Eight essential steps to transform our economy

30 07 2019

We’re running out of time. There’s spreading awareness of the institutional failure that is driving humans toward self-extinction, and related calls for a deep transformation of our economy. This is happening in every quarter, from college campuses to the Vatican to the U.S. presidential debates. Everywhere we hear calls for an economy that serves the well-being of people and Earth.

David Korten wrote this opinion piece for YES! Magazine as part of his series of biweekly columns on “A Living Earth Economy.” David is co-founder and board chair of YES! Magazine and president of the Living Economies Forum. Follow him on Twitter @dkorten and on Facebook. As do all YES! columnists he writes here in his personal voice.

Pope Francis has spoken of the social and environmental failures of an economy devoted to the idolatry of moneyWorkers and their unions are joining in with the wrenching observation that, “There are no good jobs on a dead planet.”

There is a related rising awareness of the need for a serious update to how we study and think about economics and prepare our future leaders. With few exceptions, economics, as it’s taught in universities, relies on the same badly flawed theories and ethical principles that bear major responsibility for the unfolding crisis. It values life only for its market price; uses GDP growth as the defining measure of economic performance; assures students that maximizing personal financial return benefits society; recommends policies that prioritize corporate profits over human and planetary well-being; and ignores the natural limits of a finite planet.

Here are eight guiding principles for a reformed economic theory to guide our path to a new economy for the 21st century.

Principle 1: Evaluate the economy’s performance by indicators of the well-being of people and planet; not the growth of GDP.

Growing GDP serves well if our goal is only to increase the financial assets of the rich so they can claim an ever-growing share of the remaining real wealth of a dying Earth. If our priority is to meet the essential needs for food, water, shelter, and other basics for all the world’s people, then we must measure for those results so that we can get the outcomes we really want.

Principle 2: Seek only that which benefits life; not that which harms life.

We should seek to eliminate war, financial speculation, consumption of harmful or unnecessary products, and industrial agriculture that pollutes the soil, air, and water and produces food of questionable nutritional value. We can eliminate most driving by designing infrastructure to support people living close to where they work, shop, and play. We can eliminate most global movement of people and goods by keeping production and consumption local, using recycled materials, and substituting electronic communication for global business travel.

The labor and resources thus freed up can be redirected to raising and educating our children, caring for the elderly, restoring the health and vitality of Earth’s regenerative systems, rebuilding the social infrastructure of community, and rebuilding physical infrastructure in ways that reduce dependence on fossil fuels and simultaneously strengthen our beneficial connections with one another and nature.

Principle 3: Honor and reward all who provide beneficial labor, including nature; not those who exploit it to get rich.

Life depends on the labor of nature and people. Too often, the current economic system rewards those claiming ownership rather than those performing useful labor. Instead we should follow the model set by traditional societies, in which we earn our share in the surplus of the commons through our labor in service of it. Much of the current economy’s dysfunction can be overcome by eliminating the division of society between owners and workers—a problem corrected throughworker ownership combined with an ethical frame that recognizes our well-being depends on much more than just financial return.

Principle 4: Create society’s money supply through a transparent public process to advance the common good; not through proprietary processes that grow the profits of for-profit banks.

In a modern society, those who control the creation and allocation of money control the lives of everyone. It defies reason to assume that society benefits from giving this power to global for-profit banks dedicated to maximizing profits for the already richest among us. The system of money creation and allocation must be public, transparent, and accountable to the people. It must reside in democratic governments and be administered by public banks supplemented by individual community-owned, cooperative banks whose lending supports local home and business ownership.

Principle 5: Educate for a lifetime of learning in service to life-seeking communities; not for service to for-profit corporations.

Most university economics courses currently promote societal psychopathology as a human ideal and give legitimacy to institutions that serve only to make money, without regard for the common good. We must prepare youth for future leadership that builds on a moral foundation that recognizes our responsibility for one another and Earth, favors cooperation over competition, and prioritizes life over money and community well-being over corporate profits.

No one knows how to get where we now must go, and education cannot provide us with answers we do not have. Education can, however, prepare us to be lifelong learners, skilled in asking the right questions and in working together to find and share answers.

Principle 6: Create and apply technology only to serve life; not to displace or destroy it.

Technology must be life’s servant. Deciding how to apply technology based solely on what will produce the greatest short-term financial return is madness. Humans have the right and the means to assure that technology is used only to serve humanity as a whole, such as by eliminating destructive environmental impacts, restoring the regenerative capacity of Earth systems, facilitating global understanding, and advancing social justice, cooperation, and learning.

Principle 7: Organize as cooperative, inclusive, self-reliant, regenerative communities that share knowledge and technology to serve life; not as incorporated pools of money competing to grow by exploiting life.

We can meet our needs through constant cyclical flows of resources. That was our standard way of living until less than 100 years ago. We can do it again. Urban and rural dwellers can rediscover their interdependence as cities source food, timber, fiber, pulp, and recreational opportunities from nearby rural areas and rural areas regenerate their soils with biowastes from nearby urban areas and enjoy the benefits of urban culture. Suburbs can convert to urban or rural habitats.

Principle 8: Seek a mutually beneficial population balance between humans and Earth’s other species; not the dominance of humans over all others.

The health of any natural ecosystem depends on its ability to balance the populations of its varied species. This means maintaining free access to reproductive health care options and removing barriers to women in education and the workplace. Only starting from this point can we both maintain a free society and manage our population size.

The basic frame of 21st century economics contrasts sharply with that of the 20th century economics it must now displace. The new frame is far more complex and nuanced. Yet most people can readily grasp it because it is logical, consistent with foundational ethical principles, and reflects the reality that most people are kind, honest, find pleasure in helping others, and recognize that we all depend on the health of our Mother Earth.

This article was first published in YES! Magazine.





The Day After…….

3 07 2016

Australia has voted, and we have business as usual. I shouldn’t be surprised of course. The ignorant electorate has spoken……

What the ignorant electorate had to choose from was Blue Jobs and Growth (BJG), Red Jobs and Growth (RJG), Green Jobs and Growth (GJG) and now the X Men (and one woman). The X men, Nick Xenophon’s Party, also want jobs and growth (XJG), specifically in Whyalla.

As I said to someone who congratulated themselves for campaigning so well, at the end of the day, we’ll have business as usual. At the end of the day, we also appear to be heading for a hung parliament, possibly the best result under the circumstances, none of them deserve to be in power….hungparliament

The lack of understanding of the true future in store, the kow towing to the Matrix, the influence of the Murdock Press, and the sheer momentum of the monetary system has led us to utter lack of vision.

Even with their best ever campaign performance, the Greens hardly made a dent. When I stood for election in 2001, I was thoroughly congratulated for getting 6% of the vote. I was bitterly disappointed. A solid month out of my life, campaigning every day, for 6%..? And here we are, fifteen years later, and the vote’s gone up by 4% (more in some seats obviously..), and the Greens are still congratulating themselves. In one election, the X Men have done better than the Greens have done in four or five….. you’d think that by now it’s clear the electorate does not care. The Greens’ message has reached saturation point, and unless you’re a dyed in the wool greenie, you ain’t gonna vote for them, not even when thoroughly pissed off with the rest.

hungdemocracyEven if they fall over the line in Batman and Melbourne Ports, their influence will be very limited, the reds and the blues will just gang up on them…. The Greens’ leader Richard Di Natale says Australians are looking for a change, but all they’re doing is more of the same only a different colour. The change we need, as we fast run out of time, is on such a scale nobody even dares to contemplate it……

In the last few days of the election campaign, everywhere I went on the internet was peppered with Greens ads. I was impressed actually. The three word slogan (which is about all the electorate understands) “Save the Reef” was everywhere. Clearly, Australians don’t care if the reef dies. All they care about are Jobs and Growth. They don’t, seemingly, even care about green jobs and growth much at all.

Malcolm Turncoat may be finished over this result. He backstabbed the Abbott over bad polls, and now with the poll that really counts not coming good for him, possibly a ‘worse’ Senate (for the BJG Party) than before the double dissolution, a leadership challenge is in my view on the cards. God help us if the Abbott makes a comeback, he was by far the worst PM we’ve ever had, and that’s really saying something….

Not that I care. I realised the other day just how much ‘past caring’ I am….. apart from what happens to my family and closest friends, I’ve stopped caring.

The way things are going, by 2020 we’ll all be driving over cliffs in solar powered electric cars. China appears to be heading for a depression, the Saudi oil industry has laid off 50,000 to 77,000 workers, many of whom have not been paid for several months, and now, according to the IMF, the Brexit vote will have negative repercussions that will spread beyond the U.K. and Europe to the global economy. Good. All these good outcomes might slow emissions down.

How the Australian Jobs and Growth Parties deal with these issues will be mildly interesting, but nothing will happen ’til we have a major banking collapse, and that might even begin with Deutsche Bank, described by some as the world’s most systemically dangerous bank…….

How the jobs and growth parties will fund their promises under a banking collapse will be interesting to watch. The similarity between what happened to Lehhman in 2008 and DB today is simply amazing….. by then, jobs and growth will be a thing of the past, no matter what colour.

As far as I’m concerned, we’re on our own, and we should be actively planning for this. Plan your future, then work your plan…….. Voting no longer counts for anything, nobody elected in Parliament knows what they are doing.

ME?  Cynical…?  Don’t make me laugh……..





Tactical Senate voting

22 06 2016

I don’t usually do this, especially as we are so fast running out of time to turn this sinking ship around, voting at elections is quickly becoming a farce…. however, having said that, and seeing as voting in Australia is compulsory, here is a little bit of information on how to vote in the most worthwhile way for our Senate that I discovered just yesterday.

As you hopefully know, the government has changed the way we may vote on our complicated Senate ballot paper, with the unambiguous ambition of getting rid of the small parties.  In my opinion, it’s the big parties we should get rid of, and here’s how we could do it, though I’m not holding my breath.Sample new senate ballot, showing voter-allocated above-the-line preferences

You can read the whole explanation here if you’re into maths (like me!) or just follow the strategic bit below……. and share as widely as possible, we need as many people as we can muster to do this and stick it to the laborals…!

Tactics

What you should try to do is get your vote to the latter part of the count, where it may have significantly higher value because of the counting system deficiency. But you don’t want your vote to get there via excess transfer from an elected candidate, because that will have diminished its final value.

How? I suggest the following:

  1. Vote below-the-line. Above-the-line voting has lost all utility except for the lazy, now that you only have to correctly number six candidates with the sequence 1,2,3,4,5,6 for a below-the-line vote to be valid.
     
  2. Make a list of candidates whom you favour but don’t think will be elected. Vote for those first, in order from the least likely to the most likely to be elected, but respecting any candidate preference you may have.
     
  3. By way of insurance, and to increase the likelihood of a preferred candidate getting a six year term, make a second list of candidates you favour who are likely to be elected. After voting your first list, append your second list in order from the least likely to be elected to the most likely, again respecting any candidate preferences you may have.
     
  4. If you haven’t yet numbered at least six candidates, continue numbering candidates you favour until you have. Your vote will be informal if you do not number at least six candidates in the sequence 1,2,3,4,5,6. Continue numbering candidates you favour as you see fit, preferably up to at least 12 in accordance with the ballot instructions, but avoid mistakes². There are arguments for then proceeding to number candidates you don’t favour on a ‘least worst’ basis, but avoid numbering any candidate you viscerally despise; your vote cannot count towards their election if you don’t number them (‘putting them last’ achieves nothing).
     

Why? Voting for candidates you favour in reverse order of their likelihood of election gives your vote its best chance of making it to late in the count, where it will have most value, while respecting your core candidate preferences. But don’t forget the 6 year term effect.

Personally I’ll be voting in the state of Queensland and favouring Greens’ candidates … but, tactically, I won’t be giving The Greens’ Larissa Waters an early preference on my ballot. That’s because she’s certain to be elected and doesn’t need my vote. She will get a later preference from me by way of insurance and to increase her likelihood of getting a six year term. Instead I’ll have Andrew Bartlett (probable second on The Greens’ senate list) high in my preference list, because his chances of election are fairly small and I can vote tactically to increase them.

By the way, while I’m often a Labor supporter, I won’t be numbering any Labor senate candidates on my ballot because I strongly disagree with that party’s pro-coal policies, especially their support for new steaming coal mines.





Nine Reasons Why Low Oil Prices May “Morph” Into Something Much Worse

24 07 2015

As oil price collapse to under $50……… by Gail Tverberg, orginally posted here.

Why are commodity prices, including oil prices, lagging? Ultimately, the question comes back to, “Why isn’t the world economy making very many of the end products that use these commodities?” If workers were getting rich enough to buy new homes and cars, demand for these products would be raising the prices of commodities used to build and operate cars, including the price of oil. If governments were rich enough to build an increasing number of roads and more public housing, there would be demand for the commodities used to build roads and public housing.

It looks to me as though we are heading into a deflationary depression, because the prices of commodities are falling below the cost of extraction. We need rapidly rising wages and debt if commodity prices are to rise back to 2011 levels or higher. This isn’t happening. Instead, Janet Yellen is talking about raising interest rates later this year, and  we are seeing commodity prices fall further and further. Let me explain some pieces of what is happening.

1. We have been forcing economic growth upward since 1981 through the use of falling interest rates. Interest rates are now so low that it is hard to force rates down further, in order to encourage further economic growth. 

Falling interest rates are hugely beneficial for the economy. If interest rates stop dropping, or worse yet, begin to rise, we will lose this very beneficial factor affecting the economy. The economy will tend to grow even less quickly, bringing down commodity prices further. The world economy may even start contracting, as it heads into a deflationary depression.

If we look at 10-year US treasury interest rates, there has been a steep fall in rates since 1981.

Figure 1. Chart prepared by St. Louis Fed using data through July 20, 2015.

In fact, almost any kind of interest rates, including interest rates of shorter terms, mortgage interest rates, bank prime loan rates, and Moody’s Seasoned AAA Bonds, show a fairly similar pattern. There is more variability in very short-term interest rates, but the general direction has been down, to the point where interest rates can drop no further.

Declining interest rates stimulate the economy for many reasons:

  • Would-be homeowners find monthly payments are lower, so more people can afford to purchase homes. People already owning homes can afford to “move up” to more expensive homes.
  • Would-be auto owners find monthly payments lower, so more people can afford cars.
  • Employment in the home and auto industries is stimulated, as is employment in home furnishing industries.
  • Employment at colleges and universities grows, as lower interest rates encourage more students to borrow money to attend college.
  • With lower interest rates, businesses can afford to build factories and stores, even when the anticipated rate of return is not very high. The higher demand for autos, homes, home furnishing, and colleges adds to the success of businesses.
  • The low interest rates tend to raise asset prices, including prices of stocks, bonds, homes and farmland, making people feel richer.
  • If housing prices rise sufficiently, homeowners can refinance their mortgages, often at a lower interest rate. With the funds from refinancing, they can remodel, or buy a car, or take a vacation.
  • With low interest rates, the total amount that can be borrowed without interest payments becoming a huge burden rises greatly. This is especially important for governments, since they tend to borrow endlessly, without collateral for their loans.

While this very favorable trend in interest rates has been occurring for years, we don’t know precisely how much impact this stimulus is having on the economy. Instead, the situation is the “new normal.” In some ways, the benefit is like traveling down a hill on a skateboard, and not realizing how much the slope of the hill is affecting the speed of the skateboard. The situation goes on for so long that no one notices the benefit it confers.

If the economy is now moving too slowly, what do we expect to happen when interest rates start rising? Even level interest rates become a problem, if we have become accustomed to the economic boost we get from falling interest rates.

2. The cost of oil extraction tends to rise over time because the cheapest to extract oil is removed first. In fact, this is true for nearly all commodities, including metals. 

If costs always remained the same, we could represent the production of a barrel of oil, or a pound of metal, using the following diagram.

Figure 2

If production is becoming increasingly efficient, then we might represent the situation as follows, where the larger size “box” represents the larger output, using the same inputs.

Figure 3

For oil and for many other commodities, we are experiencing the opposite situation. Instead of becoming increasingly efficient, we are becoming increasingly inefficient (Figure 4). This happens because deeper wells need to be dug, or because we need to use fracking equipment and fracking sand, or because we need to build special refineries to handle the pollution problems of a particular kind of oil. Thus we need more resources to produce the same amount of oil.

Figure 4. Growing inefficiency

Some people might call the situation “diminishing returns,” because the cheap oil has already been extracted, and we need to move on to the more difficult to extract oil. This adds extra steps, and thus extra costs. I have chosen to use the slightly broader term of “increasing inefficiency” because it indicates that the nature of these additional costs is not being restricted.

Very often, new steps need to be added to the process of extraction because wells are deeper, or because refining requires the removal of more pollutants. At times, the higher costs involve changing to a new process that is believed to be more environmentally sound.

Figure 5

The cost of extraction keeps rising, as the cheapest to extract resources become depleted, and as environmental pollution becomes more of a problem.

3. Using more inputs to create the same or smaller output pushes the world economy toward contraction.

Essentially, the problem is that the same quantity of inputs is yielding less and less of the desired final product. For a given quantity of inputs, we are getting more and more intermediate products (such as fracking sand, “scrubbers” for coal-fired power plants, desalination plants for fresh water, and administrators for colleges), but we are not getting as much output in the traditional sense, such as barrels of oil, kilowatts of electricity, gallons of fresh water, or educated young people, ready to join the work force.

We don’t have unlimited inputs. As more and more of our inputs are assigned to creating intermediate products to work around limits we are reaching (including pollution limits), fewer of our resources can go toward producing desired end products. The result is less economic growth. Because of this declining economic growth, there is less demand for commodities. So, prices for commodities tend to drop.

This outcome is to be expected, if increased efficiency is part of what creates economic growth, and what we are experiencing now is the opposite: increased inefficiency.

4. The way workers afford higher commodity costs is primarily through higher wages. At times, higher debt can also be a workaround. If neither of these is available, commodity prices can fall below the cost of production.

If there is a significant increase in the cost of products like houses and cars, this presents a huge challenge to workers. Usually, workers pay for these products using a combination of wages and debt. If costs rise, they either need higher wages, or a debt package that makes the product more affordable–perhaps lower rates, or a longer period for payment.

Commodity costs have been rising very rapidly in the last fifteen years or so. According to a chart prepared by Steven Kopits, some of the major costs of extracting oil began increasing by 10.9% per year, in about 1999.

Figure 6. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is

In fact, the inflation-adjusted prices of almost all energy and metal products tended to rise rapidly during the period 1999 to 2008 (Figure 7). This was a time period when the amount of mortgage debt was increasing rapidly as lenders began offering home loans with low initial interest rates to almost anyone, including those with low credit scores and irregular income. When debt levels began falling in mid-2008 (related in part to defaulting home loans), commodity prices of all types dropped.

Figure 6. Inflation adjusted prices adjusted to 1999 price = 100, based on World Bank

Prices then began to rise once Quantitative Easing (QE) was initiated (compare Figures 6 and 7). The use of QE brought down medium-term and long-term interest rates, making it easier for customers to afford homes and cars.

Figure 7. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

More recently, prices have fallen again. Thus, we have had two recent times when prices have fallen below the cost of production for many major commodities. Both of these drops occurred after prices had been high, when debt availability was contracting or failing to rise as much as in the past.

5. Part of the problem that we are experiencing is a slow-down in wage growth.

Figure 8 shows that in the United States, growth in per capita wages tends to disappear when oil prices rise above $40 barrel. (Of course, as noted in Point 1, interest rates have been falling since 1981. If it weren’t for this, the cut off for wage growth might even be lower–perhaps even $20 barrel!)

Figure 8. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

There is also a logical reason why we should expect that wages would tend to fall as energy costs rise. How does a manufacturer respond to the much higher cost of one or more of its major inputs? If the manufacturer simply passes the higher cost along, many customers will no longer be able to afford the manufacturer’s or service-provider’s products. If businesses can simply reduce some other costs to offset the rise in the cost in energy products and metals, they might be able to keep most of their customers.

A major area where a manufacturer or service provider can cut costs is in wage expense.  (Note the different types of expenses shown in Figure 5. Wages are a major type of expense for most businesses.)

There are several ways employment costs can be cut:

  1. Shift jobs to lower wage countries overseas.
  2. Use automation to shift some human labor to labor provided by electricity.
  3. Pay workers less. Use “contract workers” or “adjunct faculty” or “interns” who will settle for lower wages.

If a manufacturer decides to shift jobs to China or India, this has the additional advantage of cutting energy costs, since these countries use a lot of coal in their energy mix, and coal is an inexpensive fuel.

Figure 9. United States Percentage of Labor Force Employed, in by St. Louis Federal Reserve.

In fact, we see a drop in the US civilian labor force participation rate (Figure 9) starting at approximately the same time when energy costs and metal costs started to rise. Median inflation-adjusted wages have tended to fall as well in this period. Low wages can be a reason for dropping out of the labor force; it can become too expensive to commute to work and pay day care expenses out of meager wages.

Of course, if wages of workers are not growing and in many cases are actually shrinking, it becomes difficult to sell as many homes, cars, boats, and vacation cruises. These big-ticket items create a significant share of commodity “demand.” If workers are unable to purchase as many of these big-ticket items, demand tends to fall below the (now-inflated) cost of producing these big-ticket items, leading to the lower commodity prices we have seen recently.

6. We are headed in slow motion toward major defaults among commodity producers, including oil producers. 

Quite a few people imagine that if oil prices drop, or if other commodity prices drop, there will be an immediate impact on the output of goods and services.

Figure 10.

Instead, what happens is more of a time-lagged effect (Figure 11).

Figure 11.

Part of the difference lies in the futures markets; companies hold contracts that hold sale prices up for a time, but eventually (often, end of 2015) run out. Part of the difference lies in wells that have already been drilled that keep on producing. Part of the difference lies in the need for businesses to maintain cash flow at all costs, if the price problem is only for a short period. Thus, they will keep parts of the business operating if those parts produce positive cash flow on a going-forward basis, even if they are not profitable considering all costs.

With debt, the big concern is that the oil reserves being used as collateral for loans will drop in value, due to the lower price of oil in the world market. The collateral value of reserves works out to be something like (barrels of oil in reserves x some expected price).

As long as oil is being valued at $100 barrel, the value of the collateral stays close to what was assumed when the loan was taken out. The problem comes when low oil prices gradually work their way through the system and bring down the value of the collateral. This may take a year or more from the initial price drop, because prices are averaged over as much as 12 months, to provide stability to the calculation.

Once the value of the collateral drops below the value of the outstanding loan, the borrowers are in big trouble. They may need to sell some of the other assets they own, to help pay down the loan. Or, they may end up in bankruptcy. The borrowers certainly can’t borrow the additional money they need to keep increasing their production.

When bankruptcy occurs, many follow-on effects can be expected. The banks that made the loans may find themselves in financial difficulty. The oil company may lay off large numbers of workers. The former workers’ lack of wages may affect other businesses in the area, such as car dealerships. The value of homes in the area may drop, causing home mortgages to become “underwater.” All of these effects contribute to still lower demand for commodities of all kinds, including oil.

Because of the time lag problem, the bankruptcy problem is hard to reverse. Oil prices need to stay high for an extended period before lenders will be willing to lend to oil companies again. If it takes, say, five years for oil prices to get up to a level high enough to encourage drilling again, it may take seven years before lenders are willing to lend again.

7. Because many “baby boomers” are retiring now, we are at the beginning of a demographic crunch that has the tendency to push demand down further.

Many workers born in the late 1940s and in the 1950s are retiring now. These workers tend to reduce their own spending, and depend on government programs to pay most of their income. Thus, the retirement of these workers tends to drive up governmental costs at the same time it reduces demand for commodities of all kinds.

Someone needs to pay for the goods and services used by the retirees. Government retirement plans are rarely pre-funded, except with the government’s own debt. Because of this, higher pension payments by governments tend to lead to higher taxes. With higher taxes, workers have less money left to buy homes and cars. Even with pensions, the elderly are never a big market for homes and cars. The overall result is that demand for homes and cars tends to stagnate or decline, holding down the demand for commodities.

8. We are running short of options for fixing our low commodity price problem.

The ideal solution to our low commodity price problem would be to find substitutes that are cheap enough, and could increase in quantity rapidly enough, to power the economy to economic growth. “Cheap enough” would probably mean approximately $20 per barrel for a liquid oil substitute. The price would need to be correspondingly inexpensive for other energy products. Cheap and abundant energy products are needed because oil consumption and energy consumption are highly correlated. If prices are not low, consumers cannot afford them. The economy would react as it does to inefficiency. In other words, it would react as if too much of the output is going into intermediate products, and too little is actually acting to expand the economy.

Figure 12. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

These substitutes would also need to be non-polluting, so that pollution workarounds do not add to costs. These substitutes would need to work in existing vehicles and machinery, so that we do not have to deal with the high cost of transition to new equipment.

Clearly, none of the potential substitutes we are looking at today come anywhere close to meeting cost and scalability requirements. Wind and solar PV can only be built on top of our existing fossil fuel system. All evidence is that they raise total costs, adding to our “Increased Inefficiency” problem, rather than fixing it.

Other solutions to our current problems seem to be debt based. If we look at recent past history, the story seems to be something such as the following:

Besides adopting QE starting in 2008, governments also ramped up their spending (and debt) during the 2008-2011 period. This spending included road building, which increased the demand for commodities directly, and unemployment insurance payments, which indirectly increased the demand for commodities by giving jobless people money, which they used for food and transportation. China also ramped up its use of debt in the 2008-2009 period, building more factories and homes. The combination of QE, China’s debt, and government debt together brought oil prices back up by 2011, although not to as high a level as in 2008 (Figure 7).

More recently, governments have slowed their growth in spending (and debt), realizing that they are reaching maximum prudent debt levels. China has slowed its debt growth, as pollution from coal has become an increasing problem, and as the need for new homes and new factories has become saturated. Its debt ratios are also becoming very high.

QE continues to be used by some countries, but its benefit seems to be waning, as interest rates are already as low as they can go, and as central banks buy up an increasing share of debt that might be used for loan collateral. The credit generated by QE has allowed questionable investments since the required rate of return on investments funded by low interest rate debt is so low. Some of this debt simply recirculates within the financial system, propping up stock prices and land prices. Some of it has gone toward stock buy-backs. Virtually none of it has added to commodity demand.

What we really need is more high wage jobs. Unfortunately, these jobs need to be supported by the availability of large amounts of very inexpensive energy. It is the lack of inexpensive energy, to match the $20 per barrel oil and very cheap coal upon which the economy has been built that is causing our problems. We don’t really have a way to fix this.

9. It is doubtful that the prices of energy products and metals can be raised again without causing recession.

We are not talking about simply raising oil prices. If the economy is to grow again, demand for all commodities needs to rise to the point where it makes sense to extract more of them. We use both energy products and metals in making all kinds of goods and services. If the price of these products rises, the cost of making virtually any kind of goods or services rises.

Raising the cost of energy products and metals leads to the problem represented by Growing Inefficiency (Figure 4). As we saw in Point 5, wages tend to go down, rather than up, when other costs of production rise because manufacturers try to find ways to hold total costs down.

Lower wages and higher prices are a huge problem. This is why we are headed back into recession if prices rise enough to enable rising long-term production of commodities, including oil.





Can you smell the stench…?

20 07 2013

“An­other great chal­lenge of our age is asylum seekers. The bib­lical in­junc­tion to care for the stranger in our midst is clear. The par­able of the Good Samar­itan is but one of many which deal with the mat­ter of how we should re­spond to a vul­ner­able stranger in our midst. That is why the gov­ern­ment’s pro­posal to ex­cise the Aus­tralian main­land from the en­tire Aus­tralian mi­gra­tion zone and to rely al­most ex­clus­ively on the so-called Pa­cific Solu­tion should be the cause of great eth­ical con­cern to all the Chris­tian churches. We should never for­get that the reason we have a UN con­ven­tion on the pro­tec­tion of refugees is in large part be­cause of the hor­ror of the Holo­caust, when the West (in­clud­ing Aus­tralia) turned its back on the Jew­ish people of Ger­many and the other oc­cu­pied coun­tries of Europe who sought asylum dur­ing the ’30s.”  

Kevin Rudd   http://www.themonthly.com.au/epublish/1  October 2006

Seven years is a long time in politics.  Yesterday, our Prime Minister and the Prime Minister of Papua New Guinea signed the ‘Regional Resettlement Agreement’.  This means that any asylum seeker who comes to Australia by boat will be turned back to Papua New Guinea and resettled there.  Politics, it appears, is all about winning elections, stuff principles.  Even faith based ones.  And some wonder why I am so skeptical of religion…… or politics for that matter.

https://fbcdn-sphotos-a-a.akamaihd.net/hphotos-ak-ash4/s403x403/1001206_443289102445844_466629865_n.jpg

Syrian Refugee Camp

I see this conundrum as one with no solution.  Well, at least no solution compatible with the running of ANY form of Business as Usual.  The core of the problem is, as usual, overpopulation, and we all know how badly Catholics – like Abbott and Rudd – deal with these issues.  Or Muslims for that matter.  Populate or perish is fast becoming populate and perish……. and if you think Australia has a refugee problem, then check out the refugee queue in Syria…!

This is what happens when a country runs out of oil and water and foreign currency.  They start killing each other, they blame whoever is in charge, and those who don’t have access to guns simply run away….  except there is nowhere to run away to, there is no Planet B.  How long before we start seeing Syrian refugees (or Egyptian…) on our precious borders is anyone’s guess.

I think this issue is fast becoming the one that affects my sanity the most……  it drives me to despair.  I can cope with running out of oil, I can cope with having to make do without a car, I’ve already worked out how to make do with sweet bugger all electricity, but I honestly cannot cope with the thought of Australia, already overpopulated, being invaded by potentially millions of refugees from all over the world.

https://i0.wp.com/resources1.news.com.au/images/2013/06/27/1226670/634689-fa2f2448-de29-11e2-afc5-85fe0b419826.jpg

Aren’t we just good Catholic boys now….

Don’t get me wrong, I truly feel sorry for these people.  How can you not…?  After all, it was us who bombed the hell out of their countries and/or stole their oil…  And certainly, I am privileged to have gotten here first.  No ifs no buts.  But believe me when I say none of the three major parties, the Liblabs and the Greens, have any understanding of the problem.

Australians exhibit a fear of this ‘invasion’ that isn’t justified.  Compared to the problems facing Europe with similar boat people attempting to cross the Mediterranean from North Africa, ours is a mere trickle.  The trickle could of course turn into a flood, and I have to say we who don’t live in a major Australian city are somewhat protected from this…..  you will just about never see a Muslim wearing traditional dress on the Sunshine Coast.  Glenda and I were gobsmacked when, upon arriving in Sydney and catching a train to reach Steve Harrison’s workshop, every second person on the train was a foreigner.  It really felt like we had reached an overseas destination……..  You don’t see Muslims in Tasmania either I might add.  I’m sure some exist, but we haven’t crossed paths yet……  I hate to admit it, but we felt uncomfortable.  I don’t want to think it’s a racist thing, it’s more of a cultural one.  We do all prefer to live in our own culture; and when overseas we are fascinated by other cultures…..  but not threatened by them, because we are visitors.

Next week (July 24 to be precise), we will celebrate the 50th anniversary of my family’s arrival in this country.  My Mother’s French accent is still as thick as, but we have all managed to assimilate into Australian culture.  In fact, by the time I was 25, you would have been hard pressed to detect that I was not Australian born.  But many of these refugees do not even try to assimilate.  Their children may…. but of course when collapse really sets in, who knows what will happen?  Perhaps people in this country of ours unconsciously know collapse is on the way, and that it may all turn into a “them versus us” situation, and let’s face it, they’ve had far more practice at street violence and persecution than most of us whiteys…….

Australia, just like the rest of the world, is already in overshoot.  We just don’t know it yet.  Well maybe some are starting to suspect.  This whole mess, as far as I am concerned, is another sure sign the collapse has begun, and political parties are all pretending they are doing something about it, except they are merely treating the symptoms, not the disease…….

If there’s a Stable Population Party candidate here at the next election, I’d be inclined to vote for them……..  but I fear it’s way way too late already.  I can smell the stench already……..