Role of Wages of the Common Worker in Oil Prices, Collapse

In their book Secular Cycles, Peter Turchin and Surgey Nefedov point out the important role falling wages of the common workers played in early collapses. I got to thinking that this might be an issue with our current situation as well, including the low level of oil prices.

I explain this in two presentations. The first one is called “Overview of a Networked Economy“. The second one is called, “Economic Growth and Diminishing Returns.”

A couple of (amateurish) slides that need explanation are the following ones:

Standard definition of economic growth

The cloud above my representation of the economy is supposed to represent the cloud of goods and services that the economy makes. Many people would like us to believe that as long as this cloud is growing, everything is fine.

What Peter Turchin discovered is that there is a smaller cloud that really needs to be growing, as well.

This cloud is the after-tax income of the common worker. If this isn’t growing, then it is hard to collect enough taxes. The ultimate downfall comes from government downfall, because of the problems of the common worker.

Wages of Common Worker

The above slide is an attempt to show the after-tax income of common workers as a subset within the GDP cloud. (It probably should be much smaller.)

Common workers are ones who will tend to buy mostly goods and not too many services. In fact, the goods that they buy are not necessarily even high tech goods. If these workers cut back on goods that use a lot of commodities in their production, this cutback could contribute to all of the other pressures we are now seeing toward lower commodity prices, and make it much harder for oil prices to rise again.

If we want common workers to do better, it looks to me like we need an increasing supply of cheap-to-extract oil (low priced would help as well).

To see the full story, you will need to click on the links above.

I will be leaving on March 13 to spend four weeks lecturing and traveling in China. (My family will not be coming along, so I won’t be leaving an empty house here.) Hopefully I will have a chance to write a “regular” post between now and then–the two presentations are from this series. I don’t expect to be able to write posts while I am in China because China does not allow access to the WordPress site where I write my posts.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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332 Responses to Role of Wages of the Common Worker in Oil Prices, Collapse

  1. Rodster says:

    Gail, the second example of after-tax income is key. That’s one of the problem in this current globalized economy. That income continues to drop and as such the economy contracts because it has a domino effect. As people buy less, factories, shipping etc declines. The DBI continues to contract to levels last seen in the mid 80’s as shipping goods around the world has slowed massively.

    The central banks are now facing deflation because the common worker has been turned into a turnip and we know how that saying goes. So the central banks are faced with creating inflation to counter deflation.

    When that happens the common worker takes a further hit until the whole house of cards collapses. Need I remind everyone that this is a global problem. When the CB finally lose control of the sitiuation whenever that day arrives all hell will break loose around the world. It won’t be just one economy taking the hit, it will be everyone.

    • Exactly! The competition for China is India, Bangladesh, Pakistan, and Philippines (my guesses–not based on any deep analysis). These are warmer countries. People can live in flimsier houses. Their costs are even lower than China’s especially if China’s wages are rising to try to let the workers pay for their new expensive condominiums. It is the combination of the wages and energy use that determine overall costs. From the point of view of competition, it also includes taxes levels and other things rolled into gross costs. The country with the worst healthcare, the least pollution control, and the least care of elders wins. It also helps to have cheap fuels.

      • richard says:

        Gail, I know I state the obvious here, but for completeness I will mention that worker’s wages are quickly spent, on average within two weeks. It is less obvious that this determines the size of a significant amount of cash within the banking system. With the growth of credit cards, the numbers change, and I believe that change is ongoing in China.

        • That could be. I will see more of the real-life of Chinese citizens (faculty and graduate students) on this trip.

          • richard says:

            I know you prefer the written word, but this brief video links the subprime lending to the 2008 crash and via credit contraction, to purchases of stoves and furniture.

            When he starts talking about the wider world, that brought to mind the thought that each country has its own concept of an oil price that it can afford. Even Saudi Arabia, in the long run, has its limits. Some price limits are high, some are low, and oil reached $147 per barrel in 2008, just before the crash.

          • kulm says:

            They happen to be among the richer class of china, especially those who are likely to speak English.

  2. Oji says:

    Thanks, Gail!
    Will digest these and probably have something about which to pester you.

    Enjoy East Asia. Will you get a chance to stay in Japan at all?

  3. Stilgar Wilcox says:

    A fascinating thing happened today. I needed to drive in early commute in the SF bay area’s East Bay. The traffic was moving quite well then suddenly transitioned into slow and go mode in the exact same part of the freeway at the exact same time that it would always occur 25 years ago.
    A quarter century has passed and more than a deja vu, it was a an indication that as much as we know from depletion of oil there should be consequential contraction or even collapse, it still has not shown itself in the façade of everyday life. At least not from what I can see here in the Bay Area. The economy is bustling, people are commuting to work and life is much the same.

    Yet simultaneously I know like many on here there must be consequences at some threshold of oil depletion. I’m just wondering when that might occur. It seems like the longer this process goes on the more people on peak oil blogs are certain it must be eminent, i.e. 2015 or 2016. But the façade does not change, so I’m wondering how long will it take? I’m now wondering if what we think is a coming collapse will turn out to be much farther into the future. I use to think it would occur by about this time, but now I’m wondering if things could continue not much different than they are into the mid 2020’s or later. I don’t know and am not making any predictions, but just knowing the façade changes little if any, makes me wonder how long it will take.

    • I can’t speak directly for the Bay area but my job takes me to many places in flyover land at least. From Colorado to Ohio, Minnesota to Louisiana and I can tell you if you want to see how this slow collapse is manifesting itself get away from those places that have a direct tap and flow line to government money. College towns, Capital cities, those with some industry that fill government contracts are all doing rather well. Those places without that pipeline are dying, drying up and looking pretty run down with many closed businesses and abandoned buildings.

      Tainter I think mentioned the complexity as the collapse continues falls away from the edges and works it’s way inward which is what I have been observing.

      • Stilgar Wilcox says:

        Thanks for your reply, Pioneer. I really only have the Bay Area with which to form an opinion so it is good to get a bigger picture from your experience.

      • Pioneer,
        You got it. I live in DC and I deal with small business. It’s over.

        “When you’re born you get a ticket to the freak show. When you’re born in America, you get a front row seat” — George Carlin

        Quick three observations

        First: In the end stages of a failing system those connected to the credit-boosted sectors will be living well, while those on the outside will suffer what they must.

        Second: In how critical overseas trade is to sustain the dollar and America lifestyle.

        Third: 500 hundred years of Anglo-Saxon pillage and looting (labeled capitalism to the masses while exploiting them) is coming to an ugly and brutal end; and very soon, leaving war and popular protest to plunder whatever is left.

        So, enjoy from now all the superficiality and shallowness, offered as solutions.

        Gail, forget about us in March. Try to absorb as much as you can in China. Then, break it down to us when you come back.

        Have a nice trip. China sounds very interesting.

      • There are a lot of folks who have dropped out of the work force because the pay (often for part-time jobs) just isn’t good enough to justify the expenses involved. Teachers with children at home and commuting expenses find that it doesn’t make financial sense to commute. People who might possibly qualify for disability coverage have obtained coverage from that, rather than work, if it is hard to find good-paying work. People who have elderly relatives to take care of have also been known to drop out of the work force. Some have taken early (reduced benefit level) Social Security benefits, at age 62.

        The other big problem area is with young people finding jobs. Too many of them are spending years in school, hoping that there will be a job at the end of the long time of study. When one approach doesn’t work out, they try a different approach, if they can find funding for it.

        There are also a lot of people back in school because they found difficulty finding work previously. These folks are running up government loans. Quite a few of them are going to have difficulty finding jobs that pay enough money to pay back the loans.

        The other issue that people have not focused on is the real need to raise tax levels, as more Baby Boomers retire. The funding for the program is essentially pay as you go (even if it looks like there is a Social Security Trust Fund). Part of what kills the economy is rapidly rising tax rates.

        Even slowly rising interest rates will also tend to bring the economy down–another problem.

        • rikkitikkitavi says:

          I know lots of people who have gotten layed off and gone on disability. Its easy just get a lawyer. The lawyer will tell you whats wrong with you I mean the basis of the claim. Just look at the lawyer fees as a investment. After all you payed in. Lots taking benefits at 62 too. Get it while it lasts blue light special. After all you payed in to the Ponzi. Its only fair. Its those despicable oligarchs keeping everyone from a fair and equal society where we all dance all day in togas. Its those despicable oligarchs keeping everyone from a hard working individual from paying his bills. Which flavor appeals? Oh the one that gets you the most. What a coincidence

          • Rodster says:

            I have a neighbor in my Apt building who’s in her 40’s and has been on disability for years and diagnosed as mentally challenged. If you talk to her or see her on the street or driving a car she comes across as normal as anyone else you run into.

            My friend, OTOH who shouldn’t be working because he suffered a heart attack and two strokes doesn’t qualify for disability.

            • rikkitikkitavi says:

              “My friend, OTOH who shouldn’t be working because he suffered a heart attack and two strokes doesn’t qualify for disability.”

              He qualifies. He hasnt ponied up for the Lawyer. Forget about the strokes and heart attack. You act like there is some rhyme and reason here. The lawyer advises what the claim is. Whatevers hot. Chronic restless ear lobe disease.

              Your friend has the same problem I have. The need to earn ones place in the world. Its a real hindrance. I blame my parents.

    • Rodster says:

      Where I Live (SW Florida) things appear somewhat normal as well. People go to work businesses are running etc. It’s not until you pull pack and see the overall picture because we humans tend to be so shortsighted because we view things in the now and only live for a brief time.

      As you read the instability in the world such as the financial state of the world that you get a better understanding of what is really hold things together. Who would have thought a Country like Greece would declare they were bankrupt and announce it to the world? Then what followed was even more surprising that they got an extension and according to Zero Hedge, their bailout agreement was written by the Germans? The world’s financial system is being held togehter with duct tape and glue. There was talk of a contagion taken place if there was a GreXit because it would expose everyone as bankrupt. Now it has been extended for another 4 months.

      Ask yourself, who saw the crash of 1987, 2000, 2007 coming other than a select few? Isn’t it concerning that collapses and crashes are occurring and accelerating in pace? I say forget about the oil picture for now and look at the BIG PICTURE to get a feel for what’s building up in the future for potential problems. I’m reminded of one simple passage in the Bible that basically says “no one knows the day nor the hour of when things will come, only God”.

      “Live your life as best as you can and enjoy it. This so called collapse may or may not happen in our lifetime. But it’s pretty much a lock someone will be dealing with it in the future”.

      • I did foresee the 2008 crash. This is my Oil Drum post about the problem. http://www.theoildrum.com/node/3382

        As they say, “It is always darkest before dawn.” And stock market analysts are always most bullish, before the crash. We know that something will break at some point, but there are so many candidates, that it is not clear exactly how the process will unfold. Raising US interest rates would seem like it would be a big push toward collapse, for example.

        • garand555 says:

          Gail, we now have a candidate with which we can start saying “If this, then that.” Shale oil and oil prices. Many of those companies that have been fracking are highly leveraged, and started taking this leverage on when oil was much more expensive. Storage is filling up because they are pumping as much as they can will cutting costs as fast as they can. What happens to oil prices when storage is full or too expensive? Oil companies either cut production or drop prices. How are those leveraged frackers going to pay their debts? Government bailouts are the only way that I see, but if the government is too slow, it will result in a lot of defaults in the junk bond market. Does this spread to the broader bond market? Time will tell, but this has the potential to turn into a broader financial crisis. A bond crisis would be full throated serious.

    • It is a financial and government collapse that we are looking for. It won’t look like a shortage of oil–too many people are looking for the wrong thing. I expect that the collapse will come through low oil prices. My expectation is that the low oil prices will eventually bring the system down, but big cracks won’t start to show up until later in 2015. Things look good enough now that I am hoping the next month and a half stays together pretty well.

      • Rodster says:

        Will this be on a global level?

        • The financial and government collapse will start in some places and spread to others. For example, Greece seems to be on the leading edge. So do Egypt and Syria. Venezuela is not far behind–it cannot live on current oil prices. Petrobas in Brazil just had its debt rating downgraded to “junk,” so Brazil may be headed in the same direction. I expect the Eurozone will fray, and then fall apart. Russia isn’t doing well now either, nor is Japan. The list is very long.

          I thought it was interesting that the Brazil article I read (Downgrade of Brazil Oil Giant Stirs Wider Concerns) said,

          The cost to buy insurance against a Petrobras default has more than doubled since September, to around six percentage points from 2½, said Pablo Spyer, an analyst at São Paulo-based Mirae Asset Securities. He added that the costs of credit-default swaps are also rising for Brazil’s sovereign debt and other Brazilian corporations because of Petrobras.

          This means anyone who wants to can gamble on Petros’ financial condition in the derivatives market. If banks get into trouble, it looks like depositors will probably be on the hook to clean up the financial mess–they will lose part (or all) of their deposits. This is happening because governments are in such bad shape in terms of debt that they can’t afford more bank bailouts.

          • Rodster says:

            Greece has the potential for being the canary in the coalmine. I read that their bailout agreement was written up by the Germans and the Greeks signed off on it. All of this on the heels of the new Greek Syriza Party playing hardball. Something smells fishy here because at first they played hardball and threatened to leave the EU and take Italy, Spain and Portugal with them. Then suddenly did a 180 and became compliant.

            As you’ve pointed out with your Leonardo sticks that the world for the first time is now so interconnected that a minor player like “Greece sneezes and the rest of the world catches a cold”.

            Instability, chaos and turmoil have become the new norm.

            • The Greeks are pitching complete BS, in JC Juncker-style “When it gets serious, you have to LIE” style. They agreed to basically “whatever”, and now go back to Greece and don’t do any of it, or do the opposite. LOL. Meanwhile, hopefully the IMF keeps coughing up liquidity, because there aren’t going to be any actual deposits in Greek Banks for much longer.

              RE

            • Reg says:

              maybe someone explained to the syriza party what the real stakes were i.e. that we are facing the end of civilization and that if they walk on the EU the end games happens sooner rather than later

          • Jan Steinman says:

            “If banks get into trouble, it looks like depositors will probably be on the hook to clean up the financial mess–they will lose part (or all) of their deposits.”

            It seems like a good idea to have some cash in an envelope somewhere. (Wish I had some to put in an envelope!)

            I still think the best insurance policy is being a primary producer. If the entire financial system collapses, we’ll still be able to feed ourselves — as well as barter the excess to neighbours. And it’s harder (though not impossible) to take that away from you than it is to take your envelope of cash away. For one thing, if you’re feeding your neighbours, they’re going to help defend you.

            • garand555 says:

              It may be harder to seize crops than an envelope full of cash, but it is easy to burn crops. If somebody takes a strong dislike to you, and this can happen even when your intentions are pure, never forget that. Potatoes caught on in Europe for a reason.

          • garand555 says:

            Gail,

            Depositors are already slated for the slaughter:

            https://www.fdic.gov/about/srac/2012/gsifi.pdf

            Another thing to point out is that governments are going to take a very Willie Sutton view of the world. He supposedly robbed banks because that is where the money was. Where is the money now?

            • James says:

              When the depositors are slaughtered this time around the governments will soon find out that the money system was pretty much the only thing holding the illusion of national sovereignty in place. Even the mighty US military, which will watch their savings vanish too, won’t be able to keep a lid on the shit storm that will follow.

            • Thanks! With as many countries as there are around wanting to sell oil-related assets, it seems like the prices will be pretty low. The number of buyers starts getting small as well. China, Saudi Arabia? Why would buyers want something that is so hard to extract? I suppose if a buyer is convinced that the oil price will go back up again.

            • rikkitikkitavi says:

              “Petrobras hires JPMorgan for $3 billion in asset sales –”

              Maybe JPM can repackage it and sell it to some pension funds. This could be big for GDP. I doubt even JPM can save PBR now. Deep water drilling through a salt layer is akin to asteroid mining.

          • rikkitikkitavi says:

            “This means anyone who wants to can gamble on Petros’ financial condition in the derivatives market. ”

            Except that the bets only pay off if theres a default. Guess who decides? The guys who pay out if the bet wins. 10 cents on the dollar was not a default when Greece did it. Why? Negotiaed settlement not a default. Heres the negotiation. Ten cents or nothing.

    • richard says:

      I’d suggest that before there is a decline in oil consumption there has to be a plateau. We are or were in a world where infinite exponential growth is promoted as “stability”, hence the changes you need to look for are changes in the flow of capital, attempts by governments and others to bolt stabilisers onto the systems by regulations and restrictions, and so on, just to keep the illusion of business as usual. That then gets a response such as cheating, friction, competition for resources and inefficiencies.

      • I don’t think that there has to be a plateau in oil consumption. There can be two directions: up and down. Oil consumption needs to go up to keep the system going. Your bank closes, and your oil consumption goes down, whether or not it reached a plateau earlier.

    • artZazzle says:

      Yes I know exactly what you mean, I feel the same, here in Europe.
      Perhaps Ugo Bardi has some explanation for it, in:
      http://cassandralegacy.blogspot.be/2014/01/the-other-side-of-peak-italys-collapse.html
      “But arriving to the conclusion that there are no problems in Italy would mean to make the same mistake that our former prime minister made a few years ago, when he said that Italy had no economic problems because “restaurants are full”. Restaurants are not the economy and city streets at rush hour are not the country’s transportation system. And there is no doubt that transportation is in trouble if we measure it in terms of km traveled. Here are the data (courtesy of Massimo de Carlo at “Mondo Elettrico”). The blue curve is for light vehicles, mainly cars, violet is for trucks, and red is all vehicles. Data from AISCAT, updated to 2012.”

  4. When you lecture in China, are you going to let them know they are ,b>TOAST?,/b> Will you let them know they got in a Day Late and a Yuan short and their economic model of Industrialization can’t possibly work in a world of depleting resources and energy? Are you going to inform them that their pollution, lack of potable water and population overshoot are setting them up for a massive Die Off in the next couple of decades at the outside? Or will you sugar coat it for them?

    RE

    • Falling Wages is an artifact of Credit Starvation to various economies.  It results in DEMAND DESTRUCTION across these economies, subject of the latest Frostbite Falls Daily Rant.
      RE

      • If we pretend we have more goods and services in the future, this allows more credit. The greater credit tends to pump up demand for commodities, and thus prices.

        How this gets back to the common worker in wages is a mystery to me. Higher commodity prices = lower wages of common workers, in inflation adjusted terms.

        • How it gets to the common worker is EZ.

          Facepalm does an IPO for $100B. The TBTF Banks borrow $100B from Da Fed to buy the stock. Now Facepalm has $100B in capital with which to pay their geeks and techies. They don’t even need any advertising revenue for quite some time. Even after a few years of no profits, they can simply float up a bond issue and run on more debt, rinse and repeat until the debt service is too high, at which point they finally go belly up and the debts are shifted onto the balance sheet of the taxpayer. That is how Capitalism has worked since the days of the Railroads through the Automotive & Airline industries and up to the Tech era.

          RE

    • I am going to let them figure it out for themselves.

  5. VPK says:

    Thanks Gail,
    Enjoy your trip
    Like I always say. “IT’S NOT WHAT YOU MAKE THAT MATTERS, BUT WHAT IS LEFT OVER THAT COUNTS” AND “HAPPINESS IS POSITIVE CASH (ENERGY) FLOW”

    Enjoy the trip, because you never know when it ends

    • As they say, it is not the destination–whether we live to be 100–that counts, but what we do in the time we have.

      I have been to China before, and in fact to the Petroleum University in Beijing before. This is a blog post I wrote about my trip four years ago.
      https://ourfiniteworld.com/2011/05/30/observations-based-on-my-trip-to-china/

      • VPK says:

        Scott Hearings favorite line was this ‘To travel hopefully is better to arrive and the the true reward is to labor’, from Robert Louis Stvenson , I believe.
        Heard on NPR today about the battle going on about immigration reform and the President’s executive order. Seems one sector of the economy is benefitting from the status quo, industrial agriculture. Keeps illegals trapped in migrant farm labor with substandard living conditions with low wages. Owners are concerned these folks will seek city employment to escape such conditions.
        Also, President Obama is very concerned regarding the low Pay increases of the working class. The stock market has soared, but the average wage has not and real inflation has soared. The Fed has ‘determined’ not to raise interest rates…they don’t DARE!

  6. Lidia17 says:

    Gail, what seems to you like a conundrum is pretty simple, actually: the vast majority of GDP is actually useless waste.

    Increases in GDP is not anything a sensible country or society should actually want. Steve Ludlum (“stevefromvirginia”) is very good on this point.

    On a finite planet, we should want neither increases in GDP, nor should we want increases in worker wages that allow them to buy more [cars, sneakers, iPhones, what-have-you]. We are in a less-than-zero-sum game at the moment, and for all time, really.

    Things like wages “need to grow” only in an abstract mathematical and rigged political hegemony/fantasyland detached from reality.

    • This is one way of trying to address the issue of a whole lot of GDP being useless waste–for example, lots of marketing people flying around from meeting to meeting. The problem, of course, is that the useless waste is what provides jobs. Without the essentially wasteful jobs, we have an even larger number of people unemployed. It becomes even harder to repay debt with interest. The government tries to fix this, but in the end, it is the government/financial system that fails.

    • Stefeun says:

      Lidia,
      increases in wages and GDP are necessary to hold the system together and keep on with BAU. We all know it isn’t sustainable anyhow, but flat GDP and decreasing wages are telling us that global collapse is much closer than most are expecting.

      Thanks for mentioning “waste”, as I think that waste and pollution are becoming a major issue, an exponentially growing burden, especially for China.
      Someone already linked to this article: “China’s Waste and the Largest Wealth Transfer in History” http://www.acting-man.com/?p=35814 (see the map of air-pollution)

      Another example is the plastic: http://www.newscientist.com/article/dn26958-oceans-swallowed-13-million-tonnes-of-plastic-in-2010.html#.VOzqemK9KSN
      “Vast floating islands of plastic are just a drop in the ocean compared with what’s lurking deeper down. Between 5 and 13 million tonnes of plastic debris entered the marine environment in 2010 – and most of it is under water. What’s more, without improvements in the way we manage waste, it could be 10 times as much each year by 2025.
      (…) This means the amount of plastic that has entered the ocean down the years might be 1000 times more than the mass of floating plastic that scientific surveys have measured. (…) China tops the list with an estimate of up to 3.53 million tonnes of plastic marine debris a year”

      We could cite similar stories about many other subjects (rare earths, fresh-water, …), the point is that our waste is really starting to reduce our possibilities, to say it gently, and we don’t know how to deal with it, other than to stop our activities, which is not an option but will have to happen anyway (“Like it or not” as Nicole Foss says).
      It would really be interesting to know about Chinese people’s point of view about that. Gail I wish you a nice trip there and hope everything will go as planned.

      • I have heard that people in China are really upset about the air pollution problem. This may be behind the cutback in coal consumption that is reported for 2014. This is one graph that has been posted of an estimate of China’s 2014 coal consumption.

        Chart by Lauri Myllyvirta showing a preliminary estimate of 2014 coal consumption in China. My expectation is that the economy is really growing by less than 7.5%.

        • A few years back Maria Bartiroma, Fox Business News reporter, made her first trip to China, expecting to report business news. When she returned all she could talk about was the pollution. I had earlier traveled through China with a group of bridge players. The tour included a cruise on the Yangtze River through the Three Gorges Dam (the world’s largest power plant) to the interior city Chongqing. The dam flooded many older homes but they were largely replaced with modern apartments. We arrived in Chongqing in the morning. The rising sun resembled a full moon. Greater Chongqing has a population close to 30 million. It is the center of the Chinese auto industry. Many 40+ story apartments had window air conditioning units. Visiting Xian, a smaller city. we saw many locals wearing surgical masks. Some of the pollution was said to be from the illegal burning of crop residual following harvest. We were lucky to hit the East Coast during relatively benign period.

          • When I visited China before, pollution varied greatly from day to day and place to place. Xian was terrible I remember. Beijing had a dust storm one day I was there, but otherwise was pretty clear. Beijing is in a “bowl,” so it is like Los Angeles, with the pollution level varying with wind conditions.

            When I was in Mumbai, India, for something like five days, the pollution was terrible. I am told that major cities in India are as bad or worse than in China for pollution.

            • rikkitikkitavi says:

              The greatest pollution source in India? Your sitting on it. By far untreated sewage. Soon to be the worlds largest population, and all that poop going straight into the rivers. The fascinating thing about open sewage is its not really open. A layered crust forms in various shades and composition much like a parfait. This crust will not support the weight of a human however. That will teach you to pay attention to where you place your feet. Ah romantic India. Fond memories of the raj. Turds floating down New Delhi streets in the monsoon.

        • richard says:

          I *think* they expect to increase electricity production from coal by some 4.2% YoY, hence to keep pace with demand, nuclear and renewables (including hydro) have to increase by 15~16 percent.

  7. Lidia17 says:

    What I mean to say is, it is not only limits on workers’ wages that circumscribe our economy. The circumscription is based in something much more concrete and less political.

    Wage inequality at this point is something of a red herring, as billionaires can have no end of money and bid up things they desire, like food, but when the last bluefin is gone, no amount of money will bring it back. What will be the fun of having billions when there is no potable water in California or New York or Portofino… no caviar or even hamburger in the non-existent restaurants?

    The Billions of nominal dollars that the rich “hold” are just (as Nicole Foss terms them) “excess claims on underlying real wealth” which simply won’t be there.

    • Harry Gibbs says:

      The burgeoning inequality of wealth distribution is interesting though. Complex systems will tend to tilt towards extremes as they approach terminal tipping points. Paul Chefurka made this very interesting observation, which I hope he won’t mind my reproducing here:

      “If the economic gradient between rich and poor is in some sense analogous to a temperature gradient in thermodynamics, and acts in much the same way – the steeper the gradient, the grater the energy flow along it, and the more active the system. A society with perfect socio-economic justice would therefore be in equilibrium, and like a thermodynamic system in that state would exhibit little or no activity.”

      • The advantage of tipping most of the wealth toward the very rich is that they tend to spend very little of it. If it all were taxed away, and distributed to the poor, they would try to actually spend the wealth. The catch is that this wouldn’t actually result in the huge amount of goods needed to fill the needs of the less wealthy. There isn’t enough oil being extracted to build all of the cars and houses that the new-found wealth would buy (plus pay the wages of all of the people needed to build these things).

        I am not a student of thermodynamics, but intuitively what you say this makes sense to me. These presentations are at this point are still in draft form, and the “Overview of the Networked Economy” in particular is short, so could be added to. The thermodynamics behind this change in wealth distribution would be an interesting addition.

        • Lidia17 says:

          Oh Gail, thermodynamics is everything!

          • I keep learning as I go on a lot of subjects. I have corresponded with a lot of folks over the years on thermodynamics-related subjects. I suppose I would do better if I picked up a textbook to round out my knowledge level.

        • garand555 says:

          There are two things everybody should know about thermodynamics: Given enough molecules, the entire system will behave like the mean behavior of those molecules and TANSTAAFL.

          • I really like the article by Yadvinder Mahlhi. Is it part of a book that has been/ will be published? The J. H. Brown mentioned in that book is someone I know quite well–Jim Brown who retired not too long ago from the University of New Mexico. He invited me down there for a couple of days a few years ago. I am familiar with some of his articles on this topic and have read about humans’ high use of NPP before.

          • Stefeun says:

            Thanks Louploup2,
            Yadvinder Malhi’s description of socio-metabolism as an addition to bio-metabolism, using same units, as well as the Gross/Net Primary Production metric, are very interesting.

            Made a quick search and found he’s an ecosytem ecologist and Professor of Ecosystem Science at Oxford University. He’s holding a blog and seems to be working on quite a lot of projects (with students), somewhat related to the GEM-project (Global Ecosystem Monitoring Network): http://www.yadvindermalhi.org/projects.html

            As for “Metabolism”, I also found this presentation and 1h15 video of a lecture he made last January (didn’t watch it yet, and couldn’t find about the book): http://www.yadvindermalhi.org/blog/the-metabolism-of-a-human-dominated-planet-public-lecture-at-the-oxford-martin-school

            • Mario Giampietro and Kozo Mayumi are other people I know who write on a related topic (plus on other ones). For example https://books.google.com/books?hl=en&lr=&id=yreoAgAAQBAJ&oi=fnd&pg=PP1&ots=xdh4lzoXmb&sig=5bUtoabTG03AjhPJG6urnw3MJqM#v=onepage&q&f=false

            • Stefeun says:

              Thank you Gail,
              from what I’ve seen in the preview, there seems to be a tremendous amount of interesting insights in this book; maybe even too many. As they say in the preface: “this book was easy to write, but we’ve been told it wasn’t so easy to read”, I tend to agree and think they perhaps should have spent a little bit more time to make it clearer (NB: my impression only, and after reading a few pages only).
              The described method (MuSIASEM*) looks highly valuable, but unfortunately not for the purpose they state (“adjustments that may avoid the total collapse”). I’m afraid we’d need more than fine tuning.
              *: Multi-Scale Integrated Analysis of Societal and Ecosystem Metabolism

            • I haven’t read this particular book myself. The book of theirs I read was “The Biofuel Delusion.” In it, he mentions that the size of government can’t be bigger than the amount that farmers have as extra, over and above meeting their own needs.

              Mario Giampietro was the one who invited me to give a major talk at an energy conference in Spain several years ago (along with Joe Tainter and Charlie Hall). A paper related to my talk was later published as “Oil Supply Limits and the Continuing Financial Crisis” in the journal Energy. Mario was instrumental in getting me through this process. I hadn’t thought of writing a journal article.

        • AA says:

          You’re absolutely right. The naive and misinformed opinion “out there” is that redistributing the financial wealth of the 1% to everyone else would result in the material prosperity of half a century ago. What it will really do is drive up the prices of basic commodities as too much paper chases a finite amount of goods.

        • Daddio7 says:

          Imagine the energy needed for 7 billion people to live like Americans! Most of the wealth of the very rich is actually bits in a computer and there is little to redistribute.

        • MG says:

          “The advantage of tipping most of the wealth toward the very rich is that they tend to spend very little of it.” – that is what was the reality before the fossil fuels use. As the huge amounts of the cheap energy started to be at the disposal of the poor people, they started to behave like the rich: build big houses, buy luxurious goods etc.

          Now, when the flows of the cheap energy become constrained, the amounts of the rich shrink. Many houses become abandoned, as the population shrinks and the people move to more energy saving lifestyles:

          http://www.spiegel.de/international/germany/demographic-shift-in-germany-leaves-thousands-of-empty-homes-a-866298.html

          The result of the lack of cheap energy will be a lot of empty and desolate large real estates and many abandoned houses in the areas lacking enough food and wood.

          • Thanks for the link. I agree that there will be a lot of abandoned houses. As we get poorer, we can afford fewer homes. Also, some homes are poorly located, or badly in need of upgraded insulation, heating, electricity, etc.

          • richard says:

            Many of these failings are not accidents, but the result of preverse incentives such as the UK’s VAT on refurbishment while new housing is subsidised via the provision of infrastructure free at the point of supply. There are attempts to change this, but these initiatives are usually ineffective.
            Ideally, the oldest 25 percent housing should be demolished and replaced with modern equivalents, but that brings its own problems. One thing is for sure, and that is that today’s new house will be consuming energy for a very long time.

      • Lidia17 says:

        Harry, thanks for forwarding that. Paul has been exploring these ideas in a very fruitful fashion. We are only alive thanks to energy gradients, so to some degree they are a necessity. The problem is confusing the nominal money system with the real material economy.

        We have been brainwashed to think that “jobs” are “productive”; in most cases they are not. With sharply-reduced future energy and resources, our strategy should be one of immediate degrowth and a conscientious reduction in superfluous activity. This is actually happening, as Gail mentioned above, with the loss of “jobs” and people being given food stamps and disability to sit home and encouraged to spend their time and money on the latest boondoggle of online colleges.. it’s just that people are bombarded with propaganda messaging and the agonizing disconnect that “the economy is recovering” and that all you need is to go back to school for STEM training to get a good job. But it’s not happening in other areas, for example the military. Has anyone noticed an extreme and increasing fetishization of all things military in their town lately? I tend not to watch the news but am aware of an increased level of warmongering.

    • I agree. The vast majority of the wealth of the billionaires will simply be lost. They can only eat a certain number of calories–about the same number as the rest of us. They can only sleep in one bed a night. The pixels in their bank account statements may say that they have a lot of money to spend in the future. When the time comes when they think they can spend it, it likely won’t be there.

      • The Gates Foundation has been a prominent supporter of Planned Parenthood among other things

      • garand555 says:

        Even the physical wealth of billionaires will not be theirs. There are some out of state people who have a lot of land here. In the event that there is no federal government, do you think that I will respect their private property rights? Nope. Are there a lot of other people who will take that view when left to their own devices? Yup.

        • I am afraid you are right. Of course, location is everything. If the location is where there is no water and no access to food, owners may choose to leave.

          • garand555 says:

            Well, I’m primarily thinking of Ted Turner here, who’s land butts up against Elephant Butte lake and has Gemsbock Oryx on it. Oryx are mighty tasty creatures.

    • richard says:

      Please give some thought to the curse of oil resource-rich economies. This is something we all feel. The income from selling oil has to be recycled – it cannot be stored – and in many cases if the flow of government support to local economies falters, there are riots. Hence is these countries “wages” is somewhat subjective. Where the income is invested, can also cause economic stress as we currently see from the effects of lower oil prices.

      • Right. All this money keeps getting handed on again and again. If it is not there, it is a problem. At one time, quite a bit of the oil money was being used on US debt, but more recently it seems to have been reinvested in the countries. There are a lot of countries doing very badly, including Venezuela and Brazil. Russia isn’t doing very well either. If there is a lack of flow of money through the workers, that becomes a problem.

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  9. yt75 says:

    Isn’t there an issue with the pictures and links ?

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