sure about the distinction you are drawing here, since I define “discretionary” as “non-essential”. What is “essential”, of course, is a judgement call; things now considered essential were often thought of as ‘luxuries’ (discretionaries) in the past, and perceptions of essential vary between countries. In the future, as the economy contracts, things now considered essential will come to be seen as discretionary.

      In these terms, a person who decides to heat their home at 18C rather than 20C is changing his/her definition of essential. They previously considered 20C to be essential, but have changed that definition to 18C. If people do this, less energy is consumed, less energy is paid for, and the economy is smaller.

      So what we’re talking about is a change in the definition of ‘essential’, which is to be expected.

    • I think there are probably some awful moral dilemmas hidden in the mush of re-defining essential and discretionary expenditure at state level. Just one example being health and social care for the elderly and incapable. This has become an ever bigger slice of the National budget in most of the developed world, where demographics are stacking up against balanced budgets.

      We are perhaps victims of our own success in some of the remarkable medical breakthroughs that have extended lifespans during the last 50 years. Now the bill has come due, but the national credit card is maxed-out, certainly in the UK. What will have to be given up?

    • @nei1611

      Regarding health care, I’ve just read A Sort History of Disease by Sean Martin.

      Truly scary stuff. The impacts that diseases, plagues, pandemics have had on societies since antiquity and how in modern times, they have been a bi-product of capitalism and globalization.

      If modern medicine is no longer possible due to a lack of surplus energy, the implications are terrifying.
      I would put it in the bracket of “essentials” for sure.

      No vaccines, antibiotics, anti virals etc etc.

      We will be at the mercy of microbiology.

      (Not trying to spark a COVID debate, by the way!!!)

  11. Pingback: #246: The Surplus Energy Economy, part 1 | Surplus Energy Economics

  12. Please note that part one of The Surplus Energy Economy has now been posted.

    This is the first in a series designed to provide a comprehensive review of SEE thinking, methods and conclusions. Part one addressess first principles, and the nature of economic output. Part two is likely to focus on energy, and part three on prosperity.

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