2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

10 01 2019

Posted on January 9, 2019 by Gail Tverberg

Another incisive self explanatory article by Gail Tverberg explaining the recent volatility and what outcomes we can expect from that this coming year (and next) MUST READ.

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capita might be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues. Indirectly, these affordability issues lead to low commodity prices and low profitability for commodity producers. For example:

  • The sale of Chinese private passenger vehicles for the year of 2018 through November is down by 2.8%, with November sales off by 16.1%. Most analysts are forecasting this trend of contracting sales to continue into 2019. Lower sales seem to reflect affordability issues.
  • Saudi Arabia plans to cut oil production by 800,000 barrels per day from the November 2018 level, to try to raise oil prices. Profits are too low at current prices.
  • Coal is reported not to have an economic future in Australia, partly because of competition from subsidized renewables and partly because China and India want to prop up the prices of coal from their own coal mines.

The Significance of Trump’s Tariffs

If a person looks at history, it becomes clear that tariffs are a standard response to a problem of shrinking food or industrial output per capita. Tariffs were put in place in the 1920s in the time leading up to the Great Depression, and were investigated after the Panic of 1857, which seems to have indirectly led to the US Civil War.

Whenever an economy produces less industrial or food output per capita there is an allocation problem: who gets cut off from buying output similar to the amount that they previously purchased? Tariffs are a standard way that a relatively strong economy tries to gain an advantage over weaker economies. Tariffs are intended to help the citizens of the strong economy maintain their previous quantity of goods and services, even as other economies are forced to get along with less.

I see Trump’s trade policies primarily as evidence of an underlying problem, namely, the falling affordability of goods and services for a major segment of the population. Thus, Trump’s tariffs are one of the pieces of evidence that lead me to believe that the world economy is reaching Limits to Growth.

The Nature of World Economic Growth

Economic growth seems to require growth in three dimensions (a) Complexity, (b) Debt Bubble, and (c) Use of Resources. Today, the world economy seems to be reaching limits in all three of these dimensions (Figure 2).

Figure 2.

Complexity involves adding more technology, more international trade and more specialization. Its downside is that it indirectly tends to reduce affordability of finished end products because of growing wage disparity; many non-elite workers have wages that are too low to afford very much of the output of the economy. As more complexity is added, wage disparity tends to increase. International wage competition makes the situation worse.

growing debt bubble can help keep commodity prices up because a rising amount of debt can indirectly provide more demand for goods and services. For example, if there is growing debt, it can be used to buy homes, cars, and vacation travel, all of which require oil and other energy consumption.

If debt levels become too high, or if regulators decide to raise short-term interest rates as a method of slowing the economy, the debt bubble is in danger of collapsing. A collapsing debt bubble tends to lead to recession and falling commodity prices. Commodity prices fell dramatically in the second half of 2008. Prices now seem to be headed downward again, starting in October 2018.

Figure 3. Brent oil prices with what appear to be debt bubble collapses marked.

Figure 4. Three-month treasury secondary market rates compared to 10-year treasuries from FRED, with points where short term interest rates exceed long term rates marked by author with arrows.

Even the relatively slow recent rise in short-term interest rates (Figure 4) seems to be producing a decrease in oil prices (Figure 3) in a way that a person might expect from a debt bubble collapse. The sale of US Quantitative Easing assets at the same time that interest rates have been rising no doubt adds to the problem of falling oil prices and volatile stock markets. The gray bars in Figure 4 indicate recessions.

Growing use of resources becomes increasingly problematic for two reasons. One is population growth. As population rises, the economy needs more food to feed the growing population. This leads to the need for more complexity (irrigation, better seed, fertilizer, world trade) to feed the growing world population.

The other problem with growing use of resources is diminishing returns, leading to the rising cost of extracting commodities over time. Diminishing returns occur because producers tend to extract the cheapest to extract commodities first, leaving in place the commodities requiring deeper wells or more processing. Even water has this difficulty. At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population.

Why Inadequate Energy Supplies Lead to Low Oil Prices Rather than High

In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Higher costs should lead to higher prices, shouldn’t they?

Strangely enough, higher costs translate to higher prices only sometimes. When energy consumption per capita is rising rapidly (peaks of red areas on Figure 5), rising costs do seem to translate to rising prices. Spiking oil prices were experienced several times: 1917 to 1920; 1974 to 1982; 2004 to mid 2008; and 2011 to 2014. All of these high oil prices occurred toward the end of the red peaks on Figure 5. In fact, these high oil prices (as well as other high commodity prices that tend to rise at the same time as oil prices) are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed.

Figure 5.

The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period. With low energy prices,  many countries were able to expand their economies simultaneously, keeping demand high. The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes.

Rapidly growing energy consumption allowed per capita output of both food (with meat protein given a higher count than carbohydrates) and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming. In these boom periods, higher energy costs were easy to pass on. Eventually the higher energy costs “caught up with” the economy, and pushed growth in energy consumption per capita down, putting an end to the peaks.

Figure 6 shows Figure 5 with the valleys labeled, instead of the peaks.

Figure 6.

When I say that the world economy is reaching “peak industrial output per capita” and “peak food per capita,” this represents the opposite of a rapidly growing economy. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area (population growth) turns negative.

In such a situation, the big problem is “not enough to go around.” While cost increases due to diminishing returns could easily be passed along when growth in industrial and food output per capita were rapidly rising (the Figure 5 situation), this ability seems to disappear when the economy is near limits. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available. With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem.

When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline. The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Even a small decline in China’s demand for energy products can lead to a big decline in oil prices.

Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem. Other commodity prices tend to be low as well.

What Is Ahead, If We Are Reaching Economic Growth Limits?

1. Figure 1 at the top of this post seems to give an indication of what is ahead after 2019, but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt. Even if the model seems to provide a reasonably accurate estimate of when limits will hit, it won’t necessarily give a correct view of what the impact of limits will be on the rest of the economy, after limits hit. The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output.

2. As indicated in the title of this post, considerable financial volatility can be expected in 2019if the economy is trying to slow itself. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.

3. The world economy doesn’t necessarily fail all at once. Instead, pieces that are, in some sense, “less efficient” users of energy may shrink back. During the Great Recession of 2008-2009, the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected.

Figure 7. Oil consumption as a percentage of total energy consumption, based on 2018 BP Statistical Review of World Energy data.

Figure 8. Energy consumption per capita for selected areas, based on energy consumption data from 2018 BP Statistical Review of World Energy and United Nations 2017 Population Estimates by Country.

In the 2002-2008 period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. By the end of 2007, China’s energy consumption per capita had risen to a point where it almost matched the (now lower) energy consumption of the European countries shown. China, with its low energy costs, seems to have “eaten the lunch” of some of its European competitors.

In 2019 and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.

4. While we have been depending upon China to be a leader in economic growth, China’s growth is already faltering and may turn to contraction in the near future. One reason is an energy problem: China’s coal production has fallen because many of its coal mines have been closed due to lack of profitability. As a result, China’s need for imported energy (difference between black line and top of energy production stack) has been growing rapidly. China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import.

Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.

A second issue is that demographics are working against China; its working-age population already seems to be shrinking. A third reason why China is vulnerable to economic difficulties is because of its growing debt level. Debt becomes difficult to repay with interest if the economy slows.

5. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since 2014. If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years. It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself.

6. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.

7. Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. The timing of World War I and World War II make it seem likely that these wars were both resource wars.

Figure 10.

8. Collapsing intergovernmental agencies, such as the European Union, the World Trade Organization, and the International Monetary Fund, seem likely. The United Kingdom’s planned exit from the European Union in 2019 is a step toward dissolving the European Union.

9. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose. Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending.

10. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in 2019, or perhaps it may wait until 2020. As with the Great Recession, some countries will be affected more than others. Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in.

Summary

It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best. If we cannot do anything about it, worrying about the many details of what is ahead is not the best for anyone’s mental health. While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.





Big Picture article

14 12 2018

It’s so nice reading an article that joins the dots….  I get so sick of people concentrating on one issue or another, ignoring everything else troubling civilisation.  From Consciousness of Sheep, who else….?

Britain has – apparently – been thrown into crisis overnight.  Meanwhile across the channel, French president Macron is desperately trying to extinguish the flames of another weekend of mass protests that have now spread to Belgium and Holland.  In Eastern Europe the hard-right are gaining support; even undermining the previously untouchable Angela Merkel’s power base in the former East Germany.  Across the Atlantic meanwhile, the lines between deranged Democrats and MAGA nationalists are being drawn in readiness for America’s second civil war.  We are surely living through the greatest crisis in modern history.

Well, yes indeed we are.  But everything set out in the first paragraph is no more than the froth on the beer.  These political spasms are merely the outward manifestation of a human catastrophe that has been decades in the making.

Two far greater symptoms of our predicament have gained at least some public traction this year.  First was an all too visible plastic pollution crisis that is increasingly difficult to ignore now that China has ceased acting as the West’s rubbish dump.  Second is the somewhat less visible insect apocalypse that has seen the near extinction of a raft of pollinating insect species; without which we humans are doomed to starvation.  Interestingly, while these two symptoms are only tenuously related to climate change, they have tended to be included under that shorthand heading.  Plastic certainly damages the environment, but its build up owes far more to the ongoing power of the petrochemicals industry and the myth of recyclingthan to changes in climate.  The same goes for the insects.  While there may have been some climactic impact on migrations and reproduction, the main cause is the vast quantities of chemical insecticides required by an industrialised agriculture tasked with feeding 7.5 billion humans on a planet that could barely feed one seventh of that without fossil fuels and agrochemicals.

In the affected areas, local populations have been stunned by a series of “red tide” events that result in the mass deaths of fish and other marine creatures.  Climate change is indirectly involved in these events because of the increased rainfall from warmer storms.  But once again it is our industrial agriculture that is the primary cause – the giant oxygen-free zones beneath algae and phytoplankton blooms that form because of artificial fertilisers washed off the land when it rains.  When marine creatures stray into these oxygen-free zones (which are pinkish-red in colour due to concentrated hydrogen sulphide) they suffocate before they can swim to safety.

Off most people’s radar is the ongoing sixth mass extinction, as we lose thousands of species every year.  Again, while some of this is directly due to the changing climate, the larger part is due to human activities like agriculture, deforestation and strip mining simply chewing up natural habitats to make way for the creation of the various resources – including food – required to sustain a human population that is projected to reach 10 billion by mid-century.

The use of the term “climate change” to describe these catastrophes is deceptive.  If we were looking at our predicament in totality, we would include these crises alongside climate change as a series of (often interacting) sub-sets of a much greater problem… let’s call it the “human impact crisis.”

Crucially, by focussing solely on a changing climate, we can exercise a form of psychological denial in which human civilisation is able to continue chasing infinite growth on a finite planet while yet-to-be-invented technologies are deployed to magically heal the damage that our over-consumptive lifestyles are having on the human habitat.

The focus on climate change also permits us to avoid any examination of those human activities that increasingly stand in the way of the bright green technological future we keep promising ourselves.  Shortages in a range of key resources, including several rare earths, cobalt, lithium, chromium, zinc, gold and silver are very likely to materialise in the next decade if Western countries get anywhere close to their targets for switching to renewable electricity and electric cars (even though even these are just a fraction of what would be required to decarbonise the global economy).

Energy is an even bigger problem.  For the first time since the dark ages, humanity is switching from high-density energy sources (nuclear, coal, gas and oil) to ultra-low density energy sources (tide, wind, wave and solar).  We are – allegedly – choosing to do this.  However, because we have depleted fossil fuels on a low-hanging fruit basis, it is costing us more in both energy and money to maintain the energy needed to power the global economy.  As more of our energy has to be channelled into energy production (e.g. the hugely expensive Canadian bitumen sands and the US fracking industry) ever less energy is available to power the wider economy. This has forced us into a crisis I refer to as “Schrodinger’s renewables,” in which the technologies being deployed supposedly to wean us off fossil fuels end up merely being added in order to maintain sufficient economic growth to prevent the entire civilisation collapsing.

This, of course, brings us back to the increasingly heated debates in the US Congress, the UK Parliament and the streets of 100 French towns and cities.  Economic growth is the fantasy that almost everyone is buying into as a solution to our predicament.  Sure, some call it “green growth,” but it isn’t.  In reality it is, and always was central bank growth.  Why?  Because every unit of currency in circulation in the West was created with interest attached.  In such a system, we either grow the economy or we inflate the value currency back to something more in line with the real economy.  The former is impossible and the latter is devastating… which is why central bankers around the world have been quietly panicking for the best part of a decade.

To be clear, since 1980 the western economic system has inflated a series of asset bubbles, each of which has subsumed and outgrown its predecessor.  In the 1980s companies bailed out failing companies to save themselves.  In the 1990s stock markets bailed out companies to save stock markets.  In the 2000s banks bailed out stock markets and then states and central banks bailed out banks.  Next time around it will be states and currencies that need bailing out.  And in the absence of space aliens, it is not clear who is going to be riding to the rescue.  What that means, dear reader, is that everything you depend upon (but didn’t know it) for life support – inter-bank lending systems, letters of credit and freight insurance, international trade arrangements, employment, state pensions, etc.  – is going to go away (at least until some kind of debt-write-off (either directly or via “helicopter money”) and a new currency system can be put into place.

The other legacy from this period of debt-based asset inflation is a series of grossly unequal societies; divided, ultimately, between those who get to spend the (uninflated) debt-based currency first and those (the 99 percent) who only get the currency after its value has been inflated away – primarily those who depend upon a wage/salary from employment rather than an income from shares and other investments.  Most people accept some inequality.  However a lack of economic growth (outside banking and tech) has created deep hostility to those political parties that cling to the pre-2008 neoliberal orthodoxy.  The result has been a growth in populist movements claiming to know how to restore the economy to rates of growth last seen in the 1990s.  Political economist Mark Blyth summed up the difference between the left and right wing variants of populism thus:

  • The right says neoliberalism ruined the economy and immigrants took your jobs
  • The left says neoliberalism ruined the economy and capitalists took your jobs.

Needless to say – as the boy Macron is learning to his cost – now is not a happy time to be a neoliberal politician.  The broader problem, however, is that the proposed solutions from the populists are no more likely to result in another round of economic growth simply because western civilisation is already well past the point of overshoot.  China – the place where most of the jobs went and where most of the stuff we consume is made – already consumes half of the world’s coal, copper, steel, nickel and aluminium.  It also consumes nearly two-thirds of the world’s concrete.  To grow at just 3.5 percent would require that China consume all of the world’s reserves of those resources by 2038 – at which point it would also be consuming a quarter of the world’s oil and uranium and half of the world’s grain harvest.  The impossibility of this is what people mean when they use the word “unsustainable” to describe our situation.

Nevertheless, even supposedly green parties cling to the promotion of economic growth as an electoral strategy.  Rather than admit the impossibility of further growth, however, they reach instead for some mythical “green growth” that will supposedly follow the industrial scale deployment of non-renewable renewable energy harvesting technologies like wind turbines and solar panels that require fossil fuels in their manufacture , and for which the planet lacks sufficient material reserves.  Promising de-growth is, however, politically toxic in the current climate.

Most green growth advocates imagine a switch from extraction and manufacturing to (largely digital) services that will somehow decouple resource and energy growth from GDP.  That is, we can all continue to prosper even as our use of planetary resources falls back to something like the amounts consumed in the 1750s.  Writing in Resilience, Jason Hickel gives the lie to this:

“This sounds reasonable on the face of it. But services have grown dramatically in recent decades, as a proportion of world GDP — and yet global material use has not only continued to rise, but has accelerated, outstripping the rate of GDP growth. In other words, there has been no dematerialization of economic activity, despite a shift to services.

“The same is true of high-income nations as a group — and this despite the increasing contribution that services make to GDP growth in these economies. Indeed, while high-income nations have the highest share of services in terms of contribution to GDP, they also have the highest rates of resource consumption per capita. By far.

“Why is this? Partly because services require resource-intensive inputs (cinemas and gyms are hardly made out of air). And partly also because the income acquired from the service sector is used to purchase resource-intensive consumer goods (you might get your income from working in a cinema, but you use it to buy TVs and cars and beef).”

And, of course, without the income derived from making all of that stuff for service providers to consume, nobody can afford to buy the services and the economy will collapse.  Not that anyone has noticed this for now, as we are descend into the politics of blame in which widening inequality and poverty at the bottom is blamed on one or other of a culture’s preferred out groups – Tories, Democrats, socialists, libertarians, migrants, the banks, the European Union, Israel, Angela Merkel, the Rothschild family, Donald Trump… choose your favourite pantomime villain; but don’t expect to be going anywhere but down.

Politics matter, of course.  In a future of economic contraction it is far better to be governed consensually by people who understand the predicament and who plan a route to deindustrialisation that has as few casualties as possible on the way down… one reason not to keep voting for parties that dole out corporate welfare at the top while driving those at the bottom to destitution.  That road tends to end with guillotines and firing squads.

For all of its passion and drama, however, the role of politics in our current predicament is somewhat akin to the choice of footwear when setting out to climb a mountain.  Ideally you want to choose a pair of stout climbing boots; but nobody is offering those.  For now the choice is between high heels and flip-flops to climb the highest mountain we have ever faced.  If we are lucky, the political equivalent a half decent pair of training shoes might turn up, but while the world is focussed on economic growth; that is the best we can hope for… and we still have to climb the mountain whatever shoes we wear.





How Donald Trump saved Civilization (and lost the planet)

22 10 2018

Just found this….  wow…….

 
The controversy swirling around murdered Saudi journalist Jamal Khashoggi has been moving Congress towards sending to the White House an Act* imposing broad sanctions on Saudi Arabia, effectively scrapping billions in pending arms sales.

Representative Adam B. Schiff of California, the senior Democrat on the House Intelligence Committee, said, “The kingdom and all involved in this brutal murder must be held accountable, and if the Trump administration will not take the lead, Congress must.”

***

In internal discussions, Mr. Kushner has urged the president and his aides not to abandon Prince Mohammed. But as Turkish officials leaked details of the grisly killing of Mr. Khashoggi and of the dismemberment of his body, the White House has become increasingly isolated in its defense of Saudi Arabia.

Take a moment and picture this scenario.
Caving to his image-advisors and pollsters who fret about a Blue Tide surging into key states, POTUS inks the sanctions.
As its mercantile supply line begins to dry up, Saudi Arabia does not blink. It does precisely what it said it would do. It retaliates by hitting the world where it hurts most: the oil supply.
For decades Saudi Arabia has been OPEC’s swing vote, able to turn up or down the light sweet crude flowing to international markets. No other producers have either the reserves or production to control the volume and thereby the price of petroleum.
Suppose they tightened the spigot. It would not be enough to merely reduce the flow. If they have learned anything in their years of military alliance with the Great Satan, it is the tactic of Shock and Awe. They close the valves. All of them. Call it the Third Middle East Oil Shock.
In spite of a record production year for the cartel of 32.78 million b/d, US sanctions on Iranian oil and deteriorating output from Venezuela have already begun pushing prices towards $100/barrel. Demand might be marginally slowing in climate-minded Europe or in economically stressed Turkey, Brazil, and Argentina, but in North America and Asia, oil consumption is still on an exponential trajectory. Despite the US’s shale oil production having increased at a spectacular annualized rate of over 5 million b/d (estimated), the hole created by Saudi Arabia’s withdrawal, accompanied by withdrawal of like supplies from its Middle Eastern OPEC neighbors out of enforced loyalty, would dwarf anything POTUS might have thought he held as a hole card.
Economic ripples became waves. Waves became a tsunami. The price of oil shoots to $400/b virtually overnight. It would take some weeks for that price to pass through refineries and reach retailers but already gas stations around the US jack up the price at the pump.
Then the Seventh Fleet sails into the Straits of Hormuz, but it is too little too late. The supertankers are empty. Short of landing the Marines to take the giant oil fields and recruiting an army of production engineers to run them, military options are few, and costly. Saudi Arabia, after all, is armed with state-of-the-art US weaponry, and with its honor at stake, is entirely capable of self-inflicting scorched earth if push comes to shove.
Meanwhile, back at home, everything descends to chaos. Markets crash. The most-energy-dependent sectors scramble to come up with downscaling plans that could keep the doors open, but within weeks — a month at the most — giants like WalMart and Amazon are shuttering million-square-foot warehouses. Freighters turn back to Shenzhen with full cargoes. Bankers are unwilling to extend lines of credit.
Economic contraction would spread like a pandemic across the face of Europe. It would reach into Russia and China, who had imagined themselves immune, but were already weakened by US economic sanctions. China’s giant economy demands 9 million barrels of refined oil each and every day.
Russia, now importing only 30,000 b/d, is likely to be the least harmed by a global energy supply drop, but is helpless to fend off the knock-on effects of global economic downturn, especially when its Chinese trading partner goes belly up. It could extend credit for gas purchases both Eastward and Westward but any expectation that it would be repaid would eventually be dashed. The world economy would be as a boxer who has been struck a knockout blow, still standing, but bound for the canvas.
In Scandinavia and Germany, breadlines form. In Spain and Italy, fascist movements take to the streets and find broad support. We’ve seen all this before, but this is a different beast. The event will be enormous, and it will be fast.
Central Banks and the Fed can meet in emergency sessions but the tools they used in earlier crises are gone, spent in 2008 and the lingering QE programs. In any case, this situation is not something that can be remedied by rejiggering debt. Energy is not money.
The televised bobbleheads we see wringing their hands over the Khashoggi affair, urging POTUS to stick up for “American values” would be mute. Their communications channels would be shutting down in any event. They might busy themselves thinking how they can feed their families as grocery store shelves go empty.
Of course, the other possibility would be that Donald Trump simply refuses to sign the sanctions bill and thereby saves Civilization. That is, until rising temperatures and rising seas erase it from memory.
Donald Trump has a chance here to do the right thing. He can kill Civilization and save the Earth. He just has to stick it to Saudi Arabia.

______

* Before Congress can take action of this kind, it is required to first invoke the Global Magnitsky Human Rights Accountability Act and give the President 120 days to investigate and recommend sanctions. Lawmakers did that on October 18.





System Failure

31 01 2018

SYSTEM FAILURE is, ironically, the title in the banner of this blog. This essay by George is starting to make me think he’s having an epiphany, following on as it were from By George, he finally gets it…  his promised ‘new way forward’, I now look forward to.

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Is complex society on the brink of collapse?

By George Monbiot, published in the Guardian 24th January 2018

 

It’s a good question, but it seems too narrow. “Is Western civilisation on the brink of collapse?”, the lead article in this week’s New Scientist asks. The answer is probably. But why just Western?

Yes, certain Western governments are engaged in a frenzy of self-destruction. In an age of phenomenal complexity and interlocking crises, the Trump administration has embarked on a mass deskilling and simplification of the state. Donald Trump might have sacked his strategist Steve Bannon, but Bannon’s professed intention, “the deconstruction of the administrative state”, remains the central – perhaps the only – policy.

Defunding departments, disbanding the teams and dismissing the experts they rely on, shutting down research programmes, maligning the civil servants who remain in post, the self-hating state is ripping down the very apparatus of government. At the same time, it is destroying the public protections that defend us from disaster.

A series of studies published in the past few months have started to explore the wider impact of pollutants. One, published in the British Medical Journal, suggests that the exposure of unborn children to air pollution in cities is causing “something approaching a public health catastrophe”. Pollution in the womb is now linked to low birth weight, disruption of the baby’s lung and brain development, and a series of debilitating and fatal diseases in later life.

Another report, published in the Lancet, suggests that three times as many deaths are caused by pollution as by AIDS, malaria and tuberculosis combined. Pollution, the authors note, now “threatens the continuing survival of human societies.” A collection of articles in the journal PLOS Biology reveals that there is no reliable safety data on most of the 85,000 synthetic chemicals to which we may be exposed. While hundreds of these chemicals “contaminate the blood and urine of nearly every person tested”, and the volume of materials containing them rises every year, we have no idea what the likely impacts may be, either singly or in combination.

As if in response to such findings, the Trump government has systematically destroyed the integrity of the Environmental Protection Agencyripped up the Clean Power Planvitiated environmental standards for motor vehiclesreversed the ban on chlorpyrifos (a pesticide now linked to the impairment of cognitive and behavioural function in children), and rescinded a remarkable list of similar public protections.

In the UK, successive governments have also curtailed their ability to respond to crises. One of David Cameron’s first acts on taking office was to shut down the government’s early warning systems: the Royal Commission on Environmental Pollution and the Sustainable Development Commission. He did not want to hear what they were telling him. Sack the impartial advisers and replace them with toadies: this has preceded the fall of empires many times before. Now, as we detach ourselves from the European Union, we degrade our capacity to solve the problems that transcend our borders.

But these pathologies are not confined to “the West”. The rise of demagoguery (the pursuit of simplistic solutions to complex problems, accompanied by the dismantling of the protective state) is everywhere apparent. Environmental breakdown is accelerating worldwide. The annihilation of vertebrate populationsInsectageddonthe erasure of rainforests, mangroves, soil, aquifers, the degradation of entire Earth systems, such as the atmosphere and the oceans, proceed at astonishing rates. These interlocking crises will affect everyone, but the poorer nations are hit first and worst.

The forces that threaten to destroy our well-being are also everywhere the same: primarily the lobbying power of big business and big money, that perceive the administrative state as an impediment to their immediate interests. Amplified by the persuasive power of campaign finance, covertly-funded thinktanks, embedded journalists and tame academics, these forces threaten to overwhelm democracy. If you want to know how they work, read Jane Mayer’s book Dark Money.

Up to a certain point, connectivity increases resilience. For example, if local food supplies fail, regional or global markets allow us to draw on production elsewhere. But beyond a certain level, connectivity and complexity threaten to become unmanageable. The emergent properties of the system, combined with the inability of the human brain to encompass it, could spread crises rather than contain them. We are in danger of pulling each other down. New Scientist should have asked “is complex society on the brink of collapse?”.

Complex societies have collapsed many times before. We live in a sort of civilisational interglacial, a brief respite from social entropy. It has always been a question of when, not if. But “when” is beginning to look like “soon”.

The collapse of states and social complexity has not always been a bad thing. As James C Scott points out in his fascinating book Against the Grain, the dissolution of the earliest states, that were founded on slavery and coercion, is likely to have been experienced by many people as an emancipation. When centralised power began to collapse, through epidemics, crop failure, floods, soil erosion or the self-destructive perversities of government, its corralled subjects would take the chance to flee. In many cases they joined the “barbarians”.

This so-called “secondary primitivism”, Scott notes, “may well have been experienced as a marked improvement in safety, nutrition and social order. Becoming a barbarian was often a bid to improve one’s lot.” The dark ages that inexorably followed the glory and grandeur of the state may, in that era, have been the best times to be alive.

But today there is nowhere to turn. The wild lands and rich ecosystems that once supported hunter gatherers, nomads and the refugees from imploding early states who joined them now scarcely exist. Only a tiny fraction of the current population could survive a return to the barbarian life. (Consider that, according to one estimate, the maximum population of Britain during the Mesolithic, when people survived by hunting and gathering, was 5000). In the nominally democratic era, the complex state is now, for all its flaws, all that stands between us and disaster.

So what we do? Next week, barring upsets, I will propose a new way forward. The path we now follow is not the path we have to take.

http://www.monbiot.com





Who cares………?

2 06 2017

Trump has just declared he’s taking the USA out of the Paris accord, and everyone’s freaking out…….. I personally don’t care much, and here’s why…..

Most people don’t realize, because they’re asleep at the wheel, read too many mainstream media headlines, and rather than do their own research before holding opinions believe what they are spoon fed by their TV screens that…..:

The Paris climate agreement:

1) had absolutely no binding language in it whatsoever, nor any repercussions for any countries that did not abide by it…..

2) required an increase in fossil fuel use up to the year 2100

3) would have already at this point required absolutely no new development of fossil fuels – only what was already “proven reserves”

4) has already been violated so badly that we absolutely cannot, by their own reckoning, keep levels below a 2 degree rise by 2050

5) completely and entirely relied on “carbon capture” – a technology which doesn’t yet exist in any form and is only dreamt of – to come along by mid-century and save us from catastrophic climate change.

 Professor Kevin Anderson has this to say about the Paris agreement….

The Paris Agreement is a genuine triumph of international diplomacy and of how the French people brought an often-fractious world together to see beyond national self interest. Moreover, the agreement is testament to how assiduous and painstaking science ultimately defeated the unremitting programme of misinformation by powerful vested interests. It is the twenty-first century’s equivalent to the success of Heliocentrism over the malign and unscientific inquisition.

The international community not only acknowledged the seriousness of climate change, but demonstrated sufficient unanimity to quantitatively define it: to hold “the increase in … temperature to well below 2°C … and to pursue efforts to limit the temperature increase to 1.5°C”. But, as the time-weary idiom suggests, “the devil is in the detail” – or perhaps more importantly, the lack of it.

The deepest challenge to whether the Agreement succeeds or fails, will not come from the incessant sniping of sceptics and luke-warmers or those politicians favouring a literal reading of Genesis over Darwin. Instead, it was set in train many years ago by a cadre of well-meaning scientists, engineers and economists investigating a Plan B. What if the international community fails to recognise that temperatures relate to ongoing cumulative emissions of greenhouse gases, particularly carbon dioxide? What if world leaders remain doggedly committed to a scientifically illiterate focus on 2050 (“not in my term of office”)? By then, any ‘carbon budget’ for even an outside chance of 2°C will have been squandered – and our global experiment will be hurtling towards 4°C or more. Hence the need to develop a Plan B.

Well the answer was simple. If we choose to continue our love affair with oil, coal and gas, loading the atmosphere with evermore carbon dioxide, then at some later date when sense prevails, we’ll be forced to attempt sucking our carbon back out of the atmosphere. Whilst a plethora of exotic Dr Strangelove options vie for supremacy to deliver on such a grand project, those with the ear of governments have plumped for BECCS (biomass energy carbon capture and storage) as the most promising “negative emission technology”. However these government advisors (Integrated Assessment Modellers – clever folk developing ‘cost-optimised’ solutions to 2°C by combining physics with economic and behavioural modelling) no longer see negative emission technologies as a last ditch Plan B – but rather now promote it as central pivot of the one and only Plan.

The speed and scale of emissions reduction that is actually required probably cannot be achieved while preserving the economic status quo. As climate scientist Kevin Anderson points out in a recent Nature Geoscience paper:

According to the IPCC’s Synthesis Report, no more than 1,000 billion tonnes (1,000 Gt) of CO2 can be emitted between 2011 and 2100 for a 66% chance (or better) of remaining below 2° C of warming (over preindustrial times). . . . However, between 2011 and 2014 CO2 emissions from energy production alone amounted to about 140 Gt of CO2. . . .” [Subtracting realistic emissions budgets for deforestation and cement production,] “the remaining budget for energy-only emissions over the period 2015–2100, for a ‘likely’ chance of staying below 2° C, is about 650 Gt of CO2.

To put this into perspective, recent data shows global food production (itself a major CO2 emitter), was 3.9Gt; Coal production was 9Gt; Iron Ore was 3.22Gt. The simple fact is that if we want to capture and store CO2, it will have to be done on a scale we do nothing else at……. not feeding the world, and not even feeding it its fossil fuels. ‘They’ expect to do this within less than twenty years, with technology that doesn’t yet exist, and anything remotely like what is needed,

Definition of Insanity

The world’s first commercial CO2 capture plant will be used to increase economic activity and will therefore actually increase CO2 emissions.

“It’s important to note that they will not be permanently storing the CO2 that will be captured,” she said. “Instead, it will be used for greenhouses, producing synfuels, etc. No negative emissions will be generated.”

“The captured carbon dioxide could also be used to manufacture transportation fuel, carbonated soft drinks and other products, Gebald said.”

“In order to meet the goal of removing the equivalent of 1 percent of annual global carbon dioxide emissions, 250,000 similar direct-air capture plants would have to be built, Gebald said.”

In other words, because we need to reduce our emissions by more than 50%, means we need to build over 12,500,000 of these CO2 removal machines. In under twenty years…… Think about the CO2 and debt required to accomplish this. Obviously it won’t happen, and if we try it will make things worse, because it appears that everyone’s oblivious to the fact that it is cumulative emissions that are doing the harm.

Until we get an ‘agreement’ to cease economic growth, nothing worthwhile will happen, and I therefore still hold to the conclusion nothing less than an economic collapse will ‘save us’ from climate change….. because I just cannot see any such agreement ever coming forth.





More gnashing of teeth

7 02 2017

The Über-Lie

By Richard Heinberg, Post Carbon Institute

heinbergNevertheless, even as political events spiral toward (perhaps intended) chaos, I wish once again, as I’ve done countless times before, to point to a lie even bigger than the ones being served up by the new administration…It is the lie that human society can continue growing its population and consumption levels indefinitely on our finite planet, and never suffer consequences.

This is an excellent article from Richard Heinberg, the writer who sent me on my current life voyage all those years ago. Hot on the heels of my attempt yesterday of explaining where global politics are heading, Richard (whom I met years ago and even had a meal with…) does a better job than I could ever possibly muster.  Enjoy……

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Our new American president is famous for spinning whoppers. Falsehoods, fabrications, distortions, deceptions—they’re all in a day’s work. The result is an increasingly adversarial relationship between the administration and the press, which may in fact be the point of the exercise: as conservative commentators Scott McKay suggests in The American Spectator, “The hacks covering Trump are as lazy as they are partisan, so feeding them . . . manufactured controversies over [the size of] inaugural crowds is a guaranteed way of keeping them occupied while things of real substance are done.”

But are some matters of real substance (such as last week’s ban on entry by residents of seven Muslim-dominated nations) themselves being used to hide even deeper and more significant shifts in power and governance? Steve “I want to bring everything crashing down” Bannon, who has proclaimed himself an enemy of Washington’s political class, is a member of a small cabal (also including Trump, Stephen Miller, Reince Priebus, and Jared Kushner) that appears to be consolidating nearly complete federal governmental power, drafting executive orders, and formulating political strategy—all without paper trail or oversight of any kind. The more outrage and confusion they create, the more effective is their smokescreen for the dismantling of governmental norms and institutions.

There’s no point downplaying the seriousness of what is up. Some commentators are describing it as a coup d’etat in progress; there is definitely the potential for blood in the streets at some point.

Nevertheless, even as political events spiral toward (perhaps intended) chaos, I wish once again, as I’ve done countless times before, to point to a lie even bigger than the ones being served up by the new administration—one that predates the new presidency, but whose deconstruction is essential for understanding the dawning Trumpocene era. I’m referring to a lie that is leading us toward not just political violence but, potentially, much worse. It is an untruth that’s both durable and bipartisan; one that the business community, nearly all professional economists, and politicians around the globe reiterate ceaselessly. It is the lie that human society can continue growing its population and consumption levels indefinitely on our finite planet, and never suffer consequences.

Yes, this lie has been debunked periodically, starting decades ago. A discussion about planetary limits erupted into prominence in the 1970s and faded, yet has never really gone away. But now those limits are becoming less and less theoretical, more and more real. I would argue that the emergence of the Trump administration is a symptom of that shift from forecast to actuality.

Consider population. There were one billion of us on Planet Earth in 1800. Now there are 7.5 billion, all needing jobs, housing, food, and clothing. From time immemorial there were natural population checks—disease and famine. Bad things. But during the last century or so we defeated those population checks. Famines became rare and lots of diseases can now be cured. Modern agriculture grows food in astounding quantities. That’s all good (for people anyway—for ecosystems, not so much). But the result is that human population has grown with unprecedented speed.

Some say this is not a problem, because the rate of population growth is slowing: that rate was two percent per year in the 1960s; now it’s one percent. Yet because one percent of 7.5 billion is more than two percent of 3 billion (which was the world population in 1960), the actual number of people we’re now adding annually is the highest ever: over eighty million—the equivalent of Tokyo, New York, Mexico City, and London added together. Much of that population growth is occurring in countries that are already having a hard time taking care of their people. The result? Failed states, political unrest, and rivers of refugees.

Per capita consumption of just about everything also grew during past decades, and political and economic systems came to depend upon economic growth to provide returns on investments, expanding tax revenues, and positive poll numbers for politicians. Nearly all of that consumption growth depended on fossil fuels to provide energy for raw materials extraction, manufacturing, and transport. But fossil fuels are finite and by now we’ve used the best of them. We are not making the transition to alternative energy sources fast enough to avert crisis (if it is even possible for alternative energy sources to maintain current levels of production and transport). At the same time, we have depleted other essential resources, including topsoil, forests, minerals, and fish. As we extract and use resources, we create pollution—including greenhouse gasses, which cause climate change.

Depletion and pollution eventually act as a brake on further economic growth even in the wealthiest nations. Then, as the engine of the economy slows, workers find their incomes leveling off and declining—a phenomenon also related to the globalization of production, which elites have pursued in order to maximize profits.

Declining wages have resulted in the upwelling of anti-immigrant and anti-globalization sentiments among a large swath of the American populace, and those sentiments have in turn served up Donald Trump. Here we are. It’s perfectly understandable that people are angry and want change. Why not vote for a vain huckster who promises to “Make America Great Again”? However, unless we deal with deeper biophysical problems (population, consumption, depletion, and pollution), as well as the policies that elites have used to forestall the effects of economic contraction for themselves (globalization, financialization, automation, a massive increase in debt, and a resulting spike in economic inequality), America certainly won’t be “great again”; instead, we’ll just proceed through the five stages of collapse helpfully identified by Dmitry Orlov.

Rather than coming to grips with our society’s fundamental biophysical contradictions, we have clung to the convenient lies that markets will always provide, and that there are plenty of resources for as many humans as we can ever possibly want to crowd onto this little planet. And if people are struggling, that must be the fault of [insert preferred boogeyman or group here]. No doubt many people will continue adhering to these lies even as the evidence around us increasingly shows that modern industrial society has already entered a trajectory of decline.

While Trump is a symptom of both the end of economic growth and of the denial of that new reality, events didn’t have to flow in his direction. Liberals could have taken up the issues of declining wages and globalization (as Bernie Sanders did) and even immigration reform. For example, Colin Hines, former head of Greenpeace’s International Economics Unit and author of Localization: A Global Manifesto, has just released a new book, Progressive Protectionism, in which he argues that “We must make the progressive case for controlling our borders, and restricting not just migration but the free movement of goods, services and capital where it threatens environment, wellbeing and social cohesion.”

But instead of well-thought out policies tackling the extremely complex issues of global trade, immigration, and living wages, we have hastily written executive orders that upend the lives of innocents. Two teams (liberal and conservative) are lined up on the national playing field, with positions on all significant issues divvied up between them. As the heat of tempers rises, our options are narrowed to choosing which team to cheer for; there is no time to question our own team’s issues. That’s just one of the downsides of increasing political polarization—which Trump is exacerbating dramatically.

Just as Team Trump covers its actions with a smokescreen of controversial falsehoods, our society hides its biggest lie of all—the lie of guaranteed, unending economic growth—behind a camouflage of political controversies. Even in relatively calm times, the über-lie was watertight: almost no one questioned it. Like all lies, it served to divert attention from an unwanted truth—the truth of our collective vulnerability to depletion, pollution, and the law of diminishing returns. Now that truth is more hidden than ever.

Our new government shows nothing but contempt for environmentalists and it plans to exit Paris climate agreement. Denial reigns! Chaos threatens! So why bother bringing up the obscured reality of limits to growth now, when immediate crises demand instant action? It’s objectively too late to restrain population and consumption growth so as to avert what ecologists of the 1970s called a “hard landing.” Now we’ve fully embarked on the age of consequences, and there are fires to put out. Yes, the times have moved on, but the truth is still the truth, and I would argue that it’s only by understanding the biophysical wellsprings of change that can we successfully adapt, and recognize whatever opportunities come our way as the pace of contraction accelerates to the point that decline can no longer successfully be hidden by the elite’s strategies.

Perhaps Donald Trump succeeded because his promises spoke to what civilizations in decline tend to want to hear. It could be argued that the pluralistic, secular, cosmopolitan, tolerant, constitutional democratic nation state is a political arrangement appropriate for a growing economy buoyed by pervasive optimism. (On a scale much smaller than contemporary America, ancient Greece and Rome during their early expansionary periods provided examples of this kind of political-social arrangement). As societies contract, people turn fearful, angry, and pessimistic—and fear, anger, and pessimism fairly dripped from Trump’s inaugural address. In periods of decline, strongmen tend to arise promising to restore past glories and to defeat domestic and foreign enemies. Repressive kleptocracies are the rule rather than the exception.

If that’s what we see developing around us and we want something different, we will have to propose economic, political, and social forms that are appropriate to the biophysical realities increasingly confronting us—and that embody or promote cultural values that we wish to promote or preserve. Look for good historic examples. Imagine new strategies. What program will speak to people’s actual needs and concerns at this moment in history? Promising a return to an economy and way of life that characterized a past moment is pointless, and it may propel demagogues to power. But there is always a range of possible responses to the reality of the present. What’s needed is a new hard-nosed sort of optimism (based on an honest acknowledgment of previously denied truths) as an alternative to the lies of divisive bullies who take advantage of the elites’ failures in order to promote their own patently greedy interests. What that actually means in concrete terms I hope to propose in more detail in future essays.





The era of gnashing teeth

6 02 2017

Since Trump’s election to the Oval Office, there has been an unbelievable amount of teeth gnashing going on all over the internet….. HOW could it possibly have come to this..?

To me, the answer is as clear as a bell. People all over the world can sense that everything ‘is turning to shit’, if you pardon my fluent French. The economies of the world are faltering (in real sense, not GDP money throughput), unemployment is high, manipulated to lower figures with creative accounting, the climate is falling apart causing food shortages in Europe, and the Middle East appears as a seething hot bed of war and terrorism.

The problem lies in the fact nobody knows why this is happening, because they have been conned for years by governments everywhere telling them everything is fine, we just have to ‘return to growth’.

Trump convinces enough Americans to vote for him so he can make America great again, because neither he nor his voters have the faintest idea America is actually on the cusp of collapse.

In France, Marine Le Pen wants to make France strong again……. and just like in America, this resonates with the electorate who now look like they may make her the country’s first woman President, and the first from the extreme right.

Here in Australia, we have a similar rise from the right, with Pauline Hanson and her one nation party making scary inroads into popularity rating. A recent article in the Sydney Morning Herald states:

In the aftermath of Mr Trump’s US election victory, where he strongly advocated reviving that nation’s manufacturing industry, nearly 83 per cent of surveyed Australian said they strongly agreed (42 per cent) or agreed (40.5 per cent) with the notion we are too reliant on foreign imports. Only 6 per cent disagreed.

Support for an expansion of Australia’s manufacturing sector was robust regardless of age, gender, income or locality.

This unsurprising finding comes from the Political Persona Project, a comprehensive attempt to profile different types of Australians based on their lifestyles, social values and politics. Fairfax Media in collaboration with the Australian National University and Netherlands-based political research enterprise Kieskompas conducted the project which revealed there are seven types of Australians, representing seven dominant patterns of thinking in Australian society.

Manufacturing has been declining since the 1970’s, which coincides with the USA’s Peak Oil, in case no one noticed….. then, one in four Australian workers were employed in the sector. This downturn has gathered pace in recent years with over 200,000 manufacturing jobs lost between 2008 and 2015. But no mention of dropping net energy, or an energy cliff. The manufacturing sector now accounts for only about one in 13 Australian workers. The decline means Australia is relying more on foreign producers to supply manufactured goods……… not to mention we have to import over 90% of our liquid fuel requirements, with likely no more than 3 or 4 years before this turns to 100%.

Underpinning the nostalgia for manufacturing was a strong feeling of having been left out of the new economy, said Carol Johnson, Professor of Politics and International Studies at the University of Adelaide.

Might this have anything to do with the fact that since the Thatcher/Reagan era, the economy was converted from an energy based one to a money based version…..?

“Manufacturing still matters to the economy and Australians know it,” he said.

“The public’s gut instinct is absolutely right.”

How much more wrong could they actually be……..?