What is this ‘Crisis’ of Modernity?

22 01 2017

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

This week, there has been an avalanche of articles on Limits to Growth, just not titled so……. it’s almost as though the term is getting stuck in people’s throats, and are unable to pronounce them….

acrooke

Alastair Crooke

This article by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, is an unpublished article I’ve lifted from the Automatic Earth…… as Raul Ilargi succinctly puts it…:

 

His arguments here are very close to much of what the Automatic Earth has been advocating for years [not to mention DTM’s…], both when it comes to our financial crisis and to our energy crisis. Our Primers section is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.

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Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls, is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked  before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we are not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

But what is it? What is the deeper economic root to this malaise? The general thrust of Davos was that it was prosperity spread too unfairly that is at the core of the problem. Of course, causality is seldom unitary, or so simple. And no one answer suffices. In earlier Commentaries, I have suggested that global growth is so maddeningly elusive for the elites because the debt-driven ‘growth’ model (if it deserves the name ‘growth’) simply is not working.  Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values.

It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices. It belonged to an earlier era. In fact, high asset prices do trickle down. It is just that they trickle down into into higher cost of living expenditures (through return on capital dictates) for the majority of the population. A population which has seen no increase in their real incomes since 2005 – but which has witnessed higher rents, higher transport costs, higher education costs, higher medical costs; in short, higher prices for everything that has a capital overhead component. QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it. And zero, and negative interest rates, may be keeping the huge avalanche overhang of debt on ‘life support’, but it is eviscerating savings income, and will do the same to pensions, unless concluded sharpish.

But beyond the spent force of monetary policy, we have noted that developed economies face separate, but equally formidable ‘headwinds’, of a (non-policy and secular) nature, impeding growth – from aging populations in China and the OECD, the winding down of China’s industrial revolution,  and from technical innovation turning job-destructive, rather than job creative as a whole. Connected with this is shrinking world trade.

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

And, as that bounty tapered down around the year 2000, the system wobbled again, “and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan.”  Some other key things happened though, at this point: firstly the cost of crude, which had been remarkably stable, in real terms, over many years, suddenly started its inexorable real-terms ascent.  And from 2001, in the wake of the dot.com ‘bust’, government and other debt began to soar in a sharp trajectory upwards (now reaching $20 trillion). Also, around this time the US abandoned the gold standard, and the petro-dollar was born.

 


Source: Get It. Got It. Good, by Grant Williams

Well, the Hill’s Group, who are seasoned US oil industry engineers, led by B.W. Hill, tell us – following their last two years, or so, of research – that for purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel, by the oil industry (the IOCs) is rapidly trending to zero. Note that we are talking energy-cost of exploration, extraction and transport for the energy-return at final destination. We are not speaking of dollar costs, and we are speaking in aggregate. So why should this be important at all; and what has this to do with spiraling debt creation by the western Central Banks from around 2001?

The importance? Though we sometimes forget it, for we now are so habituated to it, is that energy is the economy.  All of modernity, from industrial output and transportation, to how we live, derives from energy – and oil remains a key element to it.  What we (the globalized industrial world) experienced in that golden era until the 70s, was economic growth fueled by an unprecedented 321% increase in net energy/head.  The peak of 18GJ/head in around 1973 was actually of the order of some 40GJ/head for those who actually has access to oil at the time, which is to say, the industrialised fraction of the global population. The Hill’s Group research  can be summarized visually as below (recall that these are costs expressed in energy, rather than dollars):

 


Source: http://cassandralegacy.blogspot.it/2016/07/some-reflections-on-twilight-of-oil-age.html

[This study was also covered here on Damnthematrix starting here…]

But as Steve St Angelo in the SRSrocco Reports states, the important thing to understand from these energy return on energy cost ratios or EROI, is that a minimum ratio value for a modern society is 20:1 (i.e. the net energy surplus available for GDP growth should be twenty times its cost of extraction). For citizens of an advanced society to enjoy a prosperous living, the EROI of energy needs to be much higher, closer to the 30:1 ratio. Well, if we look at the chart below, the U.S. oil and gas industry EROI fell below 30:1 some 46 years ago (after 1970):

 


Source: https://srsroccoreport.com/the-coming-breakdown-of-u-s-global-markets-explained-what-most-analysts-missed/

“You will notice two important trends in the chart above. When the U.S. EROI ratio was higher than 30:1, prior to 1970, U.S. public debt did not increase all that much.  However, this changed after 1970, as the EROI continued to decline, public debt increased in an exponential fashion”. (St Angelo).

In short, the question begged by the Hill’s Group research is whether the reason for the explosion of government debt since 1970 is that central bankers (unconsciously), were trying to compensate for the lack of GDP stimulus deriving from the earlier net energy surplus.  In effect, they switched from flagging energy-driven growth, to the new debt-driven growth model.

From a peak net surplus of around 40 GJ  (in 1973), by 2012, the IOCs were beginning to consume more energy per barrel, in their own processes (from oil exploration to transport fuel deliveries at the petrol stations), than that which the barrel would deliver net to the globalized industrial world, in aggregate.  We are now down below 4GJ per head, and dropping fast. (The Hill’s Group)

Is this analysis by the Hill’s Group too reductionist in attributing so much of the era of earlier western material prosperity to the big discoveries of ‘cheap’ oil, and the subsequent elusiveness of growth to the decline in net energy per barrel available for GDP growth?  Are we in deep trouble now that the IOCs use more energy in their own processes, than they are able to deliver net to industrialised world? Maybe so. It is a controversial view, but we can see – in plain dollar terms – some tangible evidence fo rthe Hill’s Groups’ assertions:

 


Source: https://srsroccoreport.com/wp-content/uploads/2016/08/Top-3-U.S.-Oil-Companies-Free-Cash-Flow-Minus-Dividends.png

(The top three U.S. oil companies, ExxonMobil, Chevron and ConocoPhillips: Cash from operations less Capex and dividends)

Briefly, what does this all mean? Well, the business model for the big three US IOCs does not look that great: Energy costs of course, are financial costs, too.  In 2016, according to Yahoo Finance, the U.S. Energy Sector paid 86% of their operating income just to service the interest on the debt (i.e. to pay for those extraction costs). We have not run out of oil. This is not what the Hill’s Group is saying. Quite the reverse. What they are saying is the surplus energy (at a ratio of now less than 10:1) that derives from the oil that we have been using (after the energy-costs expended in retrieving it) – is now at a point that it can barely support our energy-driven ‘modernity’.  Implicit in this analysis, is that our era of plenty was a one time, once off, event.

They are also saying that this implies that as modernity enters on a more severe energy ‘diet’, less surplus calories for their dollars – barely enough to keep the growth engine idling – then global demand for oil will decline, and the price will fall (quite the opposite of mainstream analysis which sees demand for oil growing. It is a vicious circle. If Hills are correct, a key balance has tipped. We may soon be spending more energy on getting the energy that is required to keep the cogs and wheels of modernity turning, than that same energy delivers in terms of calorie-equivalence.  There is not much that either Mr Trump or the Europeans can do about this – other than seize the entire Persian Gulf.  Transiting to renewables now, is perhaps too little, too late.

And America and Europe, no longer have the balance sheet ‘room’, for much further fiscal or monetary stimulus; and, in any event, the efficacy of such measures as drivers of ‘real economy’ growth, is open to question. It may mitigate the problem, but not solve it. No, the headwinds of net energy per barrel trending to zero, plus the other ‘secular’ dynamics mentioned above (demography, China slowing and technology turning job-destructive), form a formidable impediment – and therefore a huge political time bomb.

Back to Davos, and the question of ‘what to do’. Jamie Dimon, the CEO of  JPMorgan Chase, warned  that Europe needs to address disagreements spurring the rise of nationalist leaders. Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region, “the euro zone may not survive”. “The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

A race to the bottom in pay levels?  Italy should undercut Romanian salaries?  Maybe Chinese pay scales, too? This is politically naïve, and the globalist Establishment has only itself to blame for their conviction that there are no real options – save to divert more of the diminished prosperity towards the middle classes (Christine Lagarde), and to impose further austerity (Dimon). As we have tried to show, the era of prosperity for all, began to waver in the 70s in America, and started its more serious stall from 2001 onwards. The Establishment approach to this faltering of growth has been to kick the can down the road: ‘extend and pretend’ – monetised debt, zero, or negative, interest rates and the unceasing refrain that ‘recovery’ is around the corner.

It is precisely their ‘kicking the can’ of inflated asset values, reaching into every corner of life, hiking the cost of living, that has contributed to making Europe the leveraged, ‘high cost’, uncompetitive environment, that it now is.  There is no practical way for Italians, for example, to compete with ‘low cost’ East Europe, or  Asia, through a devaluation of the internal Italian price level without provoking major political push-back.  This is the price of ‘extend and pretend’.

It has been claimed at Davos that the much derided ‘populists’ provide no real solutions. But, crucially, they do offer, firstly, the hope for ‘regime change’ – and, who knows, enough Europeans may be willing to take a punt on leaving the Euro, and accepting the consequences, whatever they may be. Would they be worse off? No one really knows. But at least the ‘populists’ can claim, secondly, that such a dramatic act would serve to escape from the suffocation of the status quo. ‘Davos man’ and woman disdain this particular appeal of ‘the populists’ at their peril.





Making America great again, and other bullshit……

21 01 2017

nafeezIt appears Nafeez Mosaddeq Ahmed has been making lots of waves lately…. The New York Observer has just run his warning of the probability of a converging oil, food and financial crash in or shortly after 2018 which I discussed here on DTM a few days ago. Not only that, it went viral, hitting the top 20 stories on Medium for several days (at one point hitting number one), and giving him ‘Top Writer’ status on ‘energy’ and ‘climate change’ there….. is the word finally getting out…..?

It gets better….. Nafeez then wrote this via Insurge intelligence in solidarity with the arising people’s movement in the form of the worldwide women’s marches, tying together how the Trumpian inauguration represents at once the culmination of a global war on women, while simultaneously starting a war on the planet.

Nafeez thinks “there is a deep, fundamental but little-understood connection between white supremacist patriarchy and misogyny, and the interlinked environment-economic crisis.” This piece is perhaps the most important – because it highlights the real symbolic meaning of the women’s marches: a planetary declaration of intent to build bridges, not walls.

Then yesterday, Nafeez  wrote another piece for VICE anticipating the Great Orange Face’s ‘America First Energy Plan’, bringing together cutting edge science on why Trump’s fossil fuel madness is doomed to kill the economy.

It simply won’t work, cannot work….. It will backfire. Big time. And it will backfire economically before it even has time to “backfire planetarily” as he so well puts it…… We are already hearing a lot of outrage, rightly so, about the cleansing of the Wipe House website of climate information, and the promotion of this madcap anti-science scheme to burn our planet to hell. We’ll hear less about the science of global net energy decline, which proves decisively that this scheme can simply never work – but you’ll find it here: 

Nafeez begins…..:

As President-elect Trump spearheads plans to boost oil, coal and gas, a major new study by one of the world’s foremost energy experts shows just how dangerous this path would be—not just for the planet, but for the economy.

The new study, just published in January as part of the SpringerBriefs in Energy series, suggests that as long we remain dependent on fossil fuels, economic contraction is inevitable. And while renewable energy offers the only potentially viable future, it is also unlikely to sustain the sort of mass consumerism we are accustomed to—like three or more cars per household, SUVS or massive military projects like aircraft carriers.

The bottom line is that we can’t sustain our present rate of consumption no matter what energy source we rely on. And clinging to oil, gas and coal in the hopes of keeping the endless growth machine alive will be even worse: leading to a spiral of debt and economic recession that has already begun.

Nafeez then introduces his readers to the concept of thermodynamics….. yes, really…!

It all comes down to physics: the laws of thermodynamics. Economies need energy to function. And to grow, they need extra energy to fuel that growth in production and consumption. But as more energy is required just to extract new energy from fossil fuels, there is less “energy surplus” available to continue driving economic growth—to ramp up even more production and consumption. And increasingly, more and more energy is being used just to maintain the existing infrastructure of society as it is, leaving less room for further growth.

“Of perhaps greater concern than the quantity of oil and other energy sources is their declining EROI [energy return on investment]”, writes study author Charles Hall, ESF Foundation Distinguished Professor of Environment Science at the State University of New York. Hall is the founder of the concept of EROI.

Hall’s ground-breaking methodology is now used by scientists around the world to measure the total value of energy a resource can generate. It works by comparing the quantity of energy extracted to the quantity of energy inputted to enable the extraction.

He points out that throughout the energy literature “there is widespread concern that net energy returns (e.g. EROI) for oil and gas are declining and likely to continue declining.” This has economic implications:

We (as in DTM followers) all knew that of course, but it’s interesting that this stuff is actually starting to go viral…..

wheredidgrowthgo

Yes indeed, where did all the growth go…… down the Limits to Growth plughole, that’s where…..

Charlie Hall’s study, Energy Return on Investment: A Unifying Principle for Biology, Economics halleroeibookand Sustainability, clearly shows a correlation between the declining abundance of resources, “as reflected in lower production and EROI for oil and other important fuels”, and the decline of economic growth.

And that gets to the crux of the problem. We need more energy to get more stuff to grow the economy. So what happens when we can’t get as much energy as before? Growth slows.

That’s why Hall fingers the declining EROI of fossil fuels as the key culprit in decreasing rates of production, which in turn has played a key role in the economic slowdown: “Past investments— over the past century— were made at a time when the production of high quality fossil fuels was increasing at rates as high as 5% a year. At the time of this writing they have declined to no more than 1% a year, and the US (and global) economies show similar pattern.”

Hall argues that modern developed economies, with their enormous infrastructures, roads and cities, are rapidly approaching “a stage where all of the available energy is used in ‘maintenance metabolism’ to support the infrastructure that exists.” This leaves less and less energy “available for net growth.”

As I have been saying for a very long time now, the 20th Century was built one brick at a time, as and when it was required, using very cheap and very dense fossil fuels with very high ERoEI. Now we have to replace all the old stuff, more or less all at once (it is getting old now…), and simultaneously build all the new stuff, with low ERoEI energy that is literally costing the Earth.

Make no mistake, America will never be great again………. Trump or no Trump.





2017: The Year When the World Economy Starts Coming Apart

20 01 2017

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.

FOLLOWING ON from my last post exposing HSBC’s forecast of a peak oil caused economic collapse, along comes this piece from Gail Tverberg predicting it may all start this year…….

Most of this article is a rehash of things she’s said before all consolidated in one lengthy essay, and some of them were published here before. It’s becoming increasingly difficult to not recognise all our ducks are lining up on the wall…….

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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

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), theearnings 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.

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.

[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.

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.

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.

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.

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 importerscannot 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.

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.





Steve Keen exposes next global economic shockwaves

18 01 2017

Most of DTM’s readers will know this, but as it’s rather well done and amusing to boot, here it is anyway….. some lighthearted relief.





The price of fuel..: what is going on..?

11 01 2017

Yesterday, I went to the big smoke for a medical appointment. I’m fine. But when I went to fill up to ensure I could make it home, I realised that the price of petrol had gone up by a whopping 20c/L in one hit. That’s a 14% increase……… in one day.Petrol price hike in Hobart

In the news, “Mr Moody (of the Royal Automobile Club of Tasmania) said prices were being driven up by increases in the global oil price, but he said the price should level out in Tasmania at about $1.40 a litre in about a month.”

Except that when I investigated this, the price of oil had not skyrocketed, it was still around $52 a barrel. Last time petrol was this expensive, oil was at $147 a barrel….. so what’s going on?

My take on this is that the oil companies must be finding it harder and harder to pay their interest bills. If they can’t make profits with oil, they’ll have to find them upstream at the pump.  Furthermore, maybe Peak Oil is on the cusp of getting really serious, and this might be the tip of the iceberg……. Nafeez Ahmed has just written the following article about how dire the oil situation is becoming…….

Brace for the oil, food and financial crash of 2018

80% of the world’s oil has peaked, and the resulting oil crunch will flatten the economy

New scientific research suggests that the world faces an imminent oil crunch, which will trigger another financial crisis.

A report by HSBC shows that contrary to industry mythology, even amidst the glut of unconventional oil and gas, the vast bulk of the world’s oil production has already peaked and is now in decline; while European government scientists show that the value of energy produced by oil has declined by half within just the first 15 years of the 21st century.

The upshot? Welcome to a new age of permanent economic recession driven by ongoing dependence on dirty, expensive, difficult oil… unless we choose a fundamentally different path.

Last September, a few outlets were reporting the counterintuitive findings of a new HSBC research report on global oil supply. Unfortunately, the true implications of the HSBC report were largely misunderstood.

The HSBC research note — prepared for clients of the global bank — found that contrary to concerns about too much oil supply and insufficient demand, the situation was opposite: global oil supply will in coming years be insufficient to sustain rising demand.screenshot

Yet the full, striking import of the report, concerning the world’s permanent entry into a new age of global oil decline, was never really explained. The report didn’t just go against the grain of the industry’s hype about ‘peak demand’: it vindicated what is routinely lambasted by the industry as a myth: peak oil — the concurrent peak and decline of global oil production.

The HSBC report you need to read, now

INSURGE intelligence obtained a copy of the report in December 2016, and for the first time we are exclusively publishing the entire report in the public interest.

Read and/or download the full HSBC report by clicking below:

HSBC peak oil report

The HSBC report has a helpful, ten-point summary of the key arguments the bank makes, and what is going on right now. These arguments are summarised below…:

  1. Oil’s oversupply problem, which has caused most of the trouble in the markets in recent years will end by 2017, and the market will return to balance.
  2. Spare capacity will have shrunk substantially by then “to just 1% of global supply/demand.” This HSBC argues, will make the market more susceptible to disruptions like those seen in Nigeria and Canada in 2016.
  3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040.”
  4. 81% of the production of liquid oil is already in decline.
  5. HSBC sees between 3 and 4.5 million barrels per day of supply disappearing once peak oil production is reached. “In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year.”
  6. Based on a simple calculation, HSBC estimates that by 2040, the world will need to find around 40 million barrels of oil per day to keep up with growing demand from emerging economies. That is equivalent to over 4 times the current crude oil output of Saudi Arabia.
  7. “Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade.” — This will exacerbate the problem of declining oil fields, and the lack of supply.
  8. The amount of new oil discoveries being made is pretty small. HSBC notes that in 2015 the discovery rate for new wells was just 5%, a record low. The discoveries made are also fairly small in size.
  9. There is potential for growth in US shale oil, but it currently represents less than 5% of global supply, meaning that it will not be able, single-handedly at least, to address the tumbling global supply HSBC expects.
  10. “Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited.” Essentially HSBC argues that companies aren’t improving their efficiency at a quick enough rate, meaning that supply declines will hit them even harder.

Here is the chart showing the decline in production post-peak:

Oil peak production

As usual, the mainstream media is spruiking loads of rubbish, probably trying to not scare the children…… unless you peek elsewhere like this blog, or follow other bloggers who keep abreast of the truth, you could be forgiven for thinking America will be great again…. or some other such rubbish.

Under the current supply glut driven by rising unconventional production, falling oil prices have damaged industry profitability and led to dramatic cut backs in new investments in production. This, HSBC says, will exacerbate the likelihood of a global oil supply crunch from 2018 onwards.
So how do you improve profitability? You put the price of fuel up. Given that petrol is the single biggest purchase made by households on a weekly basis, the lift in petrol prices may lead to less household activity — a potential concern for retailers and the economy generally. High fuel prices combined with large debts is what broke the camel’s back in 2008, causing the GFC. Things are not only not different today, debt levels are even higher….. how long before GFC MkII kicks off is anyone’s guess, but it can’t be too far away now….




The end of work….

28 11 2016

Written by James Livingston, professor of history at Rutgers University in New Jersey, this essay challenges everything we think we know about employment and work… Livingston is the author of many books, the latest being No More Work: Why Full Employment is a Bad Idea (2016). As someone who hasn’t ‘worked’ since aged 42 (and I’m almost at ‘retiring age now!), I found this piece inspiring and refreshing…… my only criticism of this is that he doesn’t seem to realise all work is unsustainable.

Originally published here……

Work means everything to us Americans (and Australians. Ed). For centuries – since, say, 1650 – we’ve believed that it builds character (punctuality, initiative, honesty, self-discipline, and so forth). We’ve also believed that the market in labour, where we go to find work, has been relatively efficient in allocating opportunities and incomes. And we’ve believed that, even if it sucks, a job gives meaning, purpose and structure to our everyday lives – at any rate, we’re pretty sure that it gets us out of bed, pays the bills, makes us feel responsible, and keeps us away from daytime TV.

These beliefs are no longer plausible. In fact, they’ve become ridiculous, because there’s not enough work to go around, and what there is of it won’t pay the bills – unless of course you’ve landed a job as a drug dealer or a Wall Street banker, becoming a gangster either way.

These days, everybody from Left to Right – from the economist Dean Baker to the social scientist Arthur C Brooks, from Bernie Sanders to Donald Trump – addresses this breakdown of the labour market by advocating ‘full employment’, as if having a job is self-evidently a good thing, no matter how dangerous, demanding or demeaning it is. But ‘full employment’ is not the way to restore our faith in hard work, or in playing by the rules, or in whatever else sounds good. The official unemployment rate in the United States is already below 6 per cent, which is pretty close to what economists used to call ‘full employment’, but income inequality hasn’t changed a bit. Shitty jobs for everyone won’t solve any social problems we now face.

Don’t take my word for it, look at the numbers. Already a fourth of the adultsactually employed in the US are paid wages lower than would lift them above the official poverty line – and so a fifth of American children live in poverty. Almost half of employed adults in this country are eligible for food stamps (most of those who are eligible don’t apply). The market in labour has broken down, along with most others.

Those jobs that disappeared in the Great Recession just aren’t coming back, regardless of what the unemployment rate tells you – the net gain in jobs since 2000 still stands at zero – and if they do return from the dead, they’ll be zombies, those contingent, part-time or minimum-wage jobs where the bosses shuffle your shift from week to week: welcome to Wal-Mart, where food stamps are a benefit.

And don’t tell me that raising the minimum wage to $15 an hour solves the problem. No one can doubt the moral significance of the movement. But at this rate of pay, you pass the official poverty line only after working 29 hours a week. The current federal minimum wage is $7.25. Working a 40-hour week, you would have to make $10 an hour to reach the official poverty line. What, exactly, is the point of earning a paycheck that isn’t a living wage, except to prove that you have a work ethic?

But, wait, isn’t our present dilemma just a passing phase of the business cycle? What about the job market of the future? Haven’t the doomsayers, those damn Malthusians, always been proved wrong by rising productivity, new fields of enterprise, new economic opportunities? Well, yeah – until now, these times. The measurable trends of the past half-century, and the plausible projections for the next half-century, are just too empirically grounded to dismiss as dismal science or ideological hokum. They look like the data on climate change – you can deny them if you like, but you’ll sound like a moron when you do.

For example, the Oxford economists who study employment trends tell usthat almost half of existing jobs, including those involving ‘non-routine cognitive tasks’ – you know, like thinking – are at risk of death by computerisation within 20 years. They’re elaborating on conclusions reached by two MIT economists in the book Race Against the Machine (2011). Meanwhile, the Silicon Valley types who give TED talks have started speaking of ‘surplus humans’ as a result of the same process – cybernated production. Rise of the Robots, a new book that cites these very sources, is social science, not science fiction.

So this Great Recession of ours – don’t kid yourself, it ain’t over – is a moral crisis as well as an economic catastrophe. You might even say it’s a spiritual impasse, because it makes us ask what social scaffolding other than work will permit the construction of character – or whether character itself is something we must aspire to. But that is why it’s also an intellectual opportunity: it forces us to imagine a world in which the job no longer builds our character, determines our incomes or dominates our daily lives.

What would you do if you didn’t have to work to receive an income?

In short, it lets us say: enough already. Fuck work.

Certainly this crisis makes us ask: what comes after work? What would you do without your job as the external discipline that organises your waking life – as the social imperative that gets you up and on your way to the factory, the office, the store, the warehouse, the restaurant, wherever you work and, no matter how much you hate it, keeps you coming back? What would you do if you didn’t have to work to receive an income?

And what would society and civilisation be like if we didn’t have to ‘earn’ a living – if leisure was not our choice but our lot? Would we hang out at the local Starbucks, laptops open? Or volunteer to teach children in less-developed places, such as Mississippi? Or smoke weed and watch reality TV all day?

I’m not proposing a fancy thought experiment here. By now these are practical questions because there aren’t enough jobs. So it’s time we asked even more practical questions. How do you make a living without a job – can you receive income without working for it? Is it possible, to begin with and then, the hard part, is it ethical? If you were raised to believe that work is the index of your value to society – as most of us were – would it feel like cheating to get something for nothing?

We already have some provisional answers because we’re all on the dole, more or less. The fastest growing component of household income since 1959 has been ‘transfer payments’ from government. By the turn of the 21st century, 20 per cent of all household income came from this source – from what is otherwise known as welfare or ‘entitlements’. Without this income supplement, half of the adults with full-time jobs would live below the poverty line, and most working Americans would be eligible for food stamps.

But are these transfer payments and ‘entitlements’ affordable, in either economic or moral terms? By continuing and enlarging them, do we subsidise sloth, or do we enrich a debate on the rudiments of the good life?

Transfer payments or ‘entitlements’, not to mention Wall Street bonuses (talk about getting something for nothing) have taught us how to detach the receipt of income from the production of goods, but now, in plain view of the end of work, the lesson needs rethinking. No matter how you calculate the federal budget, we can afford to be our brother’s keeper. The real question is not whether but how we choose to be.

I know what you’re thinking – we can’t afford this! But yeah, we can, very easily. We raise the arbitrary lid on the Social Security contribution, which now stands at $127,200, and we raise taxes on corporate income, reversing the Reagan Revolution. These two steps solve a fake fiscal problem and create an economic surplus where we now can measure a moral deficit.

Of course, you will say – along with every economist from Dean Baker to Greg Mankiw, Left to Right – that raising taxes on corporate income is a disincentive to investment and thus job creation. Or that it will drive corporations overseas, where taxes are lower.

But in fact raising taxes on corporate income can’t have these effects.

Let’s work backward. Corporations have been ‘multinational’ for quite some time. In the 1970s and ’80s, before Ronald Reagan’s signature tax cuts took effect, approximately 60 per cent of manufactured imported goods were produced offshore, overseas, by US companies. That percentage has risen since then, but not by much.

Chinese workers aren’t the problem – the homeless, aimless idiocy of corporate accounting is. That is why the Citizens United decision of 2010 applying freedom of speech regulations to campaign spending is hilarious. Money isn’t speech, any more than noise is. The Supreme Court has conjured a living being, a new person, from the remains of the common law, creating a real world more frightening than its cinematic equivalent: say,Frankenstein, Blade Runner or, more recently, Transformers.

But the bottom line is this. Most jobs aren’t created by private, corporate investment, so raising taxes on corporate income won’t affect employment. You heard me right. Since the 1920s, economic growth has happened even though net private investment has atrophied. What does that mean? It means that profits are pointless except as a way of announcing to your stockholders (and hostile takeover specialists) that your company is a going concern, a thriving business. You don’t need profits to ‘reinvest’, to finance the expansion of your company’s workforce or output, as the recent history of Apple and most other corporations has amply demonstrated.

I know that building my character through work is stupid because crime pays. I might as well become a gangster

So investment decisions by CEOs have only a marginal effect on employment. Taxing the profits of corporations to finance a welfare state that permits us to love our neighbours and to be our brothers’ keeper is not an economic problem. It’s something else – it’s an intellectual issue, a moral conundrum.

When we place our faith in hard work, we’re wishing for the creation of character; but we’re also hoping, or expecting, that the labour market will allocate incomes fairly and rationally. And there’s the rub, they do go together. Character can be created on the job only when we can see that there’s an intelligible, justifiable relation between past effort, learned skills and present reward. When I see that your income is completely out of proportion to your production of real value, of durable goods the rest of us can use and appreciate (and by ‘durable’ I don’t mean just material things), I begin to doubt that character is a consequence of hard work.

When I see, for example, that you’re making millions by laundering drug-cartel money (HSBC), or pushing bad paper on mutual fund managers (AIG, Bear Stearns, Morgan Stanley, Citibank), or preying on low-income borrowers (Bank of America), or buying votes in Congress (all of the above) – just business as usual on Wall Street – while I’m barely making ends meet from the earnings of my full-time job, I realise that my participation in the labour market is irrational. I know that building my character through work is stupid because crime pays. I might as well become a gangster like you.

That’s why an economic crisis such as the Great Recession is also a moral problem, a spiritual impasse – and an intellectual opportunity. We’ve placed so many bets on the social, cultural and ethical import of work that when the labour market fails, as it so spectacularly has, we’re at a loss to explain what happened, or to orient ourselves to a different set of meanings for work and for markets.

And by ‘we’ I mean pretty much all of us, Left to Right, because everybody wants to put Americans back to work, one way or another – ‘full employment’ is the goal of Right-wing politicians no less than Left-wing economists. The differences between them are over means, not ends, and those ends include intangibles such as the acquisition of character.

Which is to say that everybody has doubled down on the benefits of work just as it reaches a vanishing point. Securing ‘full employment’ has become a bipartisan goal at the very moment it has become both impossible and unnecessary. Sort of like securing slavery in the 1850s or segregation in the 1950s.

Why?

Because work means everything to us inhabitants of modern market societies – regardless of whether it still produces solid character and allocates incomes rationally, and quite apart from the need to make a living. It’s been the medium of most of our thinking about the good life since Plato correlated craftsmanship and the possibility of ideas as such. It’s been our way of defying death, by making and repairing the durable things, the significant things we know will last beyond our allotted time on earth because they teach us, as we make or repair them, that the world beyond us – the world before and after us – has its own reality principles.

Think about the scope of this idea. Work has been a way of demonstrating differences between males and females, for example by merging the meanings of fatherhood and ‘breadwinner’, and then, more recently, prying them apart. Since the 17th century, masculinity and femininity have been defined – not necessarily achieved – by their places in a moral economy, as working men who got paid wages for their production of value on the job, or as working women who got paid nothing for their production and maintenance of families. Of course, these definitions are now changing, as the meaning of ‘family’ changes, along with profound and parallel changes in the labour market – the entry of women is just one of those – and in attitudes toward sexuality.

When work disappears, the genders produced by the labour market are blurred. When socially necessary labour declines, what we once calledwomen’s work – education, healthcare, service – becomes our basic industry, not a ‘tertiary’ dimension of the measurable economy. The labour of love, caring for one another and learning how to be our brother’s keeper – socially beneficial labour – becomes not merely possible but eminently necessary, and not just within families, where affection is routinely available. No, I mean out there, in the wide, wide world.

Work has also been the American way of producing ‘racial capitalism’, as the historians now call it, by means of slave labour, convict labour, sharecropping, then segregated labour markets – in other words, a ‘free enterprise system’ built on the ruins of black bodies, an economic edifice animated, saturated and determined by racism. There never was a free market in labour in these united states. Like every other market, it was always hedged by lawful, systematic discrimination against black folk. You might even say that this hedged market produced the still-deployed stereotypes of African-American laziness, by excluding black workers from remunerative employment, confining them to the ghettos of the eight-hour day.

And yet, and yet. Though work has often entailed subjugation, obedience and hierarchy (see above), it’s also where many of us, probably most of us, have consistently expressed our deepest human desire, to be free of externally imposed authority or obligation, to be self-sufficient. We have defined ourselves for centuries by what we do, by what we produce.

But by now we must know that this definition of ourselves entails the principle of productivity – from each according to his abilities, to each according to his creation of real value through work – and commits us to the inane idea that we’re worth only as much as the labour market can register, as a price. By now we must also know that this principle plots a certain course to endless growth and its faithful attendant, environmental degradation.

How would human nature change as the aristocratic privilege of leisure becomes the birthright of all?

Until now, the principle of productivity has functioned as the reality principle that made the American Dream seem plausible. ‘Work hard, play by the rules, get ahead’, or, ‘You get what you pay for, you make your own way, you rightly receive what you’ve honestly earned’ – such homilies and exhortations used to make sense of the world. At any rate they didn’t sound delusional. By now they do.

Adherence to the principle of productivity therefore threatens public health as well as the planet (actually, these are the same thing). By committing us to what is impossible, it makes for madness. The Nobel Prize-winning economist Angus Deaton said something like this when he explained anomalous mortality rates among white people in the Bible Belt by claiming that they’ve ‘lost the narrative of their lives’ – by suggesting that they’ve lost faith in the American Dream. For them, the work ethic is a death sentence because they can’t live by it.

So the impending end of work raises the most fundamental questions about what it means to be human. To begin with, what purposes could we choose if the job – economic necessity – didn’t consume most of our waking hours and creative energies? What evident yet unknown possibilities would then appear? How would human nature itself change as the ancient, aristocratic privilege of leisure becomes the birthright of human beings as such?

Sigmund Freud insisted that love and work were the essential ingredients of healthy human being. Of course he was right. But can love survive the end of work as the willing partner of the good life? Can we let people get something for nothing and still treat them as our brothers and sisters – as members of a beloved community? Can you imagine the moment when you’ve just met an attractive stranger at a party, or you’re online looking for someone, anyone, but you don’t ask: ‘So, what do you do?’

We won’t have any answers until we acknowledge that work now means everything to us – and that hereafter it can’t.





The Party’s Over…..

17 10 2016

I almost republished Raul Ilargi Meijer’s excellent article titled “Why There is Trump”, but I was too busy, or ran out of data or some other poor excuse.  Anyhow, this new article quotes Raul’s writing so much, I no longer feel the need to. This item was lifted straight from the Automatic Earth, and because it’s written by someone with an important past, and the subject matter is critical, it needs to be shared around.

The farcical US presidential election as far as I am concerned is proof positive that America is in an utter state of collapse. Let’s face it, what intelligent person would want to be in charge right now, when nobody will be willing to implement any of the solutions I at least believe are necessary?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Alastair Crooke: ‘End of Growth’ Sparks Wide Discontent

Raul Ilargi Meijer, the long-standing economics commentator, has written both succinctly – and provocatively: “It’s over! The entire model our societies have been based on for at least as long as we ourselves have lived, is over! That’s why there’s Trump.

“There is no growth. There hasn’t been any real growth for years. All there is left are empty hollow sunshiny S&P stock market numbers propped up with ultra-cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

“These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of Oz [Wizard of Oz] over people’s eyes for so long, and it’s no longer so long.

“That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.”

Meijer continues: “We are smack in the middle of the most important global development in decades, in some respects arguably even in centuries, a veritable revolution, which will continue to be the most important factor to shape the world for years to come, and I don’t see anybody talking about it. That has me puzzled.

“The development in question is the end of global economic growth, which will lead inexorably to the end of centralization (including globalization). It will also mean the end of the existence of most, and especially the most powerful, international institutions.

“In the same way it will be the end of -almost- all traditional political parties, which have ruled their countries for decades and are already today at or near record low support levels (if you’re not clear on what’s going on, look there, look at Europe!)

“This is not a matter of what anyone, or any group of people, might want or prefer, it’s a matter of ‘forces’ that are beyond our control, that are bigger and more far-reaching than our mere opinions, even though they may be man-made.

“Tons of smart and less smart folks are breaking their heads over where Trump and Brexit and Le Pen and all these ‘new’ and scary things and people and parties originate, and they come up with little but shaky theories about how it’s all about older people, and poorer and racist and bigoted people, stupid people, people who never voted, you name it.

“But nobody seems to really know or understand. Which is odd, because it’s not that hard. That is, this all happens because growth is over. And if growth is over, so are expansion and centralization in all the myriad of shapes and forms they come in.”

Further, Meijer writes: “Global is gone as a main driving force, pan-European is gone, and whether the United States will stay united is far from a done deal. We are moving towards a mass movement of dozens of separate countries and states and societies looking inward. All of which are in some form of -impending- trouble or another.

“What makes the entire situation so hard to grasp for everyone is that nobody wants to acknowledge any of this. Even though tales of often bitter poverty emanate from all the exact same places that Trump and Brexit and Le Pen come from too.

“That the politico-econo-media machine churns out positive growth messages 24/7 goes some way towards explaining the lack of acknowledgement and self-reflection, but only some way. The rest is due to who we ourselves are. We think we deserve eternal growth.”

The End of ‘Growth’

Well, is global “growth over”? Of course Raul Ilargi is talking “aggregate” (and there will be instances of growth within any contraction). But what is clear is that debt-driven investment and low-interest-rate policies are having less and less effect – or no effect at all – in producing growth – either in terms of domestic or trade growth, as Tyler Durden at ZeroHedge writes:

 

“After almost two years of the quantitative easing program in the Euro Area, economic figures have remained very weak. As GEFIRA details, inflation is still fluctuating near zero, while GDP growth in the region has started to slow down instead of accelerating. According to the ECB data, to generate €1.0 of GDP growth, €18.5 had to be printed in the QE, … This year, the ECB printed nearly €600 billion within the frame of asset purchase programme (QE).”

Central Banks can and do create money, but that is not the same as creating wealth or purchasing power. By channelling their credit creation through the intermediary of banks granting loans to their favored clients, Central Banks grant to one set of entities purchasing power – a purchasing power that must necessarily have been transferred from another set of entities within Europe (i.e. transferred from ordinary Europeans in the case of the ECB), who, of course will have less purchasing power, less discretionary spending income.

The devaluation of purchasing power is not so obvious (no runaway inflation), because all major currencies are devaluing more or less pari passu – and because the authorities periodically steam hammer down the price of gold, so that there is no evident standard by which people can “see” for themselves the extent of their currencies’ joint downward float.

And world trade is grinding down too, as Lambert Strether of Corrente rather elegantly explains: “Back to shipping: I started following shipping … partly because it’s fun, but more because shipping is about stuff, and tracking stuff seemed like a far more attractive way of getting a handle on ‘the economy’ than economics statistics, let alone whatever books the Wall Streeters were talking on any given day. And don’t get me started on Larry Summers.

“So what I noticed was decline, and not downward blips followed by rebounds, but decline, for months and then a year. Decline in rail, even when you back out coal and grain, and decline in demand for freight cars. Decline in trucking, and decline in the demand for trucks. Air freight wobbly. No Christmas bounce at the Pacific ports. And now we have the Hanjin debacle — all that capital tied up in stranded ships, though granted only $12 billion or so — and the universal admission that somehow “we” invested w-a-a-a-a-a-y too much money in big ships and boats, implying (I suppose) that we need to ship a lot less stuff than we thought, at least across the oceans.

“Meanwhile, and in seeming contradiction not only to a slow collapse of global trade, but to the opposition to ‘trade deals,’ warehousing is one of the few real estate bright spots, and supply chain management is an exciting field. It’s disproportionately full of sociopaths, and therefore growing and dynamic!

“And the economics statistics seem to say nothing is wrong. Consumers are the engine of the economy and they are confident. But at the end of the day, people need stuff; life is lived in the material world, even if you think you live it on your device. It’s an enigma! So what I’m seeing is a contradiction: Less stuff is moving, but the numbers say ‘this is fine.’ Am I right, here? So in what follows, I’m going to assume that numbers don’t matter, but stuff does.”

Fake Elixir

Or, to be more faux-empirical: as Bloomberg notes in A Weaker Currency is no longer the Elixir, It Once Was:“global central banks have cut policy rates 667 times since 2008, according to Bank of America. During that period, the dollar’s 10 main peers have fallen 14%, yet Group-of-Eight economies have grown an average of just 1%. Since the late 1990s, a 10% inflation-adjusted depreciation in currencies of 23 advanced economies boosted net exports by just 0.6% of GDP, according to Goldman Sachs. That compares with 1.3% of GDP in the two decades prior. U.S. trade with all nations slipped to $3.7 trillion in 2015, from $3.9 trillion in 2014.”

 

With “growth over,” so too is globalization: Even the Financial Times agrees, as its commentator Martin Wolf writes in his comment, The Tide of Globalisation is Turning: “Globalisation has at best stalled. Could it even go into reverse? Yes. It requires peace among the great powers … Does globalisation’s stalling matter? Yes.”

Globalization is stalling – not because of political tensions (a useful “scapegoat”), but because growth is flaccid as a result of a veritable concatenation of factors causing its arrest – and because we have entered into debt deflation that is squeezing what’s left of discretionary, consumption-available, income. But Wolf is right. Ratcheting tensions with Russia and China will not somehow solve America’s weakening command over the global financial system – even if capital flight to the dollar might give the U.S. financial system a transient “high.”

So what might the “turning tide” of globalization actually mean? Does it mean the end of the neo-liberalist, financialized world? That is hard to say. But expect no rapid “u-turn” – and no apologies. The Great Financial Crisis of 2008 – at the time – was thought by many to mark the end to neo-liberalism. But it never happened – instead, a period of fiscal retrenchment and austerity was imposed that contributed to a deepening distrust of the status quo, and a crisis rooted in a widespread, popular sense that “their societies” were headed in the wrong direction.

Neo-liberalism is deeply entrenched – not least in Europe’s Troika and in the Eurogroup that oversees creditor interests, and which, under European Union rules, has come to dominate E.U. financial and tax policy.

It is too early to say from whence the economic challenge to prevailing orthodoxy will come, but in Russia there is a group of prominent economists gathered together as the Stolypin Club, who are evincing a renewed interest in that old adversary of Adam Smith, Friedrich List (d. 1846), who evolved a “national system of political economy.” List upheld the (differing interests) of the nation to that of the individual. He gave prominence to the national idea, and insisted on the special requirements of each nation according to its circumstances, and especially to the degree of its development. He famously doubted the sincerity of calls to free trade from developed nations, in particular those by Britain. He was, as it were, the arch anti-globalist.

A Post-Globalism

One can see that this might well fit the current post-globalist mood. List’s acceptance of the need for a national industrial strategy and the reassertion of the role of the state as the final guarantor of social cohesion is not some whimsy pursued by a few Russian economists. It is entering the mainstream. The May government in the U.K. precisely is breaking with the neoliberal model that has ruled British politics since the 1980s – and is breaking towards a List-ian approach.

 

Be that as it may (whether this approach swims more widely back into fashion), the very contemporary British professor and political philosopher, John Gray has suggested the key point is: “The resurgence of the state is one of the ways in which the present time differs from the ‘new times’ diagnosed by Martin Jacques and other commentators in the 1980s. Then, it seemed national boundaries were melting away and a global free market was coming into being. It’s a prospect I never found credible.

“A globalised economy existed before 1914, but it rested on a lack of democracy. Unchecked mobility of capital and labour may raise productivity and create wealth on an unprecedented scale, but it is also highly disruptive in its impact on the lives of working people – particularly when capitalism hits one of its periodic crises. When the global market gets into grave trouble, neoliberalism is junked in order to meet a popular demand for security. That is what is happening today.

“If the tension between global capitalism and the nation state was one of the contradictions of Thatcherism, the conflict between globalization and democracy has undone the left. From Bill Clinton and Tony Blair onwards, the center-left embraced the project of a global free market with an enthusiasm as ardent as any on the right. If globalisation was at odds with social cohesion, society had to be re-engineered to become an adjunct of the market. The result was that large sections of the population were left to moulder in stagnation or poverty, some without any prospect of finding a productive place in society.”

If Gray is correct that when globalized economics strikes trouble, people will demand that the state must pay attention to their own parochial, national economic situation (and not to the utopian concerns of the centralizing élite), it suggests that just as globalization is over – so too is centralization (in all its many manifestations).

The E.U., of course, as an icon of introverted centralization, should sit up, and pay attention. Jason Cowley, the editor of the (Leftist) New Statesman says: “In any event … however you define it, [the onset of ‘New Times’] will not lead to a social-democratic revival: it looks as if, in many Western countries, we are entering an age in which centre-left parties cannot form ruling majorities, having leaked support to nationalists, populists and more radical alternatives.”

The Problem of Self-Delusion

So, to return to Ilargi’s point, that “we are smack in the middle of the most important global development in decades … and I don’t see anybody talking about it. That has me puzzled” and to which he answers that ultimately, the “silence” is due to ourselves: “We think we deserve eternal growth.”

 

He is surely right that it somehow answers to the Christian meme of linear progress (material here, rather than spiritual); but more pragmatically, doesn’t “growth” underpin the whole Western financialized, global system: “it was about lifting the ‘others’ out of their poverty”?

Recall, Stephen Hadley, the former U.S. National Security Adviser to President George W. Bush,warning plainly that foreign-policy experts rather should pay careful attention to the growing public anger: that “globalization was a mistake” and that “the elites have sleep-walked the [U.S.] into danger.”

“This election isn’t just about Donald Trump,” Hadley argued. “It’s about the discontents of our democracy, and how we are going to address them … whoever is elected, will have to deal with these discontents.”

In short, if globalization is giving way to discontent, the lack of growth can undermine the whole financialized global project. Stiglitz tells us that this has been evident for the past 15 years — last month he noted that he had warned then of: “growing opposition in the developing world to globalizing reforms: It seemed a mystery: people in developing countries had been told that globalization would increase overall wellbeing. So why had so many people become so hostile to it? How can something that our political leaders – and many an economist – said would make everyone better off, be so reviled? One answer occasionally heard from the neoliberal economists who advocated for these policies is that people are better off. They just don’t know it. Their discontent is a matter for psychiatrists, not economists.”

This “new” discontent, Stiglitz now says, is extended into advanced economies. Perhaps this is what Hadley means when he says, “globalization was a mistaalastair-crooke-photoke.” It is now threatening American financial hegemony, and therefore its political hegemony too.

Alastair Crooke is a former British diplomat who was a senior figure in British
intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.