How Rich are you? What is your Class? Where do you fit in the Wealth Distribution of Global Resources?

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Published on The Doomstead Diner March 24, 2019


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Inside the Diner we are having our regular debate on what it means to be "Poor", "Middle Class" or Rich?  Diners have the full variety of opinions on this, which usually suit their own perception of themselves and how they want others to perceive them.  Is there a way to cut through this variety of opinion to come to some reasonable definition of what any of these terms actually MEAN?  It often seems quite hopeless getting any agreement on this between the Diners, but in doing some research on the topic yesterday, I ran across a great website which has a Calculator allowing you to place yourself in the Global Ranking of Rich People on Earth.

I started doing this research after watching a video recommended by another Diner, a TED talk given by a Scandinavian Sociologist Harald Eia concerned with the topic of "Where in the World is it easiest to get RICH?"

Harald came up with the result that you stand the best chance of getting rich in the Social Democracies of places like Norway, Sweden, Denmark and Iceland.  He came up with this result by looking at the number of people with a net worth of $30M or better per capita by country.  This is something of a surprise to people who buy into Capitalist doctrine that High Taxes and the Social Welfare State are a drain on their incomes, but not much of a surprise to me because I already knew there were tons of filthy rich people in Scandinavia.

Now, the first problem here is defining "Rich" as $30M or better.  At this "watermark" (the speaker's terminology) there are only around 180K people globally.  That is out of 7.5B!  It works out to 0.0024% of the Global Population.  Do we really only define "Rich" people as being not just members of the 1%, but you gotta be in the top .0024% ?  That is a pretty stiff requirement to consider somebody rich, IMHO.  You know the rich people in your neighborhood by the carz they drive, the McMansions they live in, the restaurants they frequent and how often they take expensive vacations.

The second major issue with his methodology is it defines your Wealth by your Net Assets, not by your income.  To me, your wealth is not defined by what your total assets are, but rather how much disposable income you have in any given week/month/year to play with after you cover your rent, your car payment, your communications bill, your food, your fuel, etc.  So for me, wealth is more defined by Income than Net Assets.

I began to wonder what the situatioin was for people who were below that Stratospheric figure of $30M?  Was there a way to find out where the people with a Net Worth of $10M stood?  $3M? $1M? $100K? etc.  As it turns out, THERE IS!  You can find out on the Global Rich List calculator, and not only by Net Assets but by Income also!

So, I took 3 Hypothetical People and gave them some numbers to plug in to the calculator, and got the results for them.  Here they are below:


1- Fixed Income Frank

Frank is living on his Social Security and small Pension after working in various Middle Class jobs making the Median Salary for the time for 40 years.  He rents an apartment, has a couple of old carz and has a small Nest Egg to carry him through emergencies.  Here are Frank's Global Numbers:



Professional Pete:

Pete works in IT as a website developer for a local corporation.  He has worked up to a middle management position working for this corporation for over 20 years.  He grosses around $80K/year and he takes home about $60K after taxes, utilities, insurance etc.




Biz Owner Bill

Bill owns an Auto Repair and Body Shop biz in Springfield, MO as well as a couple of smaller ancillary biznesses, an Auto Zone franchise and an interest in the local NASCAR Dirt Racing Track.  He was born to Dirt Poor sodbusters in the Ozarks and bootstrapped himself up like Horatio Algier to become a Bizness Leader in his community.  He complains all the time about his onerous tax burden when out drinking with his buddies.




Now, as you can see, even if you are at the lower end of  relatively poor people in the FSoA living on a fixed pension and Social Security, relative to the rest of the Global population you are still doing quite well, Inside the top 7% in terms of Assets and 2% in terms of Income.  The cost of living is also quite different in Amerika than in say Mexico, so by itself this doesn't tell you how Rich or Poor you are for an Amerikan living in Amerika.  If you go ex-Pat, your status can change drasticlly of course.

So in order to get a good idea where these Asset and Income levels put you at relative to the rest of Amerikans, you have to drill down and isolate just this portion of the table.  Below is how our 3 hypothetical subjects rank out relative to each other.  Fixed Income Frank is in RED, Professional Pete is in PURPLE and Biz Owner Bill is in GREEN.  Assets calibrated from 8% on down in .2% increments, Income from 3% on down in .05% increments.



Based on the above chart, it becomes quite easy to determine who is Rich and who is Poor in Amerika.  Middle Class is a bit more difficult to peg, and can differ markedly depending whether you are looking at Assets or Income.

Where do you fit in the Wealth Distribution curve for the World and for your country?  Do the numbers match your self-perception and self-identification?  How do you think this skewed Wealth Distribution can be rectified, or does it even need to be rectified?  Do you think Capitalism or Socialism is the better system to distribute diminishing Total Wealth on a resource depleted planet?  Do you have an alternative to suggest rather than one of these choices?  Come join us Inside the Diner to discuss thes important questions as the Collapse of Industrial Civilization bears down upon us all.




Collapse Something or Other …

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Published on the Economic Undertow on December 25, 2018


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The Christmas present nobody wants sits under the tree: a worldwide finance crisis along with an establishment that appears to be coming apart at the seams.

The status quo is unraveling from all sides, at the top especially, where managers cannot conceal their panic:





“Every banker knows that if he must prove he is worthy of credit, however good might be his arguments, in fact his credit is gone.”

— Walter Bagehot


The government marshals its forces of borrowing in order to prop up the lenders as per usual. Yet, the lenders have been propped up for years. The bosses demand lower lending rates even as these same rates are at- or below historical lows. What more can be done and to what end? The rates and props deployed during and after prior crises have contributed to the immediate peril as well as everything that has led up to it. There is no cure to be had in additional doses of the same poison that currently looks to kill us.

By questioning whether lenders are worthy of credit the Secretary sinks his own battleship: “Every banker knows …” well, perhaps not. He inadvertently reveals truths: that lenders are vital but are also vulnerable. Vital in that our economy does not pay its own way, it cannot. The industrial economy is reductive rather than productive: its primary ‘good’ is entropy. Business relies on the continuing increase of bank money to draw future resource capital toward the present. Without the lenders and the credit they provide the modern, industrial economy stalls then comes undone. If our economy could meet its own expenses out of cash flow it would do so. What the Secretary admits without doing so directly is our economy cannot afford itself.

That we cannot afford our economy is its immediate vulnerability. Asymmetries within the lending regime such as maturity mismatches make it fragile. The regime depends on a marginal agent or class of agents that sets conditions for all the others. Keynes notwithstanding, a certain level of borrowing restraint, something short of universal borrowing has little affect on the system as a whole. But, some percentage of economic agents must borrow with a fraction of that borrowing deployed to service and retire existing debts. Small leaks- or water over the top of a dike will not damage it but one small leak too many will wash the dike away. In the same way, a small percentage of non-performing loans or defaults is tolerable to the system, a portion of lender reserves and equity is set aside to resolve these as they appear. Then, there is one default too many for whatever reason … this is disaster! The ‘capital’ structure of the lender is upset; this calls into scrutiny the capitalization of all other lenders that are similarly situated. Uncertainty is rapid and corrosive, given time it widens into a self-amplifying spiral of insolvency. This is what occurred in 1929 and 2008 and what looks to be underway right this minute.

Compounding the problem, the marginal borrower is impossible to identify or for immediate institutional convenience is disregarded. The tiny leak with the potential to destroy the dike can be one of any (very large) number. Globalization has rendered the marginal agent opaque; official denial and central bank happy talk permits known problems to fester. The marginal borrower can be an individual or a firm, or a class like Chinese peer-to-peer lenders, Italian footwear manufacturers or Spanish residential real estate speculators and the banks that supply these with funds. Eventually, all of them together become marginal. Structured finance operates outside the reach of policy makers at the same time are tightly bound to all the others by way of swaps, corresponding- and exchange lenders, counterparty agreements, derivatives-based hedges and money markets. Like a flood, marginality propagates outward, with the ‘new’ marginal borrowers becoming major banks, dark money pools, bond- and derivatives market makers, national governments and foreign exchange. In any event, agents cannot be compelled to borrow and in a crisis refuse to do so. Insolvent, zombie-like walking dead firms which continue to borrow/lend in the aggregate are lethal to the regime: they can only offer the (fraudulent) appearance of a cure while delaying the inevitable reckoning. Accounts cannot be overdrawn indefinitely, it is impossible to borrow out of debt. “If something cannot go on forever, it will stop,” says economist Herbert Stein. No amount of marginal borrowers can rescue a system that is foundationally bankrupt.

… this is after hundreds of trillion$ have been borrowed around the world already. The simple fact of the trillions suggests the managers are inept and perhaps insane. Our debts have grown beyond human scale, even the billionaires all together cannot hope to retire them, in fact their borrowings have contributed significantly to the total. Along with their managers, these stupendous debts fade to irrelevance in the practical sense; they can never be repaid. They are empty claims against resources that have long since been converted into useless waste. Machines that are dependent upon credit for their very existence cannot repay, certainly not labor which is feeble; which is otherwise depreciated, subordinated and oversupplied.

This is all part of the current crisis, it may indeed be its entirety. Whether the markets are repricing (in)competence, (in)solvency, systemic bankruptcy or perhaps all of the above; it is too soon to tell.

Figure 1: What is our over-extracted world worth? The underlying problem is resource stripping and its consequences. If that is being priced in right now we are in big trouble. Chart by TFC Charts (click on for big). The current crisis could not be predicted as was the oil price plunge in 2014, but it was inevitable nevertheless. Our economy requires cheap oil to run but the cheaper oil is exhausted, what remains is unaffordable. Low cost credit has offered the (fraudulent) appearance of a cure … but it has only delayed the inevitable reckoning.

A few years ago, the oil price that triggered crises was over $100 per barrel. We have been creeping toward a crisis for the past several months at $80 per barrel. Time and waste leave us less wealthy than we pretend to be …

Figure 2: Compare the likely crisis price suggested a few months ago. We clearly cannot afford $75 oil, higher prices are out of reach. At the same time, the drillers cannot stay in business selling their product below cost. What is common = access to credit which turns out to be the means by which resources are allocated. The customers are broke.

“Take an online survey and answer all your own questions!”

Some Inconvenient Truths About Collapse Economics

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Published on The Doomstead Diner on September 2, 2018

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One of the first collapse pundits I ever read was Chris Martenson, way back before he turned his site into pay-for-view. I read The Crash Course, and took it to heart, like a lot of doomers. I know there are people who check in here who hold Chris in high regard. I do too, but my continued experience with collapse since 2010 when I started prepping has led me to some conclusions about typical collapse planning advice that I want to write about.

And I'm not just singling out Chris, who is a sincere, smart guy who gets it right about a whole lot of things. What I want to get to has to do, not with what happens AFTER the SHTF and BAU ends, but to WHAT happens between NOW, today, and THEN, whenever THEN turns out to be. It applies to each and every one of several collapse pundits whom I've read who all agree on one or two or three important issues.

One issue is the automatic knee-jerk assumption that everyone is better off if they're debt free.

Another other issue is that the best hedge against an uncertain future is to buy and hold gold (and/or silver), to the exclusion of any other wealth preservation strategy.

A third issue is that you need to sell your house and move to some "redoubt" or doomstead.

All of these ideas make enough sense that they tend to be accepted as gospel in the doomer community. But like most things in life, the truth is complicated, and and this kind of approach, which I'll call Collapse Financial Planning for Dummies, is an oversimplification, and it contains some seriously bad thinking.

The prevailing paradigm in the collapse community is that all debt is bad (assumably because debt-based money is evil) and that those who carry much of any debt will somehow all be swept away when BAU ends and nobody has income anymore to pay their bills, etc, etc.

Houses will be worthless because they'll be abandoned when the die-off comes and JIT delivery ends and the only people left standing will be people living on rural doomsteads.

And the only assets worth holding are preps, gold, silver, and farmland.

Over and over, I've read well-meaning and supposedly well informed people who claim expertise, say these things. If you read the collapse blogosphere, it's everywhere, and the people who were saying it 8 years ago are still saying it.

I have some real problems with this. People who traded in their 401K's and bought gold and/or silver in order to save their bacon about the time I started prepping, at the beginning of 2011, should look carefully at their feet to look for bullet holes.

Gold was about 1400 bucks an oz at the end of 2010. Now it's about $1200. The S&P on the other hand, has tripled. Are stocks in a bubble? Hell, yeah. But they still tripled in dollar value. That's money you could have used to buy a lot of fucking preps, folks.

Preps are important, and I believe in preps and tools and solar panels, and having a plot of land for food gardens and maybe subsistence farming (which is not easy if you aren't born into it, unfortunately). But all that costs money. I don't apologize for making money. People who claim not to care about money are either naive or lying, or they should enter the monastery, because they belong there.

Hell, it's not easy for people who were born into farming to subsistence farm, but it's doable. For most people it's a total fantasy. It takes skillz, baby. Mad skillz.

This last year I started to see stories about people who took this good advice several years back and went off-grid. Now they're coming back. Maybe not to suburbia, but closer to work and stores and civilization. Off-grid living is HARD and it has it's own problem set….and so far, working people are mostly still working, even if their standard of living isn't great.

I'm not knocking gold.

I own some gold and more silver. It's a nice insurance policy, if you can afford it.

It insures you against one thing… currency collapse. It's done, over the last eight years, exactly what it's supposed to do, which is hold some value. Over historical time, it has a good track record for holding value when many things lose their value, particularly fiat currency, stocks, bonds and ETF's and other "paper" financial instruments. But over the short term, it's value against fiat currencies varies quite a lot. Ouch!

And I'm not knocking freedom from debt. But freedom from debt is more valuable when debt is expensive than when debt is dirt cheap. We've been through eight years of crazy cheap debt. In 2015 I got two new mortgages for 4.5%. it sounded high, until I looked at the historical record. Pre-2008 crash, the last time mortgage interest was that low was 1949.

And there is debt and there is debt.

Debt incurred for cheap consumer shit that ends up in the trash is always bad, no matter how cheap it is. But debt that helps you acquire a tangible asset, especially one that might be an inflation hedge or (gasp) a good investment, doesn't rate the same scorn.

Debt incurred to make a cash flow investment is "just bizness". If the numbers work, and the deal makes money, and the risk is not high, WTF not?

If you had grown up somewhere like Mexico, where you can't even get a mortgage to build your own house, you might have more appreciation for the benefits of carrying a little debt. The median home price here is lower than Portland or Seattle or anywhere in California, but but it's still $300K. Try saving 300K to buy a house. You might live long enough to move in when you're 60, unless of course, prices keep going up with inflation.

And not a single pundit ever mentions that if you are somebody with a high income, that being debt free has enormous negative tax consequences in this country. Probably this is because most of the respected pundits never had any real money in the first place to have to pay taxes on.

You don't write about things that are completely outside your sphere of knowledge. We have a system that was set up to favor debtors. It's not a stable system, that's true….and if you have a mountain of debt when the music stops on this little game of musical chairs, you'll get wiped out. That's the true part. But it  is NOT the ONLY part you need to understand.

Sorry. That's the real truth.

We have a system set up to FORCE people into stocks and bonds. Because that's what the government wants (because Wall street tells them to want it). What I mean is that the tax consequences of NOT doing it are not insignificant. It costs you money, and the more money you make, the more money it costs you to go against the flow.

All 401K'S and IRA's and various other pensions are designed to steer you into stocks and bonds. There is some leeway, you can hold gold in an IRA. But forget the minutiae. Basically the government gives you tax breaks to make financial decisions that they want you to make. They have a carrot and a stick, and they use both to get what they want.

You literally have to decide if fighting them is worth it. Sometimes it is. Sometimes, though, it makes sense to understand where you can get ahead by participating, to some degree, in the "sanctioned" investments that have been set up primarily to benefit the rich.

I got out of the stock market in 2010 or so, because I believed all the doomer hype. I could have bought the five or six most stupid, popular stocks at that time and made BANK over the last 8 years, but I didn't. Instead I sold my Whole Foods in 2010, and then watched it split again and then watched it get bought out by Amazon. Yeah. Great move there.

I made some money trading last year, which I wrote about here. But I've mostly stayed out of stocks all these years  because I viewed stocks as an unstable bubble that would pop, and I still do. That much is 100% right. But when I see a short term opportunity, I'm willing to take it. I made 90K last year trading pot stocks. I paid my taxes, paid some debts, and finally, last month, I bought another rent house. I roll the profits back in.

I'm not saying the world is economically stable, that collapse isn't coming, or that you should be bullish on stocks now, which is madness. But while gold was drifting around and ending up slightly lower, clueless idiots made a lot of money in equities. Just dumb luck, to some degree. But more so because the markets are manipulated, and they went with the flow instead of going contrarian.

The point IS that my risk averseness cost me money. I did not come out ahead by taking the advice of Chris Martenson and the other collapse gurus…or by taking the advice of any of the dozens of well-respected goldbugs out there. To the degree I followed their advice, I lost money, and I missed opportunities to make money.

I also lost some money through my own stupidity. But I learned from that. People should learn from their mistakes, and I learned a few things the hard way, especially about leverage, which almost nobody understands…..outside of the world of professional trading. You can read about using leverage, but losing your ass teaches you the most. Trust me on that.

But I digress. Back to the subjects at hand.

The most important thing to understand about saving and investing is to get WHY it is necessary in the first place. Do you know? Think about it for a minute and pick an answer now…don't read ahead until you do. (Don't peek.)


If you had to think about it….that's a problem. You should know. The reason is simple. One day you will be old and unable to work and you will likely still want to eat, have a bed and a roof over your head, and a few amenities to make your life comfortable.

If you don't think you need that, or you know you don't, then save yourself a lot of effort, because saving money and investing the right way is HARD. It requires discipline and a willingness to delay gratification. It requires making good decisions and then staying the course over a long, long time. It requires the ability to change course, but more times than not it takes the confidence to NOT change course at every bend in the road.

I save and invest, not so much for me, but for my beloved. Women often outlive their husbands now by decades, and the moment I croak, my dear wife will be out of a job, since she works for me. She will have to retire at that moment, or at least within weeks or months.

That's responsibility. I have a responsibility to take care of another person besides me. And I take that seriously. So I have damn good reasons to save and invest, other than adding zeroes to my fat-ass bank account. I do what I do because I don't want my old age or that of my wife to really suck. For me, that's reason enough. You have to figure that part out for yourself.

Younger people look ahead and see collapse and tend to think none of this matters for them. Because….why bother, if the end of the world is a few months or a few years away? All I can say is that I was young, not that long ago. And now I'm on the verge of old age. Are you so sure that collapse is going to wipe the slate clean that you want to risk being wrong? Do your feel lucky…er..or is it do you feel unlucky?

I don't know the future, but I know everyone who was writing about collapse in 2010 got it wrong in the short run. EVERYONE.

This is NOT intended to make anybody do what I'm doing. I won't write about what I do in depth, because that isn't my purpose.I just think people need to have a PLAN.

I'd say that I have Plan A which is aimed at my belief that I might possibly be old enough not to be able to work before TSHTF. My plan is aimed at making my day job optional by 7 years from now. That isn't young. It's 70 years old. I might work longer. There is nothing particularly magic about retiring.

But ….just for example…….I mostly buy a certain class of real estate now. I do that for several reasons.

1. It's tax advantaged.

One year (I think it was four years ago now)  I paid 240K in income tax. It was nearly double what I had planned for…. I had to struggle to pay it. I wasn't planning on that. I had to use up almost all of my cash savings I had at the time. My problem was that I had paid off a lot of debt, owed very little, and had put my home and my lake cottage on a 15 year mortgage and thereby lost a couple of big mortgage interest deductions. Also, my kids were no longer dependents. I never intend to do that again. I now have lots of mortgage interest and expense items related to investments. My taxes have come way down. Taxes matter, if you make a lot of money.

2. My houses (modest single family homes only) flow cash. Positive cash flow is essential to make the kind of deals I like work.

That means I get monthly  income. Rent. Enough to pay the debt and the maintenance and the insurance and a little more. Cash flow is absolutely FAR superior to any kind of "flipping" or buying anything on the premise that price will automatically go up. Prices often go down, not just up. Cash flow buys your dinner whether prices are up or down.

Rents can go down, sure. That's why you have to either pay a huge down payment (well advised) or have enough savings to cover shortfalls (or both). You do have to plan these days for deflationary events. I expect one within two years, and perhaps as soon as next month. Life is uncertain. Don't get over-leveraged. That's what makes people go broke. Borrow a little money…what you need, not as much as you possibly can. Pick one mortgage at a time and pay it off. I own two properties outright now, and the rest have 40-50% equity.

3. I borrowed all the money I owe at or below the current real inflation rate (which I expect to go higher). And (this is important) I locked in some stupid low rate loans for 30 years. And houses are still a reasonable inflation hedge at this time, meaning that they appreciate faster than the inflation rate over the long haul. That can change. But it's been true and it still is true, in my market area, since 1990. 

I know all the doom and gloom scenarios. I read Harry Dent. I read Jim Kunstler. But by the time TSHTF, my loans are likely to be paid. If you own it, you only HAVE to pay the taxes. I started a long time ago. But…if the Fed crashes the markets and they drop interest rates AGAIN down to the 3 to 4% level, I'm probably a buyer again. That could easily happen. It's at least as likely over the short term as is a sudden end to western civilization.

I could pay most of my debt off in full now if I needed to, but I don't…because I don't want to, and I don't need to do that. If you borrow below the real inflation rate (which has been possible for the last several years, until very recently) and the property appreciation keeps up with inflation, then the interest ultimately costs you NOTHING.

I don't go by the inflation rate the government quotes. It's higher, believe it. I expect to pay my loan off with dollars far cheaper than today's dollars. Dollar dropping? Good! Let the son-of-a-bitch fall.

I fear a precipitously RISING dollar, because it's a signal of a deflationary event on the horizon. Anybody who wants deflation must not own any inflated assets. And almost ALL assets are inflated these days. Bubbles do pop. Be prepared for that. But it's a thing to plan for, not a thing to keep you from making any plan at all..

If you have nothing, you have nothing to lose. But most people are HURT by deflation, no matter what level they're at. But I am well hedged for inflation and deflation. I can weather most any financial storm now.

Don't drink the Collapse Kool-Aid. Nobody knows the future with certainty. Plan A, I retire comfortably. Plan B, I subsistence farm as best I can. I can't control collapse, but I can, at least to some degree, control my own destiny.

The collapse pundits only ever see a need for Plan B. the older you are, the more you need a Plan A, in my book.

It's been almost 8 years since I started prepping, and BAU is still happening. I don't know how long it will last…but I don't have to pray for collapse to feel good about my own future.


Death of a Mall Man

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Published on the Doomstead Diner on January 7, 2018


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Death of a Salesman was written by Arthur Miller in 1947, and is widely considered one of the greatest plays of the 20th Century.  It's a play about broken dreams and the lifetime failure of the protagonist, Willy Loman.  It's a sad and depressing play about the failure of the American Dream which doesn't seem too odd now, but this play was written in 1947, right after the end of WWII and at the beginning of the grand explosion into suburban housing, car mania and endless consumerism we live in today.  Some folks hitched a ride on the great bandwagon of prosperity that came with this expansion, but many did not and ended up much like Willy Loman did. Nonetheless, despite the fact that the Great Consumer Culture never really was the great success it was made out to be, the illusion continued to be sold from the 1950s onward, right up today with the online retail giants of Amazon and Alibaba.  The illusion is falling away though now, most significantly in the form of Mall closures all around the country.  The "Anchor" stores of large retailers like Macy's, Sears and JC Penney are all downsizing as fast as they can to avoid Bankruptcy, with new store closures announced on a monthly if not weekly basis.  This will not of course avoid bankruptcy in the end, but it does drag it out and delay it, in some cases long enough for Vultures like Eddie Lampert to strip mine the rotting hulk for whatever assets are still left.

Although folks just a decade or two younger than myself may not believe this, there once was a time here in Amerika before Malls dotted the landscape and before rampant consumerism became the cultural religion.  When I first returned from Brazil in the late 1960s, there were no Malls at all.  The consumerism in those days was happening in the Department Stores like Macy's, which were the first outlets for all the merchandise being produced in the aftermath of WWII.  In fact you can say the whole "Black Friday" sales gimmick was kicked off by Macy's with their Thanksgiving Day Parade in New York.  The Media of the era backed this up with films like "Miracle on 34th Street", with Edmund Gwynn playing a Macy's Santa and the young Natalie Wood playing a little girl who really BELIEVED in Santa Claus.  The film was a completely shameless promotion of the lifestyle being sold, complete with the perfect Suburban House being handed by Santa Claus to Natalie and her parents at the end of the film For the Millenials who like to drop in and blame the Boomers for the rampant consumer culture we have now, catch the date on "Miracle on 34th Street", it was produced in 1947 also, the same year Arthur Miller wrote Death of a Salesman.  Sense a little cognitive dissonance here?  Which narrative do you WANT to buy into?  Most people want to believe in Santa Claus, the dark side of reality is not so pleasant. In any event, this all predates the arrival of the Boomers on the scene, they were just starting to be born in 1947 and did not have a whole lot of control over the direction the culture was being pointed by those who stood to make a profit off of this type of wasteful living.  It in facts predates even the Greatest Generation, the parents of the Boomers who returned from WWII to buy suburban tract housing just being built on the GI Bill.  You can see the beginnings of this as early as the late 1800s with the first Sears Catalogs for buying by mail order.  Sears was at one time before its long downhill slide the Amazon & Alibaba of its era rolled into one .

As I mentioned, when I returned to the FSoA from Brasil in the late 1960s there were no malls to speak of, and really this was true right through the 1970s, although I think they started to put them up at the end of the decade.  The oil crisis of the early 70s was over, the Dollar was freed from the Gold standard and credit was flowing out fast and furious to the well connected.  The first mall I remember going to was called I think the Galleria,and that was in the early 1980s.  It seemed pretty impressive to me back then, although I know compared to some of the monstrosities built later it was probably pretty small.

The malls quickly developed their own culture, particularly among the teenagers of the time and Mall Rats were born.  Generally high school age with some of the older ones sporting their own carz to haul themselves and a few friends to the Mall parking lot, it was a place to gather, smoke weed and try to pickup girls if you were a male.  I was a little too old for this scene at the time, but I observed it as I walked around and window shopped all the great merchandise all in one place.

The malls had their heyday from the mid 1980s until the late 1990s and are the best example of the conspicuous consumption mania that dominated this period.  More credit flowed out to build more malls, and more new roads to get to the malls which were usually pretty far out from a city center because that was the only places you could get enough land at a cheap enough price to build one.  This spelt the death knell for many shopping districts in the small to medium size cities and they began to wither and decay.

You can look at this period as the "blow off top" of the Amerikan Retail market which began with Sears in the late 1800s.  There was just a ton of STUFF being sold in these places and there was always something new and cool you just HAD to have, especially if you were a teenager.  How were people AFFORDING all this great new stuff though?

The building mania of roads, malls and subdivisions provided many jobs in construction at a pretty good wage through the 80s and 90s, so there was some money flowing out into the suburban consumer's bank accounts, but overall it was stagnating pretty significantly.  Most of the money being spent at these malls was still more debt, now Credit Card debt as Visa and Mastercard vastly expanded the number of people they would offer credit to and the computer and communication systems evolved to become all automated.  "For everything you ever wanted but could not afford, there's VISA". Everybody got a Visa card in those years, even college students with no income.  Even if you were the rare person who could fog a mirror but did not qualify for a bank issued card, you could get store issued credit cards from all the major retailers, Sears, Macy's, etc.  You could stack your wallet full of them, and it just seemed like Free Money.  Small monthly payments at first, but the buying every time you went to the mall became habitual.  Those small bills got bigger and bigger, and there were more of them coming in every month.  Your total monthly bill was now more than you had discretionary cash to cover.  By the time you graduated college, between the credit card bills and the student loan bills, there was no money left to pay rent with, even if you found a job.  It was back to Mom's basement for the next decade while you tried to pay off the bills.

Mom & Dad also got addicted to the credit cards and shop till you drop at the mall, and they weren't making any more money either.   For them though, the Banksters came up with another solution to ever increasing household debt, the HELOC loans.  The equity built up over years living in a McMansion was refinanced, all the bills consolidated at a lower monthly payment and Mom & Dad were free to spend again!  Unfortunately this backfired for many in 2008 when the sub-prime Real Estate market went tits up and many of these McMansions went underwater.  Dad, an aging Middle Manager somewhere got laid off, the McMansion got foreclosed on and this was another formerly middle class family reduced to abject poverty.  All the equity in the home had been burned up at the Mall, and now besides not having a home to live in they still had the accumulated debt on the refinanced mortgages, which were now recourse loans the banks could continue to hound them for.

Although the process started before the 2008 Financial Crisis, the process of store closures in these mega retail palaces vastly accelerated at this time.  People simply had neither the income nor the credit necessary to keep up the Shop till you Drop lifestyle.  Teenagers no longer got a car on their 16th Birthday as a de riguer gift from Mom & Dad, now they got a smart phone instead.  Instead of gatheirng together at the Mall to socialize, they instead spent their time on Social Media.   If they did have any money to buy some electronic toy or fashionable article of clothing, they did it online with the smart phone, not at the shops in the mall.  Once the big retailers closed their doors in a given Mall, foot traffic decreased exponentially and the smaller shops and food courts that depended on that traffic began to shutter their doors also.  Many of those Malls built in the 80s & 90s are now empty and rotting hulks, awaiting demolition if the township they are in can find the money to demolish them.  Many more will close this year, and in the years to follow.  This model for the culture is finished, although a few places still hang on as the local employees hope for a miracle turn around to save their jobs.

The motivation to write this article came from an article I read published by WaPo on New Year's Day 2018, First, this town lost its Macy’s. Then Sears. Now, all eyes were on J.C. Penney.  The article is too long to paste in its entirety, but there are a few interesting observations made I would like to reflect on.

First let's look at the location of this Mall and the economics of the neighborhood.

There were four days until Christmas, and this customer had decided against shopping online to come to a real store and talk to real people. To Barbara, that meant she had to provide something he couldn’t get from clicking buttons on a computer. Could the Internet assure the customer that he was making the right choice? Could it praise him for being a thoughtful husband? Could it make sure that he was getting the best possible deal?

That was what Barbara could offer at the last remaining department store in the only mall in Hermitage, a city of 16,000 in Western Pennsylvania. J.C. Penney used to be one of three anchor stores at the Shenango Valley Mall. Then, one day last March, both Sears and Macy’s shut down, becoming two of the more than 500 department stores that closed across the country in 2017. Headlines have called the shrinking of these American staples the “retail apocalypse.” In Hermitage, employees called it “the funeral,” because of the way it sounded as customers lined up to make their final purchases. “I’m so sorry,” they said. “I’m in shock.” “What are you going to do?” “What am I going to do?”

What might have been just a sign of the times in a bigger city was a life-changing and economy-altering loss for Hermitage, the kind of place too far from anywhere to be considered a suburb, but too developed to be considered rural or to attract visitors with small-town charm. The closest thing Hermitage has to a downtown is the intersection where its mall sits, surrounded by McDonald’s, Walgreens and Dunkin’ Donuts. The biggest buildings down the road are Kohl’s, Kmart and Walmart. The retail industry is the third-largest employer in town, just behind health care and manufacturing.

So where is Hermitage?  Let's look at  the map.

As you can see, Hermitage sits about dead center between two "major metros", Cleveland and Pittsburgh, on what used to be some of the best farmland in the world.  Somewhere along the way, probably in the 70s-80s this area was developed as a suburban bedroom community for those cities, as well as the more minor metro areas of Youngstown and Akron.  However, even by the 80s all these towns were in decline in the heart of the Rust Belt.

The neighborhood has no "charm" like an old New England town or an old town along the Mississippi River that got left behind when the interstate highways were built, so it doesn't even have that going for it.  It never developed any real economy outside the service economy for the locals of medical care, restaurants and retail.  With retail going down the toilet, there's not much left there in the way of local employment, and it's not like you can drive to Cleveland to find a high paying job either.   What is left to drive the economy there?  Aging Boomers who are collecting Social Security and Pensions about covers it.

Next let us look at the Demographics demonstrated in this article.  The main focus is on a Jewelry Salesperson who got her job for the Christmas Season, Barbara Cake.

Barbara Cake shows watches to customers at the J.C. Penney jewelry counter. (Dustin Franz for The Washington Post)

But come November, J.C. Penney was still open, and the most important season in retail was about to begin. Sharon Loughner, the general manager, was confident that the rush of holiday customers was on its way and, with little choice of where to go, that they would be coming to her store. She would need more workers to do all the extra fetching, folding, stacking and selling, and so she put out a call for seasonal employees.

Among the parade of well-qualified applicants from Hermitage and towns nearby came Barbara, a 67-year-old woman who seemed to represent all that retail used to be. She was impeccably dressed for her interview. She planned to wear a pantsuit each day. She talked about catering to the customer’s every need. She addressed everyone, no matter their age, as “sir” or “ma’am.”

For J.C. Penney to succeed, it needed employees like Barbara, whose necklace and bracelet, Sharon noticed, coordinated perfectly with her outfit. Sharon thought of the department where the sale of a single item could equal a dozen sweaters in ­revenue.

“How would you like,” she asked Barbara, “to work behind the jewelry counter?”

Wait a minute…since when has a 67 year old retiree been the ideal retail saleswoman?  Back in my younger days, the department store sales people were all in their 20s or 30s the most.  If you weren't out of sales on the floor level and into management or working as a buyer for the store by the time you were 40 you were a complete LOSER.  Now you have aging retirees lining up for these positions which pay barely over minimum wage, and they need to meet their daily quotas too!  Great way to spend your retirement years!  Barbara needs to do this so she can save up enough money to buy Iphones for her Grandkids.

Barbara accepted, not thinking about the arthritis in her hands that would make it hard to work the small clasps, the plantar fasciitis in her right foot that would act up if she stood for hours, the reading glasses she would need to see the small numbers on the price tags. She had been an executive secretary for 30 years, and now, a few years into her retirement, had done the math on her savings, her mortgage payment and her grandchildren's Christmas gifts and decided it was time to return to work.

The job at J.C. Penney was guaranteed only until the new year, but if she worked hard enough, she thought, they might keep her on. As a “sales associate,” she would be expected to sell about $1,500 worth of merchandise a day and would bring home $8.50 an hour, before tax.

She studied up on diamond ratings and learned to lock the jewelry counter’s glass cases to help prevent shoplifting. She learned not to ask if customers had J.C. Penney credit cards, but to assume that they did, so they would feel like they should. “And that will be on your Penney’s card, sir?” She survived Black Friday, perfecting her response to unhappy customers: a hand over her bedazzled brooch and a sincere apology. “I’m sorry, ma’am, we don’t have the Fitbit here.”

It's all so pathetic and sad, particularly considering the people immersed in this decaying culture have no understanding of why it is occuring or why their hopes and dreams that things will improve in the future will not come to pass.  We're not looking at a "cyclical downturn" here, this is a structural problem with capitalism and the energy intensive economy it was built on.  To paraphrase Bruce Springsteen, "The jobs at the Hermitage Mall are going boys, and they ain't never comin' back".


Now Main Street's whitewashed windows and vacant stores
Seems like there ain't nobody wants to come down here no more
They're closing down the textile mill across the railroad tracks
Foreman says these jobs are going boys and they ain't coming back
To your hometown

The jobs that were available to provide money to BUY goods in the retail economy over the last couple of decades were jobs that where the work was SELLING the goods, like Barbara Cake is still trying to do in the Hermitage JCPenney Jewelry department.   The jobs actually MANUFACTURING these goods disappeared in the decades before that and were offshored to places like China, India & Mexico, where labor could be purchased at a much cheaper price.  So there wasn't much left in the way of remunerative work besides becoming a part of the retail/service economy already.

Paradoxically, while by the numbers retail sales have been climbing back out of the sewer since the Great Recession of 2008-10, retail jobs have been decreasing at the same time.  Steve Hansen on Global Economic Intersection recently covered this phenomenon in his article, Death of Retail Employment Growth.

Pundits continue to rejoice in the improving retail sales pointing to an improving economy. But consider this: inflation adjusted retail sales per capita is barely at the levels seen before the Great Recession (blue line in graph below).

The per capital retail spending curve roughly approximates median household income (red line in graph above). Most of the middle and lower classes spend all they make. My point is that retail sales is limited by population and their income.

However, the noteworthy aspect of retail is the contraction of the retail workforce (red line in graph below) all while inflation adjusted retail sales(blue line in graph below) continues to expand into record territory.

Another way to look at the data in the graph above is the rate of year-over-year growth where the difference is more apparent.

Many blame the shakeup on Amazon's AMZN (U.S.: Nasdaq) presence in the retail marketplace. Of course, their e-commerce model coupled with their automation / robotics adoption is putting pricing pressures on the entire retail industry.

While there has been much play in the Newz about automation coming to Driving in the form of self-driving Carz & Trux that will eliminate millions of driving jobs in the Taxi and Trucking industries, in reality the retail industry is much more amenable to automation than driving is, and frankly I am surprised this hasn't gone further, faster.  Most of the Grunt level jobs in retail, be it stocking shelves or running a cash register are extremely repetitive and they exist in a controlled small environment, unlike carz on the road.  Robotic Pallet Jacks could easily negotiate the aisles and stock the shelves and self-checkout scanning kiosks already exist in most of the larger food stores and superstores like Walmart.  So even forgetting for a moment about the transition to online retail through Amazon and Alibaba, any surviving Brick & Mortar stores have a lower potential number of retail jobs that would be available.  1 clerk can monitor 10 self-checkout kiosks instead of 10 clerks on individual registers.  That's a 90% reduction in jobs right there! I can also envision a system where you have to swipe your card and pay for an item even before you take it off the shelf.  This is the way the old "Automats" used to work, where you had to drop your quarters into the slot to get the door to open and take out your Tuna Fish Sandwich. There actually was one of these places still functioning on 14th Street in NYC in the 1970s  when I went to High School in the neighborhood, although they had their heyday in the 1940s to 1960s. Vending machines were the succesor to that. You already have kiosks in the airports for Best Buy where you can swipe your card and get a new Bluetooth Headset for your Smart Phone if you forgot it in the rush to get to the airport.  I can easily see entire aisles in the store with these type of kiosks instead of regular shelves.

There is just about no job in the retail industry that couldn't be easily roboticized, and if BAU were to continue long enough I would certainly expect this to occur.  It is however all extremely energy intensive and very complex, and besides that it still depends on the consumers having MONEY to buy the shit in the kiosks!  Where are they going to get this money?  This sector of the economy is about the last one with jobs left for J6P, what is left after those disappear?

At his point you need to start talking about the UBI, or Universal Basic Income.  Nice idea in principle, but in practice if you pass out a fixed amount of money for people to spend, you ALSO need to control the PRICES for the items they buy with this money, at least the essentials like food, housing, transportation, communications and health care.  Without price controls, the providers of these goods & services will keep raising their prices to the maximum the market will bear, leaving everyone just as impoverished as they were to start with! Fortunately (or unfortunately, depending on how you look at it), I don't expect BAU to last long enough to see all retail and all transportation of goods to be roboticized to any significant degree.  Retail is shutting down already too fast for this to occur.  As I write this article, both Macy's and Sears announced new Store Closures and employee layoffs, in the case of Macy's numbering around 5000 new folks on the Unemployment lines.  Both of these corporations have long been destined for Bankruptcy, and you wish somebody would put them out of their misery already.  Like a lame horse, watching the suffering dragged out is quite unpleasant.

For myself, watching this aspect of our Industrial Consumer Culture head inexorably toward its inevitable death is quite similar to my visit to the Boeing Museum of Flight, where the development of the aircraft industry is celebrated.  There I suffered Cognitive Dissonance between my knowledge of how the aviation industry has expanded warfare and made it more deadly on the mass scale, and my admiration for the technological prowess involved in building these machines.

In this case, while the overall Consumer Culture disgusts me, I admired the architecture and sheer SIZE of these malls when they first went up, and I LIKED having all those stores in one place to walk around to and at least window shop.  At the time I was quite unaware of DOOM and how unsustainable the whole model was, it seemed like this was the mark of a successful society and economic system.  After all, here in the FSoA we were shopping at STOCKED Malls, while the Soviets over in the USSR were lining up just to buy food at the grocery store!   Capitalism was SUCCESSFUL!  Communism was a FAILURE!

There was a certain amount of truth to that also, looked at in terms of Instant Gratification.  What the system was doing though was mortgaging out the future, with the expectation of an infinitely growing economy, which is of course impossible in a Finite World.  Capitalism was a fabulous model for burning through resources at the fastest possible rate, meanwhile creating waste and pollution at previously unimaginable levels.  One trip to the dump or the "landfill" in your neighborhood should be enough to convince anyone with functional brain cells the model is not sustainable.*489/120709+landfill.jpg

So where do we go from here?  For a time, Amazon & Alibaba and other online retail will replace the Brick & Mortar retailers, but they also are limited in their lifespan and will last an even shorter period of time than the malls did, which if you count it from the very beginning in 1980 or so to say 2020 was 40 years.  From my POV, the online model gets max 10 years from now, but that is only assuming there isn't a collapse of the Monetary System or a major Thermonuclear War.  Even without those cataclysmic events though, if the consumers are not being issued out enough credit to buy the merchanidse, it just won't sell.  An ever decreasing percentage of the population has access to such credit, generally issued out in the form of wages.  Without a UBI or something similar to keep the commerce going, it's finished.  As mentioned above though, UBI has its own set of problems, and besides that the political and financial Elite are not predisposed to handing out Free Money to anyone but themselves.  If all else is failing though, it may be undertaken and work for a short period of time.

What comes after this is anybody's guess, although it is likely to be a much more local system utilizing direct barter rather than money.  Also nearly certain at this point is an enormous reduction in the global population as the overall syatem of money and trade fails in ever larger circles beyond just the retail goods sold in malls.  In fact in many of the poorer countries, large segments of the population are already being priced out of affording food, which leads to increasing political destabilization in those countries.  Some quite large countries like Iran and North Korea can be included here, and these countries have means to strike out militarily if existentially threatened by food shortages, which seems likely.

Until this does turn into an armed conflict though, the best the local in any neighborhood can do is to try and develop some Food Security with long lasting foods in storage or means to grow your own, or both.  If you have lived inside it for a lifetime as I have, don't feel too guilty about mourning the demise of the Malls and all the great stuff they were selling for the last 40 years.  It was a dream, a hallucination, a mirage sold to all of us by those who stood to make an enormous profit from it and live richer than any King, Pharoah or Emperor from the past.  Unfortunately with such dreams, you eventually do wake up from them, and reality sets back in.  Then you gotta deal with that.

Shades of 1928

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Published on the Economic Undertow on December 7, 2017

Discuss this article at the Economics Table inside the Diner


Led by these mighty knights of the automobile industry,
the steel industry, the radio industry… and finally joined
in despair, by many professional traders who, after much
sack-cloth and ashes, had caught the vision of progress,
the Coolidge market had gone forward like the phalanxes of Cyrus,
parasang upon parasang and again parasang upon parasang …





— Prof. Amos Dice, from ‘The Great Crash’ John Kenneth Galbraith




Since 2009, Americans have been privileged to participate’ in one of the great Wall Street bull runs in history. It is the longest other than the rally from October, 1990 until March of 2000. There have been other great runs; none quite so bizarre as ours considering the economy of much of the world is coming apart at the seams. Credit the banks and their ability to make magic, to lend enormously into the void, to deny reality.

Figure 1: Dow bull markets compared, Notice the little green line that goes up and down precipitously – the Roaring Twenties: (Schaeffers Research).

Bull markets are both psalms and proverbs of the progress narrative; they are driven by ruthless Ayn Randian ‘innovators’ and risk-taking ‘entrepreneurs’ who become rich by dint of their genius, producing gadgets heretofore only imagined, items revealed in the fullness of time to be indispensible.

The car industry is central to this narrative, its products and dependencies were the ‘tech story’ of the 1920s, as smartphones, and Bitcoin are today. Like today’s gadgets, the auto was disruptive: cars were fun to play with and conferred status on the owners. Driving challenged operators as there were multiple ways for the things to murder- strand or otherwise embarrass those who were unlucky or not paying attention. The challenge was part of the fun: industrial workers generally served the needs of their employers, they were slaves to the machines. Cars worked the other way ’round: the machines answered the desires of the operators, the interactivity between the two was a novelty.

More practically, cars offered an alternative to the grip of railroad monopolies and from the, uh … ‘languidity’ of shoe leather, horse-drawn carriages and steamships. It also promised to transform what up to that point had been an unending liability — distance — into an massively valuable asset. Talk about progress: America was a big country that was largely ‘underutilized’. The auto would convert scruffy backlands and hard-scrabble farms into valuable suburban developments; the farther away they were the greater need for auto ‘tech’! Adding more suburbs meant adding more automobiles. The more automobiles, the more areas to be set aside to accommodate them. Needless to say, the money-making potential of this process appeared to be without limit.

For the car industry, its rise was universally virtuous, coinciding as it did with Wall Street finance, the rise of media and marketing, of oil extraction and processing; of industry itself: steel and radio, heavy manufacturing and construction, tool-and-die making, foundry, precision machinery and materials handling equipment along with incremental automation. Along with millions of new cars, thousands of destinations were needed along with new paved roads to knit them together: all of this offered the promise of millions of new jobs. Also, service stations, refineries, pipelines, terminals and ports: electricity would be needed to power these things, money was needed to pay; in advance, on the barrel-head, borrowed at six percent or better.

During the ’20s, government was oblivious; the freshly elected Hoover regime of 1928 was like all others before or since: a prosperity government. The idea behind modern politics is that the various publics (and their bosses) are entitled as a birthright to live beyond their means. It was and is the responsibility of government to provide … or else a new collection of big-business lackeys government would be installed.

Part of governments’ responsibility is to make necessary resources available to business cartels at the lowest possible cost. Politicians were expected to lightly manage the prosperity that resulted; making certain that those at the bottom of the economic food chain were not over-supplied. The expression of this idea can be found in every kind of government including the dictatorships, republics and monarchies, constitutional and otherwise: all of these are prosperity governments. The various politics functioned more or less because there were always more resources to exploit: apparent resource growth and accompanying gross domestic product was able to race ahead of populations and their advertising- driven expectations.

In 1928, both government and industry were eager to genuflect in the direction of self-serving pieties. The tried-and-true (antiquated) ideologies of gold standard, ‘sound money’ and laissez faire non-interference in private sector affairs were universally embraced. Regulation was an anathema, government borrowing during peacetime was frowned upon, neither of these conformed to the ‘small government’ orthodoxy of the time. Regulation would only stifle innovation. Public sector borrowing could only crowd out private borrowers and starve businesses of funds. Yet, even as the car- and related industries expanded explosively using borrowed money, borrowing at the consumer level — top line business revenue, cash flow — was faltering. Deprived customers, the ‘little fish’ at the bottom of the economic food chain were unable or unwilling to borrow to service and retire the industries’ heavy debts.

The American middle class at the time was enthusiastic but too small to carry the burden assigned to it. Most of America’s 120- or so millions were small farmers or laborers providing services related to agriculture. Returns were meager; farmers swept up relatively inexpensive, durable Fords and retired their horse carts, by doing so they removed themselves from both cart- and car markets. Non-union industrial, service, extraction labor tended to be ‘wage repressed’; only a few could afford to buy a car. Accounting, management, retail, marketing, clerical and other ‘white collar’ employment was paid well enough but represented a modest fraction of the workforce. They filled the big cities’ close in ‘trolley suburbs’; they were not inclined to buy second or third houses … or second and third cars. By the start of the Hoover period, the markets were on their way to becoming saturated. Demand for goods started to decline and then commodity prices. Instead of the once-certain returns from industry, there was a more general turn toward speculation financed with debt ‘on the margin’.

“Mitchell asserts stocks are sound; Banker, Sailing From Europe, Says He Sees No Signs of Wall Street Slump. Predicts more mergers, declares Movement Will Continue With “Fusion of a Number of Big Banking Groups.”

— New York Times. October 16, 1929




By October, 1929, the government had made itself irrelevant almost by habit; business was left to its own devices. Managers appreciated this but did not grasp the consequences: they were marching purposefully into a pit of their own making, there to remain until the rise of a more ‘innovative’, ‘entrepreneurial’ government in Hitler’s Germany … and the world’s necessary response to it.

Dow crosses 24,000 mark as banks climb, techs rebound





(Reuters) – The blue-chip Dow Jones index raced past the 24,000 mark for the first time on Thursday, propelled by further gains for bank stocks and a recovery in technology shares.

The 30-member index has crossed four similar 1,000-point milestones this year on the back of strong corporate earnings, robust economic data and hopes that President Donald Trump’s tax plan would make headway.




Today, the government purposefully aims to do the same thing, to become irrelevant, to shrink itself until it can be drowned in a bathtub; to give free rein to gamblers without heed, to do so in order to answer obsolete ideological concerns. How can this end well? Speculation by nature escapes all bounds, taking on a life of its own. In the late ’20s there was a speculation frenzy in stocks and real estate. Now it’s bonds, stocks, real estate, art … the ‘everything bubble’. The consequences are not grasped: the fact of out-of-control speculation indicates the economy of physical goods and services is kaput: there is no more ‘real economy’: it’s gambling or nothing.

Stock prices have reached “what looks like a permanently high plateau,” Irving Fisher, Yale economist told members of the Purchasing Agents Association at its monthly dinner meeting at the Building Exchange Club, 2 Park Avenue, last night.





After discussing the rise in stock values during the past two years, Mr. Fisher declared realized and prospective increases in earnings, to a very large extent, had justified this rise, adding that “time will tell whether the increase will continue sufficiently to justify the present high level. I expect that it will.”

— New York Times, October 16, 1929




Now as then, bank money flows like a river into speculative assets driving up prices without any change to the nature of the assets themselves. These loans are basically unsecured. Giant firms borrow to buy their own shares, removing them from the float of those publicly available. The resulting scarcity premium is added to ‘fundamental’ share prices. There is nothing else to justify the increase; a market manipulation that has little- or nothing to do with firms’ returns.

The credit flood increases because it must; how else to meet the credit-driven high prices? Going forward, there is no other choice but to lend and to do so without restraint. Industrial business is fundamentally non-productive: it exhausts its capital and ‘manufactures’ entropy as its sole product. Neither the exertions of human labor or the application of new machines can hope to retire industrial debt. Only more loans can do this: lending must continue to expand or the entire enterprise falls off the cliff: ‘once on the debt treadmill it is impossible to step off’ …

While not all land speculating met with success, most investors in the beginning stages of the Florida Land Boom made a profit selling the land to others. An elderly man in Pinellas County was committed to a sanitarium by his sons for spending his life savings of $1,700 on a piece of Pinellas property. When the value of the land reached $300,000 in 1925, the man’s lawyer got him released to sue his children.





— Florida History




Fool me once … fool me over and over again! Even if lending continues without hesitation or restraint, it cannot do so forever as service costs are compounding, at some point marginal lending capacity is directed to debt service: the true ‘Minsky Moment’.

Moas now puts the line in the sand at $20,000 for the split-adjusted price when the new year hits. Looking at how things have gone so far for Moas, a month is a long time, and perhaps $20,000 will be broken before that time.





Tom Lee, rather conservatively, set a Bitcoin growth of 40 percent to happen by the middle of 2018. His prediction put him at $11,500. That prediction was made a week ago, and in that time Bitcoin topped at around $11,300.

Max Keiser has a much more bullish view, but over a longer time frame as the host of Russia Today’s Keiser Report believes that $100,000 Bitcoin is an eventuality.

— Coin Telegraph, 2017





Excess credit inflates the cost of new bitcoins which are basically math puzzles requiring increasingly expensive computing power to solve. Interesting … but to what end? The entire enterprise is the red-headed stepchild of unrestrained leverage: without bank credit, the gambling component and higher ‘bubble’ prices, bitcoin transactions and the infrastructure that supports them would be unaffordable. Like the incestuous/harmonious circular relationship between automobile and suburb, the relation between leverage and the ‘pseudo-currency’ is virtuously self-amplifying … up to a point: more bitcoins => higher prices => more bitcoins. In the end, the regime self-defeating because of the exogenous credit (and electricity) requirements. More suburbs => more cars => more sub … oops! More suburbs means older ones cannot generate the revenue needed to maintain them. More cars means it’s impossible to get anywhere because of the traffic!

The cryptocurrencies are Ponzi schemes, little different from those erected by Clarence Hatry and the ‘Match King’ Ivar Kreuger in the 1920’s. The term ‘currency’ here is simply a narrative flourish intended to shill the Ponzi as ‘innovative’. As with all other schemes of this sort the great majority of suckers who ‘invest’ in cryptos will lose everything, like those who invested in Goldman-Sachs’ Shenandoah- and Blue Ridge Corporations just before the crash:

Most exciting of all were the holding companies and the investment trusts [in the very late 1920s]. Both were companies formed to invest in other companies. And the companies in which they invested, invested in yet other companies that, in turn, invested in yet others. The layers could be five or ten deep. Along the way bonds and preferred stock were sold. The resulting interest payments and preferred dividends took some of the earnings of the ultimate operating company; the remaining earnings came cascading back to the common stock still held by the promoters. Or this happened as long as the dividends of the ultimate companies were good and rising. When these fell, the bond interest and preferred stock soaked up all the revenues and more. Nothing was left to go upstream; the stock in the investment trusts and holding companies then went, often in a week, from wonderful to worthless. It was an eventuality that almost no one had foreseen.





— ‘The Age of Uncertainty’, John Kenneth Galbraith




Nothing lasts forever, particularly bull markets. Hyman Minsky observed periods of prosperity and accompanying bull markets carry with them the seeds of their own destruction. Certainly after almost ten years of credit floods and manipulations the seeds are ripened.

If you see a Swiss banker jump out a window, jump after him. There’s surely money in it.

— Voltaire




Just don’t jump out unless it’s close to the ground, good advice that’s rarely followed. Both manias and crashes are expressions of the ‘Paradox of Thrift’, a condition that ordinarily prohibits one-way markets — one where all are buyers or all sellers (or all are thrifty). One-way markets cannot exist for long without severe consequences. A market where all participants are buyers means a market that is ultimately deprived of them. Everyone who is willing to buy expensive bitcoins, tract houses, Leonardo paintings, Manhattan penthouses, Tesla shares has done so: no one remains able to ‘buy from the buyers’. A market where all are thrifty is one where money is ‘saved’ out of circulation so that day-to-day business becomes impossible. A speculators’ market unravels when the supply of free-spenders is used up, then all are forced by conditions to become sellers at once …

Over time, citizens have been made over into ‘consumers’, investors have been forced into becoming speculators: this is the paradox of non-thrift. Americans are forced into penury on account of it, there is too much ‘stuff’ too much quasi-businesslike nonsense; goods have been over-consumed leaving markets that are saturated. As during 1928, businesses cannot endure periods when there is no consumption and they fail, the outcome is the same as too much thrift. Instead of a shortage of currency, there is the shortage of timely demand.

Unknown photographer, crowd outside the New York Stock Exchange building during Black Thursday, 1929.

Q: How would you describe the economy?


A: It is a system that allows a select few to borrow immense fortunes. The rest of us; you, me, everyone else, repay the debts.

Q: That’s it?

A: That’s it.

Donald Trump’s tax plan may not be perfect but its timing is: The world’s powers have just wrapped up their central banks’ Quantitative Easing giveaway to tycoons and corporations that began in 2009. Now the tycoons look to government with upturned fluttering hearts. In any case there is little but obligations for those at the bottom of the economic ladder. An unhappy consequence of QE was the oil price crash of 2014. As in 1928 the little guys lacked the credit to bid up the price of fuel. Without high prices, oil drillers were, and still are, underwater.

Tycoons and corporations have taken on more than debt than the rest — and their children — can ever hope to repay. Without credit access to those at the bottom of ladder, the tycoons must retire their own loans. By doing so they become non-tycoons just like everyone else. Thrift — whether it’s intentional or not — denies the tycoons funds, they are ruined by their own creditors, the creditors are likewise ruined. This is happening right now, behind the speculative razzle-dazzle; the steady pauperization of those at the bottom. The rise in asset prices offers a false impression, or more likely, gives a warning …

The only market indicator that matters, the price of gasoline: $2.50 per gallon is affordable for most Americans, over $3.50 and ‘problems’ start to appear in various world credit- and currency markets as they did in 2008. A worrying sign is the nearly three dollar price jump for premium gas, the kind required for luxury- and high performance cars. No wonder owners of these cars are begging for a tax cut.

Keeping Up Appearances

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Published on the Economic Undertow on October 18, 2017

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As the US stock market reaches new all-time highs day after day after day, people ask, “When is your decline going to start? You promised!”

They are gracious, they leave out the, “you fucking idiot!” part.

When indeed is the ‘Big One’? Prognosticators announce impending catastrophe and it never happens. Prophets of doom are pilloried … the deflationary collapse never takes place. Instead there are the Pollyannas: “The good times are here, forever. You lost! Get over it!”

The overabundance of good times is certainly why every year thousands of ordinary suburbanites are overdosing on heroin: they obviously can’t stand all the winning! It turns out too much of a good (any)thing is toxic; more success and half the people in the country will be shooting Narcan into the other half. Meanwhile, ‘Brand X’ prognosticators are accused of crying wolf too often. Good grief! The wolf-criers are necessary because they create the ‘Wall of Worry’ that all bull markets must climb in order to reach new highs. Here is irony at work: we are murdering ourselves by way of our prosperity at the same time there is nothing we can do- or are willing to try in order to save ourselves from it!

Predicting out the future is … well, you know. The US government spends hundreds of billions of dollars to gather intelligence to predict … just about anything. There are a thousand different bureaus, agencies, organizations, one-man shops, Silicon Valley startups; also satellites, spy ships, aircraft, torture chambers, radio- and Internet intercepts: there are snoops, informants, analysts; the world is crawling with spies. None of above were aware the Soviet Union was about to come undone, they were unaware even as the collapse was taking place! None of these agencies foresaw the ‘Arab Spring’. They were caught with their pants down by every one of the various oil crises even as these were telegraphed by conditions on the ground well in advance. Analysts missed the fracking ‘revolution’, a forty-year old technology by the time it was finally deployed. Analysts missed the massive post-80s industrial revolution in China; they skipped school prior to the rise of #ISIS even though they had a hand in its creation. The analysts, bosses, money managers and central bankers missed one finance crisis after the other, they also didn’t recognize the tsunamis of excess credit that preceded each and every one of them. The word we look for here is ‘hard’. If it was easy to see into the future, everyone would do it and future would never happen, it would be predictable, like the past. Nothing would ever change. Predictability, permanence and stability … In a sense, the inability to predict serves our immediate interests. Predictability suggests ‘civilization’. We don’t want that.

We also don’t want a crash, that includes everybody in- and out of finance. Everybody wants to keep their jobs or get better ones, they want to keep their yachts and private jets, bonuses and stock options: we all have bills to pay. Even a modest decline in asset prices would mean collateral damage, (the) over-leveraged banks would be rendered insolvent. A 1931-style banking crisis would be devastatingly worse; managers are determined to do whatever it takes to prevent one. They’ve had almost ten years of practice as well as vast resources that can be brought to bear: key men are propped everywhere, there are bailouts. Moral hazard is infinite, real interest rates are negative. Banks effectively pay their largest clients to borrow — businesses, governments and tycoons. The statisticians lie, the media lies, economists are clueless and then they lie. Companies use cheap money to repurchase their own shares = these are Ponzi schemes. Manufacturers stuff inventory channels. Loans are extended to any- and all life forms that can draw breath. Because wars are good for business there are wars. Because depredation of nature is good for business our world and everything in it is … degraded. Because the economy is built around endless business expansion, there it is. If real expansion isn’t possible because of natural resource constraints, there is the fake expansion. We have become extraordinarily good at kicking the can, at keeping up appearances. This is why there is no crash today … we’ll worry about tomorrow when it comes. We predict the static condition of endless growth and by doing so we create it. The outcome is the bizarre, twilight ‘anti-civilization’- overly medicated world we have stuck ourselves with because we have given ourselves no other choice.

Figure 1: US GDP since the end of World War Two (Chart by Fred, click for big): Just as nobody correctly predicted collapse, nobody predicted our prosperity! Who in 1950 could have possibly guessed?

Looking at this chart it would be safe to predict national income would continue going forward as it has in the past. Yet, for most of human history the line was flat or changed very slightly, tracking the rise- and fall of human population. It summed up what resources (capital) could be accessed with muscle- and animal power, plus water, wind and firewood. As it is, everything below the blue line represents the total natural capital converted into waste by industrial America over the past 80 years = the ‘liability’ side of the GDP balance sheet. This is capital that can never be accessed a second time. The implication is there is are limits and that they are closer than they were 80 years ago. What the chart cannot indicate is how much capital remains accessible or how long it might take to exhaust it. As such, national income is an inadequate forecasting tool.

During the 82-year period on this chart there have been eleven recessions, added together these amounted to a total of 35 quarters, eight-and-a-half years of downturns. This means the US economy experiences declining growth about ten percent of the time with incidences being for the most part relatively brief, less than a year. Past performance suggests the next eighty year period will be similar with the economy being in recession about ten percent of the time. This isn’t set in stone: countries such as Australia and Netherlands have been able to avoid recessions for long periods; 25 years and more. An argument can be made that no obvious reasons exist why the US cannot do the same.

American recessions have tended to follow the credit cycle; periods of expansion followed by inventory buildup then fire sales. Credit is expanding now but this only feeds the illusions, (Andy Xie):

The mistaken stimulus (bank lending) has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the ­other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

Banks simply trade each others’ securities back and forth using self-generated credit, all the while pretending the process means something. As long as the banks can preserve the illusion of solvency the process can run on indefinitely: Dow 45,000,000.

Maybe not: the end comes when debt service costs consume total borrowing capacity; a ‘Minsky Moment’; what occurred in Argentina and Greece and is underway in Venezuela.

The end comes when finance players are perceived as insolvent in the way of Walter Bagehot:


“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone … “

This is what happened to Lehman Brothers in 2008: they were considered insolvent despite the protestations and proofs offered by the company, they could neither borrow nor lend, their credit was gone. And because Lehman was in most ways ‘like’ all the other money-center banks, it’s failure reflected on the others, their credit was gone as well.

The outcome was a bailout by the government and Federal Reserve: funds were handed over to the banks no questions asked, funds borrowed from the exact same banks that were bailed out! Outrageous … there was nowhere else the funds could have come from: the $700 billion dollars demanded by Treasury Secretary Hank Paulson in September of 2008, “Now or Never”- plus the tens of trillion$ offered afterward by Bernanke! Both government and Fed held their noses and ignored the widespreading rot and criminality. There was grumbling from the public but soon enough they followed the ‘lead’ of their betters, and why not? The alternative was a smashing depression that nobody wanted. Over time, the banks were seen to survive, executive bonuses remained intact: fakery succeeded and perceptions changed. A handful of companies were sacrificed, others nationalized or gobbled up by other firms. Meanwhile, ‘Green Shoots’: the sub-$40 oil prices of 2009 allowed the consumers to jump back into their SUVs and start shopping again, leading everyone to the point, “When is your decline going to start?” When, indeed …

Keep in mind, the Lehman debacle was part of a crisis that only a handful were able to foresee. Here is a proven forecasting tool, the Economic Undertow ‘Triangle of Doom™’:

Figure 2: Triangle d’ Doom, (by TFC Charts, click on for big): The descending trend line suggests the real credit capacity is shrinking. In 2008, the high price was $147 per barrel. By 2014 the triggering price could only reach $115 … there was insufficient credit to allow end users to bid past that price! All else being equal, the price high-enough to cause a credit event this year would be about $90 per barrel. If the price was that high, everyone would be feeling it including traders on Wall Street. The current price range of $40 – $60 per barrel represents a significant discount. It’s high enough to constrains consumption to some degree — by historical standards $50/ is high — but it’s not high enough to walk the system off the plank.

The smallish crash in the energy sector is why we haven’t had the giant crashes everywhere else. Even as low prices hammered drillers and fuel speculators, they saved the rest of the economy and boosted the stock markets! The drillers are further underwater than ever but this does not matter as they were underwater at the higher prices, they simply borrow more. Their job is to keep bankruptcy at bay each day as it comes … while looking for tomorrow to take care of itself.

The question next is how long would it take for declining credit sufficiency to cause the current fuel price to be ‘too high’?

Figure 3: The Triangle of Doom Extended (click on for big); this is a better representation of the trend line than Figure 2 which does not include the highest price point in 2008. Extending the line suggests a few more years of ‘cheap-ish’ fuel before even that price is unaffordable and the fuel regime collapses: roughly 2022. It could be a bit farther out or there could be another fuel price collapse. Should the Minsky Moment arrive or a major bank fail, the crisis would occur sooner.

Creditworthiness is an analog for available resource capital. As capital is exhausted, a greater proportion of what remains must be deployed to extract and consume what little remains. At some point this process itself … becomes unaffordable. Even now, end users’ credit access is up for grabs. Moral hazard, low interest costs and current monetary policy shift credit away from customers toward their vendors, tycoons and finance itself. As the customers are ’emptied out’ and fall by the wayside support for those who depend on them and their flow of credit evaporates: over the longer term, tricks used to keep up appearances cannot substitute for top line revenues and actual solvency.

… and It’s called ‘progress’.

In the ‘old days’ civilizations were local. One could fail ‘over here’ even as others survived ‘around the corner’. Our industrial waste-based economy is global; universality brings all resources including crude oil within our grasp. Regardless of the markets, resource exhaustion is ongoing, this is the background story: it must be paid attention to. Everything else we do is part of the fooling ourselves process.

The goods offered by now-obsolete civilizations were permanence and stability. These are not really goods at all but rather moral virtues representing the ascendance of human ambition to an idiosyncratic upper limit of physical and mental development. Periods of high civilizations were considered to be ‘golden ages’ and for good reason. The narrative was one of humans emerging from animalistic savagery and barbarism, evolving to the point of imagining themselves possessed of the characteristics of gods. Reaching this near-godlike state was meant to be permanent; why not? If not actual gods how about the next best thing? The dynamic was virtue — civic and otherwise — leading to its attainment set in granite; ‘how to’ could only be earned with mastery and sustained effort. The means to virtue was self discipline, creativity and imagination. The civilized were certainly not paupers but it did not matter; the civilized whole was always greater than the sum of individual components.

Fast forward; godliness has been reduced one of a long line of frauds and sales-pitches, replaced by consumer goods and the banal processes to emit them. Virtue to- permanence is the antithesis of economic growth. Permanence means no markets for (new) smartphones, ‘e-cars’ or tract houses every other year or so, it also means nobody cares whether they have these things or not. Social media gadgetry, Sheetrock and plastic junk are offered up as aspirational, but these are meaning-free counterfeits, available to anyone with a charge card. In the place of civilization we have ‘the’ economy: it permits us to buy, to speculate, cannibalize, burn and waste and to borrow. Economy doesn’t allow us to ‘create our way out of the box’ — any box. Creativity gets in the way of the buying and the borrowing needed for the economic throughput regime to continue. Economy exalts mediocrity, sameness, loss of identity and transience, all in the service of fashion as the highest and most comforting (non-) virtues. The standards industrial economy set for itself are minuscule, the bar is always low, stumbling over it is easy, the costs, so far, are low. At the same time, the inability to stumble is never enough to undo the project. In this way mediocrity ‘normalizes’ or recalibrates the meaning of success in all the different ways to serves itself … to the point where half the people are busy reviving the corpses of the other half.

Mediocrity is itself an industrial product like (canned) pleasure and the ‘good jobs’ that never materialize. The physical products of industry are clichés rendered as such by design, they are the containers- or bearers of mediocrity. The mediocratic status of the products reinforces that of the enterprise that extrudes them like turds from the endless furnaces, pit mines and assembly lines. (False) hope — marketing — propels the process, the promise of something better, of a slightly less mediocre tomorrow. No wonder we are in a state of clinical depression: it’s “gimme the dope or get me out of here”! By jettisoning civilization we have left ourselves with nothing to reach for, we are stranded in the twilight, half-men, no longer godlike but not quite devils, either. We have become nothings, we are the sour taste inside our own mouths.

Growth has become the only permissible revolution against the status quo. ‘Old stuff’ is never good enough except with the added ‘nostalgia premium’. The imperative is always more, everything ‘more’ must be new. All else is subject to ‘creative destruction’. Even as these old things are proven useful, they ‘stand in the way of progress’ so out they go! Where does that leave us? Waiting for our chance at the Narcan.

Mismodelling Human Beings

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Published on Credo Economics on July 21, 2017

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“rational economic men” in love, politics and everyday life

This chapter explores the assumptions about human nature on which mainstream economics is based. The description of “rational economic man” ignores most psychological and psychotherapy understandings of people.

Key to the conceptual confidence trick are assumptions about what people in general are like. It is all based on an implicit modelling of human beings. Certain types of behaviour (the type that allows economists to model people and markets) are called “rational”. Now, you might think that this description of people is meant by economists to be applicable only to economic and market activities. Certainly this was the point of view of one of the founders of the famous Chicago school of economics, Frank Knight. Although committed to the alleged virtues of the market, Knight was not naive about how far you could take economic analysis. In his book Risk, Uncertainty and Profit he concluded that economics only applied to the satisfaction of wants, and that this business of satisfying wants by no means accounted for all of human activity. Indeed Knight questioned how far one could go with a “scienti c treatment” of human activity and wrote of his own views:

In his views on this subject the writer is very much an irrationalist. In his view the whole interpretation of life as activity directed towards securing anything considered as really wanted, is highly artificial and unreal. (Backhouse, 2002, p. 204)

Some contemporary economists of the Chicago school don’t see it this way. If people are calculating their individual self interest in their economic dealings why should one assume that they do not do the same thing in their political, their social and their interpersonal dealings? Should we not also assume that government ocials are calculating their interests too? At the very least, why should contact between business and government not lead to a cosy relationship, particularly if people can leave government posts and get lucrative jobs with industry? What about bribes and kickbacks from business for special favours?

As I argued earlier, we can take the idea from Anaïs Nin that we do not see things as they are – we see things as we are. There is likely to be a loop in which a theory which describes how people are assumed to be, when powerfully propagated in textbooks as “social science”, will have an influence on how people behave. With economics we have a theory which argues that if people just look after their own interest that’s OK because “an invisible hand” described by wizard intellectuals delivers an approximation to an optimal allocation of resources. Under the influence of a view like this, concern about what is in a wider interest is not likely to blossom. It is unlikely to figure as a motivation or concern. As individualists people will look no further than themselves. They do not need to look further than themselves because the “invisible hand” will do the rest.

It is quite logical to believe that if people are actually like this then their attitude to the community and to the state will be framed in the same terms. Such people, customers of the state, rather than citizens and members of communities, will then have an interest in getting the best deal from the state to pursue their own individual agendas.

the context of Keynesian economics

When I studied economics at the end of the 1960s, the textbooks, for example by Paul A Samuelson, pictured a world where the state was essentially benevolent and independent from business. A democratic process determined what policies the state would adopt and economists were the technical advisers making clear what the policy options were. There was an implied idea that governments, politicians and public offcials would regulate markets without being contaminated by the self-interest motivation of those markets. The idea that the state could be captured by business interests while the majority of the people were effectively excluded from real influence was not expressed in the textbooks.

At that time, at the end of the 1960s, experience of the depression and then of the war had left an effect on public consciousness, including the consciousness of the elite itself – and it left its mark on economics. Fighting the war had been a massive common project which was collectively transforming. The values of British people shifted as a result of the equalising effect of the Second World War – rationing, conscription, the abolition of first class carriages in trains, evacuation and sharing bomb shelters. Military outlays as a per cent of national income in the UK went from 15% of national income in 1939 to 44% in 1940 to 53% in 1941 and as high as 55% in 1943. (Harrison (ed), 1998) After the war, the sense of what could be done when people worked together and decided what was a priority was quite different and there was a collective rejection of the idea of returning to the politics and economics of the 1930s. (Addison, 1975)

This was the context in which the welfare state and Keynesian economics was adopted. The allocation of resources mobilised for, and by, the state was something that a majority of ordinary people believed in. The mood was little different in the United States too, albeit that the US, having won the war, went straight into the cold war, involvement in Korea and the anti-communist hysteria of McCarthyism. Nevertheless there was a different context for textbooks like that of Paul Samuelson.

But by the late 1960s things were beginning to change again. Young people like myself took the welfare state for granted and chafed under the authoritarian paternalism of the elite. These conditions created the basis for a valid questioning of the disinterestedness of the state and its o cials. This idea evolved into “the new left ” but also towards the political right. A very different analysis to that of Samuelson in regard to the relationship between business and the state took hold in economics.

the rise of the chicago school

The idea that the state could be, and was captured by interest groups was valid. The hostility to the communist planned economy, the personal libertarianism born in cynicism about the paternalism and corruption of officials, as well as by backlashes against politicians, officials and the state, led to the growth of fervent market fundamentalism spearheaded by economists at Chicago University. Their ideal was to go all the way and for the state to be driven out of market activity to the maximum extent possible.

Milton Friedman and Arnold Harberger welcome the boys to class at the Chicago school of Economics.
Milton Friedman and Arnold Harberger welcome the boys to class at the chicago school of Economics.

To a new generation of Chicago economists, the rational utility calculating individual was a description that could be applied to the understanding of all human behaviour, not just that in the market place.

For example, to Gary Becker at Chicago, racism is a preference choice of who you want to live near and who an employer might want to employ. Note, Becker did not see himself as endorsing or condemning – he merely saw himself explaining and drawing out the consequences.

The model of “rational economic behaviour” was used by Becker and another theorist, Richard Posner, to explain “love”, marriage and prostitution in a utilitarian framework. Marriage is a relationship involving “reciprocal service provision” which saves on the transaction costs like pricing each “service” that a couple provide for each other, as in removing the need to keep accounts for these services. In this way of thinking prostitution is, by contrast, thought of as a “spot” sexual transaction where it is “more efficient” to pay for the service in money.

The same approach is used by Becker to explain crime. Most people don’t steal because it would not be profitable but in the life circumstances of criminals, the rational maximisation of costs and bene ts of crime does make it pay. This is another form of the redistribution of income in the same broad category as government welfare programmes. (Nelson R. H., 2001, pp. 166-189)

The trouble with this view is that it is at best tautologically true in a sense that is banal. People do things because they want to and thus, they must get satisfaction or utility from doing and deciding what they do. However, it makes little sense of the many actions taken by people where they are con icted; where they act in ways that involve self-sacrifice for moral reasons; where there is genuine anguish about their difficult decisions and where they do things because they think they ought to, not because it gives them any satisfaction at all. They act altruistically, get depressed, act out of compassion, and do crazy things. None of these fit into the model.

a faulty view of humanity

As Kalle Lasn puts it, in the book Meme Wars: The Creative Destruction of Neoclassical Economics “Neoclassical economics has achieved its coherence as a science by amputating most of human nature.” (Lasn, 2012)

This amputation is done on the assumption that unless some internal measure of happiness or freedom from pain – utility – acts as a common yardstick, it is not possible for human beings to evaluate between options and make their choices. However, as philosopher Alan Holland points out:

Happiness is not a homogenous item, but a mosaic of heterogeneous elements. There is just no common substance – no utility – by which to compare, for example, the suffering experienced by an experimental animal with the understanding gained by the experiment. Nor is this a point about moral reasons only but about reasons generally. The determined egoist, confronting a chocolate bar that will ruin his or her waistline, will soon find that he or she has to decide between vanity and greed, and will just as surely fail to find an appropriate value in terms of which to compare the alternatives. Self-interest is not such a value as it is as heterogeneous an objective as happiness. (Holland, 2002, p. 27)

As the example of Britain after World War II shows, values shift according to social, economic and political conditions. This alone makes nonsense of the idea that people are driven by personal utility calculations in the manner described by neoclassical economists.

Rather, psychologists have looked at what motivates people all around the world in different cultures and have come up with a more complex picture. Decades of research and hundreds of cross-cultural studies have identified consistently occurring human values which can be grouped into ten broad categories: universalism, benevolence, tradition, conformity, security, power, achievement, hedonism, stimulation and self-direction. (PIRC, 2011, pp. 12-20)

Each of us is motivated by all 10 of the value categories, albeit to varying degrees – and the ten groups of values can be divided along two major axes:

1. Self-enhancement (based on the pursuit of personal status and success) as opposed to self-transcendence (generally concerned with the well-being of others)
2. Openness to change (centred on independence and readiness for change) as opposed to conservation values (not referring to environmental or nature conservation, but to “order, self- restriction, preservation of the past and resistance to change”) (PIRC, 2011, p. 17)

Mainstream economists have identified a part of what motivates people but mislead because they have too narrow a view. The values that economists describe as motivating people are best described as “extrinsic”. Values that are centred on external approval and rewards e.g. wealth, material success, concern about image, social status, prestige, social power and authority. However, people are motivated by intrinsic motivations too. One of the themes of this book is to show that we get a clearer picture of reality when we describe actions and economic consequences arising from different starting motivations – some of which are anti-social and some of which are pro-social.

Navigating 21st Century Hopelessness

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Published on The Doomstead Diner July 16, 2017

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Is our techno-industrial way of life fundamentally benevolent?  Is it advisable to continue perpetuating a civilization that is predicated by non-renewable fossil energy sources as well as unsustainable rates of renewable resource extraction?  Our civilization requires an ever growing GDP to be considered healthy.  This is a measure of production in terms of consumption.  Our literal benchmark for the health of our society is based on how much we can consume in a year as a nation.  The reason for this is to create monetary profit for the individuals of this society whom have shares in the corporations controlling this production.  The actual physical wealth of the world is subjugated to the tune of dollars and cents.  To make this pathway possible it requires a proletariat class willing to sell their lives for an hourly rate.  This hourly rate is the lowest possible rate so as to not reduce the profit that’s stolen from the resources of the Earth and the energies of its peoples.  This hourly rate is about making money and not about stewardship of any kind.  It does not have to be like this, but that is a delusory sentiment based on idealism. 

The road to ruin for our species began with agriculture.  Before agriculture emerged there was no need for money, and so it did not exist.  Agriculture allows for civilization which requires money to function.  With the creation of money we stratify into economic classes of people.  Once money is created life becomes about servicing this need for monetary acquisition.  Before money life is about engaging with nature to acquire food, fuel, fiber, medicine and shelter.  In aggregate these actions create a healthy human culture.  Agriculture allows for money and removes the limiting factors for our numbers.  Before agriculture the limiting factor is the amount of food that can be sustainably hunted and gathered.  The hunter/gatherer life is mostly nomadic as we follow the animals and plants through the seasons which define their lifecycles.  Our lives are imbued with rich somatic meaning as we engage with the body of nature.  We are from this Earth, and we inhabit it as a corporeal being made of the elements.  We evolved both physically and spiritually within the framework of our physical Earth.  Our health depends on engaging with nature to create life and its meaning.  The fall from paradise began with domestication which is nothing less than the taming of wild nature.  Domestication is tandem to agriculture and literally creates civilization.  What is being civilized if not the opposite of wild?  The two are anathema to one another. 

Agriculture means that we stop moving around.  It means that we domesticate ourselves as well as the wild beasts of nature.  It sets up the conditions that allows for a great competition between us and nature.  All of a sudden our culture becomes one of domination and control rather than harmony.  Being rooted in one place we begin building monuments to hubris.  We get bored and invent competition.  We stockpile food and create war and plague.  We set up the conditions for disease and famine and warfare (although nomadic people still do occasionally fight with opposing tribes).  We argue and debate and create inequality amongst our people.  Life becomes a struggle to create meaning and avoid boredom.  Eventually, as we move further and further from our natural origin, habitat, and culture the enchantment of being evaporates. We are left with a driving urge to consume to fill this void of meaning that emerges due to our domestication.  Time continues forward and our habits create technologies to service convenience.  We become lazy and our bodies grow fat with our sedentary nature which arises from our domesticated captivity.  No longer do we need our bodies for anything more than acquiring money.  We then want pleasure to fend off boredom and meaninglessness.  Life is no longer about dancing in the wild where we are from and where we return to.  Civilization is nothing more than something to do in the great illusion that we create for ourselves.  This is the way that it is.  The Matrix was born with the first surplus of cereal grain. 

Is there anything that can be done about this?  It seems to me that we are at the end of this failed experiment in hubris.  There is no harmony in domination and control and consumption.  There is only waste, disease, and poison by way of ecocide and genocide.  Our quest for the production of unlimited energy against the gradient of entropy has created cancer.    In the end we cannot dominate nature.  Aside from money the quest for domination  is the great fallacy of civilization.  We cannot think our way out of the limiting factors of ecology.  Our modern techno-industrial civilization will run out of the fossil blood that sustains it.  We will lose the capacity to safely maintain the nuclear power plants that liter the surface of the Earth.  They will spew out DNA damaging clouds of radioactivity as they have already begun doing.  The rain will become poisonous to life.  As we fight to continue this failing technotriumphalism we will continue increasing the CO2 in the atmosphere which will continue heating the human supporting biosphere.  Natural disasters will continue increasing in number and severity.  Our hubris has metastasized into a cancer that will shrink our settlements as the habitable regions atrophy.  Nothing is going to stop this process now.  All that remains is answering the question of what to do about this inevitability.  We have entered into the age of doom. 

There is no escaping this destiny that we have perpetuated.  The most unfortunate aspect about this hopelessness is that man cannot live without hope.  Hope makes life worth living.  Is hope itself a delusion?  What are we to hope for?  The nature of existence is a destiny with death.   The time we have between birth and death needs to be animated by meaning.  Meaning is derived from a harmony with all life.  Our civilization is marked by domination and control.  There is no harmony in control.  The great struggle is finally about the nature of life because life wants to live.  We must maintain ourselves within the boundary of our skin while we are here walking the Earth.  The overwhelming desire is to do this devoid of pain and misery.  The tragedy of man is to think that he can avoid his own nature by the creation of a technological utopia.  Life cannot be about domination and control, but that is what man forces it to be.  We are teetering in a suspended animation just before the moment of expiration.  We are flailing about in denial of this process of resolution.  Maturation as a species must culminate in an acceptance of suffering and death.  We must accept our temporary nature, stop struggling, and lie down in the great current of life.  We swim against this entropic process everyday as we participate in this civilization.  We collectively attempt to keep the center from flying apart under the pressures of our own technologically created centrifuge.  We struggle in vain against the pressures of physical dissolution.  We create illusions to fight against the natural process of becoming to fall apart. 

The first act was rife with physical struggle within the framework of existing in harmony with nature.  Hubris arose and we thought we could become gods using the power of physical manipulation.  We thought we could master the universe with our cleverness.  We are collectively a breaking wave, and nothing will stop the pull of gravity as we are recycled back into the void which we originally manifested from.    Idealism is nothing more than the ravings of a mental lunatic.  Idealism is a delusion that is born from the struggle to acquire more than we need.  Fighting against entropy is finally not worth it.  Yet this fight is what it means to inhabit a physical body. 

In the final analysis life must be about observing beauty.  Without beauty it is not worth living.  We have made a mess of this beautiful blue/green orb that’s floating about the universe.  We have partied our way to desolation.  Yet the Earth keeps spinning around in outer space in its dance with the sun that sustains us.  Every morning the sun reemerges to give us another day of life.  Our great challenge is to honor this life by creating beauty and not it’s opposite.  We have created a lot of ugliness.  Maybe the secret to this 21st century hopelessness is to learn how to make beauty out of malevolence.  Or maybe we should just stop struggling and accept the final act of misery which we have written for ourselves?  Or maybe we can simply embrace our collective ugliness with grace?  Without love and beauty this great struggle that is life is not worth it.  The greatest challenge that we face is learning to love and observe beauty even as love and beauty vanish under the oppression of our own collective delusions. 

The nature of a body is to act.  How are we to act?  We should act to minimize suffering for all sentient beings while honoring our bodily nature.  Every day is a new day to make the right decisions.   Yet every day requires a certain amount of money.  This is why my conclusion is that a lifestyle that requires no money is the only truly benevolent lifestyle.  That lifestyle is a fiction in this world we have created.  This world is quite literally hell on Earth.  Therefore we must learn to love and find whatever beauty we can while in hell.  We must not resist as we realize our ultimate destiny of assimilation with the machine we have created.  I’ve tried finding work arounds to the truth that life is suffering, but the only way to win is to let go, stop resisting, and accept the nature of this great delusion.  Manifestation is transience in action, and our resistance arises within that transience only to dissolve back into the void that is death.  All that is created within that resistance is more suffering.  Yet still we must act in the world, and how should we act when our actions only serve to create more suffering?  The heart of our civilization is the creation of suffering, and to participate only adds to this toll.  Not participating in this civilization can be our only spiritual redemption.  For the life of me, and my children, I cannot figure out how to not participate. 

Doughnut Economics

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Published on Cassandra's Legacy on June 17, 2017


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Doughnut Economics:a step forward, but not far enough

Doughnut Economics, by Kate Raworth (Chelsea Green, 2017) is an interesting book that goes in the right direction in the sense that it promotes a circular economy, But it leaves you with the impression that it missed that extra step that would have lead it to define the goal in the right way. Bridging the gap between standard economics and biophysical economics is still far away.

So, what is this "Doughnut" that gives the title to the book? Initially, I had imagined that it was supposed to be a sort of mandala representing the concept of circular economy. But that doesn't seem to be the case: circular mandalas often represent the cyclical movement of a wheel, but the doughnut doesn't (as, indeed, most doughnuts are not supposed to be used as wheels). Here is how it is represented in the book:

It is described as "a radically new compass for guiding humanity this century." Ambitious, to say the least, but how is that supposed to work, exactly? Maybe I am missing something, but I not sure I can understand why the numerous concepts appearing in the figure should be arranged in a "doughnut."

The problem with the doughnut is not so much understanding why it is shaped like a doughnut, but what it lacks. Look at the outer ring; you will see 10 sectors, all related to pollution: climate change, ocean acidification, chemical pollution, etc. Something is conspicuously missing and it is not a minor element of the overall picture. It is natural resources and, in particular, non-renewable resources (*)

Natural resources, their depletion, and the related concept of "overshoot" are not just missing from the doughnut, they go mostly unmentioned and unnoticed in the whole book. To give you an example, Raworth mentions only once the 1972 study "The Limits to Growth" that was the first to pinpoint the resource problem. In a discussion of less than than two pages, I think her position can be summarized by the following statements:

Mainstream economists were quick to deride the model's design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non renewable resources became scarce, they argued, prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth , they too quickly dismissed the role and the effect of what the 1970s model simply called pollution … World 3's modeling of pollution turned out to be prescient…. recent data … find that the global economy seems to be closely tracking its business-as-usual scenario.

As it is often the case in this book, Raworth's statements need some work to be interpreted because they are always nuanced; if not vague, as when she says one should be "agnostic" about economic growth (**). Here, the interpretation seems to be that The Limits to Growth may have been right, but only because it took into account pollution. Instead, its treatment of non-renewable natural resources was wrong because depletion can be completely neutralized by market factors. Raworth doesn't seem to realize that she is contradicting herself, here: if the "business as usual" scenario produced good results in terms of comparison with the real world's economy, it is because it contained depletion as a major constraint. World 3 could also be run in the hypothesis of infinite natural resources, with pollution the only constraint, but the results would not be the same.

That's the thread of the whole book: natural resources are not a problem; we should be worried only about pollution. Raworth doesn't link the concept of the circular economy to recovering non-renewable resources; she proposes only in relation to abating pollution, with the corollary that it also brings about also better social equality. This is not wrong; it is true that a cyclical "regenerative" economy would be able, in principle, to reduce or eliminate pollution. Still, it is curious how the question of mineral resources is so conspicuously missing in the book.

Kate Raworth is described in the book flap as a "renegade economist", but she still reasons like an economist. The idea that the price mechanism will make depletion always irrelevant is old and it goes back to the 1930s, when the so-called "functional model" was presented, stating exactly what Raworth describes. The idea is that market factors will always re-adjust the system and magically make depletion disappear. By now, the functional model is deeply entrenched in the standard economic thought and there seems to be no way to dislodge it from its preheminent position.

The interesting point is that not only economists tend to dismiss depletion as irrelevant. In recent times, the whole "environmental movement" or the "Greens" have taken exactly the same position. All the debate about climate change is normally based on the supposition that minerals, and in particular fossil fuels, will remain cheap and abundant for the current century. If this is the case, it makes sense to propose to spend untold amounts of money for carbon capture and sequestration (CCS) rather than for renewable energy. It goes without saying that, if this assumption turned out to be wrong, the whole exercise of CCS, if it were undertaken at the necessary scale, would turn out to be the greatest resource misplacement of resources in human history, possibly even worse than nuclear energy.

Why is that? As a puzzle, it is difficult to solve. In principle, resource depletion and its negative effects would seem to be easy to understand. Easier than the complex chain of physical factors that leads from the emission of greenhouse gases to disastrous events such as sea level rise, heat waves, hurricanes, and the like. Maybe it is just a question of the lifetime of memes. The meme of depletion started before that of climate change and it is now in its downward trend. Whatever the case, we seem to be locked in a view of the world that misses some fundamental elements of the situation. Where this special form of blindness will lead us is all to be seen. 

Getting back to Raworth's book, despite the criticism above I can also say that it is worth reading for its broad approach and the wealth of concepts it contains. Its discussion on how the science of economics came to be what it is nowadays is, alone, worth the price of the book. Although it misses part of the problem, it may open up new views for you.

(*) You may also have noticed that the concept of "overpopulation" is missing in the doughnut. On this point, Raworth maintains in the text that if people are given the possibility of having a life free of deprivation, they won't reproduce like rabbits – a concept on which I tend to be in agreement; even though its practical implementation in the current world's situation is problematic, to say the least.

(**) The idea of a "zero growth" or "steady state" society would seem to be a fundamental feature of a circular economy, but it is barely mentioned in the book

Using Energy to Extract Energy – the Dynamics of Depletion

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Published on FEASTA on June 21, 2017

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The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, rfined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transactions systems for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into diffculty because of rising energy costs then so too will the financial system – which can then has a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.

The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs to agriculture from industry, combined with pollution impacts on agricultural land, leads to a fall in agricultural yields and food produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020(and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run ( figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century. (Turner, 2012, p. 121)

Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)


The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. (Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.

Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.


Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.


Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.


As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations is examined in more depth.

The Future Monetary Ecosystem

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Published on FEASTA on June 8, 2017

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Over the next generation or two, there will be increasingly visible turf wars between money-suppliers with four very different motivations. It’s not really a fair fight, but it isn’t as one-sided as it used to be.

The spoils

The general term for the benefit associated with the issuance of a currency is seigniorage. Historically, the term has been associated with the profit made by a government from issuing currency, especially the difference between the face value of coins and their production costs. At the risk of outraging pedants we can use the term more broadly to include a wide range of benefits accruing to the issuer.

The spoils may be in the form of direct financial benefit (like the interest charged on credit-money created ex-nihilo). Or they may be indirect, in the form of influence that can in due course be traded or cashed-in (for example preferentially allocating credit to favoured partners).

There is, however, a further dimension. Money congeals as wealth. The location of wealth signals the ‘revealed preferences’ of the underlying money-system. Sure, there’s luck, inheritance and sometimes energy, enterprise and hard work. But mainly there’s the money system.

The motivations

a) OneWorld. The cherished belief of a certain section of the international elites that governance is best left to those who know best (i.e. them), and that societal and economic diversity is somewhat of a nuisance, entailing the never-ending energy-sapping suppression of a series of hare-brained ‘alternatives’. If this seems like a conspiracy-too-far for you, feel free to skip this section but remember that just because you’re paranoid doesn’t mean you aren’t being persecuted.

This direction of travel can be portrayed as a natural extension of monetary scope – if money is ideally a universal lubricant of exchange, then the more universal the better. Focal points for monitoring progress of this ideation are: Bilderberg, the future of the euro, and (most importantly) the evolution of the SDR (Special Drawing Rights) [1,2], the IMF’s ‘international reserve asset‘.

b) National Sovereignty. The nation state is the traditional home of the fiat currency, and indeed gives those currencies their primary raison d’etre – the compulsory requirement to pay your taxes in them. Unfortunately national governments have had a well-documented history of abusing their money-issuance privilege – usually via the simple expedient of issuing tons of it before elections to create a feel-good effect; occasionally in more subtle ways.

The current arrangement of outsourcing money-as-credit creation to the banks is at the subtle end of the spectrum (see The Bank-State Bargain [3]). It obviates the need for governments to have to bother much with real national strategies (typically characterised as ‘picking winners’ rather than ‘sustaining the planet for future generations’). They can concentrate on tinkering.

It’s not quite as attractive as printing money and putting it straight into your own account, but the revolving doors arrrangement ensures that political apprenticeships can often be traded for corporate gravy. Put it into your mates’ accounts and wait for payback. The arrangement is underpinned by a sense of inmpotence as national governments race to the bottom (regulation, tax) in response to corporate threats of absenting themselves. TINA.

But this gradual diminution of sovereign influence does beg the question – can’t corporations do the money thing themselves and cut out the sovereign middle man.

c) Private Money. As is often said, anyone can create money – the problem is getting it accepted as payment. Private entities cannot coerce quite like a government, but they increasingly have huge market power that can be brought to bear if they think they can profit from operating a currency. They can use this power to construct unique value propositions. And are likely to do so.

The potential for the likes of Amazon, Facebook, Apple and Google to operate their own currencies has been given a boost by the cryptocurrency phenomenon. All are already actively looking at payment systems and it seems likely that the next generation competition for commercial banks will come primarily from out of sector. The crypto-angle has opened up the possibility of currencies that cannot easily be closed down by the state, as many of the successful alternative currrencies of the 1930s eventually were. Of course private for profit currencies are unlikely to make use of the fully distributed consensus model of Bitcoin, being more interested in permissioned blockchains with the gatekeepers being – yes Google, Facebook, Apple or Amazon. But the possibilities of the blockchain are encouraging disruptive thinking.

One starting point for initiatives in this area is Hayek’s writing on the denationalisation of money [4]. Hayek generally thought that competition was the answer to everything, and he saw money as no exception. He thought monetary policy to be ‘neither desirable nor possible’, and identified government as the major source of economic instability. And while his writing predates our current over-financialised economy, he certainly anticipated the ‘parasitic’ secondary activities that could attach themselves to a monetary monopoly and saw competing currencies as a solution to that.

So while Hayek’s for-profit currencies generally come from a very different political place than value-based Intentional Currencies [5] and today’s complementary currencies, they share the core belief that ‘A money deliberately controlled in supply by an agency whose self-interest forced it to satisfy the wishes of the users might be best.’

d) Peer-controlled money. It is difficult to title this section. The vision is similar to Hayek’s but the ‘wishes of the users’ are determined in a co-operative way and the money is controlled not by a for-profit ‘agency’ but by the users themselves through various forms of co-operative institutions and governance mechanisms (including platform co-ops). I have previously expressed dissatisfaction with the adjectives ‘alternative’, ‘complementary’ and ‘community’; and ‘intentional’ can include a for-profit motive if objectives are explicitly set out, as can ‘value-based’. It can be argued that this form of money is the purest because it is directly controlled by its users; by the people who give the currency value by accepting it in exchange.

The Battleground

We can indulge the late Mr Hayek a bit further by exploring the competitive landscape, both between and within currency models . If we plot on a matrix the reaction of an *established* money-type to an *emerging* (or re-emerging) money-type we can surface a wide range of conflictual issues, including the regulation of private currencies (b/c),acceptable units of account for national taxation (c/b), national debt slavery as political influence (a/b) and the use of currencies as weapons in financial wars (b/b). Interesting stuff but far too much for a short article.

What follows therefore is a summary of two key battleground issues affecting peer-controlled money, (which is a category of special interest to Feasta).

The Ultimate Potential of Shared Value (c/d)

The core idea behind Intentional Currencies [5] is that the value-set shared by the relevant user community should be made explicit and will act as a cohesive force as a currency and its governance institutions develop side by side. However experience with intentional communities in general leads us to be a little cautious not to overstate the power of this idea. All too often communities that on the face of it have strong shared values can fracture and fragment because of personality clashes and power trips. Against this background the ‘honest profit’ metric has its attractions, (as has hierarchical decision-making). Profit is a hard verifiable metric, reassuringly value-free. From this perspective old money provides a service for us – it enables economic interaction with people we dont want to break bread with. It absolves us from social interactions.

Thus if this group of money-systems is to scale and replicate sufficiently to become a central progressive economic and societal force, the evolution of thinking around shared value is a critical success factor. Somehow it has to translate integral fellow-feeling into pragmatic mechanisms for exchange and do so authoritatively but in a co-operative fashion.

Selectivity vs Universality (b/d)

A related issue is that the restricted scope of a value-led currency – the potential preferencing of certain transactions – prejudices the variety of the portfolio of goods and services that are available. The concepts of the Preferenced Domain [6] and the Deprecated Domain [7] are attempts to flesh out this line of thinking. It is possible there will need to be an Intermediate Domain where we are relatively neutral about some goods and services and want to find ways to include them to enrich the offering, but may not want to extend full community benefit to their providers.


Activists in the Peer-Controlled currency space will generally welcome an increasing diversity in the developing monetary ecosystem. Thus the exchange of ideas about how value-led currencies can develop should in itself be a key factor in their progress.

There is certainly a window of opportunity. Decision makers in the higher reaches of international financial institutions will be more concerned with the power relationship with national currencies, so peer-controlled money will be somewhat off radar for while. An ‘offgrid money’ mindset may be helpful. But the same window is open for private for-profit moneys, and multinationals are already fluent in international finance.

One factor working to close the window is the increasing appreciation of the significance of digital/ crypto currency which is already sensitising established international institutions to potentially disruptive developments. Whether more democratic user-controlled currencies can establish a secure foothold before they are re-challenged by a new breed of national/ international digital moneys remains to be seen. No doubt many of the ICOs [8] coming to market now will turn out to be Ponzi schemes, but some are already seeking to differentiate themselves via value-statements (as opposed to get-rich-quick statements) and there may well be one or two that show us the shape of the peer-controlled currencies of the future.


[1]: IMF Factsheet: Special Drawing Rights (SDR)
[2]: One World, One Bank, One Currency : Jim Rickards on the SDR
[3]: The Bank-State Bargain : Graham Barnes. How commercial banks facilitate deniability, debt-peonage-management and financial warmongering in return for massive anti-capitalist subsidies.
[4]: Denationalisation of Money: The Argument Refined. An Analysis of the Theory and Practice of Concurrent Currencies. F.A Hayek published by IEA in 1990 and reissued by The Mises Institute 2009
[5] Intentional Currencies : Graham Barnes
& Designing an Intentional Currency : Graham Barnes
[6] Designer Currencies and the Preferenced Domain : Graham Barnes
[7] The Deprecated Domain: the pros and cons of designed exclusion : Graham Barnes
[8] Initial Coin Offerings



Economists as Priesthood

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Published on Credo Economics on May 22, 2017

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Economists as priesthood – a religion based on assumptions

Some of the ridiculous assumptions on which much of mainstream economics is constructed are explored in this chapter – for example the methodology that stresses individual decision- making, the assumption that decision-makers have the information that they need, the assumption of honesty, the default assumption of competition. (TEXT BOX: Labour market competition as an alternative to corporal punishment according to Hayek).

Today’s leading economic textbook writer, Greg Mankiw, has compared non-economists to “mere Muggles”, the ordinary people without magical powers described in the Harry Potter novels. His implication is that economists are “wizards”. (Mankiw, 2008)

Perhaps they are. However, people with magical abilities are not always to be trusted.

the conjuror - school of Hieronymous Bosch c1550 Public Domain image Wikimedia commons
the conjuror – school of Hieronymous Bosch c1550 Public Domain image Wikimedia commons

The ideas of the economists are important because they frame the way we understand the world, sometimes distracting us from understanding and living in the world in other ways. e economists claim that they describe the world as it is, rather than describing it as it should be, but there is an entire value system implicit in economics. It is implicit in their de nition of what it is to be “rational”. Implicitly, economists are making a truth claim about how human beings are, what makes them tick.

Unaware of the criticism of their model of rationality (or ignoring the criticism) it seems reasonable to economists to theorise human beings as if they act in a predictable way. Calculating their individual self-interest to maximise their utility and then acting accordingly. This makes possible a deterministic view of human action that allows economists to model markets as fundamentally positive social institutions which can solve virtually all problems.
In actual fact, economists are there as advocates for a particular kind of value system. They are not unlike priests whose job it is to argue that their beliefs should be guiding principles for life.

Some economists are well aware of this. Robert Nelson describes debates about economics as having a “theological character“. He worked as an economist in the US Department of the Interior with responsibility for the upkeep of national parks and landscapes in the USA:

If economists had any influence—which they sometimes did, if rarely decisive—it was seldom as literal “problem solvers”. Rather, the greatest influence of economists came through their defence of a set of values. Much of my own and other efforts of Interior (Ministry) economists were really to persuade others in the department to act in accordance with the economic value system, as compared with other competing priorities and sets of values also represented within the ranks of the department. (Nelson R. H., 2001, p. xiv)

Ridiculous assumptions

In other sciences ideas evolve by testing hypotheses against the facts. In economics what mostly happens is that simple models are created which have this kind of form:

Assuming human beings behave in a particular kind of way e.g. as consumers seeking to maximise their level of satisfaction through purchasing

And assuming their behaviour takes place in a particular set of conditions e.g. they are fully aware of all their consumption options available with their purchasing power

Then faced with a particular change in conditions it is possible to state how they will adapt, as well as to quantify this adaptation e.g. faced with a price change they will change how much that they buy by so much

This appears to be an exercise in logic rather like this – All men are mortal, Socrates is a man, therefore Socrates is mortal. The premises of this argument are things asserted to be true which in this case are that “all men are mortal” and that “Socrates is a man”. The conclusion that follows automatically is that Socrates is mortal. This conclusion does not really add any new information to the premises that have been proposed, it only draws out the consequence. In a sense, the conclusion is already contained in the premises.

In an apparently similar way the conclusions of economics follow from the starting points of their modelling analyses. However, the starting points of economic models are not premises asserted to be true but assumptions. These assumptions do not have a truth value status based on evidence but, on first impressions, appear to be plausible. (Bardsley, Cubitt, Loomes, Mo at, Starmer, & Sugden, 2010, p. Chtp5)

If many people do not realise that this is a fraud, it is partly because the mathematics, the symbols and the diagrams with which the models are expressed enable economists to distance themselves from ordinary people. Rather in the manner that speaking Latin enabled priests to put themselves above the common people.

Consider this proposition:

If Socrates is assumed to be a woman, and if all women are assumed to live forever, then it can be assumed that Socrates will be immortal.

It is obvious what is wrong with this proposition. Nevertheless, the falsity of economic propositions are not always so obvious. This is partly because some of the assumptions have a superficial plausibility and sometimes because the assumptions remain implicit, unstated and unexamined. The most important point here, however, is that there is no evidence for these assumptions. Read any economic textbook and you will find it rich in numerical examples that were made up by the author. They are neither taken from real life nor based on evidence. This is an ideal basis for a self-serving ideology in which this kind of “logic” can prove anything that is wanted according to the starting assumptions. Economics like this is not falsifiable because evidence is implicitly deemed to be unnecessary in the first place.

If you assume no problems at the start of the theory you will conclude that the economic world works without problems. For example, if, as was the case for many years, you assume that there are no problems in getting the information that you need to take economic decisions, then all the uncertainties, the dishonesty, the misinterpretation and the errors that take place in the real world disappear from the theory. The conclusions of models that do not draw on real world evidence are only as accurate as the assumptions they start with – no more and no less. A good deal of textbook economics is a description of what economists assume the world is like.

Even worse, the construction of models based on assumptions enables the imagination of a world akin to the one that Dr Pangloss believes he lives in. He is the character in Voltaire’s satire, Candide, who at every misfortune reassures everyone that all is for the best in the best of all possible worlds. Nothing will go wrong in the world of the mainstream economists because growth, technology, innovation, markets and entrepreneurial zeal together have the mechanisms for fixing all problems for ever. The message is perpetually upbeat and reassuring – which it can be when you construct a model of the world with assumptions that don’t include the problems.

Thus, markets are “efficient” and welfare outcomes are “optimal” when the starting assumptions contain none of the real life issues that would make them otherwise. In order to arrive at these optimal and efficient outcomes what is needed above all is “competition”. This is another very handy conclusion. It enables neoclassical economists to convince themselves and successive generations of students that, as long as the state minimises its involvement in markets, we live in this best of all possible worlds.

Competition is an idea which has many useful ideological functions. Instead of being a place of shambolic chaos, a competitive market is portrayed as having its own kind of order without a single big player – state or monopoly – needing to take all the decisions for overall coherence. With a set of assumptions that portrays this competitive market order as “optimal”, here is an argument that can be used as a default presumption against co-operation; against state regulations; against taxation; against trade union combination in the labour market. Competition is an idea that stands for general “freedom” from interference for powerful economic actors, against any limitation on their rights to act – and therefore for a general understanding of what “freedom” means for everyone else in society too. It can be used by those who are the strongest to prevent support for weakest, and generally in a self-celebratory way praising “success” as the result of “efficiency”.

But let’s look at some of the most common assumptions that underpin the key idea.

Methodological individualism

To take the first issue – in the textbooks, markets are places where there are lots of actors and, to get
a collective picture of what happens, you simply add up the actions of all the separate individuals. Of course, this does not rule out the idea that the separate individuals have previously influenced each other, but that is not what is explored. This is a version of what is called “methodological individualism” and there is no place in it for applying the insights of group psycho-dynamics. This is not because methodological individualists necessarily deny that the “preferences” that form people’s choices can be formed by social, interpersonal or community processes – it is rather because they take the “preferences” that give rise to choices as givens. They see themselves as modelling rational behaviour about what people will do with a pattern of preferences, a certain amount of purchasing power when faced with a set of prices. As economists, they are not concerned to delve further. In that sense, methodological individualism is a choice to ignore why people prefer and choose what they do. It is a choice to ignore and thus a choice to remain ignorant.

It is no wonder that, when criticising their teachers a few years ago, French economics students described neoclassical economics as “autistic”. Autism is a psychiatric disorder where a person is unable to recognise other people as people, as acting subjects. The autistic person is, thus, unable to form meaningful reciprocal relationships. Of course, in their private lives even neoclassical economists recognise that people act in groups in which they interact and have a reciprocal influence on each other – in families, in clubs, in associations, in societies, in crowds. A lot of what happens in markets is driven by crowd psychology. What is “fashion” if not a form of collective psychology? Arrangements made by producers try to influence and steer fashion processes which are only partly under their control.

When I go into supermarkets or department stores at the weekend it is full of families who are taking group decisions about purchasing. At other times, there are mothers who are taking decisions for partners and children. But that is not what most of the theories assume.

Ignoring ignorance – the myth of perfect information vs the thinking of the herd

Let’s look at another assumption. It is only in the last few decades that a new approach of “information economics” has evolved out of the recognition that access to information is crucial to decisions and market outcomes. Many of the textbooks from which today’s elite were taught assumed that markets had all the information that market actors needed. Indeed, some of the more elaborate models that “proved” the superiority of markets to allocate resources assumed that market actors had god like powers because they could make accurate assessments of the future too.

In fact the market is almost always shot through with a lack of information and/or information asymmetry. Perhaps in the world of Adam Smith’s small town butcher, baker and brewer, people could pick up gossip about their suppliers and even know them personally. But how does information work in a global market? How does it work with products made out of hundreds of components made out of hundreds of materials supplied by global supply chains? How does this work with meat products in the freezers of supermarkets? People buy what they think are beef products and are dependent on public health authorities to discover that they have been eating horse meat.

A very powerful reason why people have so much influence on each other lies in the absence of information and the uncertainty in which many economic decisions are taken. When you don’t know, you ask and/or you take your cues from other people.

Margaret Thatcher once famously said that “there is no such thing as society” which is one of those monumentally stupid things that powerful people can say and get away with because they are surrounded by sycophants. A very powerful person like Thatcher could doubt the existence of society because she had little need for the ideas and inluence of other people as she would have known that she was always right. By contrast mere mortals are influenced by others because we live in a world of uncertainty and inadequate information. Allowing ourselves to be in uenced by what others are doing and saying is a rough and ready way of coping with the information that we lack. Thus, we come to be influenced and swayed by social trends.

One cannot possibly understand the mentality of what are called “bubbles” in asset markets and speculation, except through collective psychology. Whether and how much of a commodity, or an asset, is purchased depends powerfully not just on current prices but on what people expect will happen to prices in the future. When they try to gure out what is likely to happen to future market valuations, perhaps the most powerful in uence of all is what other people are saying and thinking. Anyone who reads a newspaper like the Financial Times will be struck by the way it is full of reports which convey to the readers what the “market sentiment” is, that is, what others think will happen.
Up to a point, movements in market sentiment are exercises in self-ful lling prophecy. If a rise in price is taken to be indicative of an ongoing trend, which will lead to even higher prices later, then many traders will follow each other and be tempted to buy more now, before prices go higher. Possibly also to make money in the “rising market”. Perhaps speculators imagine that they can sell what they buy now on a rising price for an even higher price later. We have already seen how speculation drove up rising grain prices in the famines of India, taking food out of the mouths of the poor even in areas of good harvests.

Honesty and Dishonesty

Other, sharper, market actors seek to play these movements in a devious fashion. is brings us to
the third of our assumptions about why competitive markets deliver wonderful outcomes. It assumes that market players are honest when a lot are not. If people are only motivated by individualistically calculated self-interest why should they not resort to fraud and opportunism, to secrecy and misleading accounts of product quality?

This kind of duplicity affects what happens during speculative manias. For example, if you know that the shares of a company are going to lose value because you have insider information that a company or an industry is heading towards a big loss, if you have no commitment to the company or the industry, and if you no scruples, you will want to sell the shares at a high price before the truth gets out. So you might launch a PR campaign to hype the company or industry that you know is heading for a loss. at way you seek to create a rising market in order to offload your otherwise worthless shares on the people who get taken in. The game being played is to let other suckers take the losses.

That happened at the end of the subprime boom where bank traders sold what they referred to privately as “toxic waste” to unsuspecting customers as if these assets were of real value. A similar thing is happening at the time of writing in the gas fracking industry. All over the world, articles are appearing about the incredible potential for gas fracking. Meanwhile, industry insiders are pointing out the rapid depletion of the wells, the number of wells that come up dry and the high cost of drilling. If you believe the former narrative you put up money to enter the industry – and allow the insiders in the know to get out.

So here you have it. If we assume that most actors do not know what it going on and are able to influence each other, along with insiders who do have the best information acting as crooks trying to mislead and defraud other people, this gives us a far better fit for understanding what actually happens in markets. Instead, we have models which assume the reverse and this is what is taught to students.

Perfect competition

To be fair, neoclassical economists do get rather cross when businesses seek to accumulate monopoly power. is is paradoxical because competitive success leads to the weaker companies being driven out and/or taken over by the stronger ones thereby accumulating more monopoly power. Without competition the bracing Darwinist struggle between businesses does not deliver the benefits advertised in the textbooks, such as, cheaper products for all of us. For that reason some capitalist countries have “competition” policies and police against secret agreements between companies that “restrain trade” in favour of higher prices at the consumer’s expense. However, a closer examination of some of these policies often reveals that the intended result is the opposite of the stated one. As already mentioned, the ideology of competition through free trade is intended to clear the field for those companies in those countries that are already in the globally dominant position. It is about preventing competition emerging in the first place and consolidating global dominance. Throughout economic history the ideology of competition has been used to open up markets to the strongest market players and enable them to accumulate further market power. These are the players who will be most influential in political lobbying in the corridors of power. These are the very private sector players who will be influential in university departments of economics.






Text Box– Labour market competition as an alternative to corporal Punishment according to Hayek

Where neoclassical economists can be expected to get indignant if competition is limited is in the labour market. If workers form trade unions to create for themselves a countervailing power over and against their employer then economists are rarely sympathetic and almost always take the side of employers. Not many infants are born because their parents decided to do their bit to supply the future labour market. However, that does not excuse these infants, when they grow up, from their duty to compete in the labour market for work and take the going price. When there is full employment, this gives employees far too much “market power” for “optimality”. As Hayek puts it
in his book The Road to Serfdom, without unemployment, managers lose their ability to discipline workers and take on or lay off workers according to their plans.

“… there should be a place from which workers can be drawn, and when a worker is fired he should vanish from the job and from the payroll. In the absence of a free reservoir discipline cannot be maintained without corporal punishment, as with slave labour.” Quoted in (Smith & Max-Neef, 2011, p. 35)

Note the verb “should”… at the beginning of most textbooks there are usually little homilies that say economists describe the world as it is and not as it should be – but that’s not for Hayek. The labour market needs an alternative for corporal punishment if the workers is to be managed as an input to be used and disposed of as required. Workers are a means to the ends of employers.

At the risk of going off on a tangent, I cannot help but wonder what Hayek would have said about this famous principle from the philosopher Kant:

“Act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end.” (Kant & (Tr.)Ellington, 1993, p. 30)

I’ve already claimed that human relationships are not the strong point of economists – neoclassical or Austrian. Hayek’s requirement for some kind of discipline derives as a self-fulfilling imperative from the mind-set of employers who use people merely as means, for example, as “factory hands”. If you treat and regard people only as means to your end is it surprising that their commitment to those ends is less than enthusiastic? Why should they feel committed? People do not take well to being used without consideration. It has a cost to their self-esteem, although, if one has no choice, if one is “disciplined” by unemployment, one may have to do it.

When you look at the world using economic concepts you are looking at the world as “snakes in suits” see it. They don’t get this idea that “human resources” are actually people with feelings and emotions. They don’t get the idea that most people are happy to co-operate with each other if they are treated with respect and their feelings acknowledged. This why they need alternatives to corporal punishment to maintain discipline and so they opt for unemployment to “create competition”. (In Britain the snakes are then disconcerted when they get a group of people who become long term unemployed. Rather than resort to corporal punishment for this group they intend to resort to psychological torture – making this group do completely futile time-wasting things for their benefits, like looking for employment when there is none).

Garbage hidden in mathematical formulas

I digress from the topic of unrealistic assumptions made by neoclassical and Austrian economists… If you assume away the real world in your model then the model will deliver a picture of ideal allocation outcomes – on the blackboard. Because the conclusions are arrived at in very sophisticated mathematics “mere Muggles” don’t understand the fraud that the wizards have perpetrated.

What “the mere Muggles” understand… or think they do… is a simplified version of the ideas of the wizards, or parts of these ideas. If the economists are akin to a priesthood who are trained in the theological details, then the mass of the general public are like a congregation who stitch together a vaguer and partial patchwork quilt of ideas from what they read in the newspapers, hear on the news, or perhaps pick up in books or even in introductory courses in economics. The more general “congregation” does not know all the ne details but knows bits that they adapt to their lives and local circumstances. is is what Richard B. Norgaard calls “economism”:

The mix of popular, political and policy mythology as well as practical beliefs that help us understand and rationalise the economy and how we live in it. People share some of those beliefs globally; other beliefs people adapt to fit particular national and regional situation; while yet others serve particular groups, including economists. (Norgaard, 2009, p. 80)

As Norgaard expresses it – a half of the global population is deeply immersed in the global economic system and like fish trying to grasp the nature of water, each of these individuals, playing their specialised roles, seeks to some degree or other to understand the bigger system of which they are a part. As the economy has become the window on which they see the world they use economism as “a set of beliefs constituting a secular religion guiding the remnants of our modern hopes for human progress: material, moral and scientific.” (Norgaard, 2009, p. 79)

John Maynard Keynes was, I believe, saying much the same thing when he wrote that:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. (Keynes 1936, p. XX)
What I am not saying here is that the priesthoods are supposed to have the correct version while the congregation more often have it wrong because of their simplifications and misunderstandings. It is more complicated than that. The mainstream theory always was “defunct” even in the form that is written out in difficult looking equations. You don’t need to understand the equations to understand that. You just need to examine the foundations of the subject. That said, the priesthood are a little more aware of the nuances in their theories.

Limits to Economic Growth

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Published on FEASTA on April 16, 2017

Discuss this article at the Economics Table inside the Diner

This lecture was presented at the University of Nottingham on April 4, 2017. Please click on the slides to enlarge them.

On April 3 in the Guardian there was an article about Christine Lagarde of the IMF concerned that the growth of productivity in many “developed countries” has been falling. There is a problem for the finance sector if growth falls away since additional income is needed for people to be able to service and repay their debts. Without growth the finance sector is destabilised and, indeed, it has been necessary to bring down interest rates to manage the situation.

But the problem is not only a practical one. Growth of production is central to the core ideology of the current economic system, to the idea of “development” and “progress”. It is central to the legitimacy of the people who run the global economy. Without it there is a legitimacy crisis.


Slide One


The idea of “progress” primarily emerged in what was called the European enlightenment of the 18th century and involved the idea that science and technology would enable the increase of material production and economic activity and it was this that made the “age of commerce” the highest point in human evolution. Basically technical progress and increased production was equivalent to moral progress because the chief problem facing humanity is want or “scarcity”.


The new heroes for humanity were now innovating entrepreneurs who risked money to back the production and marketing of machines that they had invented.


Slide Two

Graph by Krausman published by UNEP and available at:






Graph by Krausman published by UNEP and available at:






At first production increased was not measured comprehensively. However from the post world war two period onwards it became the practice to keep national income accounts and to keep track of economic growth figures as the chief measure of “progress”.

Extraction. This form of development led to a massive increase in the volume and weight of materials extracted out of the planet – over time a greater proportion being construction materials, minerals and energy minerals.

Magnitude…. Recent research from the University of Leicester calculated the total mass of all the artifacts produced by human society – buildings, cars, computers – a large part of which is now rubble and waste in dumps. They found it to be 30 trillion tons. That represents a mass of more than 50 kilograms for every square metre of Earth’s surface.

By contrast, the total amount of living matter, including people, plants, animals, insects and bacteria is estimated to be around 4 trillion tons of carbon = about 9 trillion tons.


Slide Three

Source: Malcolm Slesser and Jane King Not by Money Alone. Economics as Nature Intended Jon Carpenter Publishing 2002






Source: Malcolm Slesser and Jane King Not by Money Alone. Economics as Nature Intended Jon Carpenter Publishing 2002






From the 19th century onwards artistic visions of the future saw it as being one in which lots of clever powered machines would become available to transport people and products, to produce goods and to generally make life easier. Indeed while text books of economics describe a world of land labour and capital – a different description would have been people using and guiding machines and infrastructures powered by a succession of energy carriers – coal, oil, gas, electricity.


Slide Four: Human output as a measuring rod – concept of energy slaves

One link to a collection of links and resources on the concept:






One link to a collection of links and resources on the concept:






Energy slaves The result is a society dependent on ever increasing volumes of energy to power the machines and technical infrastructures. To put this in perspective we need some measurements and numbers. One way of measuring is by using the power capacity of the average human body as a unit of account. If we take an averagely healthy person and get them to peddle all day long on a peddle generator then they can, with their muscles, generate 3kWh a day – if they can stay awake for 24 hours. This would keep a light bulb lit all day.

The concept of energy slave was developed by Buckminster Fuller in the 1940s to describe how much human labour would be required to sustain a particular activity in the absence of fossil fuels. For example if would take 11 energy slaves to power a toaster. Thus since the average north american consumes 24 barrels of oil a year, and because a barrel of oil contains the energy equivalent of 8.6 years of human labour it would take 204 energy slaves to sustain an average US lifestyle and a 110 energy slaves to sustain an average Western European lifestyle.

Here’s another statistic to consider. If we were to try to power the (2012) internet with pedal-powered generators, each producing 70 watt of electric power, we would need 8.2 billion people pedalling in three shifts of eight hours for 365 days per year. (Electricity consumption of end-use devices is included in these numbers, so the pedallers can use their smartphones or laptops while on the job). 1,815 TWh equals three times the electricity supplied by all wind and solar energy plants in 2012, worldwide.”


Slide Five


The painting is by Lowry. On D H Lawrence:






The painting is by Lowry.
On D H Lawrence:






Progress or a gilded index of ruin? Ideologists of right and left bought into the idea of progress as technological change but disagreed over issues of social justice, distribution and how and who should manage the process of change.


Nevertheless there were always some critics of industrialism itself and not everyone accepted the narrative that economic growth was per se some kind of moral good. For example 19th century thinks like John Stewart Mill saw the possibility that growth could become uneconomic, denied that bigger was necessarily better and foresaw a case for an eventual “steady state economy” while John Ruskin wrote about uneconomic growth as “A gilded index of far reaching ruin” and how increasing wealth often went together with what he called increasing “illth”. Artists and writers like D H Lawrence were appalled at the “tragedy of ugliness” brought about by industrialism.

Some critics later in the 20th century had another message. The challenged the very idea that growth would be able to continue – according to Kenneth Boulding – ‘Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.


Slide Six

The original book, The Limits to Growth, is available as a scanned document at: Different model runs are on chapters 3 and 4 on different assumptions.






The original book, The Limits to Growth, is available as a scanned document at:
Different model runs are on chapters 3 and 4 on different assumptions.






Denied continued possibility of growth. In the early 1970s the famous Limits to Growth study was conducted by system scientists at the Massachusetts Institute of Technology under commission by a business group called the Club of Rome. The MIT group ran a computer model of the world economy in the world ecological system with basic variables being growing food and industrial output feeding a growing population. The growth of industrial production would however lead to increase pollution and wastes as well as to resource depletion. It would be these two processes that would feed back and eventually lead to a decline in both industrial and food production. Eventually the pollution and declining food and industrial production would lead to a increase in death rates and fall in birth rates.

Overshoot and collapse…. Unless anything was done there would be a period of overshoot and collapse. Production could grow at a rate that was unsustainable – that could not last, just as an individual or a company can spend more than its income by borrowing, by running down savings and by not fixing the roof – however that would lead, eventually to a collapse. So the global economy could grow at more than a sustainable rate but it would eventually lead to collapse.

Economists declare the study discredited. This study created fury among economists who declared the study discredited because, they argued, markets and technology would anticipate and solve any problems. But the LtG theorists had never denied that technological options were available and that alternative and substitute arrangements could be found. Their argument was that the alternative arrangements and technological options would themselves claim an increasing proportion of energy, material resources and time – in work-arounds and attempts at technical fixes. In the words of more recent authors there are technical alternatives but are they affordable in the context of keeping the rest of the economy going?

We will see that this is a serious problem for many purported solutions for ecological and environmental problems.


Slide Seven

The depletion diagram is of the Australian mining industry and used in my book Credo (Feasta Books 2015)






The depletion diagram is of the Australian mining industry and used in my book Credo (Feasta Books 2015)






So what is the evidence 45 years later? Let us look, first of all, at the dynamic of depletion. Resources are of different kinds – most biotic resources are renewable but they must not be taken at more than a sustainable rate. Trees that are cut down can regrow and fish that are taken out of the sea will breed – but not if the trees and fish are taken at too high a rate.

People who understand depletion rarely say resources are going to run out in any absolute sense – although biotic resources can be unsustainably harvested and drive species to extinction as is threated to various fish species.

With many mineral resources there is limited scope for any kind of renewal. They can often be re-used and recycled but that takes more energy and some of the resource will inevitably be lost. That means that with mineral resources what more normally happens is that lower and lower grade resources have to be used and this makes extraction more and more expensive. You can see this in the following chart of the grade of a variety of ores tapped in Australia.

Now the point is that if as is shown here, say with copper, the ore grade falls from a 25% to a 5% copper content then 5 times the energy has to be used to extract and smelt it – and it leaves 5 times the tailings. That becomes a problem if the cost of energy is high or if the economy cannot afford to pay more for the product.


Slide Eight

Depletion of Energy Minerals and Fracking – See my presentation to the Degrowth Conference, Budapest, September 2016 king.pdf?1472027087






Depletion of Energy Minerals and Fracking – See my presentation to the Degrowth Conference, Budapest, September 2016 king.pdf?1472027087






Fossil fuel depletion. This problem of having to use progressively inferior resources as depletion occurs is also especially true of fossil fuels because once they have been burned they cannot be re-cycled or re-used. Use of energy mineral resources involves an entropy change. The energy converted during use for human purposes is still there afterwards as heat but dissipated in the environment and no longer available for further use.

The depletion of non renewable energy resources makes it necessary to extract them from more sources that are more difficult, and expensive, to access. The greater resort to unconventional oil and gas – using fracking – is an example.

What you have in fracking or, more generally, the resort to so called “unconventional oil and gas” are technologies to extract fossil fuels from harder to access geological sources. When oil and gas is extracted from conventional wells it is being tapped from porous reservoir rock – the oil flows underground to the well and thus a single well can draw from a wide area. In unconventional wells the oil and gas is trapped in an impervious rock so it is necessary to create an artificial or engineered porosity. That involves a lot more use of energy, lot more work, a lot more wells, a lot more opportunity for accidents and things to go wrong and a lot more money cost too. Of course, the technology changes over time – with longer well lengths, bigger fracks and multi well pads. The fracking companies learn through experience. But this is still an expensive and limited resource that is resorted too because conventional wells are depleting.

That explains why unconventional gas is more expensive to extract and has struggled to make a profit. When oil and gas prices are low they do not cover these high costs and US oil and gas producers and many producers have made a loss. What keeps this show on the road is faith – belief that prices will recover and profits are possible


Slide Nine

Steffen et al “Planetary Boundaries” Science, Feb 2015 at: Kevin Anderson “Duality in Climate Science” - about recognising unpalatable realities in climate science Eriksen M et al “Plastic Pollution in the World's Oceans” PLOS One 2014






Steffen et al “Planetary Boundaries” Science, Feb 2015 at:
Kevin Anderson “Duality in Climate Science” – about recognising unpalatable realities in climate science
Eriksen M et al “Plastic Pollution in the World’s Oceans” PLOS One 2014






Much discussion about the environment takes place as if the only problem is climate change and reducing carbon emissions. While climate change is a serious problem other pollutants and wastes are also serious problems – to the point of being describable as “planetary boundaries” which is is dangerous to cross. These are problems like ocean acidification, biodiversity collapse with pesticides killing many beneficial species like bees. In recent years there has also been a realisation that we have a major problem of pollution of the oceans – and also the atmosphere – from large amounts of plastic trash. This does not biodegrade but it does eventually break up into smaller and smaller pieces and is ingested by marine animals. The impact of plastic has now been documented on over 600 species.

As regards climate change the problem is not only caused by CO2 but also N2O caused by overuse of fertilisers, hydroflurocarbons and methane from rice paddies, land use change, cattle and from leakages during the operations of the global oil and gas industry.

Probably at 1.5 degrees C increase over pre-industrial runaway process – release of methane clathrates in arctic tundra and arctic seas – releasing methane

On current trends it looks likely that global temperature rises will be way above 2 degrees C compared to pre-industrial times. The likely result of this will be the melting of Antarctica and Greenland – the melting of Greenland alone will raise global sea level by 7 metres – or 21 feet which means flooding all the world major coastal cities and large areas of farm land – close to home we are talking of Hull and the Lincolnshire coastline going under the sea.


Slide Ten






Article by Mike Aucott and Charles Hall: Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013 Energies, October 2014 wth_An_Examination_of_the_US_Data_from_1950-2013






Both fossil fuel corporations and companies producing and promoting green technologies have developed and are promoting responses to depletion and pollution –there are technical fixes – but the key issues are whether these fixes are economically affordable for the rest of the economy plus whether they are acceptable to the public given what often turn out to be wider social, health and other concerns (so called externalities).

In recent years we have seen examples of “technical fixes” that have stalled and not got beyond the early phase of development – because the money cannot be found to develop them further. An example is carbon capture and storage.

All such fixes typically mean that energy costs more to supply – but because energy underpins all economic activity that is a serious matter. It takes money out of people’s pockets that they cannot then spend on other things. Studies have suggested that in the USA if the amount of national income spent on energy exceeds 5.5% the economy crashes.

To the extent that these costs are money ones the issue of unaffordability can be temporarily masked masked by debt where there is an expectation that the affordability problem is temporary. Debt can work in this way. Individuals, families, companies and government may assume that current difficulties and unaffordability is a temporary problem and the future will be brighter. For example companies may assume that technologies like fracking will improve and bring down extraction costs – or they may gamble that energy prices will rise in the future after all. So they borrow. This borrowing is helped by central banks keeping official interest rates low or even below zero.


Slide Eleven






Renewable Energy
Patrick Moriarty and Damon Honnery ‘Can Renewable Energy power the Future?’ Energy Policy 2016 Our Renewable Future by Richard Heinberg and David Fridley, Island Press, 2016 – see:
Critique by Ted Trainer
– links to acrimonious discussions of Hall and Prieto's landmark analysis of Spanish solar voltaic industry






But what about renewables? Can they fill the gap left by depleting sources of fossil fuels – and can they do so without greenhouse gas emissions and accumulating wastes?

Composition of renewables. First of all we should note that nearly half of the global renewable energy supply is what is called “traditional biomass”. For example this will include firewood from rainforests and marginal land harvested by indigenous people or cow dung which is burned in India.

In addition to this quite a high proportion of so called “modern renewables” is biomass from plantations and agriculture grown as an energy crop – either for burning for heat, or for burning to generate electric power or for coverting into biofuels. Hydro power is next in size.

By contrast, what many people immediately think of when they think of renewables – solar voltaics or wind power – or even smaller tidal or wave energy – is very small indeed. It is growing incredibly rapidly but it has a very long way to go.

Will the growth of renewables be sufficient to sustain economic growth and sustain a consumer society? Some people think so. But among experts there is a huge gulf in opinion and the debate has sometimes been acrimonious.

On this there is a great gulf between what I would term the cornucopians and those who are more sceptical to the point of being described as doomers. The distance in estimates of future potential is really huge. A recent article in the journal “Energy Policy” pointed out that estimates of the global technical potential for renewables vary by up to two orders of magnitude – in other words the optimists think there is 100 times more available energy than the pessimists.

How do we account for these huge differences?

1. Counting energy costs – it is net energy that matters. Optimists often do not calculate the energy inputs needed to tap their renewable energy source. They give estimates of gross potential but net potential is what is needed. This is not just the energy cost of the solar panels and wind turbines but the costs of building the factories to built them, the cost of the transport and installation, the cost of maintenance, the energy cost of the administration – and being realistic about how long they will last.

2. Infrastructure costs Properly speaking the calculations should include additional energy inputs like those involved in (a) a need to extend grids and infrastructures – where the sun shines and the wind blows is not necessarily where you want the power that it generates – so connections must be built.

3. Costs of buffering intermittency…. To allow for the fact that one day the wind may be blowing north of you, the next day east of you, the next day south of you, and the next day west you may decide that to be reasonably sure that you can tap some wind energy you need to put turbines north, east south and west. But in this case your greater security of supply would be purchased by 4 times the capital cost compared to a single fossil fuel fed power station. (b) you may need your energy in the evening rather than midday when the sun is shining strongest so you put in battery storage – but what if the wind does not blow for several days? In the UK the solar energy coming in is 9 times more powerful in July compared to December when it is very dark – but you need more energy for heat in December – battery storage between July and December would be a hugely expensive undertaking.

4. When non electrical energy carriers are needed. Another point is that renewables that are electrical don’t answer your needs when you ultimately want heat, or a liquid fuel for vehicle transport. Yes, you can convert electricity into heat or into battery storage for vehicles or into hydrogen. However there are conversion losses when that happens. A further major consideration is that you not only have the costs of making, installing and connecting wind turbines or solar panels. There is also the cost of developing and manufacturing differently designed vehicles or heating systems that run on a different basis.

5. It is not just fossil fuel minerals where it is necessary to resort to progressively inferior sources. An anaologous problem besets renewable sources of energy too. After the best locations for wind speed, sun, water flow etc have been taken – to continuing expanding capacity it it necessary to resort to the inferior places with lower energy return yield next.  

6. Potential short supply for materials needed for the manufacture of some technologies – rare earths.

7. Some technologies give rise to emissions themselves – e.g. hydro power leads to increased methane emissions when vegetation is submerged. 

8. Climate change may lead to a decline in renewable energy yield and costs – eg changing rainfall impacting hydro power, climate change reducing biomass and wind and cloud cover impacting wind or solar – though that may be in either direction, wind speeds may be higher in a warmer world…


Slide Twelve

LtG Background to Current Conflicts Nafeez Mosaddeq Ahmed 'Failing States, Collapsing Systems. Biophysical Triggers of Political Violence' Springer Briefs in Energy, 2017 pp 49-52






Hopes re Negative Emissions:
James Hansen et al “Young People’s Burden. Requirement of Negative CO2 emissions” Earth System Dynamics Journal at:
Also on negative emissions see:
Moriarty and Honnery “Review. Assessing the Climate Mitigation Potential of Biomass” in:

Land and Water Grabbing grabbing/links/5481de440cf2e5f7ceaa723d.pdf
Source of Africa map:






Bio-energy as renewable energy resource…. An important part of this whole debate relates to the role of bio-energy – wood that can be burned directly or other crops that can be turned into fuels. Biomass is a renewable energy source in that the ground on which it has been grown can be used again using the solar energy that proceeds the next harvest. Unlike wind or solar energy biomass is stored energy that can be combusted at a time of choice – so it does not have the problem of intermittency that wind and solar do. So there is a lot of hope that biomass – or bio-energy – can provide energy in forms that wind and solar cannot. Bio-energy has come to seen as a source for surface transport on sea and land – as well as a fuel for airplanes. On top of that some scientists see it as a feedstock to replace petroleum based chemicals and other materials.

BECCS….. There is even a hope that biomass and bioenergy can provide a carbon negative energy source – this is called BECCS. The argument goes plants take CO2 out of the atmosphere and embody it in their cellular structures. This returns to the atmosphere when they are burned and thus, so the argument, biomass based energy is carbon neutral. It then….supposedly….becomes a carbon negative energy form if burned in power stations specially equipped to take the CO2 out of the combustion gases, liquify them and then pump them underground for the next tens of thousands of years. All we need is to plant up an area one to three times the area of India to use for their fuel

But where is the land and the water to come from for all of these hopes? So where do we find the area?

Displacement of other land uses….. The point is that growing bio-energy crops will either displace food crops or crops used for fibres (clothing) or for building material – or alternatively it will involve displacing vegetation on what is called marginal ground and displacing communities who use that land but in a low impact way. In addition, “wild” areas like the rain forests have other important eco-system functions and cannot be cut down, ploughed up of converted into urban areas and flooded by dams without different kinds of negative consequences. When Brazil cuts down its rainforests it reduces rainfall and that has knock on consequences for its hydropower and for indigenous communities living in the forest…in their forest.

Generating food, fiber and other biomass-based products that people currently consume utilizes roughly 75% of the world’s vegetated land. Over 70% of the water withdrawn from rivers and aquifers is used by agriculture and fertiliser use has doubled the amount of reactive nitrogen in the world, leading to large-scale pollution of aquatic ecosystems, extensive algal blooms and bodies of waters with low levels of oxygen. Even so, agricultural and forestry practices have not, on balance, increased the total quantity of biomass production: they have merely transformed natural ecosystems to produce goods and services for human consumption. Humans cannot increase at will the global amount of biomass or the proportion of that they take.

Feeding the world in the future will be difficult enough already… A study by the University of Reading modelled scenarios for global food production and nutrition by mid century based on current technologies and inequality of access to food. The found that 31% of the global population would be at risk of malnourishment by 2050 with no climate change and 52% of the global population (an extra 1.7 billion people) were at risk of malnourishment when climate change is taken into account.

Not only is climate change negatively impacting harvests but there are also problems of depleting aquifers and soil erosion. Many pesticides are losing their effectiveness and there is competition for farm land from non agricultural uses like for urban building land. Depletion of oil and natural gas will make fertilisers more expensive and more difficult to supply.

Land and water grabbing……. The drive of corporations to develop bio-energy sources is in competition with food security in many countries. There is a corporate land and water grab across the entire world and much of this takes place to grow biofuels and biomass, particularly in Africa. Multinational corporations make deals with national governments and at the local level people find that land their families have been using for generations is taken away from them for “development”.

Is Bio-energy really carbon neutral? Although the growth of bioenergy crops absorbs carbon, using the land to grow bioenergy crops sacrifices the sequestration of carbon in land that is left to revert to forest. This foregone carbon sequestration, which is not considered in current GHG accounting related to bioenergy, may be substantial. For example, in the western Ukraine forest growth following abandonment of farmland resulted in a net carbon sink of almost one ton of carbon per hectare forest and year


Slide Thirteen

LtG Background to Current Conflicts Nafeez Mosaddeq Ahmed “Failing States, Collapsing Systems. Biophysical Triggers of Political Violence” Springer Briefs in Energy, 2017 pp 49-52






LtG Background to Current Conflicts
Nafeez Mosaddeq Ahmed “Failing States, Collapsing Systems. Biophysical Triggers of Political Violence” Springer Briefs in Energy, 2017 pp 49-52






So what does a LtG future look like? Of course everywhere will be different but we have some frightening examples. Let us take Syria for example.

Up until the mid 1990s Syria was a good example of “development” – there was growing oil production sold on the world market that gave the Syrian government revenues that it could use to subsidise food and fuel as well as spend on armaments.

After 1996 Syrian oil production began to fall and by 2010 was only one half its 1996 level. This had a drastic financial impact on the government and forced it to cut fuel subsidies.

2002- 2008 water resources dropped by a half due to waste and overuse. That was followed by a drought between 2007 and 2010 which was the worst on the instrumental record – widely judged by climate scientists to be the result of climate change. Tens of thousands of people – whole villages of Sunni cultivaters abandoned their homes in the countryside and moved into the cities like Aleppo, dominated by Alawite communities, leading to rising ethnic tensions. Between 2010 and 2011 the global price of wheat doubled. Assad was unable to maintain food subsidies because of falling oil revenues.

In the rising tensions outside powers have intervened with their own agendas – and those agendas have been rival oil and gas pipeline routes – either from Iran to Europe or from Qatar and Saudi Arabia to Europe. In this Russia has allied with Iran to defend the Assad regime and the US and UK are covertly allying with fundamentalist Sunni rebels to topple Assad and establish their own regime for their pipeline routes where there would be a role for Halliburton and Exxon.

In a number of other countries there has been a convergence of food, energy and water crises.


Slide Fourteen

Environmentalism of Poor and Environmental Justice and Martinez Alier, et al “Trends in Social Metabolism and Environmental Conflict- a comparison between India and Latin America” chapter 9 in Gareth Dale et al (ed) “Green Growth” Zed Books 2016.






Environmentalism of Poor and Environmental Justice and
Martinez Alier, et al “Trends in Social Metabolism and Environmental Conflict- a comparison between India and Latin America” chapter 9 in Gareth Dale et al (ed) “Green Growth” Zed Books 2016.






Oppositional and resistance struggles against environmental impacts have occurred the world over. The latest in the global north is a movement against fracking that has sprung up internationally.

Conflicts about environment have also been documented and studied by academics – for example with the Environmental Justice Atlas which has details of about 1,000 environmental conflicts world wide – against land grabbing, against resource extraction, against toxic waste dumps and pollution processes, against deforestation and plantations including biofuel plantations. Although activists in the global north and global south are increasingly networked there are clear differences between movements in the global north and south.

Environmentalism of the Poor….Joan Martinez Alier refers to a Environmentalism of the Poor in the global south. In this case the poor are often defending the eco-system on which they rely for vital resources like firewood or food in a subsistence economy. Indigenous communities are often struggling to defend ancestral homes and sacred sites. For these communities the eco-system is more than a resource store. It is integral to their spirituality and cultural identity as a community rooted in a particular place occupied by their ancestors since time immemorial. The place does not belong to them but they belong to the place – nature is not a store of resources but part of their being. They have a kinship with the species of plants and animals. Nature is Pachamama – mother earth in a very real sense.

The data in the Env Justice Atlas shows that indigenous communities are playing a disproportionate role defending nature in India, South America and Africa.

Some parallel movements also exist in the Global North – like movements by the First Nations in Canada and the USA to defend their ancestral lands – as for example against oil and gas pipelines recently in Dakota with the high risk or leakage and spillage.

There is also an Environmental Justice Movement. Concern and influence by the wealthy in the global north ensures that polluting and toxic industries as well as waste dumps are located away from rich communities. They are sited near poor ones, often where ethnic communities live. It is such communities that will get sick from the toxins or from fracking and they have organised to defend themselves.


Slide Fifteen






Brian Davey “Credo. Economic Beliefs in a world in crisis” Feasta Books 2015 Chapters 40 and 49 Available for free download at
D’Alisa G., Demaria F and Kallis G. “Degrowth. A Vocabulary for a New Era” Routledge, 2015






Not all green activism is reactive and oppositional. There have been many pro-active and experimental projects on a small scale to pioneer and develop examples of green economy, green lifestyle and a complementary style of politics.

The words ecology and economy originate from a greek word oikos – the household – so effectively meaning the management of a household – many green pre-figurative experiments and projects are about the transformation of household, garden and wider neighbourhood to make them more self sufficient and efficient in providing for human needs.

In the last few decades typical projects like community gardens have sprung up all over the world – including in decaying urban areas and rust belts or in refugee camps.

Thousands of Eco-villages have been developed too – although one can argue that they are the normal way of living for countless thousands of communities in the global south, in the global north are intentionally established and often have multi-functional purposes – as therapeutic and mental health projects, as art projects and to experiment with ecological gardening and cultivation, the promotion

There are likewise community energy, community transport and cycling and recycling projects whose aim is to help their members participate practically in a green transition.

From isolated projects/struggles to a movement with a narrative for the future of society. Many activists have realised the need to network and make alliances and need for political representation to combat the way that the toxic economy uses the state to advance its own purposes and agenda. To combat this the green movement must be more than a collection of isolated struggles and projects but needs to come together as a movement with its own ideological narrative for the future of society. This has included challenging the desirability and critiquing the prospects for the growth economy. Many groups therefore share an overarching vision of the need for a Great Transition – and for “Degrowth”.







The Economy is like a Circus

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Published on the Our Finite World on April 17, 2017

Dicuss this article at the Economics Table inside the Diner

The economy is like a circus. It comes to town, and eventually it leaves town. We get paid in tickets to this circus. As long as the circus stays in town, we can use our tickets. Once the circus leaves town, we are pretty much out of luck.1

The reason the circus stays in town is because the economy stays in sufficient balance that the economy can go on. This is much like the way many other self-organized systems function. For example, our bodies continue to function as long as there are suitable balances in many different areas (oxygen, food, water, air pressure). Ecosystems continue to function as long as there is sufficient rain, adequate temperatures, and enough sunlight.

There are many different views as to what limits we reach in a finite world. Some people think we will “run out” of oil, or of energy products. Some think that the energy return will fall too low, as measured in some manner. I see the adequacy of the energy return as being very much tied to the financial system. Thus, the forecast by US Atlanta Fed GDPNow indicating that first quarter 2017 US GDP growth will only be 0.5% is likely to be a problem, assuming it is correct.

Our economy operates on economies of scale. Once we get too close to shrinking, or actually start shrinking, we reach a point where the economic circus starts to leave town. At some point, we will discover the circus is gone. The economy we thought we had, will have left us. If some people are survivors, they will need to pick up the pieces and start over with an entirely new system.

What the Economy Needs to Do to Keep Functioning

For our economy to continue functioning, a number of variables are important:


  • Prices of commodities – Prices cannot be too high for the consumer to afford goods made with them. They also cannot be too low for producers. If prices of oil and other commodities are too low for producers (as they are now), producers need to keep raising debt levels to stay in business. There is a risk that production will stop from lack of adequate new investment, or from the bankruptcy of producers.
  • Wages of non-elite workers – These wages need to be high enough so that workers can afford goods made with commodities, such as cars, homes and computers. These big purchases tend to use commodities even after they are made, adding to “demand” for commodities. If commodity prices such as oil are too low (as they are now), it is likely related to the inadequate wages of non-elite workers.
  • Mandatory payments required of non-elite workers, such as taxes, health care, and education – It is not just wages of non-elite workers that are important. So are required payments, such as payments for taxes, healthcare and education. Clearly, the lower these payments are for non-elite workers, the better the economy functions.
  • Interest rates – Low interest rates are helpful for some parts of the economy, while high interest rates are good for other parts. Low interest rates help create affordable monthly payments for goods such as homes and cars. If interest rates decline, the market prices of assets such as real estate, shares of stock, and bonds tend to rise. These rising values are of great benefit to owners of these assets, since they can sell these assets and use the proceeds to add to current consumption. Conversely, high interest rates are important to pension plans and to others depending on investment income. Banks have a problem if there is not a big enough “spread” between short and long interest rates.
  • Increase in debt – An increase in debt indirectly makes the economy “look” much better. Increasing debt acts to raise wages, since some of this growing debt adds to funds available for wages. The higher wages tend to increase demand for goods, and thus indirectly raise commodity prices. A virtuous circle starts, pushing up economic growth, provided an adequate quantity of very cheap energy products is available (under $20 barrel oil, for example) that can be used to make goods and services. Increased debt works less and less well, as the price of energy products increases.
  • Inflation rates – The higher the inflation rate, the easier it is to repay debt with interest, since most debt is not adjusted for inflation. Also, high inflation rates help keep prices of homes and other buildings from falling as they age, making the use of mortgages more feasible. If the price of a commodity, such as oil or coal, is high and then falls, debt based on the prior high value of the commodity is likely to become a problem.
  • Quantity of energy products affordable by economy – It takes energy products to produce goods and services. If the price of commodities is low, it is possible for buyers to purchase a large quantity of these products, even on a low budget. Current relatively low prices tend to help the economy, even if producers cannot afford to make adequate investment in new production with such low prices. Thus, today’s low energy prices make the economy look good for at a short time. Afterwards, the outlook is less rosy.

Ultimately, the issue at hand in determining whether the “circus will leave town” is whether non-elite workers are able to adequately make a living. We know from biology that the return on the labor of animals must be adequate (animals must be able to get enough food by walking, swimming, or flying) or their populations will collapse. The same thing is true for humans. We also know that prior civilizations that collapsed often had wage disparity problems. When this happened, non-elite workers were no longer able to pay adequate taxes. Their nutrition became poorer. They tended to become more susceptible to epidemics. These were things that pushed the economy toward collapse.

The goods and services that non-elite workers can buy with their wages represent the benefits of our fossil fuel powered energy system, as distributed to the most vulnerable workers in the system. Once these benefits start falling too low, the system can no longer function.

There are some indications that benefits are already too low for the economy to keep functioning in a “normal” manner. A major such indication is the fact that energy prices have remained far too low since mid-2014. It is becoming increasingly clear that there really is no oil price which is both high enough for producers and low enough for consumers. We may be living on “borrowed time,” using an increasing amount of debt to support energy producers.

Thus, world economic growth rates may already be too low to keep the world economy operating. Regulators who consider only the US do not seem to understand the world situation. Because of this, they can easily make moves that make the situation worse, rather than better. For example, they have already started raising interest rates and are planning to sell securities currently held by the Federal Reserve.

A Few Graphs Giving Hints of Our Problem

Economists have not understood what our problems really are, so they have tended to omit some important issues from their analyses. I put together a few graphs that might give a little insight as to what is happening.

Interest Paid by Households 

Interest paid by households is important because this money is transferred to banks, insurance companies, and pension plans. It leaves the households who paid this interest poorer. Buying goods using debt is convenient, but it has a cost involved.

BEA Table 7.11 shows a category called, “Interest Paid by Households.” If we compare this to BEA “Wages and Salaries,” we find the relationship shown in Figure 1. Admittedly this is not an exact comparison; there are some people who are not wage earners who are making interest payments, for example. I have not tried to offset “interest paid by households” against “interest received by households,” because the households benefiting from interest payments are likely very different households from those making interest payments. They are likely richer, and at a later stage in their lives.



Figure 1. US Household Interest Paid (from BEA Table 7.11 Interest Paid and Received by Sector and Legal Form of Organization) divided by Wages and Salaries from BEA Table 2.11, “Personal Income and its Disposition.”

The pattern might be described as follows:

  • A rapid run-up in interest payments that took place until about 1986
  • A general flattening, with new peak in 2007
  • A rapid fall starting in 2008

It seems to me that the pattern up to 1986 reflects the general run-up in consumer debt levels during this period. The amount of interest paid is also affected by interest rates, such as ten-year treasury rates.



Figure 2. US Federal Bonds 10 year interest rates. Graph produced by FRED (Federal Reserve Economic Data).

Interest rates started falling in 1981. These higher rates only gradually worked their way into the system because many people had bought houses earlier and were able to keep their existing mortgages at low interest rates. The amount of debt outstanding continued to rise, allowing the total amount of interest paid to continue to rise until 1986.

After 1986, rising debt amounts and falling interest rates came closer to offsetting each other (Figure 1). By 2008, the economy was in a severe recession. In order to help get out of the recession, interest rates were lowered through Quantitative Easing. These lower interest rates, besides helping the economy in general, helped oil prices gradually increase back to the $100+ per barrel price level that they needed to be profitable. Oil prices had temporarily dropped below $40 per barrel in December 2008.

Figure 1 shows that interest payments for several years amounted to about 12% of wages for households. Interest payments are now down to 8% of wages. Even at this level they are significant. They are likely higher than this for those with low wages and high debt. If interest rates rise significantly, the most vulnerable are likely to find their discretionary income reduced.

Rising Healthcare Costs 

Figure 3 shows a comparison of US healthcare costs to GDP and to wages. A huge increase in costs is evident in the 2001-2005 periods, and also in the 2008-2010 period, especially compared to wages.



Figure 3. US Healthcare costs as a percentage of GDP and as a percentage of wages. Healthcare costs from Wages and salaries and GDP from BEA.

The increase in healthcare costs since 2008 is one of the costs putting pressure on the economy, and leading to a need for lower interest rates.

The Affordable Care Act should be affecting amounts for the latest years, since the ACA started increasing the number of people with insurance starting about 2014.



Figure 4. Kaiser Family Foundation chart of percentages of non-elderly people without healthcare insurance, from this Source.

A person might wonder why 2014 and 2015 costs didn’t rise more, with so many more people added to the system. Perhaps care that was being given “free” by hospitals is now being charged back to patients. Or perhaps many of the people choosing to purchase coverage through the program were already insured elsewhere in the system, so were not really added to the healthcare system through the Affordable Care Act.

One very recent US healthcare change is the addition of an automatic penalty for not having healthcare insurance. This penalty began for tax year 2016, filed in the beginning of 2017. This provision particularly hurts young people, because rates are structured in such a way that the rates for young people subsidize the rates for older people. Thus, young people often find that buying health insurance is far more expensive than their out of pocket costs for health care would have been, without insurance.

Young people who are affected by this new requirement will find that they need to cut back on other expenditures (such as restaurant visits), if they are meet the requirements of the law–either buy healthcare insurance or pay the mandated penalty. This change will begin to adversely affect the economy in 2016. Bigger impacts are likely in early 2017, when taxes are filed.

Falling Wages Relative to GDP, and Rising Wage Disparity

The path to lower wages as a percentage of GDP has been a bumpy one. The general pattern is that when the economy is booming, wages tend to grow as a percentage of GDP. Recession tends to send wages down as a percentage of GDP. US wages seem to have increased somewhat since 2013, perhaps because the price of oil is down, and the US dollar has risen to a relatively high level. This is part of what allows some people to talk about the “tightening labor market,” and gives them confidence in the economy.



Figure 5. US wages and salaries divided by US GDP, based on BEA data.

There has been significant growth in wage disparity since about 1980, both in the US and in many other developed countries. Figure 6 shows some data for the US.



Figure 6. United States Income Distribution_1947-2007 in 2007$. The data source is “Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 1947 to 2007”, U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Graph is from Wikimedia Commons

As the economy becomes more “complex,” in other words, “specialized,” wage disparity tends to be more of a problem. Work that could previously be done by manual laborers is done by machinery, or is transferred to low wage countries. Many people lose their jobs, and have difficulty finding good-paying replacement jobs. All of this contributes to inadequate wages for non-elite workers.

Role of Inflation and Rising Commodity Prices in the Economy

We rarely stop to think how important inflation is to the economy. For example, if inflation is sufficiently high, it will slightly offset normal depreciation in values of homes and business properties. Thus, home and business property values will tend to slightly rise over time. If banks can count on values of structures rising, rather than falling, over time, lenders can assume that mortgage loans are fairly risk-free, because the lender can count on getting its money back through the sale of the property, if the mortgage-holder defaults.

This same principle holds when energy properties, such as coal mines and oil fields, are financed. As long as energy prices keep rising, there is a good chance loans can be repaid. Once energy prices fall, debt defaults become a problem. Oil exporting countries also find that the taxes they can collect fall significantly. As a result, energy-exporting countries are in a far worse economic position once energy prices fall. Exporters of other commodities, such as metals, have a similar problem if prices fall.

In the last two paragraphs, I mentioned the impact on lenders and governments of rising or falling prices. Owners of properties are also affected by rising or falling prices. If prices rise, these owners can sell their assets, and make a profit. In fact, these owners have often purchased their properties with debt. If the price of the property rises, but the amount of debt is unaffected by inflation, the owner of the property can often get a disproportionate benefit of the price rise. Of course, if the value of a property falls, the property-owner is disproportionately affected by the fall of the price.

We are so used to a rising-price scenario that we have little understanding of how a flat or falling price scenario might work.

To get a little idea of how much inflation has in the past been working through to asset prices in the United States, I looked at some information provided by the US Bureau of Economic Analysis. I compared these amounts to GDP, rather than asset prices, to get an idea of how much impact they have, relative to each current year’s activities (Figure 7). There is about $3 of assets of the types BEA analyzes for every dollar of GDP, so the impact, relative to GDP, is about three times as high it would be, relative to the asset prices themselves.

If this same relationship holds elsewhere, a person can see why a commodity-producing country might have a big problem, if the price of that commodity suddenly falls. There is huge “balance sheet” impact that doesn’t directly affect current GDP as reported (since GDP has to do with current goods and services produced). But it can have a major impact on the country, as it goes forward, because affected loans are much less likely to be repaid. Countries often try to be lenient with lenders, hoping that commodity prices will rise again. But if the drop in prices is permanent, countries must use more and more extreme measures to hide the problem of loans that have a low probability of repayment in a low-priced commodity environment. Eventually, these loans seem likely to default, if prices do not rise sufficiently. China and many commodity-exporting countries seem to be affected by this problem.




Figure 7. Changes to US Fixed Assets, based on BEA Table 5.10, Changes in Net Stocks of Produced Assets.

BEA shows three amounts of interest with respect to US assets (Figure 7):

  1. Inflation – Changes in asset values based on changes in the general price level
  2. Re-evaluation total – Changes to asset prices in particular; includes changes because assets are taken out of service because of disaster or because a business is no longer profitable. Note the spikes related to the housing bubble of the 2003-2006 period and the corresponding dip during the Great Recession of 2007-2009.
  3. Depreciation – Expected amount of new investment needed to offset “consumption of fixed capital.” This rate is quite high, (about 15.7% of GDP recently) because the asset base includes fairly rapidly depreciating assets, such as cars and computers, besides buildings of all types, and intellectual property such as computer programs.

The last year shown is 2015. Inflation (relative to GDP) was only 1.2%, and the re-evaluation total was only 0.3% of GDP. (Calculated as percentages of the assets involved, these inflation rates would be only a third of these amounts.) These low inflation rates make it very difficult to operate a debt-based economy. A shift from inflation to deflation would be a major problem. Unfortunately, it is very difficult to get much inflation, if the wages of non-elite workers remain very low.


We have kept our economy expanding through growing debt use and growing energy use. I described this process in my post, What has gone wrong with oil prices, debt, and GDP growth?

Now we seem to be reaching the end of the line. The economy is getting very close to shrinking. When this happens, we are getting close to economic collapse–the economic circus is starting to “leave town.”

People who think our only problem is “running out” and “high oil prices” don’t see the problems the economy is developing right now. These problems are much more subtle, but they can have a devastating effect. The Federal Reserve talks about inflation rates above 2% being too high, but inflation rates below 2% are at least equally problematic. Somehow, the debt system needs to keep operating for the whole system to work.

We are now at the point where the economy is decidedly unstable. Little things can affect it, like the Affordable Care Act requirement that uninsured people buy healthcare insurance, or pay a penalty. Low commodity prices make debt repayment more difficult in countries producing those commodities.

We should not be too surprised if the economic circus starts to leave town. There are simply too many pieces that are now unstable. The US Government is facing a shutdown in the near future, unless its debt ceiling can be raised and funding can be enacted. The world is depending on China for economic growth, but China’s debt is becoming unmanageably high. Japan’s debt is also unreasonably high. Oil exporters are becoming increasingly unstable, with continued low prices. We can find problems in almost every country of the world. It looks like it is only a matter of time, until one of these problems starts a downward spiral.



[1] Thanks to commenter “Lastcall” for this analogy.


Entrepreneurship in the Social and Solidarity Economy

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Published on Credo Economics on February 22, 2017

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Co-operatives have been described as freshwater fish in a saltwater environment. In the 1930s, the co-operative sector in many countries was very powerful but it was destroyed by fascist and communist regimes. What was it that the authoritarians found so threatening in co-operation? Alternative economic models like co-operatives and social enterprises are explored, together with the arrangements that can help sustain them, like co-operative federations and support networks. However, there are no panaceas – co-ops and social enterprises fail too.

As I have been at pains to point out, the role of the entrepreneur is an idealisation and there is not a simple picture. While a very large proportion of entrepreneurs are crooks, especially in elite positions, this is by no means true of everyone. For example, a book by Claudio Sanchez Bajo and Bruno Roelants shows that, during the economic problems of the last few years, co-operatives have had fewer problems. This is because there are less perverse incentives and co-operatives have less scope for control fraud by their managers because of the shared ownership, participative management and better integration with communities and other stakeholders.

Cooperatives tend to have a longer life than other types of enterprise, and thus, a higher level of entrepreneurial sustainability. In [one study], the rate of survival of cooperatives after three years was 75 percent, whereas it was only 48 percent for all enterprises… [and] after ten years, 44 percent of cooperatives were still in operation, whereas the ratio was only 20 percent for all enterprises. (Bajo & Roelants, Capital and the debt Trap. Learning from Co-operatives in the Global Crisis, 2011) (p. 109)

The fact is then, that entrepreneurs are of many different types, with many different motivations
and standard economic theory tells us almost nothing that would help to understand them. In a study based on 26 Czech and 45 British social enterprises, Nadia Johanisova finds that the most important success factor is motivation. The motivation of social entrepreneurs is not for money or fame but more for self-fulfilment, commitment to place where they have roots and an opportunity to make a difference. Johanisova comments:

This casts doubt on economic theory which assumes financial motivation to be the principal incentive for work….The social enterprises profiled in this report defy conventional economic wisdom in other ways as well: (1) by definition their remit stretches beyond the financial to the social and/or environmental, (2) they are need as well as market driven and may juggle diverse activities instead of specialising, (3) more than half do not particularly wish to grow beyond their current size… Yet they survive and sometimes thrive in an unforgiving environment. (Johanisova, 2005, p. 93)

Co-operatives would have been a lot further forward had not their gains been brutally repressed, particularly in the 1930s and 1940s, by the fascist and communist governments. In her book, Johanisova describes the incredible achievements of the Czechoslovak co-operative movement up to the 1930s. Over decades, small credit co-operatives in rural areas called Kampelika had become an important
part of village life. Despite the voluntary and amateur nature of the administration of the Kampelika, they were efficiently run and were able to eliminate rural usury, educate farmers about accounting and thrift, purchase farm machines for members, install scales in villages to check weights, plant trees and organise cultural events. They complemented other co-operatives i.e. marketing, processing, flour mills, distilleries and so on. They also played a major role in the development of an electric grid connecting 15,000 villages. (Johanisova, 2005, pp. 28-29)

The psychopaths strike back – what they find so threatening in co-operation

This entire movement then disappeared almost without trace because of the Nazis and then, subsequently, the communist regime. Pat Conaty and Michael Lewis draw on a book by Johnston Birchall to describe how similar set-backs occurred in other countries in the interwar period. In Italy, Mussolini seized the assets of 8000 Italian co-ops and took them over, killed leaders and burned shops. In Russia, Lenin repressed them but allowed them to revive before Stalin destroyed agricultural co- operatives (providing 65% of food provisions) in favour of forced collectivisation. Urban co-ops were then closed in 1935. In Germany, Hitler seized their assets and nationalised 1100 consumer co-ops, 21,000 credit unions, 4000 co-op savings banks and 7000 agricultural co-ops. In Austria, where one out of every 3 three households had been members of consumer co-operatives, Hitler’s invasion led to the leaders of the co-ops being replaced by fascists while their assets were seized and handed over to private business owners. In Spain, Franco arrested and killed many co-op leaders while many others took exile in Latin America. (Conaty & Lewis, 2012, pp. 220-221)

One may ask why this happened. One answer, when co-operative assets were seized and passed over to private owners, or to the fascists, was that the co-operatives had been too successful for the private economy and the real basis of economic power in society was being revealed – violence was being
used to re-stabilise the private sector. There is a deeper answer too. All entrepreneurial activity, all business activity, is based on an ethical and a value system, and that ethical and value system, whether consciously or not, implies a vision for society. As regards Czechoslovakia, the co-ops were a threat to the dictators – fascist and then communist – because they represented a self-organised society where people took decisions for themselves and were well-organized to do so.

A form of economic organisation and entrepreneurship that tries to embody and embed democratic principles implies a deeper form of political democracy too. Not least in the sense that co-operatives imply practical participation in economic decision-making by ordinary people who thereby develop skills for a genuinely participative political democracy. John Stewart Mill realized the implications when he wrote:

We do not learn to read or write, to ride or swim, by being merely told how to do it, but by doing it, so it is only by practicing popular government on a limited scale, that the people will ever learn to exercise it on a larger. (On Liberty)

This is why this movement has always been an anathema for autocrats who reserve for themselves alone the power to decide what they deem in the best interests of society. On the other hand, Mill’s insight helps to explain why generations of heretical economic thinkers and social philosophers have tried to revive the social justice tradition of the guilds, recreating the commons and an economics based on co- operation and community.

Alternative economic models in india

The attempt has been international – and not just confined to Europe or the Anglo Saxon world. Gandhi’s vision for economic development for an independent India was as a co-operative path promoting self-sufficiency and self-rule (Swaraj). In his vision, economic activity involved people “developing themselves”, including in a spiritual, self-transformative dimension. (Schroyer, 2009, pp. 82-85)

After Gandhi’s death in 1947, Vinoba Bhave and JP Narayan organized a Bhoodan (land gift) and then a Gramdam (village gift) movement because, without land, there was no way that the village poor in India could be self-sufficient and participate in economic life. The basic idea of both movements was therefore to urge large landlords to gift part of their land to the rural poor. Although significant acreage was donated, the movement ran up against the problem that the rural poor did not have enough money or access to low cost finance. When recipients of the land gifts borrowed, using the land as collateral, much was repossessed.

The village gift movement learned from the repossessions. The amended idea envisaged gifted land organized through village trusts to overcome the risk of repossession. Overall Bhoodan and Gramdan secured 5 million acres over 20 years. The idea spread internationally. Experiments like these inspired Martin Luther King and then a Community Land Trust movement in the United States and elsewhere. (Schroyer, 2009, p. 85) (Conaty & Lewis, 2012, p. 87)

Co-operatives and social enterprises today

At the present time, at least one billion people on the planet are members of co-operatives, though you would never know that from mainstream economic textbooks. In over 800 pages, Mankiw and Taylor’s economic textbooks never discuss co-operatives at all. They only mention “co-operation” as an economic phenomena that they consider is unlikely to happen but which does so occasionally nevertheless. If you are educated in Harvard where Mankiw teaches, you might never find out, therefore, that co-operatives employ more people than the multinationals and provide services to 3 billion people weekly. That is about 40% of people on the planet.

Co-operative federations and support networks

There are remarkable success stories. In the Basque country in Spain, the Mondragon Corporation
has evolved from small beginnings in 1956 to a business group with 80,000 employees, operating transnationally in finance, the manufacture of industrial goods, retail and knowledge – the latter being linked to the Co-operative University of Mondragon. Mondragon is a network that has evolved its own federated support institutions and infrastructure which is crucial to the success of the associated co- operative businesses.

The fact is, that for hundreds of years, and in our own time, huge numbers of people have tried to organise business on ethical, community focused and co-operative principles. However, they have operated in a hostile business environment. As Professor Jaroslav Vanek of Cornell University puts it:

If you go to a bank and ask for a loan to start a co-op, they will throw you out. Co-ops in the West are a bit like sea water fish in a freshwater pond. The capitalist world in the last 200 years has evolved its own institutions, instruments, political frameworks etc. There is no guarantee that another species could function if it had to depend on the same institutions. In capitalism, the power is embedded in the shares of common stock, a voting share. This has no meaning in economic democracy. Economic democracy needs its own institutions for one simple reason. Workers are not rich. Let’s face it, most working people in the world today are either poor or unemployed. They do not have the necessary capital to finance democratic enterprises. Hence, we need some instruments and institutions which make this possible. Why? Because we know that once democratic firms are organized, or even if they have all the elements of democratic principles, they work far better than capitalist enterprises. (Vanek, 1995)

However, while the Mondragon Corporation as a network is a powerful example of what is possible when communities and workers federate, it does have its problems. At the time of writing, Fagor, one of the largest of the Mondragon co-operatives, has had to file for protection against its creditors as it tries to re-organise. The co-operative Bank in the UK has also been in difficulties at the time of writing. It took over the Britannia Building Society that had too many bad debts.

It is therefore necessary to inject a note of caution into the discussion of co-operatives – and into thinking about the whole social economy.

There are no panaceas – co-ops and social enterprises fail too

Co-ops and social economy enterprises fail too. Nothing is eternal, conditions of uncertainty apply to co-ops too and poor decisions are taken by people no matter how ethical or community orientated they are. Nor are the motivating values and ethical systems that apply in co-ops and social economy enterprises always what they seem to be. One may think that the social entrepreneurs are motivated by the ideals of co-operation, the love of their fellow human beings and the environment, indeed they can loudly proclaim that they do. Yet, in practice you sometimes find people who are actually motivated to be seen to be virtuous – and a lot more virtuous than anyone else. These top dogs and leading experts in co-operation may turn out to be condescending micro-managers who always know what is in everyone else’s best interests. Now and then, unfortunately, one meets virtuous people who see themselves as so much better at co-operation than anyone else. Stated values may not align with realities when people
are lacking in self-awareness about their holier than thou stance. Such narcissists may be inclined to petulance and even vindictiveness if and when challenged – as can easily happen because they are such a pain to work with or under.

No organisational form, no ownership regime, is a cure all. It is impossible to design a system that will solve all problems. Karl Marx once wrote that we make our own history but not in conditions of our own choosing. Some of the conditions that may not be of our own choosing include the personalities of our colleagues and co-workers. As therapists will tell you, people’s personalities can be changed slowly – but it takes time. People need to want to change and they are rarely open to therapeutic suggestions from their colleagues.

Freshwater fish in a saltwater environment

Other conditions constraining organisations in the social and ecological economy are those kind
of institutional mismatches that Jaroslav Vanek refers to. It does not help that co-operatives, social enterprises and not for profit organisations exist in a market, institutional and cultural environment that is not set up for them. It is clear, for example, that the current difficulties of Fagor of Mondragon are related to the Eurozone financial crisis and the catastrophic economic conditions in Spain. (Written early 2014). These, in turn, were largely the result of real estate speculation pumped up by the Spanish banks, which are hardly the fault of Fagor, though it is now a victim of the fall out.
There is a deeper lesson here. Co-operatives and social economy organisations can be pulled down
in the collapse of the general economy. Indeed, the closer they are aligned with and integrated into the economic mainstream, the more likely this is to happen. Workers’ ownership and control will not prevent this happening on its own.

This brings me to the example of the John Lewis Partnership. This is the largest worker owned company and third largest private business in the UK with over 70,000 partners. It is sometimes held up as wonderful example to show how successful a trusteeship model for a business can be. For example,
by Lewis and Conaty in their book The Resilience Imperative (Conaty & Lewis, 2012, pp. 280-283) or by Marjorie Kelly in her book Owning our Future (Kelly, 2012, pp. 177-184). As with the Mondragon Corporation, the gains of the John Lewis Partnership are shared between the worker partners.

The Partnership has mechanisms to hold management accountable, to debate and suggest policies in a transparent and accountable system, while power is shared in a federated system of councils which Lewis and Conaty describe as “reminiscent of the guilds”. Like Mondragon, the Partnership has secured its growth through self-financing thereby avoiding the instability and speculation of the capital markets.

Yet for all of these successes, there is a tremendous paradox with the John Lewis Partnership. In an era of consumer capitalism where the economic system is banging up against the Limits to Growth and millions of people are groaning under unsustainable debts, the John Lewis Partnership runs a chain of stores that are veritable temples to consumerism. There is no doubt about it – the partners do sell these consumer goods very successfully, but are these purposes a contribution to sustainability and the future of humanity? According to Marjorie Kelly, the JLP are stepping up their environmental commitments. Under pressure from Greenpeace, the JLP recently backed down from a tie up between its associate company, Waitrose, and Shell. Despite this, the JLP focus on growth means that its carbon emissions are still growing in absolute terms.

In her book, Kelly describes asking someone from the JLP the very pertinent question: “How can a department store chain shift into a low-consumption, no growth economy?” and says of the person that she asked “He doesn’t have an answer. Maybe none of us do.” (Kelly, 2012, p. 184)

Indeed! The purpose of department stores simply does not match a future of energy descent and degrowth, whether they are owned by their staff or not.

Perhaps a better model for the future is provided in Italy, where there has been a 20 year explosive growth of co-operatives providing social services in ways that integrate the participation of disadvantaged groups. In 2013, these Italian co-operatives employed 360,000 paid workers including 40,000 people from disadvantaged groups, with over 31,000 volunteers. They now provide for almost
5 million people and have a turnover of 9 billion euros. These co-operatives also illustrate again the importance that has developed at Mondragon – a level of supportive “enterprise ecology” where there is co-operation among co-operatives – networks and an infrastructure shared between organisations with common values and purposes. (Conaty & Lewis, 2012, pp. 251-257)

The specific client focus of the Italian co-ops is relevant too. In an era of stagnation and even collapse in the so called “developed countries”, when a bulge of elderly people are reaching retirement and will have plenty of needs in their last years, in an era when many others are being thrown into unemployment, poverty and ill health, what the Italian co-operatives are doing will need to be a major direction for the social economy.

The central point is this – companies that focus solely on return on capital alone cannot do a number
of jobs, despite all the “invisible hand” clap-trap. The ethos of extrinsic motivations gives rise to types of enterprise culture that are antithetical to authentic care for people and places. Co-ops and social enterprises can be formed to work for intrinsic motivations, rather than for monetary rewards – but that does not mean, of course, that they can neglect attention to covering their costs. They are not necessarily profit focused if they are trying to make a surplus in what they do so as to ensure their long run financial stability.

Further, much more radical models exist which turn away from consumerism. Throughout Germany, one can find centres set up with equipped workshops which people can use to develop skills to make things DIY. There are also “repair centres” and networks so that people can give away or exchange used products, not to mention community gardens to grow your own food – all a little bit different from John Lewis and its associate organisation, upmarket supermarket Waitrose. (HEi, 2014) (Verbund Offener Werkstaetten (Association of Open Workshops), 2013)

You Owe $21,714

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Published on The Economic Collapse on March 12, 2017

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$21,714 For Every Man, Woman And Child In The World – This Global Debt Bomb Is Ready To Explode

According to the International Monetary Fund, global debt has grown to a staggering grand total of 152 trillion dollars.  Other estimates put that figure closer to 200 trillion dollars, but for the purposes of this article let’s use the more conservative number.  If you take 152 trillion dollars and divide it by the seven billion people living on the planet, you get $21,714, which would be the share of that debt for every man, woman and child in the world if it was divided up equally.

So if you have a family of four, your family’s share of the global debt load would be $86,856.

Very few families could write a check for that amount today, and we also must remember that we live in some of the wealthiest areas on the globe.  Considering the fact that more than 3 billion people around the world live on two dollars a day or less, the truth is that about half the planet would not be capable of contributing toward the repayment of our 152 trillion dollar debt at all.  So they should probably be excluded from these calculations entirely, and that would mean that your family’s share of the debt would ultimately be far, far higher.

Of course global debt repayment will never actually be apportioned by family.  The reason why I am sharing this example is to show you that it is literally impossible for all of this debt to ever be repaid.

We are living during the greatest debt bubble in the history of the world, and our financial engineers have got to keep figuring out ways to keep it growing much faster than global GDP because if it ever stops growing it will burst and destroy the entire global financial system.

Bill Gross, one of the most highly respected financial minds on the entire planet, recently observed that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.

And he is precisely correct.  Everything might seem fine for a while, but one day we are going to hit the wrong bump at the wrong time and the whole thing is going to go KA-BOOM.

The financial crisis of 2008 represented an opportunity to learn from our mistakes, but instead we just papered over our errors and cranked up the global debt creation machine to levels never seen before.  Here is more from Bill Gross

My lesson continued but the crux of it was that in 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster. In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises. But the credit creation has limits and the cost of credit (interest rates) must be carefully monitored so that borrowers (think subprime) can pay back the monthly servicing costs. If rates are too high (and credit as a % of GDP too high as well), then potential Lehman black swans can occur. On the other hand, if rates are too low (and credit as a % of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.

There is always a price to be paid for going into debt.  It mystifies me that so many Americans seem to not understand this very basic principle.

On an individual level, you could live like a Trump (at least for a while) by getting a whole bunch of credit cards and maxing all of them out.

But eventually a day of reckoning would come.

The same thing happens on a national level.  In recent years we have seen examples in Greece, Cyprus, Zimbabwe, Venezuela and various other European nations.

Here in the United States, more than 9 trillion dollars was added to the national debt during the Obama years.  If we had not taken more than 9 trillion dollars of consumption and brought it into the present, we would most assuredly be in the midst of an epic economic depression right now.

Instead of taking our pain in the short-term, we have sold future generations of Americans as debt slaves, and if they get the chance someday they will look back and curse us for what we have done to them.

Many believe that Donald Trump can make short-term economic conditions even better than Obama did, but how in the world is he going to do that?

Is he going to borrow another 9 trillion dollars?

A big test is coming up.  A while back, Barack Obama and the Republican Congress colluded to suspend the debt ceiling until March 15th, 2017, and this week we are going to hit that deadline.

The U.S. Treasury will be able to implement “emergency measures” for a while, but if the debt ceiling is not raised the U.S. government will not be able to borrow more money and will run out of cash very quickly.  The following comes from David Stockman

The Treasury will likely be out of cash shortly after Memorial Day. That is, the White House will be in the mother of all debt ceiling battles before the Donald and his team even see it coming.

With just $66 billion on hand it is now going to run out of cash before even the bloody battle over Obamacare Lite now underway in the House has been completed. That means that there will not be even a glimmer of hope for the vaunted Trump tax cut stimulus and economic rebound on the horizon.

Trump is going to find it quite challenging to find the votes to raise the debt ceiling.  After everything that has happened, very few Democrats are willing to help Trump with anything, and many Republicans are absolutely against raising the debt ceiling without major spending cut concessions.

So we shall see what happens.

If the debt ceiling is not raised, it will almost certainly mean that a major political crisis and a severe economic downturn are imminent.

But if the debt ceiling is raised, it will mean that Donald Trump and the Republicans in Congress are willingly complicit in the destruction of this country’s long-term economic future.

When you go into debt there are consequences.

And when the greatest debt bubble in human history finally bursts, the consequences will be exceedingly severe.

The best that our leaders can do for now is to keep the bubble alive for as long as possible, because what comes after the bubble is gone will be absolutely unthinkable.













Crumbling Infrastructure

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Published on The Economic Collapse on February 16, 2017

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11 Deeply Alarming Facts About America’s Crumbling Infrastructure






No matter what your particular political perspective is, if there is one thing that virtually everyone in the United States can agree upon it is the fact that America’s infrastructure is crumbling.  Previous generations of Americans conquered an entire continent and erected the greatest system of infrastructure that the world had ever seen, but now thousands upon thousands of those extremely impressive infrastructure projects are decades old and in desperate need of repair or upgrading.  The near catastrophic failure of the Oroville Dam is a perfect example of what I am talking about.  We should be constructing the next generation of infrastructure projects for our children and our grandchildren, but instead we are in such sorry shape that we can’t even keep up with the maintenance and upkeep on the great infrastructure projects that have been handed down to us.

Once upon a time nobody on the entire planet could even come close to matching our infrastructure, but now our crumbling infrastructure has become a joke to much of the rest of the industrialized world.  Sadly, this is just another symptom of our long-term economic collapse.  We simply are not able to put as much of our money toward infrastructure as previous generations of Americans did, and as a result we have a giant mess on our hands.  The following are 11 deeply alarming facts about America’s crumbling infrastructure…

#1 According to the American Road and Transportation Builders Association, nearly 56,000 bridges in the United States are currently “structurally deficient”.  What makes that number even more chilling is the fact that vehicles cross those bridges a total of 185 million times a day.

#2 More than one out of every four bridges in the United States is more than 50 years old and “have never had major reconstruction work”.

#3 America does not have a single airport that is considered to be in the top 25 in the world.

#4 The average age of America’s dams is now 52 years.

#5 Not too long ago, the American Society of Civil Engineers gave the condition of America’s dams a “D” grade.

#6 Overall, the American Society of Civil Engineers said that the condition of America’s infrastructure as a whole only gets a “D+” grade.

#7 Congestion on our highways costs Americans approximately 101 billion dollars a year in wasted fuel and time.

#8 According to the U.S. Department of Transportation, over two-thirds of our roads are “in dire need of repair or upgrades”.

#9 In order to completely fix all of our roads and bridges, it would take approximately 808 billion dollars.

#10 Federal spending on infrastructure has decreased by 9 percent over the past decade.

#11 According to Bloomberg, it is being projected “that by 2025, shortfalls in infrastructure investment will subtract as much as $3.9 trillion from U.S. gross domestic product.”

The quality of our infrastructure affects all of our lives every single day.  For instance, we all simply take it for granted that safe, clean drinking water is going to come out of our taps, but recent events have shown that is not necessarily always going to be the case.

Just ask the residents of Flint, Michigan.

Water pipes, sewer systems and water treatment facilities all over the nation are aging and are in desperate need of repair.  Of course the exact same thing could be said about our power grid.  It was never intended to handle so many people, and on the hottest days of the summer the strain on the grid is very evident.

And of course the power grid is exceedingly vulnerable to an electromagnetic pulse event, and this is something that I covered in my book on getting prepared.  It has been projected that it would only cost a couple billion dollars to harden the grid against an EMP event, but our politicians refuse to spend the money.

Meanwhile, President Trump is completely correct when he says that our airports look like something that you would see in a third world country.  Most of our airports are at least several decades old, and they are definitely showing their age.

But things are even worse when you look at other systems of mass transit around the country.  While other nations such as Japan and China are investing huge amounts of money into high speed rail, we are doing next to nothing even though what we currently have is absolutely pathetic.

I could go on and talk about our ports, schools, waterways, parks, etc. but I think that you get the point.

President Trump’s instincts are right on the money when he says that he wants to spend a trillion dollars on infrastructure.  Without a doubt, we desperately need it.

The problem is that we are flat broke.

We are 20 trillion dollars in debt, and we are adding more than a trillion dollars to that total every year.

So where are we going to get the money?

It is easy for liberals to say that we should raise taxes, but how much more are you going to squeeze out of U.S. consumers?  Two-thirds of the country is living paycheck to paycheck, and we just learned that U.S. household debt has risen to a grand total of 12.58 trillion dollars.

Once upon a time, America was the wealthiest nation on the entire planet and we could afford to construct bold, new infrastructure projects from sea to shining sea.

But today we have the biggest mountain of debt in the history of the world and we can’t even afford to repair what we already have.

When I speak of our long-term economic collapse, this is precisely the sort of thing that I am talking about.  We have clearly been in decline for a very long time, and anyone that would suggest otherwise is simply not being honest with you.


Civilization and Collapse

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Published on Momentum Institute on Fenruary  11, 2017

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Inside the Diner: Getting a Handle on Wealth

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Published on The Doomstead Diner on January 15, 2017

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In response to my recent article The First Law of Wealth, one of the regular Diners JRM began a thread to discuss the nature of Wealth and how we define it.  Below you will find some of the differing perspectives on what Wealth is or is not, and how they define the concept.

Note:  As with all Inside the Diner compilations, the Napalm has been edited out for a smoother read.  Full version is available Inside the Diner for those wearing fireproof BVDs.


From JRM:

This thread is for discussion of a tangent which appeared recently in RE's thread, The First Law of Wealth. The basic theme was and is the question, What is wealth, really?  I take this to be basically a philosophical question.  My contention has been that Adam Smith's definition of wealth, which has been the accepted mainstay of modern economics, is deeply inadequate and problematic — both formally within the field of economics and less formally in everyday usage outside of this field.

Smith defined wealth as "the annual produce of the land and labour of the society".  The concept is further elucidated by Smith in his writings, of course. The Wikipedia article on Wealth, in attempting to be more specific or clear, states, "This "produce" is, at its simplest, that which satisfies human needs and wants of utility."  The concept has always been a bit contentious, rough and ambiguous.

I have proposed that wealth is better understood as well-being. This concept is also a little vague, but I find it more clear than Smith's.  I proposed that we in the contemporary world should seek to gather together a more thoroughgoing theory of well-beinga General Theory of Well-being derived from various sciences, physical and social, as well as of relevant sub-fields within philosophy such as ethics and aesthetics. 

The notion that wealth is better understood as well-being (synonym: health) occurred to me when I read the etymology of the word, which roots the word "wealth" in the Old English word weal.


weal (n.1)

"well-being," Old English wela "wealth," in late Old English also "welfare, well-being," from West Germanic *welon-, from PIE root *wel- (2) "to wish, will" (see will (v.)). Related to well (adv.).


The English word "health" has a different Old English root, but the concepts are intertwined. ( )  I take health to be at least roughly synonymous with well-being, if not a perfect synonym, and treat these as synonymous here.

A General Theory of Well-being (health) can (hypothetically) be derived, with some time and effort, from a study of the application of the concept of health and well-being as it appears in various sciences, be it medicine, biology, ecology, psychology, etc.–, but also in philosophy such as in ethics and aesthetics.  No such General Theory seems yet to exist, and so any progress in defining wealth in these terms may well depend first on such a General Theory.

I believe a very potent key to unfolding this inquiry into a possible General Theory of Well-being, and thus of wealth, may be found in the concept and science of resiliency — which is an important topic in systems science and theory.  Resiliency is a principal concept wherever health and well being are discussed philosophically and scientifically. This is so in psychology, ecology, medicine and so on, and I believe this is hardly a coincidence.  Resiliency and fragility are more than merely philosophical concepts; they are fundamental attributes of all systems.  And systems can be found … nearly everywhere, be they natural systems or artificial ones.

I believe that if a General Theory of Well-being should emerge from its current incipience, not only would this precipitate an inevitable re-framing of economic theory on the level of a paradigm shift in the field, but it would constitute the basis of a re-framing of our entire modern world view as a whole.  This would transform the entire field of education, of commerce, of architecture, of design generally….  The result would be a revolution in nearly all academic disciplines and a return to the unity of knowledge which pre-modern people had always taken for granted.


From JRM

Hypothesis:  Resiliency is a concept with applications across many disciplines, scientific and beyond.


I'll compile a list of online resources which discuss resilience across various disciplines over time, and invite you to add to this list. 


I strongly suspect that when we gather together functional definitions and descriptions of the concept of resiliency in many fields of knowledge, in their simplest terms, we can set these next to one another and discern what is common to each, thus constructing a universal concept of resiliency alongside a general theory of resiliency.  I further speculate that the association of knowledge of resiliency from many fields will result in cross-fertilization between disciplines (subject areas). 

I believe some of the weaknesses of theory in, say, economics (e.g., in economic resiliency theory) may be revealed by association with the concepts and applications of resiliency theory in other disciplines, with psychology and economics, medicine and ethics/aesthetics, politics and history informing and enriching one another via this association and an associated interdisciplinary dialogue.

This is necessarily a critical inquiry, in the sense that a critique of disciplines and their theoretical orientations is likely to emerge with such a rich, interdisciplinary investigation. 

Inevitably, the philosophical concepts of fact and value will come into play here.  These two have been strangely at odds with one another vis-a-vis the fundamental division of the academic realm (education) into "the humanities" on one side (and associated "soft-sciences" such as social science generally …)  with "hard" physical sciences on the other.

Further speculation:

Until recently, most people have been fairly comfortable discussing wealth as "material wealth" (tangible, thus amenable to scientific analysis and with a clear definitional boundary) as if it were wholly "material," and thus a discrete concern in relation to "non-material wealth" (which has oftentimes been treated as an "aside" in economics).  My hunch is that this is largely due to the traditional popularity of a "fact/value" distinction in philosophy.
( ) This also relates to our cultural habit of assuming that science cannot directly address ethical and aesthetic questions … and that ethical and aesthetic questions ought not be allowed to "muddy" or "muddle up" scientific ones.

(Edit:  In the near future, I hope to demonstrate why it is that material, tangible "wealth" can neither be conceptually, theoretically or practically be sharply segregated from non-material aspects of wealth.  These "two" are interdependent to the core.)

This is all rote habit in the dominant culture, so finding a bridge which all sides would be comfortable with will certainly present a challenge. 

I believe that bridge is near at hand, and not so "impossible" as we tend to suspect.

Doomer Context:

This being the Doomstead Diner, you may be wondering what any of this has to do with Doom or Collapse.

My basic answer is …

(a)  At least some of the challenges and risks in Collapse can be at least partially addressed or ameliorated by altering maladaptive, dysfunctional and inappropriate systems  and habits, before, during and after Collapse.

(b) Doing so will likely require a more thorough comprehension of just what it means for systems and habits to be maladaptive, dysfunctional and inappropriate.

(c) "Prepping" should not be an isolated, purely individualistic (or familial, or tribal…) activity, because…

(d) We're all in this together.

(e) Etc.


From JRM

Those with an interest in Collapse should be interested in the complex systems theory concept called "adaptive capacity." Note that in the following definition of that term the principles are applicable across disciplines.


Systems with high adaptive capacity are more able to re-configure without significant changes in crucial functions or declines in ecosystem services. A consequence of a loss of adaptive capacity, is loss of opportunity and constrained options during periods of reorganization and renewal.
Adaptive capacity in ecological systems is related to genetic diversity, biological diversity, and the heterogeneity of landscape mosaics. In social systems, the existence of institutions and networks that learn and store knowledge and experience, create flexibility in problem solving and balance power among interest groups play an important role in adaptive capacity.


"In social systems, the existence of institutions and networks that learn and store knowledge and experience, create flexibility in problem solving and balance power among interest groups play an important role in adaptive capacity."

These are broad, general terms, of course!  This is just a beginning to understanding how what is true about ecosystems is similarly true about social systems.  What does "learn" mean in this context?  This sounds like a simple question, but its deceptively simple.  Real learning, if you think about it carefully, must necessarily be in accord with the facts, with what is real and true.  Otherwise, it's not really learning at all.

Facilitating real learning (genuine education) has a kind of value which Smith's definition of wealth simply does not take into account.  This is but one of probably thousands of examples in which the richness which is true wealth has no accounting in Smith's definition of wealth.  Only economism is so reductive in this way as to measure "an education" in tuition fees or future earning potential to ascertain its 'value'.  Economism, here, bears similarities with scientism, which is not science but ideology.  Both are illusory ideologies, artifacts of simple-minded reductionism.

It's also worth noting in this context that the essentially economistic modern economic world-system, rooted as it is in a "thin" value reductionism, can readily be shown to shore itself up through a kind of parasitism, or expropriation of "wealth" through the consumptive reduction of values external to itself: e.g., resilient and regenerative systems, genuine education, social well-being, etc.  These are food for the hyperindusrial system. Its waste product is fragility.  You might say it eats good things and poops out shitty things — or fragile, shallow, empty things.  It therefore must reduce real learning to pseudo-learning, real education to a farce.

Thus the popular culture term for it: "death culture".


From Ka

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?

Secondly, in usual talk, people call people "wealthy" if they have the money to buy the things that (they think) will make them happy, and "poor" if they can't. I take it you want people to stop thinking that way. Well, yes, but rather than go through complexity theory and talk of resiliency, wouldn't it be simpler to just point to the Sermon on the Mount, or the Eightfold Path?


From Surly

Ts is a very thought-provoking post. For a good while I've been trying to put together disconnected thoughts about the ideology of "growth" and the morality of the spreadsheet. This kicked some of those ideas good and hard.

I'm gonna need a bigger boat.

From Eddie

I've been reading the thread, and I'll have to admit JRM loses me at times, but I agree that wealth amounts to more than money in the bank, or gold or diamonds.

But I have to distinguish wealth from "well-being"…..wealth implies a store of value, which would include JD's example of a pantry full of homegrown food. It might even include a well-exercised and well fed body that gets adequate sleep, because that prevents illness. But the general idea of physical health? I'm not so sure. It gets complicated.

Some people are born with defects that mean they live their entire lives with diminished health, even though they try hard to be healthy. Some people abuse their bodies terribly, and yet remain generally healthy. That's a karmic thing, in my book.

In any case, health can go from great to really bad, really quickly. Once you're at the age where bodies naturally decline, no amount of good behavior and good diet guarantees health.

There are so many valuable things we put little or no value on in our culture….like the air we breathe, which is literally life  itself, from moment to moment. Don't think so? Try holding your breath for a few minutes.

Time….the wealth of youth. Time to do so many things, yet most of us, me included, waste time like it was unlimited. But once again, karma plays a role in how much time we get in a lifetime. An accident can snuff out the healthiest, youngest person…and they're just….gone. When you get older, you become more appreciative of time, I think. But young people? Not so much.

So, those things are valuable to me. But I've never figured out a way to store time in a bottle. According to some experts I like, like Ugo Bardi, we won't lose air before climate makes it impossible to grow food and live….so I think putting air in a bottle is probably not much of a strategy either.

The greatest wealth of all might be in good DNA. That's intergenerational wealth of the best kind in my book. Whoever it was who decided all men were created equal didn't know much about genetics. But that's a karmic crapshoot too. You get what you get.

Another kind of well-being is self-image. If you are born with DNA that gives you a healthy psyche, and you have the right kind of parenting (like before age four) that shapes you into an individual with good self-esteem. Growing up with a parent or parents who are your strong advocate in the world outside the home. Growing up with happy siblings and parents who love each other gives a child wealth that they will carry with them every day of their life. But you get that or you don't. You can't lose it once you have it, and if you don't get it early, it's damned hard to get at all.

Things that make us physically comfortable and protect us from the weather. Housing, heating and cooling,  a decent mattress to sleep on…all those things contribute to well-being. Whether you can stockpile comfort? Some things maybe.

What I'm getting around to is that I think of wealth as some kind of stored value. And most stored values are physical world values. Values of well-being are largely not amenable to being deliberately stored for future use.

Money, as long as the system functions, is a store of wealth…and then, when the fiat currency dies, it no longer is. So fiat money and digital dollars in an account of some kind are fragile. But they are really convenient in the world that now exists. The problem is the future.

Gold has a host of issues, but it's durable. Silver is too. How to buy metals and store them is a subject for a different thread. They do represent wealth,in my opinion, all arguments to the contrary fly in the face of history.

Food is very storable these days…but the ability to grow food into the future is really valuable too. To me food resilience is real wealth. Stored food, seeds, a place to plant them, food animals…all those things are tangible wealth.

Stored fuel is real wealth, but it's expensive. But a propane refrigerator and a 3000 gallon propane tank will give you refrigeration for more than five years. Fragile? Only if war breaks out.

Solar PV panels are a form of real wealth. You need knowledge about how to use them. There's a lot to know. Fragile? Definitely. But durable too, good for decades if they aren't broken.

Transportation. A sailboat, fully provisioned, could be a ticket out of war zone. We've written a lot about that. Wealth, yes, but a boat consumes wealth too. I wouldn't have one unless it was also my house. Too much ongoing cost and too much maintenance required.

Tiny house, like Dr. Chia, with all its well thought-out systems. Definitely a form of wealth, to me.


From JRM

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?


Let's begin with the simplest Venn diagram.

In the leftmost circle section write the word health.  In the rightmost circle section, write the word wealth.  In the center section of overlapping circles, write a question mark.  Under that question mark place an H. H, here stands for "hybrid concept".  Cats can't breed with dogs, but take a moment to imaginatively visionalize what the outcome may look like if a rat terrier bred with an abyssinian cat.

Tough, isn't it!

Now imagine that wealth and health have much more in common than this rat terrier and this abyssinian.  (They most certainly do!)  What you're beginning to do here is to re-frame both terms in the middle section of the Venn diagram. The trick here is to allow each term to modify the others a little, to re-contextualize it, to bring it into another meaning which is both health and wealth.

This task is impossible if the concept of wealth you're employing is very shallow, rigid and narrow.  And it's NOT EASY to make something shallow deep, something rigid supple, something narrow wide.  It's an act of imagination — but what we're imagining here is not something like a fiction, a unicorn, say.  We're imagining what's really there in order to see what is really there.

In this context, let's examine the typical bundle of carrots we find in our grocery store today in relation to the typical carrot found in a grocery store in 1950. 


fruits and vegetables grown decades ago were much richer in vitamins and minerals than the varieties most of us get today. The main culprit in this disturbing nutritional trend is soil depletion: Modern intensive agricultural methods have stripped increasing amounts of nutrients from the soil in which the food we eat grows. Sadly, each successive generation of fast-growing, pest-resistant carrot is truly less good for you than the one before.


Through profit-driven breeding practices and profit-driven farming practices much of our food has become less beneficial to us, less nutritious. Less "healthy" (conducive to sustaining our well-being, our health).  The soil is less valuable than it once was. The food is less valuable than it once was. 
if "value" in this context is roughly equivalent to wealth, we're all less wealthy than we once were because of these practices meant to produce wealth.

Our pursuit of wealth, more often than not, results in a reduction of wealth.  Once you get that basic concept you can then examine most anything in our society and economy and find out whether and how this same thing is happening in that context.  It will shock your pants off if you look carefully. These are not a few isolated incidents but a whole way of life.  "Death culture".

Secondly, in usual talk, people call people "wealthy" if they have the money to buy the things that (they think) will make them happy, and "poor" if they can't. I take it you want people to stop thinking that way.


… and talking that way…

Actually, no. Not in everyday, ordinary life.  Not yet.  I think that will come if the paradigm shift continues to unfold and deepen.  In the mean while, just expect that the word "wealth" is much less clear in its meaning than it was yesterday.  Or last year. Or fifty years ago.

What I'm doing here is enriching the concept of wealth by attempting to remove it from its abstract context and to set the concept back down in the actual world in which we live–this concrete world.  A thing is abstract, in the philosophical sense, when it doesn't exist in the world of time and space. It is concrete when it does.  I'm talking about concrete wealth, and that breaks all the unwritten rules about wealth which economists and politicians (etc.) prefer us to utilize.

It's one of the many ironies here that when I speak of concrete wealth, as defined above, I seem to be making something very tangible less tangible!  After all, Adam Smith's "wealth" seems to be as tangible as could be!  No one could doubt that potatoes and barns and houses are both tangible  and of utility (which two components is the essence of Smith's concept of wealth).  But there is a method, and reason, for my madness!  As a careful observer and student of human ecology, ecological philosophy and ecological design over many decades, when I brought (and bring) my conceptual tool kit to things happening in our real, concrete, tangible world I keep seeing the same damn thing wherever I look!  One begins to notice a freaking pattern after a while. And the pattern is this: We modern, contemporary people, caught as we are in the fact and ideology of hyper-capitalism (a.k.a., hyperindustrialism)  have been plundering wealth as well-being like there's no tomorrow.   More often than not, we are reducing the well-being of living systems — personal/individual (our own bodies),
ecosystems (ecological, environmental), social (social health/well-being), emotional, aesthetic, spiritual…. Anything we are apt to call good or valuable is at risk or is being severely eroded in the name of "wealth production" — and it's about time for us to open our eyes and see what the hell is really going on here in the name of creating wealth!

We went so far astray because we have cultural blinders on. It worked out relatively okay for a while to use Smith's version of "wealth" as a guide, but now the consequences are much too severe to be ignored.  Let's stop ignoring it then!   I'm attacking the heart of the matter here. I want to pull those blinders off and show the naked world as it is. After all, we cannot honestly address a problem we cannot comprehend.

When I talk about "the naked world, just as it really is" I am talking not about objects, usually — which are real but only in a secondary sort of way.  I'm asking you to see everything as processes and flows, movement and relation.  Processes and relations.  This is my ontological frame of reference.  For me, processes and relations are primary, central.  Objects are real on in that they are fundamentally a matter of processes and relations.  This is why when I speak  of "the concrete" in relation to "the abstract" I sound a bit mad.   When I look at a thing, I see a flow.  Flows reveal a crucial aspect of relations.  All things are processes and relations.  (Smith, being an Early Modern, would not know what I mean.)

Also, I take disciplinary boundaries in knowledge fields as, at best, a heuristic device.  All useful knowledge, as I see it, is inter- or trans-disciplinary.  The field of knowledge is one.   Nothing so befuddles us as the perverse concept that we should stick to a discipline (subject area, e.g., economics, philosophy, psychology, anthropology, physics).


From Eddie

All good things come from Mother Earth, and we treat her rather abysmally. I personally doubt that we humans can collectively get over the extraction economy paradigm. You have to see the big picture, and you have to be interested in something besides how much money you can get from selling scarce resources. You have to look out for the welfare of future generations.

For the most part, the people who do recognize the problem are not the people making decisions on what gets done.

And it's very, very late in the game.

It's the bottom of the ninth, and the bases are loaded with fat cat billionaires.


From JRM

Oh, gawd, thank you!  This is precisely why I like dialogue, conversation…. If we stay with it we can, as RE puts it, "drill down".

I want to really drill down on this quote from you, Eddie. 

I've barely begun to give clear shape and specificity to the world-shaking insight which occurred to me when I learned the etymology of the word "wealth," which links wealth to well-being.  My whole view of the world began to dramatically re-orient, because I finally had the key which allowed me to fully see, understand…, comprehend what I'd be learning about since I was a kid. It was the Super Decoder ring that resulted in my own personal paradigm shift.  And there's no better way to give clear shape and specificity to a very complex insight than to write about it.  But I can't write about it meaningfully without a dialogue! It's too lonely an endeavor for me, sitting all day at a desk, thinking and writing all alone.  The writer/philosopher's life is too lonely for a gregarious guy like me.  And, besides, I need to test what I'm thinking about.  I don't want to go down blind alleys and get lost.  You fellas are helping me keep my path lit.  (We have some extraordinary people gathered here!  I feel very blessed by that.)

Anyway, a great place to Drill Down is around the concept of wealth as "stored value".  I love that! It's a very deceptively simple concept, because both terms, unbeknownst to most people, are wildly vague and ambiguous.  I consider this ambiguity to our advantage, here.

The term "value" is ambiguous and vague because when the word sits there all alone it's not qualified or characterized, as it would be if it had the modifier "utility (utilitarian?) value" — though even that is rather vague!  What we see here is that the word "value" has a great deal more dependency on particular context to have any meaning at all.   That said, I'm fully aware that in today's market economy a thing has "value" only in exchange, and the currency of that value is generally money (even gold is purchased with money).

So I've begun to examine the term "value" in "stored value".  Now let's look at "stored".  This term too is wildly context dependent to have much meaning.  As we all know, some "wealth" is "stored" exclusively in digits in a computer somewhere (in the cloud?)…. When that "wealth" suddenly evaporates, it does not evaporate in a literal sense, like water (which can be stored wealth).  Then there is the storage of vegetables, another kind of wealth.  Yes, we can see the vegetables in the pantry jars as wealth, but do we see the soil, air, water … the flows in those jars?  If we do not, we will miss the storage of seeds, the stored up knowledge and skills of the gardener… and we may miss the fact that those veggies were grown by someone who COULD have used those same hours (a form of wealth, hours) to earn thousands and thousands more dollars at another skilled activity.  Industrially grown vegetables are "dirt" cheap. But they do not store the knowledge and skills of growing them, the joy and freedom of doing so… They do not store the seeds of heirloom species. They do not store the social relations value which can only emerge in a community garden. They do not store food security.  They do not store the comfort of knowing that one has food security in a fragile food system (fragile mostly because 
of the fragility of the financial / economic system.)  They do not store the regenerative practice of caring for the soils nutrient value.  And I hope I'm making my point here, because, quite honestly, I could list the things not stored in industrial food until I am blue in the face.

And that's just one tiny fragment of all I have to say about storing wealth.  I'm all for storing wealth!  In fact, that's what this whole topic is about! But we cannot meaningfully discuss the storage of wealth without pointing out the immense gaping hole in our collective storage facility, out of which wealth is gushing much like the oil and gas gushing up out of the ruptured pipe in the Gulf of Mexico following the Deepwater Horizon calamity.

But I intend to go several steps beyond familiar ecological economics critiques in my exploration of the gushing waste and destruction of wealth which our society's wealth destroying death culture system is producing.  For when I turn my gaze away from the ecological and environmental ruin, I see also social ruin, emotional ruin, spiritual ruin spewing up out of that rupture. The very same rupture!  I want to stop this madness! Now.

But first we must understand why it is spewing up waste in the pursuit of "wealth".  And we can't do this without taking all forms of wealth into account, and seeing how they are all linked together. 

To do THAT is to usher in a paradigm shift not only in economics, but also in the very worldview which "runs" our world.


From Eddie

I see also social ruin, emotional ruin, spiritual ruin spewing up out of that rupture. The very same rupture!  I want to stop this madness! Now.

That would be nice. I do agree with this assessment.


From JRM

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?


Eddie and I have begun to discuss the notion of the storage of wealth, and of wealth as something stored.

Here, Ka, you are in some sense — perhaps unwittingly — addressing this very same topic.  I would suppose that it is for the sake of simplicity that your question was directed at an individual person's wealth.  By starting with simple things, oftentimes, we can acquire a concept which we may later apply to more complex things.  So starting with an individuals wealth seems to make sense.  But this is a problem for us here because the dominant paradigm, which I seek to illustrate an alternative to, is focused on the accumulation (or storage) of wealth (as defined by A. Smith) in units smaller than the whole system.  Focusing on an individual perpetuates this atomistic approch.  Specifically, the focus on the isolated individual, as in your case illustration, seems very likely to be requesting of us to examine wealth in social atomism terms.  Social atomism assigns the individual as the basic unit of analysis for all implications of social life. It's a form of reductionism as applied to social systems.  Our prisoner is himself being "stored" (bound, contained) — but away from various kinds of wealth which are outside of his storage container. 

I'm attempting here to further develop the notion of storage, which I see as containment.  People can be "contained" in relation to — with — wealth, or  away from wealth.  Examples of being contained away from wealth are in prison, outside of a "wealthy" gated community, … or anywhere where food is stored with limited access (e.g., grocery store for those without job/money,  family pantry).  Containers have boundaries.  Boundary is our fundamental concept here.

For you to understand what I'm getting at about the proposed alternative paradigm of wealth, we have got to look at it without a social atomism filter on our goggles. If social atomism assigns the individual as the basic unit of analysis for all implications of social life, what would be the characteristic of it's "opposite" … out on the other end of a spectrum?  I will propose the term "social holism" as the contrast term.

I did not find a good, succinct definition and explanation of social holism on the web right away, so I settled upon offering this explanation of holism versus reductionism instead  I only watched a few minutes in, so i don't know if it eventually gets into social holism, per se.  But if you grasp the holism / reductionism distinction you should have the basic idea.

The economic paradigm proposal I'm proposing takes a holistic perspective on all things: wealth, health, value, society, individual people — everything — even money.  I have no interest in atomism of any kind other than for the purpose of contextualizing the "atoms" in a holist perspective.

I do not believe in atomistic wealth at all. Nor do I see true wealth as fully containable — because wealth, like all things in the real world, are process, flows and relations.  Even the five gallon bucket of dried pinto beans, to be "wealth" must eventually become unsealed, cooked and served.  And the use of gold for exchange implies and constitutes a flow and a relation.  It is not fully contained.  But neither is a cell, nor an individual — in biological terms.  In the cell, health and function depend upon a semi-permeable membrane.  The same is true of whole organisms, in some sense. And of whole communities…. Even Earth is not a fully closed system.  It requires its relationship to the sun, for example, as a whole living system.

Flow. Process. Relation.               Not static, rigid, fully internalized objects.


From RE

When you talk about wealth, you have to first consider the hierarchy of needs.

Before anything else as a Homo Sap, you need Food, Shelter, Water, Breathable Air and Clothing.  These are all material things.  The first 4 are absolutely essential, the last could be optional in a climate warm enough year round.  However, even in quite warm climates with primitive people they don't usually go around buck naked.

In Industrial society, the first 2 always cost money.  Water has in the past been free, but now Water bills if not paid directly are paid with taxation.  Air is still generally free, but in quite a few places is now not fit to breath.  Clothing always costs money.

Now, here in the FSoA, before you can even start to think about Wealth enough to afford Health Care, you have to have enough to cover all those basics, plus a few more now necessary like transportation and communication.  The problem here is that for half the population, they only have enough to cover the basics.  If you don't have enough for food or shelter, you're not going to be very healthy.

Now, once above the median income, you start to have enough money for some Health Care, but depending on what your health issues are, it can get quite expensive to try to stay healthy.  Insurance itself is quite expensive, so you're now moving up the ladder of costs you have to pay out each month before you can even begin to think about saving some material wealth for security, whether that material wealth is measured in canned foods, dollars or gold coins.

Only after you have covered all these material things and health coverage and some savings can you begin to start to look at other sorts of wealth, like spiritual wealth or environmental wealth.  People in India for example are too busy just trying to get enough food to eat each day to be able to do much in the way of enhancing their spiritual wealth or the environmental wealth.

The problem here is that all the essentials of living have been thoroughly monetized.  So the general definition of wealth is how much money you make or have piled up in savings.  Until we can run a society that is free of money, this will continue to be the general definition of wealth.  A lot of money buys you good healthy food to eat, you can afford to shop organic at whole foods.  A lot of money buys you health, you can afford 7 heart transplants like David Rockefeller.  A lot of money buys you a relatively clean local environment to live in, you can build a beautiful McMansion in the Rocky Mountains overlooking a river full of fish with clean air to breathe.  The only form of wealth money does not buy directly would be Spiritual Wealth, but even here having all the other things well covered gives you time to contemplate existential questions.  Not to say you can't do this even if you are materially poor, since it doesn't cost any money to dwell on the nature of existence, but usually if you are worried about where your next meal will come from that is more at the forefront of your thinking.

So anyhow, when I use the word "Wealth", because of the nature of a society that is run on money, I'm talking about monetary wealth, not all the other types of wealth which you might define.  I think most people use this definition when talking about wealth.  If you want to avoid confusion, it would probably be a good idea to create a new term for the other areas.


From JRM

I think most people use this definition when talking about wealth.  If you want to avoid confusion, it would probably be a good idea to create a new term for the other areas.




"Edward S. Herman, political economist and media analyst, has highlighted some examples of doublespeak and doublethink in modern society. Herman describes in his book, Beyond Hypocrisy the principal characteristics of doublespeak:

What is really important in the world of doublespeak is the ability to lie, whether knowingly or unconsciously, and to get away with it; and the ability to use lies and choose and shape facts selectively, blocking out those that don’t fit an agenda or program."


I'm concerning myself here mainly with how the word "wealth" is used in doublespeak, and especially as it is used "unconsciously".  If we do not understand what real wealth is, we are subject to other people's use (and abuse) of the word.

It is good that we keep in mind that "wealth," as the term is now popularly used, is "generated" through the clear-cutting of intact, old growth forests — which are "replanted" as tiny monocrop saplings … and through the dropping of bombs on towns and cities full of innocent non-combatants….  It is "produced" by damming wild rivers, fracking the hell out of oil and gas fields, and blasting the hell out of mountains under which coal can be surface mined.  It is created through the destruction and replacement of locally owned businesses with corporate giants….  And if a child gets asthma from the burning of coal, that creates "wealth" in the hands of those doctors who "treat" the asthma.  (I put "treat" in scare quotes because if a doctor wants to "treat" coal-caused asthma she will seek to shut down the coal burning plants. That will be the principal treatment method.)

Undoubtedly, the world's largest store of "wealth" is in the form of fossil fuels, which, if burned, would surely result in the mass extinction of most currently existing Earth species.

That's doublespeak, and doublethink.  It is, in other words, false.

I will not allow the word wealth to be misapplied for the sake of convenience.

All true wealth must be produced via either sustainable (thus good) or regenerative (better) practices.  Anything else is doublespeak and doublethink. 
And that's just the start, because man cannot live on bread alone.  We have more than merely material needs, such as our need for belonging, connection and community.  It is not enough that we be merely sustainable or regenerative in ecological terms. We must also become sustainable and regenerative in social terms. Etc.


From RE

I will not allow the word wealth to be misapplied for the sake of convenience.


Your problem here is that you can't communicate with people if your definition of wealth is radically different from theirs.  You have to use commonly accepted definitions of a word to be understood.  For Wealth, according to Merriam-Webster, the definitions are:

Definition of wealth

    obsolete :  weal, welfare

    :  abundance of valuable material possessions or resources

    :  abundant supply :  profusion

    a :  all property that has a money value or an exchangeable value b :  all material objects that have economic utility; especially :  the stock of useful goods having economic value in existence at any one time <national wealth>

It's not a lot different than your beef with the fact the righties have the word "Libertarian" sewn up.  You want to try and "take back" this word from them.  Now you want to redefine what the commonly held notions are of "Wealth", to take that word back.

I don't think you will be too successful with getting back either word.  Define a new one, and you might communicate the ideas better.  Using a word most people use differently than you do just spawns confusion.


From JRM

"Your problem here …."


No, actually. It's not my problem alone. It's also your problem, and the problem of anyone and everyone subject to the misappropriation of words. 

Curiously enough, your post began with

    obsolete :  weal, welfare" (a.k.a., well-being)

Along come some people who decide to hijack the word wealth removing its original meaning from back when it was "weal" (well-being).  Adam Smith writes a voluminous text with a voluminous title, "An Inquiry into the Nature and Causes of the Wealth of Nations" in which he redefines wealth as so much personal, familial or national property-stuff.  He gets folks to buy into his definition, and pretty soon dictionaries are calling the earlier definition "obsolete".  If in twenty, fifty or a hundred years Smith's version is decided to be "obsolete," as well it may, it will begin to look like a tennis match, the ball flying back and forth across the net.  So who's right, then, over the long haul?

I say I am.  So I'll keep the original meaning of the word, thanks.

My argument is much better than Smith's.  He didn't understand complex systems half as well as I do.  I'm standing on the shoulders of giants.


From RE

I suggest using the word Weal then to get back to the original meaning you wish to communicate.

Weal seems to me to be precisely what you are talking about, and it's a word already in the dictionary!  So you don't even have to define a new word here!  You've already GOT one to use!

I could write a whole blog on this with no problem whatsoever.  I'll start a paragraph…

Here on the Diner, we are concerned not so much with the "Wealth" of society as the "Weal" of society.  It's not a word commonly used anymore, but it should be.  The word and concept of Wealth that developed from Weal is destructive to our society and our planet…


From Palloy

In English as spoken by the English, "weal" is not obsolete, and is almost always qualified as "the common weal", and hence British Commonwealth, etc., meaning the welfare of the nation/Empire.  I suppose there could also be "the personal weal" and "the family weal".  Since I think you want to compare/contrast "personal weal" with "personal wealth", it would definitely make sense to use another phrase. 

The family weal has implications of giving value to family relationships, which can be paramount in peoples' lives – if you have a good, loving relationship betweens spouses, and between them and their children, poverty of wealth can be endured/overcome.  "When I were a lad, …"

From Lucid Dreams

Currently I'm reading one of JMG's latest books Dark Age America.  He talks about wealth and money, and he points out that money is not the norm in terms of our species time on Earth.  However, the arrangement without money, from a western POV, seems to be feudalism. 

Another idea that seems to work against money, I don't know too much about, and that is anarchy as a political movement.  I've never read any books on the subject, but I suppose I will soon because I have been growing interested in it lately.  Yet, it seems to me like just another idealistic movement that won't work simply because of it's composition of idealism.  I've learned that too much idealism just equals delusions.  There is maybe room for a smattering of idealism in daily life, but beyond that and you are setting yourself up for agitation, friction, and needless strife.  I'm well qualified as I have spent my entire life wallowing in idealism.  Even now, having identified this problem of mine, I still find it hard to ascend up out of the pit of idealism.  Idealism works in the realm of spirituality, and that is it's proper place it seems to me. 

JRM, this idea of yours is one of idealism.  On the one hand we have the empires practice of Newspeek to deal with.  They take over words all of the time and change their meanings, and they typically change them to their opposite meaning…which is what Newspeek is.  Not just words, but ideas and institutions."  "The Ministry of Health" being the place one would go to get tortured.  "Freedom is Slavery" and the like.  On the other hand, the idea of wealth is central to a corporeal existence, and it's defined as stuff and how much stuff you have, and what that stuff is. 

Yet there is the usage of wealth such as "he has a wealth of knowledge."  That means he has a lot of knowledge and knowledge is not a physical good.  It just means there is a lot of knowledge in his possession.  There is also spiritual wealth.  There are different types of wealth.  The common wealth, however, is money and and the things that money can buy. 

In this case, you cannot claim Newspeek because everybody uses the term "wealth" to mean material abundance.  The definition of the word has not been changed, you, JRM, are trying to change it, and so I agree with RE that you should just use another word.  This is similar to the debate we had about the word "cult."  Here on the Diner I believe the dictionary is judge and jury in these cases.  We rely solely on words to communicate via this forum.  The dictionary's purpose is to define words, and so we must acquiesce to those definitions.  The meaning and usage of words is a very nuanced thing, but in this case it is even less so than with the word "cult." 

There is a world of difference between the ideas of "wealth" and "value."   "Quality" is another word that comes to mind. 

You can't force spiritual ideas onto people.  It just doesn't work that way.  That's why the great spiritual practitioners simply point in the direction that leads to enlightenment.  You have to go their yourself or it doesn't work.  I'm of the opinion that real wealth comes from a spiritual place because in the end we all die and we can't take our "wealth" with us.  Doesn't stop us from trying.  The real wealth we are here for is an intangible wealth that is made of experience and knowledge.  I believe when we die we can take that with us, if only to help navigate our way back to source. 


From JRM

The dictionary's purpose is to define words, and so we must acquiesce to those definitions. 


Good, comprehensive dictionaries include the usage of the word wealth as I'm using it here.  And words are always changing.  They change when people use them differently.  And there's no reason why a person cannot call for, suggest, a change in usage. 

My purpose here, in part, has been to reveal how the popular use of the word wealth in economics terms is flawed and should be altered.

If what I'm saying here is "idealism," that's fine.  I have often been called an idealist. It's not a word I prefer to use to describe myself, actually.  I see myself as an intelligent person who despises falsity and ignorance being employed in "official" places as part of a system of deception, foolishness, destruction and oppression.   I will not stop sharing my thoughts about such things because it's supposed to be "idealism" which is supposed somehow to be ridiculous, silly or irrelevant.  Of course, if no one here is interested in some part of what I have to say, they can just ignore that part — this thread, for example.  It's not everyone's cup of tea, obviously.  But it matters to me.


From Lucid Dreams

The dictionary's purpose is to define words, and so we must acquiesce to those definitions. 





Good, comprehensive dictionaries include the usage of the word wealth as I'm using it here.  And words are always changing.  They change when people use them differently.  And there's no reason why a person cannot call for, suggest, a change in usage. 

My purpose here, in part, has been to reveal how the popular use of the word wealth in economics terms is flawed and should be altered.

If what I'm saying here is "idealism," that's fine.  I have often been called an idealist. It's not a word I prefer to use to describe myself, actually.  I see myself as an intelligent person who despises falsity and ignorance being employed in "official" places as part of a system of deception, foolishness, destruction and oppression.   I will not stop sharing my thoughts about such things because it's supposed to be "idealism" which is supposed somehow to be ridiculous, silly or irrelevant.  Of course, if no one here is interested in some part of what I have to say, they can just ignore that part — this thread, for example.  It's not everyone's cup of tea, obviously.  But it matters to me.


From one idealist to another, I understand your frustration. 

It's not that your ideas are ridiculous, silly, or irrelevant, it's just that they are ideal.  Economics is a "science" that can never be ideal.  It's made of statistics (lies), propaganda, lies, theories, and finally the reality that results from the combination of all of those things.  The truth is that economics is a lie.  It's just the science by which the men at the top stay at the top.  They are at the top because they want all of the wealth for themselves and they are vile enough to do whatever it takes to ensure it stays that way.  They are perfectly happy with their wealth, and they want the rest of the world to see things exactly the same way that they do.  They want us in competition with one another for wealth. 

No matter how you slice it, corporeal wealth is made up of materials.  Wealth is just having a lot of something desirable. 

I don't know…kinda feels like I'm pissin' in the wind here. 


From RE

You're not pissin' in the wind, because the word "wealth" is used commonly to describe the material world, generally speaking.  JRM wants to REDEFINE the word to encompass more than just material things.  As long as $MONEY$ rules the world, this is not going to happen.

Money will rule the world until the Monetary System Collapses, which it will eventually.  They always do collapse.  Neal Stephenson called the monetary system the "System of the World" in his trilogy The Baroque Cycle.  I highly recommend it for a read.


For still more on Wealth, including all the Napalm, join us inside the Diner!

2017: The Year When the World Economy Starts Coming Apart

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Published on the Our Finite World on January 10, 2017

Dicuss this article at the Economics Table inside the Diner

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.  

Figure 1





Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), the earnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

Our current economy seems to be following a similar pattern. We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[2] Figures to be released in 2017 and future years are likely to show that the peak in world coal consumption occurred in 2014. This is important, because it means that countries that depend heavily on coal, such as China and India, can expect to see much slower economic growth, and more financial difficulties.

While reports of international coal production for 2016 are not yet available, news articles and individual country data strongly suggest that world coal production is past its peak. The IEA also reports a substantial drop in coal production for 2016.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for "other" estimated based on recent trends.





Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for “other” estimated based on recent trends.

The reason why coal production is dropping is because of low prices, low profitability for producers, and gluts indicating oversupply. Also, comparisons of coal prices with natural gas prices are inducing switching from coal to natural gas. The problem, as we will see later, is that natural gas prices are also artificially low, compared to the cost of production, So the switch is being made to a different type of fossil fuel, also with an unsustainably low price.

Prices for coal in China have recently risen again, thanks to the closing of a large number of unprofitable coal mines, and a mandatory reduction in hours for other coal mines. Even though prices have risen, production may not rise to match the new prices. One article reports:

. . . coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.

Also, a person can imagine that it might be difficult to obtain financing, if coal prices have only “sort of” recovered.

I wrote last year about the possibility that coal production was peaking. This is one chart I showed, with data through 2015. Coal is the second most utilized fuel in the world. If its production begins declining, it will be difficult to offset the loss of its use with increased use of other types of fuels.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.





Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

[3] If we assume that coal supplies will continue to shrink, and other production will grow moderately, we can expect total energy consumption to be approximately flat in 2017. 

Figure 5. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author's estimates for 2016 and 2017.





Figure 4. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author’s estimates for 2016 and 2017.

In a way, this is an optimistic assessment, because we know that efforts are underway to reduce oil production, in order to prop up prices. We are, in effect, assuming either that (a) oil prices won’t really rise, so that oil consumption will grow at a rate similar to that in the recent past or (b) while oil prices will rise significantly to help producers, consumers won’t cut back on their consumption in response to the higher prices.

[4] Because world population is rising, the forecast in Figure 4 suggests that per capita energy consumption is likely to shrink. Shrinking energy consumption per capita puts the world (or individual countries in the world) at the risk of recession.

Figure 5 shows indicated per capita energy consumption, based on Figure 4. It is clear that energy consumption per capita has already started shrinking, and is expected to shrink further. The last time that happened was in the Great Recession of 2007-2009.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.





Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

There tends to be a strong correlation between world economic growth and world energy consumption, because energy is required to transform materials into new forms, and to transport goods from one place to another.

In the recent past, the growth in GDP has tended to be a little higher than the growth in the use of energy products. One reason why GDP growth has been a percentage point or two higher than energy consumption growth is because, as economies become richer, citizens can afford to add more services to the mix of goods and services that they purchase (fancier hair cuts and more piano lessons, for example). Production of services tends to use proportionately less energy than creating goods does; as a result, a shift toward a heavier mix of services tends to lead to GDP growth rates that are somewhat higher than the growth in energy consumption.

A second reason why GDP growth has tended to be a little higher than growth in energy consumption is because devices (such as cars, trucks, air conditioners, furnaces, factory machinery) are becoming more efficient. Growth in efficiency occurs if consumers replace old inefficient devices with new more efficient devices. If consumers become less wealthy, they are likely to replace devices less frequently, leading to slower growth in efficiency. Also, as we will discuss later in this  post, recently there has been a tendency for fossil fuel prices to remain artificially low. With low prices, there is little financial incentive to replace an old inefficient device with a new, more efficient device. As a result, new purchases may be bigger, offsetting the benefit of efficiency gains (purchasing an SUV to replace a car, for example).

Thus, we cannot expect that the past pattern of GDP growing a little faster than energy consumption will continue. In fact, it is even possible that the leveraging effect will start working the “wrong” way, as low fossil fuel prices induce more fuel use, not less. Perhaps the safest assumption we can make is that GDP growth and energy consumption growth will be equal. In other words, if world energy consumption growth is 0% (as in Figure 4), world GDP growth will also be 0%. This is not something that world leaders would like at all.

The situation we are encountering today seems to be very similar to the falling resources per capita problem that seemed to push early economies toward collapse in [1]. Figure 5 above suggests that, on average, the paychecks of workers in 2017 will tend to purchase fewer goods and services than they did in 2016 and 2015. If governments need higher taxes to fund rising retiree costs and rising subsidies for “renewables,” the loss in the after-tax purchasing power of workers will be even greater than Figure 5 suggests.

[5] Because many countries are in this precarious position of falling resources per capita, we should expect to see a rise in protectionism, and the addition of new tariffs.

Clearly, governments do not want the problem of falling wages (or rather, falling goods that wages can buy) impacting their countries. So the new game becomes, “Push the problem elsewhere.”

In economic language, the world economy is becoming a “Zero-sum” game. Any gain in the production of goods and services by one country is a loss to another country. Thus, it is in each country’s interest to look out for itself. This is a major change from the shift toward globalization we have experienced in recent years. China, as a major exporter of goods, can expect to be especially affected by this changing view.

[6] China can no longer be expected to pull the world economy forward.

China’s economic growth rate is likely to be lower, for many reasons. One reason is the financial problems of coal mines, and the tendency of coal production to continue to shrink, once it starts shrinking. This happens for many reasons, one of them being the difficulty in obtaining loans for expansion, when prices still seem to be somewhat low, and the outlook for the further increases does not appear to be very good.

Another reason why China’s economic growth rate can be expected to fall is the current overbuilt situation with respect to apartment buildings, shopping malls, factories, and coal mines. As a result, there seems to be little need for new buildings and operations of these types. Another reason for slower economic growth is the growing protectionist stance of trade partners. A fourth reason is the fact that many potential buyers of the goods that China is producing are not doing very well economically (with the US being a major exception). These buyers cannot afford to increase their purchases of imports from China.

With these growing headwinds, it is quite possible that China’s total energy consumption in 2017 will shrink. If this happens, there will be downward pressure on world fossil fuel prices. Oil prices may fall, despite production cuts by OPEC and other countries.

China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem, or if the yuan falls relative to other currencies.

India, with its recent recall of high denomination currency, as well as its problems with low coal demand, is not likely to be a great deal of help aiding the world economy to grow, either. India is also a much smaller economy than China.

[7] While Item [2] talked about peak coal, there is a very significant chance that we will be hitting peak oil and peak natural gas in 2017 or 2018, as well.  

If we look at historical prices, we see that the prices of oil, coal and natural gas tend to rise and fall together.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.





Figure 6. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

The reason that fossil fuel prices tend to rise and fall together is because these prices are tied to “demand” for goods and services in general, such as for new homes, cars, and factories. If wages are rising rapidly, and debt is rising rapidly, it becomes easier for consumers to buy goods such as homes and cars. When this happens, there is more “demand” for the commodities used to make and operate homes and cars. Prices for commodities of many types, including fossil fuels, tend to rise, to enable more production of these items.

Of course, the reverse happens as well. If workers become poorer, or debt levels shrink, it becomes harder to buy homes and cars. In this case, commodity prices, including fossil fuel prices, tend to fall.  Thus, the problem we saw above in [2] for coal would be likely to happen for oil and natural gas, as well, because the prices of all of the fossil fuels tend to move together. In fact, we know that current oil prices are too low for oil producers. This is the reason why OPEC and other oil producers have cut back on production. Thus, the problem with overproduction for oil seems to be similar to the overproduction problem for coal, just a bit delayed in timing.

In fact, we also know that US natural gas prices have been very low for several years, suggesting another similar problem. The United States is the single largest producer of natural gas in the world. Its natural gas production hit a peak in mid 2015, and production has since begun to decline. The decline comes as a response to chronically low prices, which make it unprofitable to extract natural gas. This response sounds similar to China’s attempted solution to low coal prices.

Figure 7. US Natural Gas production based on EIA data.





Figure 7. US Natural Gas production based on EIA data.

The problem is fundamentally the fact that consumers cannot afford goods made using fossil fuels of any type, if prices actually rise to the level producers need, which tends to be at least five times the 1999 price level. (Note peak price levels compared to 1999 level on Figure 6.) Wages have not risen by a factor of five since 1999, so paying the prices that fossil fuel producers need for profitability and growing production is out of the question. No amount of added debt can hide this problem. (While this reference is to 1999 prices, the issue really goes back much farther, to prices before the price spikes of the 1970s.)

US natural gas producers also have plans to export natural gas to Europe and elsewhere, as liquefied natural gas (LNG). The hope, of course, is that a large amount of exports will raise US natural gas prices. Also, the hope is that Europeans will be able to afford the high-priced natural gas shipped to them. Unless someone can raise the wages of both Europeans and Americans, I would not count on LNG prices actually rising to the level needed for profitability, and staying at such a high level. Instead, they are likely to bounce up, and quickly drop back again.

[8] Unless oil prices rise very substantially, oil exporters will find themselves exhausting their financial reserves in a very short time (perhaps a year or two). Unfortunately, oil importers cannot withstand higher prices, without going into recession. 

We have a no win situation, no matter what happens. This is true with all fossil fuels, but especially with oil, because of its high cost and thus necessarily high price. If oil prices stay at the same level or go down, oil exporters cannot get enough tax revenue, and oil companies in general cannot obtain enough funds to finance the development of new wells and payment of dividends to shareholders. If oil prices do rise by a very large amount for very long, we are likely headed into another major recession, with many debt defaults.

[9] US interest rates are likely to rise in the next year or two, whether or not this result is intended by the Federal reserve.

This issue here is somewhat obscure. The issue has to do with whether the United States can find foreign buyers for its debt, often called US Treasuries, and the interest rates that the US needs to pay on this debt. If buyers are very plentiful, the interest rates paid by he US government can be quite low; if few buyers are available, interest rates must be higher.

Back when Saudi Arabia and other oil exporters were doing well financially, they often bought US Treasuries, as a way to retain the benefit of their new-found wealth, which they did not want to spend immediately. Similarly, when China was doing well as an exporter, it often bought US Treasuries, as a way retaining the wealth it gained from exports, but didn’t yet need for purchases.

When these countries bought US Treasuries, there were several beneficial results:

  • Interest rates on US Treasuries tended to stay artificially low, because there was a ready market for its debt.
  • The US could afford to import high-priced oil, because the additional debt needed to buy the oil could easily be sold (to Saudi Arabia and other oil producing nations, no less).
  • The US dollar tended to stay lower relative to other currencies, making oil more affordable to other countries than it otherwise might be.
  • Investment in countries outside the US was encouraged, because debt issued by these other countries tended to bear higher interest rates than US debt. Also, relatively low oil prices in these countries (because of the low level of the dollar) tended to make investment profitable in these countries.

The effect of these changes was somewhat similar to the US having its own special Quantitative Easing (QE) program, paid for by some of the counties with trade surpluses, instead of by its central bank. This QE substitute tended to encourage world economic growth, for the reasons mentioned above.

Once the fortunes of the countries that used to buy US Treasuries changes, the pattern of buying of US Treasuries tends to change to selling of US Treasuries. Even not purchasing the same quantity of US Treasuries as in the past becomes an adverse change, if the US has a need to keep issuing US Treasuries as in the past, or if it wants to keep rates low.

Unfortunately, losing this QE substitute tends to reverse the favorable effects noted above. One effect is that the dollar tends to ride higher relative to other currencies, making the US look richer, and other countries poorer. The “catch” is that as the other countries become poorer, it becomes harder for them to repay the debt that they took out earlier, which was denominated in US dollars.

Another problem, as this strange type of QE disappears, is that the interest rates that the US government needs to pay in order to issue new debt start rising. These higher rates tend to affect other rates as well, such as mortgage rates. These higher interest rates act as a drag on the economy, tending to push it toward recession.

Higher interest rates also tend to decrease the value of assets, such as homes, farms, outstanding bonds, and shares of stock. This occurs because fewer buyers can afford to buy these goods, with the new higher interest rates. As a result, stock prices can be expected to fall. Prices of homes and of commercial buildings can also be expected to fall. The value of bonds held by insurance companies and banks becomes lower, if they choose to sell these securities before maturity.

Of course, as interest rates fell after 1981, we received the benefit of falling interest rates, in the form of rising asset prices. No one ever stopped to think about how much of the gains in share prices and property values came from falling interest rates.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.





Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Now, as interest rates rise, we can expect asset prices of many types to start falling, because of lower affordability when monthly payments are based on higher interest rates. This situation presents another “drag” on the economy.

In Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

Things don’t look too bad right now, but the underlying problems are sufficiently severe that we seem to be headed for a crisis far worse than 2008. The timing is not clear. Things could start falling apart badly in 2017, or alternatively, major problems may be delayed until 2018 or 2019. I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either.

The laws of physics seem to be behind economic growth. From a physics point of view, our economy is a dissipative structure. Such structures form in “open systems.” In such systems, flows of energy allow structures to temporarily self-organize and grow. Other examples of dissipative structures include ecosystems, all plants and animals, stars, and hurricanes. All of these structures constantly “dissipate” energy. They have finite life spans, before they eventually collapse. Often, new dissipative systems form, to replace previous ones that have collapsed.

The one thing that gives me hope is the fact that there seems to be some type of a guiding supernatural force behind the whole system that allows so much growth. Some would say that this supernatural force is “only” the laws of physics (and biology and chemistry). To me, the fact that so many structures can self-organize and grow is miraculous, and perhaps evidence of a guiding force behind the whole universe.

I don’t know precisely what is next, but it seems quite possible that there is a longer-term plan for humans that we are not aware of. Some of the religions of the world may have insights on what this plan might be. It is even possible that there may be divine intervention of some type that allows a change in the path that we seem to be on today.

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