2013: Beginning of Long-Term Recession?

We have been hearing a lot about escaping the fiscal cliff, but our problem isn’t solved. The fixes to date have been partial and temporary. There are many painful decisions ahead. Based on what I can see, the most likely outcome is that the US economy will enter a severe recession by the end of 2013.

My expectation is that credit markets are likely see increased defaults, as workers find their wages squeezed by higher Social Security taxes, and as government programs are cut back. Credit is likely to decrease in availability and become higher-priced. It is quite possible that credit problems will adversely affect the international trade system. Stock markets will tend to perform poorly. The Federal Reserve will try to intervene in credit markets, but if the US government is one of the defaulters (at least temporarily), it may not be able to completely fix the situation.

Less credit will tend to hold down prices of goods and services. Fewer people will be working, though, so even at reduced prices, many people will find discretionary items such as larger homes, new cars, and restaurant meals to be unaffordable. Thus, once the recession is in force, car sales are likely to drop, and prices of resale homes will again decline.

Oil prices may temporarily drop. This price decrease, together with a drop in credit availability, is likely to lead to a reduction in drilling in high-priced locations, such as US oil shale (tight oil) plays.

Other energy sources are also likely to be affected. Demand for electricity is likely to drop. Renewable energy investment is likely to decline because of less electricity demand and less credit availability. By 2014 and 2015, less government funding may also play a role.

This recession is likely be very long term. In fact, based on my view of the reasons for the recession, it may never be possible to exit from it completely.

I base the foregoing views on several observations:

1. High oil prices are a major cause of the United States Federal Government’s current financial problems. The financial difficulties occur because high oil prices tend to lead to unemployment, and high unemployment tends to lead to higher government expenditures and lower government revenue. This is especially true for oil importers.

Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated. http://www.whitehouse.gov/omb/budget/Historicals

Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated by OMB. http://www.whitehouse.gov/omb/budget/Historicals

2. The United States and world’s oil problems have not been solved. While there are new sources of oil, they tend to be sources of expensive oil, so they don’t solve the problem of high-priced oil. Furthermore, if our real economic problem is high-priced oil, and we have no way of permanently reducing oil prices, high oil prices can be expected to cause a long-term drag on economic growth.

3. A cutback in discretionary spending  is likely. US workers are already struggling with wages that are not rising as fast as GDP (Figure 2). Starting in January, 2013, US workers have the additional problem of rising Social Security taxes, and later this year, a likely cutback in government expenditures. The combination is likely to lead to a cutback in discretionary spending.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

4. The size of our current financial problems, both in terms of US government income/outgo imbalance and debt level, is extremely large.  If high oil prices present a permanent drag on the economy, we cannot expect economic growth to resume in a way that would fix these problems.

5. The financial symptoms that the US and many other oil importers are experiencing bear striking similarities to the problems that many civilizations experienced prior to collapse, based on my reading of Peter Turchin and Sergey Nefedov’s book Secular Cycles. According to this analysis of eight collapses over the last 2000 years, the collapses did not take place overnight. Instead, economies moved from an Expansion Phase, to a Stagflation Phase, to a Crisis Phase, to a Depression/Intercycle Phase. Timing varies, but typically totals around 300 years for the four phases combined.

It appears to me that the corresponding secular cycle for the US began in roughly 1800, with the ramp up of coal use. Later other modern fuels, including oil, were added. Since the 1970s, the US has mostly been experiencing the Stagflation Phase. The Crisis Phase appears to be not far away.

The Turkin analysis started with a model. This model was verified based on the experiences of  eight agricultural civilizations (beginning dates between 350 BCE and 1620 CE). While the situation is different today, there may be lessons that can be learned.

Below the fold, I discuss these observations further.

Issue 1. High oil prices tend to lead to government financial problems.

Food prices tend to rise at the same time as oil prices, partly because oil is used in the production of food (for example, plowing, irrigation, herbicides and insecticides, harvesting, transport to market). Also, because oil is in short supply, corn is now being grown for use as ethanol to be used as a gasoline-extender. Growing additional corn puts pressure on food prices, because it drives up the price of land and encourages farmers to put more land into corn production, and less into other crops.

The reason governments are affected by high oil and food prices is as follows. When oil and food prices rise, buyers cut back in discretionary spending, so as to have enough for “basics,” including food and commuting expenses. Workers are laid off in discretionary industries, such as vacation travel and restaurants. These laid off-workers pay less taxes, and sometimes default on loans. Governments are quickly drawn into these problems, for two reasons:

  1. Their tax revenue is lower, because of layoffs in discretionary sectors.
  2.  Their expenditures are higher, because of the need to pay more unemployment benefits, provide economic stimulus, and bail out banks.

Oil importers are especially affected, because they are also paying out funds to oil exporters. The countries with well-publicized financial problems (including several European countries, the United States, and Japan) tend to be major oil importers.

Oil exporters are not adversely affected to the same extent, because they have  additional revenue from higher prices on oil they are exporting. They may still be somewhat affected because of rising food prices, and the fact that higher oil revenues do not necessarily go to those buying food. A recent study shows that food shortages helped trigger the Arab Spring protests.

Part of the reason that the impact of high oil prices is as severe as it is, is because there are many follow-on effects. For example, if oil prices rise, the price of shipping goods of all types rises. If businesses are able to pass through these higher costs, discretionary income of buyers for other goods falls. If not, businesses find that their higher costs lead to lower profits. To bring profit margins back up to an acceptable level, businesses may lay off workers.

As another example, prices of homes are likely to be adversely affected by high oil prices, because a family with inadequate discretionary income will forgo moving to a larger home, and may even default on a mortgage.

It should be noted that the impact of high oil prices doesn’t completely go away unless oil prices go down and stay down. Businesses can partly mitigate the impact of high oil prices by laying off workers in discretionary segments. Some businesses will fail completely, however. Replacement may be by an overseas company, with a lower cost structure that uses less oil. See my post on energy leveraging.

Workers generally must permanently adjust their budgets to higher food and oil prices. This is often difficult to do. The lack of jobs is a particular problem–something that workers cannot fix by themselves. Government programs can mitigate the job shortfall, by paying benefits to unemployed workers and by reducing interest rates, so that businesses can more easily make investments that will lead to more employment. These programs are costly, though, and are a major  cause of the current mismatch between government income and expense.

Issue 2. World oil problems have not been solved.

There have been a number of reports this years, such as one by the International Energy Agency, seeming to suggest that the world oil problem has been solved. These analyses are incomplete. They do not recognize that our real problem is a financial problem. Our economy (everything from interstate highways to electric transmission to Social Security programs) was put in place using cheap ($10 or $20 barrel) oil. Shifting to today’s high cost of oil (up near $100 barrel) causes severe economic dislocations. There is no more cheap oil to be found, however, because oil companies extracted the cheapest to extract oil first and now the “easy oil” is gone.

The impression one gets from reading the papers is that US oil production is having a huge impact on world oil production. If a person looks at the numbers, world oil production is close to flat. Rising US production makes up for falling European production, but doesn’t do a whole lot more.

Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.

Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.

The rise in United States oil production is indeed somewhat helpful, but we are still many years away from being “energy independent” and even farther from becoming “oil independent.” The real issue is high oil prices, and these are not being fixed.

Figure 4. US crude oil prices  (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics.

Figure 4. US crude oil prices (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics.

Our financial problems are here and now, in 2013. Promises of hoped-for higher oil production in several years at a still very high price don’t fix today’s financial problems. In fact, they will likely continue to contribute to financial problems in the future.

Issue 3. Declining wages and increased taxes can be expected to lead to a decline in discretionary spending.  

As indicated at the beginning of the post, wages (including earnings of  businesses owners considered as “proprietors,” but not including “transfer payments” such as Social Security and unemployment insurance) have not been growing as fast as GDP since 2000. Below is a repeat of Figure 2 shown at top of post.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

There seem to be several reasons behind this decline. One reason, already mentioned, is high oil prices leading to US layoffs, because of decreased discretionary expenditures.

Another reason for the decline is increased automation. Electricity can often be substituted for human labor, reducing costs, but also reducing jobs. Economists seem to term this change higher labor productivity. They also seem to believe that new jobs will appear from somewhere, but in practice, this is not happening. Instead, lack of jobs is part of what is leading to recessionary influences.

Another reason for the decline is increased competition from countries with lower labor costs and lower fuel costs. China joined the World Trade Organization in December 2001, and its manufacturing (and thus use of fuels) increased dramatically shortly thereafter.

Figure 5. China's energy consumption by source, based on BP's Statistical Review of World Energy data.

Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

Another reason is demographic. Baby boomers are reaching retirement age. This has already begun affecting the number of individuals who retire each year. In the future, the number of retirees can be expected to increase further.

In total, we see a very large drop in the percentage of US citizens with jobs, starting about 2000 (Figure 6). This is very close to the time that China ramped up its growth (Figure 5).

Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census.  2012 is partial year estimate.

Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate.

In calendar years 2011 and 2012, workers’ contributions for Social Security funding were temporarily reduced by 2% of wages, as a way of stimulating the economy. As of January 1, 2013, this temporary reduction was removed. For a couple with combined wages of $100,000, take-home pay is thus being decreased by $2,000 per year. With less disposable income, workers can be expected to cut back somewhere–buying a larger home, buying a new car, or going out to eat.

So far, only a small amount of other tax increases have been put in place, and only a few cuts have been made. More tax increases or benefit cuts will be needed later this year to bring revenue and expense into better alignment. Any such change will tend to have a recessionary impact, because citizens’ discretionary incomes will be affected.

Issue 4. The spending gap and the amount of debt look too big to be fixable without excellent economic growth.

As noted above, wages have not been keeping up with GDP. The majority of federal taxes are based on wages, so in my comparisons,  I use wages, rather than GDP, as a base.

If we use the wage base from Figure 2, the amount of government outgo vs income (all levels, not just federal) is as follows:

Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above.

Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above, based on US Bureau of Economic Analysis data.

Based on Figure 7, the issue in recent years has been primarily rising expenditures. These higher expenditures would seem to be partly because of high-priced oil, but also because of other influences noted above that are leading to declining employment. The amount of the gap is close to 15% of wages–something that is very hard to fix. Even the current increase in Social Security taxes (“only” 2% of wages) will exert downward pressure on discretionary spending.

A related issue is that compared to wages (using the same wage base as in Figure 2), debt of all kinds is extremely high.

Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report.

Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report.

Government debt is in now more than household debt of all kinds, including mortgage, credit card, auto, and student loans. It is close to two times the wage base used in this analysis.

One issue with paying down debt is that during the pay-down period, the government (or individual) reducing the debt “feels poorer,” because funds available for spending on goods and services needed today is lower. This happens because some current tax revenue, or some current wages, must be used to pay down debt, and thus is not available for today’s spending. This is a turn-around from the increasing debt situation experienced many times in the past. For example, part of the reason times seemed good in the 2002-2006 period was because people were able to refinance their homes and use the funds to buy a new car or add on a family room. If we are forced to pay down debt, we have the reverse effect.

Issue 5. Similarity to “Secular Cycles” of Peter Turchin and Sergey Nefedov.

Throughout the ages, many economies that have experienced long-term expansion. Eventually, they reached limits of some sort and collapsed. The book Secular Cycles by Peter Turchin and Sergey Nefedov takes an analytical approach to looking such past cycles.  They developed a fairly complex model of what they would expect over time, in terms of trends in wages, prices, population, income inequality, and other variables. They then examine historical records (relating to eight civilizations in four countries, with “start dates” between 350 BCE and 1620 CE) to see whether this predicted pattern was born out in practice. In general, the authors found good agreement with the predicted model.

Typically, civilizations analyzed were reaching upper limits in population growth because of limits on food availability, but sometimes limits on water or fuel also were important.  The model predicted four phases (expansion, stagflation, crisis, and depression/ intercycle). The typical length of the entire cycle was 300 years. The length of the various segments was fairly variable. The stagflation stage often lasted 50 or 60 years. The crisis stage tended to be shorter, more often in the 20 to 50 year range. There often was overlap between phases, with a civilization seeming to cycle back and forth between, say, expansion and stagflation.

In the model, there are various feedback loops. For example, as the number of workers rises relative to the amount of land, the price of land and food tends to rise. Jobs outside of agriculture do not rise proportionately, so wages of common workers tend to fall in inflation adjusted terms. With lower wages for common workers, nutrition declines. Eventually, the population becomes weakened, and population declines. There are also other players–the elite and the state itself.

Some characteristics of the four phases are as follows:

  1. Expansion phase (growth) – Increasing population, relatively low taxes, political stability, low grain prices, and high real (inflation-adjusted) wages.
  2. Stagflation phase (compression) – Slowing population growth, much heavier taxes needed to support a growing elite class, low but increasing political instability, rising grain prices, declining real wages for most workers, increasing indebtedness, and increasing urbanization.
  3. Crisis phase (state breakdown) – Population declining from the peak (typically by disease or by deaths from warfare), high income inequality, political instability increasing to a peak, high but very variable grain prices, high urbanization, tax system in a state of crisis, peasant uprisings.
  4. Depression/intercycle – Low population, attempts to restore state,  declining economic inequality, grain prices decreasing but variable.

It seems to me that the United States and much of the world are going through a cycle much as described by Turchin. The Growth Phase of our current cycle seems to have begun around 1800, with the rise of coal use. Stagflation in the United States seems to have started with the drop in US oil production in 1970. All of the government budget and debt problems now seem to suggest that we are reaching the Crisis Phase.

Obviously, there are differences from the civilizations modeled, because we now live in a much more integrated world. Furthermore, earlier societies did not depend on oil and other modern fuels the way we do today. We do not know how the current situation will play out, but the comparison is concerning.

158 thoughts on “2013: Beginning of Long-Term Recession?

  1. Dear Gail

    Thinking about the various models which purport to explain cycles of growth and collapse. I think that the most productive method is likely to be dynamic systems. Look for something with feedback loops which may be quite destructive. Balance, as best you can, the efforts of 7 billion people to grow the system versus the destructive qualities of the feedback loops. Do you think the net result will be upward? or downward?

    Everyone is well aware of Peak Oil and Climate Change and Resource Depletion and Peak Finance. I won’t say anything about those. But as another example, consider the conversation between Chris Martenson and John Michael Greer yesterday on Martenson’s web site (pay wall). They talked about how the Corporations are now able to very precisely target potential consumers using technology first applied by Sesame Street involving things like the movement of the eyes. So Corporations are now able to make very much more effective commercials. Greer doesn’t own a TV and never watches it, while Martenson admits to watching TV in hotel rooms when he is traveling. Martenson is astonished at how persuasive the commercials have become.

    Let’s put the scientific methods for making commercials together with the notion that consumables should be bought on credit. If you read A Place In Time by Wendell Berry, you will look in vain for any hint that either trend had much impact on the lives of his subjects. Debt, incurred to buy a farm, most definitely played a huge role–but nobody was going into debt to buy Christmas presents–those may have been bought on lay-away where one paid a dollar a week or so until Christmas.

    If we combine a public which is addicted to the eye candy of TV which is financed by very sophisticated commercials which encourage the consumption of consumer goods on credit, then the feedback loops in terms of of the health of the nation are pretty severe, in my opinion.

    We get the same sort of feedback loops between the marketing of junk food and the marketing of health care…it’s OK to eat the burger and fries and sugary soda because modern medicine can surely rescue you. And Medicare is ‘almost free’.

    There are lots of other examples, but these two illustrate my point, I think.

    Of course, these feedback loops also generate GDP–so a more sane measurement of national well-being is also required for us to get a balanced picture.

    I am suspicious of mechanistic models because these examples are not new. For example, in Wendell’s book, the females are acutely conscious if a young man looks at them for just a second or two longer than necessary at a country dance. So the scientists just took something that humans do and that females have understood since the Garden of Eden and made it scientific and adaptable to TV. Trying to apply a mechanistic cycle to it in terms of time is probably not very productive. And young women have always returned male interest by cooking delicious meals: ‘Can she bake a cherry pie, charming Billy’, and etc. So the fast food companies are, once again, copying female understandings (maybe the encounter between that snake and Eve is the source of all our problems?)

    Don Stewart

  2. Gail
    Here is an example of what one might call a retrospective systems analysis of what happened to farming in the US. From Wendell’s book:

    ‘The story of Mary and Elton Penn was included in the story of Port William, which was included in the stories first of the Depression and then of the War, and then of the mechanization of farming and the disintegration of country life that began almost immediately at the end of the War. The old life of home farms and frugality and neighborhood and care-taking held together until the end of the War because it had to, there being until then no alternative. After the War, with the application of war machinery and chemicals and military-industrial thinking to agriculture, farming began to give way to an economy that was alien to it.

    Andy would come to think of the fifteen or so years immediately following the War, which were the crucial years of the Penns’ rising into prosperity, as a time unique in the stresses and contradictions that bore upon it. It was a temporary suspension or standoff between the last supports of the old agrarian economy and the forces, eventually dominant, of the economy of industrialism. It was a time when the farmers’ self-sustaining household and neighborhood economies were still in place, when prices were generally good, and when for those reasons, though only for a little while, industrial equipment could serve at a reasonable cost the effort of a young farmer such as Elton.

    The Penns’ story then, was a story of the gathering up of a small, brief coherence within a larger, longer story of disconnection and incoherence…Port William and its neighborhood were coming increasingly into the story of cheap fuel, speed, and the fire-driven machinery of disintegration…The land and the people who did the land’s work were to be used, and used up, by the measures of mechanical efficiency and corporate profit. Greed was replacing thrift as an economic virtue. All was to be taken, nothing given back.

    On the night of his conversation with Martha, Andy may have been more than usually vulnerable to such a thought…the great industrial empire to which he and his family perhaps helplessly belonged, was again at war, imposing its will by the deaths of helpless old people, women, and children, and by the torture of prisoners. The imperial economy based upon nothing but the overconfidence of the greedy and the gullibility of victimes, was disintegrating…’

    If I were to try to describe this in more formal system terms, I would point out that farming came to require vastly more fixed costs, that debt therefore became an ever larger concern, that the household economy shrank exposing the farm family more completely to the vagaries of the market, that the social life which revolved around shared work vanished, that the skills required to work animals vanished to be replaced by dependence on fossil fuels, and that farmland could be bought by financial speculators more easily than by farmers. If I had been a really smart person in 1946, perhaps I would have foreseen all these developments. And if I had been smart enough to understand systems and feedback loops, I would have been alarmed.

    The final sentence is perhaps the most chilling. Is our economy built on nothing but greed and gullibility? The conversation between Martenson and Greer moves along those fault lines–without using Wendell’s language.

    So…I would expect that removing any one of the supports which holds up industrial farming would result in a catastrophic collapse as the old resilience has been systematically destroyed. The Depression was a financial disaster, but farmers (except in the Dust Bowl) mostly survived because of the other supports they had. A 2013 Depression would have to be survived without those supports. I see no end of greed or gullibility…but I think that our society will become quite a lot poorer in everything except GDP– which does a superlative job of quantifying both greed and gullibility.

    Don Stewart

    • Pete,

      I am showing annual averages. You are showing monthly averages. The monthly averages get higher spikes in them.

      I used the US refiners acquisition costs, so it would be US costs, and adjusted them by CPI-U inflation factors. This way, any savings we got this year from low priced WTI gets factored in. The graph looks very similar to the Brent chart that BP gives the data for (but only through 2011).

      • Interesting. Perhaps this is an interesting area that is under-reported.

        Still seems fishy though. Why not just use retail gasoline prices?

        • Using retail gasoline prices would produce a somewhat similar picture. Businesses use more of the other parts of the barrel than gasoline, so the total barrel is more relevant in their case.

          Also, gasoline is usually diluted 10% with ethanol, so has some of that mixed in. Furthermore, the “gasoline” mix changes during the year. In the winter, it uses more short chain hydrocarbons that would evaporate during the summer. Refiners have to store these short-chain hydrocarbons during the summer months and add them in the winter. These short chain hydrocarbons are relatively cheap–part of NGLs, I believe. This means that in winter, gasoline supply is greater than in summer, and cheaper to manufacture as well. So its cost tends to rise more in summer, and fall more in winter, than oil does.

  3. Hard to disagree with much of what you said. One thing that has surprised me is how long the governments have managed to stretch things out. Are you surprised by this also Gail?

    • I have been surprised too. One thing that happens is that the rule-makers are active, and can change the rules, if they need to, to prevent companies from failing. They also seem to be able to “paper over” problems, better than I would have expected.

      This year frightens me, but I could be wrong on timing. In a three hundred year overall cycle, one year is not a big part of the total.

  4. One thing that few people talk about is the social interaction between people. Kunstler is often saying that there is a crises among young men. Google MGTOW (men going their own way), MRA ( men right activist), MRM ( men right movement). It seems that people have giving up hope and waiting for something. People are so narcissists.

    There is a social phenomenon in Japan called the herbivore men. It seems that young men don’t want to be involve in the social structure. Are we going to be able to work together when the time come. I doubt about it. It seems there is some many problem: climate change, lack of social cohesion, peak oil, water scarcity, rampant narcissistic.
    Modeling the future from past model seems to me more a intellectual exercise than anything else. It provides general clues only.

    • I know that my three children (late 20s and early thirties) have not gotten married, nor have most of my nieces and nephews. It is hard for them to feel that they have a settled enough job, and are able to take care of a family, to get married. It is a difficult time for thinking young adults.

    • I have noticed this “herbivore men” phenomenon.

      In our nascent land-sharing ecovillage co-op, when interpersonal things would get tough, many of the men would “run away” in some way. Oh, they all had good excuses — generally going away to earn money — but it did create a vacuum of male energy that began to erode the fabric of the community.

      It has cost me my marriage, and I’m still trying to recover. There seems to be an increased awareness that the “rugged individual” is a think of the past, but I don’t know if this will come in time to save this project.

  5. I would like to comment on some questions which have arisen relative to communism and capitalism and whether fossil fuels are really essential for the production of wealth. My answer fits better here close to my other comments building on the work of Wendell Berry.

    I would like to suggest the central role of information. I have previously referenced the role of cellular signaling in healthy bodies.

    It turns out that the signaling which is turning the genes on and off is far more likely to go wrong than for the body to make a faulty gene (although spontaneous abortions are used by Mother Nature to eliminate faulty constructions). As the speaker in the video says, very few people understand the role of cellular signaling and the mainstream media won’t touch it. What you eat, do, think, and feel controls the cellular signaling.

    Signaling plays a similar role in a classical capitalist system. IF all the players in the system are getting efficient signals, THEN they will do the most productive thing they can do and trade with everyone else in the system and so the system optimizes itself. Charles Hugh Smith is a lucid writer on the subject of efficient markets and how they are so broken in the current world economy. All the Central Banks are currently enforcing faulty signaling.

    The East German system was sending out signals that Olympic champions would be richly rewarded–and East Germany produced Olympic champions by the bushel. Many critics of US pop culture argue that the US system is currently sending out strong signals that anyone who can provide mindless distraction will be richly rewarded. The US is producing a lot of people who can provide mindless distraction.

    The core disconnect is between the concept of what is ‘good’ and what is ‘profitable’. Neoclassical Economics solves that problem by assuming it away–whatever the market wants is just assumed to be good. If the market wants plenty of gasoline, then gasoline is good. A Neoclassical Economist doesn’t spend much time worrying about things like Climate Change. A few vague words about ‘externalities’ and then on to some more esoteric math building ever more improbable models.

    Let’s take a look at this from a systems perspective, using the observation of Wendell Berry that the US economy is based on Greed and Gullibility. I will add to that the notion that Science and Technology are the handmaidens of Greed. We have a very few people in the world who really understand science. And we have a very few people with lots of money. The people with money can hire the people who know science to utilize technology to take advantage of the gullibility of the public. So money becomes more and more concentrated in the hands of the few, while the externalities (poor health, money wasted on consumables which do not provide lasting benefit, mindless distraction for a fee, etc.) become ever more concentrated in the many. As money becomes more concentrated, the Few can use their money for Regulatory Capture to ensure that the power of the State is used to further their goals. The Gullible, who theoretically control the political process, are easily swayed both by the display of raw money and also by the evidence that the Few are keeping the drug supply flowing–it isn’t really satisfying, but it is the best the Many can visualize.

    If there is any way out of this box canyon, it has to start with the recognition by Some, if not the Many, that we are in fact in a box canyon and that getting out of the canyon is the first order of business. Exactly what life outside the canyon would look like is yet to be discovered. My guess is that life outside the canyon can be good for humans and make much less use of fossil fuels (although some will most certainly be helpful.)

    Don Stewart

    • That’s brilliant, Don!

      I’ve been trying to get out of the “box canyon” for seven long years. It has cost me my life savings and my marriage, because the twin zeitgeisten of “mindless distraction” and “return on investment” make it unlikely that real efforts will be appreciated nor aided.

      Potential partners come look at what I’ve been trying to do, get excited, act like they want to participate, but ultimately go home in their Prius to their recycling bins and spiral light bulbs, and sit in front of glowing screens, reading how things are coming to a nexus, and nodding their heads in agreement. The next morning they have a hot shower and go off to a job that makes things worse, or if of a certain age, they simply collect the “earnings” from their investments, and then spend it on more Priuses and light bulbs and cloth shopping bags with pictures of cute endangered animals or rainforests, and thus continue make things worse, albeit at a slower pace.

      Ronald Reagan said, “At best, it [conservation] means we will run out of energy a little more slowly.” Even Ronny “got it!”

      I sometimes see what looks like a tiny change in the zeitgeist, but it has not been enough for people to take the radical action necessary to escape the “box canyon.”

    • Don,

      I think you are “on to” some of the big parts of our problem today. We have a big part of society brainwashed by the misleading signals of today. Whether or not one believes religious teachings (of whatever variety), they at least bring some awareness that there is a way of thinking that is different from what society is telling us today. (The religious teachings may not be the whole answer either, but if they offer the perspective that society’s signals are likely wrong, they at least provide a step in the right direction.)

      It always amazes me that people can sit with their television on for hours a day. (We don’t have a television.) Even earphones strike me as a problem. How does a person hear birds, and dogs, and oncoming traffic, outside with headphones on? Even in the house or car, I find it easier to think without even having music on in the background.

      • Hi Gail,

        We have a big part of society brainwashed by the misleading signals of today. Whether or not one believes religious teachings (of whatever variety), they at least bring some awareness that there is a way of thinking that is different from what society is telling us today. (The religious teachings may not be the whole answer either, but if they offer the perspective that society’s signals are likely wrong, they at least provide a step in the right direction.)

        I’ve tried to avoid this subject, but this is really hard to ignore. How can you assert that religion provides a “thinking that is different” and “a step in the right direction”?

        Regarding different thinking: according to the CIA database, 77% of US citizens identify as Christian. It’s very difficult to get elected to public office or hold a popular MSM job unless you are a Christian or at least pay lip service to having “Faith” in conventional deities and belief systems. Christian belief systems in the US don’t represent “different thinking” – this IS the thinking that drives our culture. This is why there is never any discussion of human population levels – it’s assumed that more humans are always a good thing. This is why environmental concerns are downplayed – salvation in the afterlife is often the real goal.

        Richard Dawkins, eminent evolutionary biologist, has made a very powerful case for why we “believe” in religious doctrines – much of it comes down to childhood indoctrination when our minds have no defenses (we need this openness to learn language). Once people are conditioned to accept extraordinary explanations of our existence “on faith”, then clever folks can manipulate that susceptibility to get what you call “what society is telling us today”. You mention “a big part of society brainwashed by the misleading signals of today “. How do you suppose this brainwashing is so easy to accomplish? FF companies, financial institutions, food vendors, auto manufactures, defense industries, etc have all figured out how to craft messages that resonate with our predisposed willingness to blindly accept ideas that are really not in our best interest – or the best interest of the rest of the planet. Why does every politician finish their speech with “God Bless America”? Just what is that message? Why not “May all the people of the world learn to cooperate to preserve and sustain all forms of life on the planet” or some catchy slogan to that effect?

        “a step in the right direction”? Representative Paul Ryan, a devote Christian, just introduced a “Personhood” bill. How does this lead us in the right direction? In my town, there are multiple religious sects (mostly Christian variations) that all believe the folks down the street are “wrong”. If you think, as I do, that human cooperation is critical for any kind of strategy for human welfare going forward, then how does all this divisiveness help? Our US congress is deadlocked over religious issues such as reproductive rights and sexual orientation – how does this move us in the right direction for cooperation in addressing the issues you raise here every day?

        I just don’t see how religious institutions and their dogma helps anything. I agree that a certain amount of pomp and ceremony (and some good music) can provide some moments of joy – as long as no one actually believes in the associated dogma. I always liked the saying in France: “95% of the French people are Catholic and 5% go to church.”

        I admire your hardnosed analysis of the physical realities of our planet – this is why I read your blog frequently. But, it puzzles me why you accept beliefs for which there is no supporting evidence – and you automatically do this every time you support the idea that religion is a positive force. I know you don’t advocate belief in any particular holy books, but you give support to the idea that it’s “OK” for others to do just that. I also know that you value the sense of community provided by local churches – does this really justify all the negative aspects of religion? And, just what is wrong with vibrant community centers that serve the identical function? I’ve never noticed you gloss over something so fundamental as this in any other area.

        • I know you have your mind made up.

          Even if various religions are classified as “Christian,” there are definitely differences among them. There are certainly non-Christian religions that are different. Many of them would find Paul Ryan’s Personhood bill offensive.

          Many religions get people to think–the constant indoctrination about more goods being what we need is NOT what life is all about. I am not sure people always accept this teaching, but it does get them to think. People who attend churches are more attuned to moral issues, and what is right. I know that in the Atlanta peak oil group I attend, quite a number are religious (some I don’t know one way or another).

          I have met many religious people who are interested in energy questions, and what is happening now. Just this morning, one of the pastors in the church I attend asked if I would give an updated talk, explaining some more about what the energy situation looks like now, and what other implications I see. (I have spoken on the topic previously.)

          The Age of Limits Conference that I spoke at last Memorial Day Weekend was put on by a religious organization (but not a Christian religious organization). The conference theme was “Conversations of Collapse of the Global Industrial Model.” I don’t think you will find ASPO groups that are willing to take such an outspoken view.

          Over the years, I have gotten quite a few requests from pastors asking whether it would be OK to hand out my blog posts to their parishioners, or to use my posts in their sermons. In all of these instances (including my own church) I would characterize the churches as being at the “liberal” end of the religious spectrum. I doubt any of these churches would think that the Bible is literally true, or that the earth was created in 7 days.

          By the way, in 2009, a seminary faculty member who specializes in interpretation of the Book of Revelation was speaking at my church. (Her interpretation is very different from the one a person reads in the “Left Behind” series.) Afterwards, I went up to speak to her. She immediately recognized me as “Gail the Actuary” and wanted her photo taken with me, so she could show her husband, who also reads my posts.

          Religion is here to stay. Whether or not the teachings are not entirely right, religious institutions provide a forum where people can discuss problems, and try to work together for solutions. If can provide comfort to those who are distressed by adverse changes about us. If you don’t like the teachings of some religions, just stay away from them.

          • Hi Gail,

            I agree that neither of us is going to change our basic position on this issue – this conversation is really for others to ponder. And, I hope everyone notes that we both have a very civil tone in this discussion. I appreciate your position that some churches provide a forum for discussion of important ideas. I’ve also seen communities that had good discussions in a non-sectarian community center setting without the “silo” effect of opposing belief systems. It seems to me that latter model is more encompassing and more likely to result in broader change – not that I’ve much hope for either model actually affecting meaningful change in a useful time frame. Although I’ve no doubt about your experiences in some churches, you might also appreciate that the mega churches and TV evangelism shows really don’t fit this model – and millions of people participate in them.

            However, it seems that our basic disagreement is around the broader issue of the term you put forth: “brainwashing”. It seems that you view churches as places for people to combat this effect and I believe that religious indoctrination is one of the basic causes for human susceptibility for this cultural malady. The problem from my POV is that religions teach people to “believe” as true all sorts of contradictory notions about our physical reality (nothing could be more “physical” than transforming into a different reality after death) when there is no evidence to support any of these extraordinary claims. There is a concept in science that says that the more extraordinary a claim the more rigorous the proof needs to be. In religion, all kinds of extraordinary claims go totally unchallenged by the faithful. I just find it very hard to understand how this blind acceptance of unproven claims helps humanity to deal with the serious problems we face. And, add to that, the inability of people to cooperate on the big issues due to the silo effect of religion.

            I think we can agree that community involvement in the “big questions” facing the planet is a good thing – however it happens. Just some food for thought.

  6. Hello, Ms. Tverberg,
    I’m very impressed your article, because I noticed that almost all developed countries, include Japan, suffered from similar situation. That is, high price fuel, declining economic growth rate and high unemployment rate.

    I thought your article is very helpful for Japanse to understand real predicament of current world’s economic condition, so I translated this article into Japanese and published it on my website.


    Chihiro Watanabe.

    • Thanks for taking the time to translate my article into Japanese.

      I think Japan and much of Europe are in a similar condition to the United States. Back when oil and other fuel prices were low, it was easy to use imports to make higher-priced exports, and to fuel the economy. Now, with high priced oil, it is much more difficult.

  7. For those of you who enjoyed Toby Hemenway’s guest post about Agriculture, here is a new video of a talk he gave in Sonoma County a few months ago. He reviews how our development of agriculture turned us into slaves from our previous freedom. Then he discusses some ideas about how we can regain some of our humanity by re-designing civilization to be more friendly to human nature. Whether he will convince you that we are living in the midst of abundance, rather than scarcity, I don’t know.

    One of the things I am personally pretty well convinced of is that we should not approach the issue from the standpoint of the preservation of the status quo. Exactly why do I need our current governments and enormous armies and huge banks and excessive population densities and enormous debts and popular culture? So why make the preservation of those institutions our overriding goal? If we can think clearly, perhaps we can envision solutions–along the lines Toby suggests or perhaps on some other line entirely.

    Don Stewart


    • “… we should not approach the issue from the standpoint of the preservation of the status quo.”

      Y’know what that means, don’t you? It means not making enough money to pay taxes.

      Very few are willing to go that far.

      • Jan
        When I see what my tax dollars are being spent for, I think ‘what’s in this for me?’. And you are talking to a guy who draws Social Security.

        Don Stewart

        • Social Security? Enjoy it while you can!

          I have absolutely no doubt it will be gone or vastly reduced in five years when I’m able to collect. Such is the fate of being at the tail-end of the baby boom.

      • Hi Jan,

        I’ve been poking around your wiki site and other links – including the posting for half investment in your property. Also Goggled a bit about Salt Island. First of all, I had no idea that Salt Island existed and what a beautiful place it is. Second, is my sincere admiration for what you have started with your ecovillage. And thirdly, my profound sadness regarding your comments about the state of things with your project. Your story seems to have some deep implications for our cultural in general – maybe you should write a book about this. I’ve circulated your info to some friends, but unfortunately we are all much too old for any kind of change – maybe one our grandchildren will find it appealing – but doubtful.

        You mentioned taxes. As I looked at promos for Salt Island, I got the impression that this might be a desirable place for folks with money to drive up land prices and taxes. Is this a factor in your financial situation? We have some very nice locations in Wisconsin that would be suitable for such an ecovillage, but the taxes would make any kind of self sustaining project like yours totally impossible due to the demand for land for summer homes for rich folks – and the kind of property taxes that go along with this. I sure hope someone with deep pockets comes to your rescue.

        • Hi Bicycle Dave,

          (BTW: it’s “Salt Spring Island.”)

          Thanks for your sympathy and good thoughts. But I don’t understand how you can consider yourself “too old for any kind of change!” What are you doing on this blog if you believe that! I hope and pray there are more than “mouse potato” change agents and activists out there, or else humanity is truly doomed.

          The coming changes are not going to be handled so well by people on blogs as it will by people on the land. At least, that’s what I keep telling myself.

          Taxes are not too much of an issue for us. We are in a zone called “Agricultural Land Reserve” (ALR), and if you have even a fairly low amount of farm income, your taxes are slashed some 85%. Our property taxes were C$2,532.50 for 43 acres, two houses, and a few outbuildings. It would be closer to $20,000 if we didn’t have “farm tax status,” which we periodically have to defend with reports and such.

          Not all the land is ALR — it’s only supposed to be land suitable for agriculture. This means that the rich people congregate on the waterfront at on the high view property — heaven help them when the seas rise or the electricity for their 200 metre wells gets expensive! (We’re working on a gravity-fed irrigation system from a two acre reservoir.)

          The big difference between the this area and Wisconsin is we are in growing zone 9. We grow kale and chard and salad greens all winter, and a neighbour just put in a sizeable olive grove!

          • Hi Jan,

            You’re right about age and change – I really didn’t express that point very well. In my little circle of friends, our ages range from mid 70’s to low 80’s, but we are hardly coach potatoes! However, our activism is much different from the days before we learned how to spell arthritis and meniscus and have our orthopedic surgeon on our speed dial. For the most part, we’re both political/environmental activists and bicycle advocates. We support planet friendly causes and try to influence younger generations to behave better than we did. Although we live in the land of monster SUV’s we work with our local county to do everything possible to encourage more cycling and provide for more bike friendly roadways. I know that these kinds of things won’t save the planet, but perhaps we can help in some small way.

            The “change” (or lack thereof) that I was referring to came from reflecting upon your great island environment (sorry about dropping the “Spring”) and the reality of my current environment. We live in one of those wonderful bubbles of semi-rural greenery and lakes that ranks among one the nicest places on earth to live at this moment in history. I’ve been in lots of countries and I find very little to envy. We have our family, friends and roots here and moving is just not something that is in the cards. However, I have no illusion that if RE’s vision is halfway correct, we will be in a world of hurt because of our proximity to a large city. If it comes to that, we’ll die the good death and be thankful for the life we did enjoy.

            I think that us “elders” have a responsibility to keep our nose in the wind and smell the time to counsel the camp to move to better hunting grounds. This is a valid historical role and the best one for me.

            However, I’d like to believe that folks who are involved in your kind of project are attracting people and being successful – just kind of sad if this is not true. BTW, our land was once in the low tax agriculture category and overnight it went up 10 fold when the area was rezoned.

          • Thanks for the cogent reply, BD. I understand completely — that what got me into this, the thought that I could end up in my 80s, wondering why I didn’t do more when I was a bit younger! (Not that my motivation describes you our your friends at all.)

            If you come across anyone who is thinking of doing “the sustainable thing” on their own, please send them to me, so I can convince them they need to do it with others! The time for the “rugged individualist” is quickly passing. Or as Ben Franklin put it at a very different historical nexus, “If we don’t hang together, surely we will hang separately.”

  8. Very interesting article. Do you mean the western world, or just America is headed for long-term recession? I live in Britain, do you think Europe will play out worse or better than America?

    • I think other big oil importing countries are going to be in very bad shape as well. The US dollar is the world’s reserve currency, so it has the risk it will lose that advantage, so it may have a little more downside risk than the others. On the other hand, the US has lower population relative to agricultural land than most of Europe, so it is better off in that way. In general, I think the situation will be pretty bad in Britain and Europe as well.

      • Your comment made me look up the population density of the US (32 people per square km) and Germany where I live (230 people per square km). I hadn’t been conscious of this huge difference. Even if you discount a big chunk for high mountains and deserts in the US, we are still like 5 times more people on the land. And we have a long winter during which you cannot farm (unlike, say, some densely populated African or even mediterranean countries).
        Now I can better understand why “Local farming” and similar approaches aren’t considered at all over here – there just isn’t any space for it, all arable land is already being used for intensive farming, of course involving fossil fuels. When you are riding across Germany, you get the impression of many “rural” areas, but this impression seems to be misleading. It is just very recently that rich people and hedge funds have started to buy up agricultural land in Germany as an investment, while for decades farming had been quite unpopular, nobody went into that business unless he was born into it.
        And the rest of Europe is not much better. If there is a food crisis connected to the limits of industrial farming (while at the same time our export machinery on which we completely depend could be downshifting), we might find ourselves in a very bad spot indeed.

  9. I am no fan of defeatism. According to the «Divina Comedia» by Dante Alighieri, over the portals of Hell are the words, “Lasciate ogne speranza, voi ch’intrate” (Abandon all hope, ye who enter herein). I do not suggest this passage for the portal of OUR FINITE WORLD, but it is not my view of an unavoidable, predestined future.

    One thing I appreciate about OUR FINITE WORLD is the sound analysis of a sense of progress as the normal state, where «progress» emanates from exploitation of facile fuels. Thus, as said facile fuels are depleted and only costlier-to-extract fossil fuels remain available is massive quantities, the progress is a ship headed for shoals.

    It reminds me of Peggy Lee’s song «Is That All?» (Let’s drink our booze and have a ball…) But one view of wealth used to be how many cows one had (still prevalent in a few contemporary pastoral societies). The incompleteness of this paradigm encourages the tragedy of the commons, among other problems. Today we (pretty much the whole world) have a problematic paradigm of growth. Can this be solved, or at least dealt with, while another (and probably worse) set of problems develops? I dunno. But it seems that although the Wolf is not at the Door quite yet, he’s still driving up and down the street looking for parking. Scary, yes, but not quite time for the Last Dance with Peggy Lee. Not quite.

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