Will China Bring an Energy-Debt Crisis?

It is easy for those of us in the West to overlook how important China has become to the world economy, and also the limits it is reaching. The two big areas in which China seems to be reaching limits are energy production and debt. Reaching either of these limits could eventually cause a collapse.

China is reaching energy production limits in a way few would have imagined. As long as coal and oil prices were rising, it made sense to keep drilling. Once fuel prices started dropping in 2014, it made sense to close unprofitable coal mines and oil wells. The thing that is striking is that the drop in prices corresponds to a slowdown in the wage growth of Chinese urban workers. Perhaps rapidly rising Chinese wages have been playing a significant role in maintaining high world “demand” (and thus prices) for energy products. Low Chinese wage growth thus seems to depress energy prices.

(Shown as Figure 5, below). China’s percentage growth in average urban wages. Values for 1999 based on China Statistical Yearbook data regarding the number of urban workers and their total wages. The percentage increase for 2016 was based on a Bloomberg Survey.

The debt situation has arisen because feedback loops in China are quite different from in the US. The economic system is set up in a way that tends to push the economy toward ever more growth in apartment buildings, energy installations, and factories. Feedbacks do indeed come from the centrally planned government, but they are not as immediate as feedbacks in the Western economic system. Thus, there is a tendency for a bubble of over-investment to grow. This bubble could collapse if interest rates rise, or if China reins in growing debt.

China’s Oversized Influence in the World Continue reading

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The Approaching US Energy-Economic Crisis

I was recently asked to give a talk called, “The Approaching US Energy-Economic Crisis.” In other words, how might the United States encounter problems that lead to a crisis? As we will see, many of the problems that could lead to a crisis (such as increased wage disparity and difficulty in collecting enough taxes) are issues that we are already beginning to encounter.

In this talk, I first discuss the connection between energy and the economy. Without this connection, it doesn’t make sense to talk about a crisis arising with respect to energy and the economy. I then discuss seven issues that could lead to a US energy-economic crisis.

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Why political correctness fails – Why what we know ‘for sure’ is wrong (Ex Religion)

Most of us are familiar with the Politically Correct (PC) World View. William Deresiewicz describes the view, which he calls the “religion of success,” as follows:

There is a right way to think and a right way to talk, and also a right set of things to think and talk about. Secularism is taken for granted. Environmentalism is a sacred cause. Issues of identity—principally the holy trinity of race, gender, and sexuality—occupy the center of concern.

There are other beliefs that go with this religion of success:

  • Wind and solar will save us.
  • Electric cars will make transportation possible indefinitely.
  • Our world leaders are all powerful.
  • Science has all of the answers.

To me, this story is pretty much equivalent to the article, “Earth Is Flat and Infinite, According to Paid Experts,” by Chris Hume in Funny Times. While the story is popular, it is just plain silly.

In this post, I explain why many popular understandings are just plain wrong. I cover several controversial topics, including environmentalism, peer-reviewed literature, and climate change models. This post pretty much excludes religion. It was added for people who find it hard to believe that a scientific article could also touch upon religion. If you want the complete discussion, as the post was originally written, please see this postContinue reading

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Why political correctness fails – Why what we know ‘for sure’ is wrong

Most of us are familiar with the Politically Correct (PC) World View. William Deresiewicz describes the view, which he calls the “religion of success,” as follows:

There is a right way to think and a right way to talk, and also a right set of things to think and talk about. Secularism is taken for granted. Environmentalism is a sacred cause. Issues of identity—principally the holy trinity of race, gender, and sexuality—occupy the center of concern.

There are other beliefs that go with this religion of success:

  • Wind and solar will save us.
  • Electric cars will make transportation possible indefinitely.
  • Our world leaders are all powerful.
  • Science has all of the answers.

To me, this story is pretty much equivalent to the article, “Earth Is Flat and Infinite, According to Paid Experts,” by Chris Hume in Funny Times. While the story is popular, it is just plain silly.

In this post, I explain why many popular understandings are just plain wrong. I cover many controversial topics, including environmentalism, peer-reviewed literature, climate change models, and religion. I expect that the analysis will surprise almost everyone. Continue reading

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Why Oil Prices Can’t Bounce Very High; Expect Deflation Instead

Economists have given us a model of how prices and quantities of goods are supposed to interact.

Figure 1. From Wikipedia: The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.

Unfortunately, this model is woefully inadequate. It sort of works, until it doesn’t. If there is too little of a product, higher prices and substitutions are supposed to fix the problem. If there is too much, prices are supposed to fall, causing the higher-priced producers to drop out of the system.

This model doesn’t work with oil. If prices drop, as they have done since mid-2014, businesses don’t drop out. They often try to pump more. The plan is to try to make up for inadequate prices by increasing the volume of extraction. Of course, this doesn’t fix the problem. The hidden assumption is, of course, that eventually oil prices will again rise. When this happens, the expectation is that oil businesses will be able to make adequate profits. It is hoped that the system can again continue as in the past, perhaps at a lower volume of oil extraction, but with higher oil prices.

I doubt that this is what really will happen. Let me explain some of the issues involved.

[1] The economy is really a much more interlinked system than Figure 1 makes it appear.

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