Why we have a wage inequality problem

Wage inequality is a topic in elections around the world. What can be done to provide more income for those without jobs, and those with low wages?

Wage inequality is really a sign of a deeper problem; basically it reflects an economic system that is not growing rapidly enough to satisfy everyone. In a finite world, it is easy for an economy to grow rapidly at first. In the early days, there are enough resources, such as land, fresh water, and metals, for each person to get a reasonable-sized amount. Each would-be farmer can obtain as much land as he thinks he can work with; fresh water is readily available virtually for free; and goods made with metals, such as cars, are not expensive. There are many jobs available, and wages for most people are fairly similar.

As population grows, and as resources degrade, the situation changes. It is still possible to grow enough food, but it takes large farms, with expensive equipment (but very few actual workers) to produce that food. It is possible to produce enough water, but it takes high-tech equipment and a handful of workers who know how to use the high-tech equipment. Metals suddenly need to be lighter and stronger and have other characteristics for the high tech industry, thus requiring more advanced products. International trade becomes more important to be able to get the correct mix of materials for the advanced products needed to operate the high-tech economy.

With these changes, the economic system that previously provided many jobs for those with limited training (often providing on-the-job training, if necessary) gradually became a system that provides a relatively small number of high-paying jobs, together with many low-paying jobs. In the United States, the change started happening in 1981, and has gotten worse recently.

Figure 1. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

Figure 1. Chart comparing income gains by the top 10% to those of the bottom 90%, by economist Emmanuel Saez. Based on an analysis of IRS data; published in Forbes.

What Happens When an Economy Doesn’t Grow Rapidly Enough?

If an economy is growing rapidly enough, it is easy for everyone to get close to an adequate amount. The way I think of the problem is that as economic growth slows, the “overhead” grows disproportionately, taking an ever-larger share of the goods and services the economy produces. The ordinary worker (non-supervisory worker, without advanced degrees) tends to get left out. Figure 2 is my representation of the problem, if the current pattern continues into the future.

Figure 2. Authors' depiction of changes to workers share of output of economy, as costs keep rising for other portions of the economy keep rising.

Figure 2. Author’s depiction of changes to workers’ share of output of economy, if costs keep rising for other portions of the economy. (Chart is only intended to illustrate the problem; it is not based on a study of the relative amounts involved.)

The reason for the workers’ declining share of the total is that we live in a finite world. We are using renewable resources faster than they replenish and continue to use non-renewable resources. The workarounds to fix these problems take an increasing share of the total output of the economy, leaving less for what I have called “ordinary workers.” The problems we encounter include the following:

  • Pollution control. Pollution sinks are already full. Continuing to use non-renewable resources (including burning fossil fuels) adds increased pollution. Workarounds have costs, and these take an increasing share of the output of the economy.
  • Energy used in energy production. When we started extracting energy products, the cheapest, easiest-to-extract energy products were chosen first. The energy products that are left are higher-cost to extract, and thus require a larger share of the goods the economy produces for extraction.
  • Water, metals, and soil workarounds. These suffer from deteriorating quantity and quality, leading to the need for workarounds such as desalination plants, deeper mines, and more irrigated land. All of these take an increasingly large share of the output of the economy.
  • Interest and dividends. Capital goods tend to be purchased through debt or sales of stock. Either way, interest payments and dividends must be made, leaving less for workers.
  • Increasing hierarchy. Companies need to be larger in size to purchase and manage all of the capital goods needed to work around shortages. High pay for supervisors reduces funds available to pay lower-ranking employees.
  • Government funding and pensions. Government programs grow in size in good times, but are hard to cut back in hard times. Pensions, both government and private, are a particular problem because the number of elderly people tends to grow.

It should be no surprise that this type of continuing pattern of eroding wages for ordinary workers leads to great instability. If nothing else, workers become increasingly disillusioned and want to change or overthrow the government.

It might be noted that globalization also plays a role in this shift toward lower wages for ordinary workers. Part of the reason for globalization is simply to work around the problems listed above. For example, if pollution becomes more of a problem, globalization allows pollution to be shifted to countries that do not try to mitigate the problem. Globalization also allows businesses to work around the rising cost of oil production; production can be shifted to countries that instead emphasized coal in their energy mix, with much lower energy used in energy production. With increased globalization, people who are primarily selling the value of their own labor find that wages do not keep up with the rising cost of living.

Studies of Previous Economies that Experienced Declining Wages of Ordinary Workers

Researchers Peter Turchin and Surgey Nefedov analyzed eight civilizations that collapsed in detail, and recorded their findings in the book Secular Cycles. According to them, the typical economic growth pattern of civilizations that collapsed was similar to Figure 3, below. Before the civilizations began to collapse (Crisis Stage), they hit a period of Stagflation. During that period of Stagflation, wages of ordinary workers tended to fall. Eventually these lower wages led to the downfall of the system.

Figure 3. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Figure 3. Shape of typical Secular Cycle, based on work of Peter Turchin and Sergey Nefedov in Secular Cycles. Chart by Gail Tverberg.

In many instances, a growth cycle started when a group of individuals discovered a way that they could grow more food for their group. Perhaps they cleared trees from a large plot of land so that they could grow more food, or they found a way to irrigate an area that was dry, again leading to sufficient food for more people. A modern analogy would be discovering how to use fossil fuels to grow more food, thus allowing population to rise.

At first, population grew rapidly, and incomes tended to grow as  well, as the size of the group expanded to the carrying capacity of the improved land. Once the economy got close to the carrying capacity of the land, a period of Stagflation took place. There no longer was room for more farmers, unless plots of land were subdivided. Would-be farmers were forced to take lower-paying service jobs, or to become farmers’ helpers. In this changing world, debt levels rose, and food prices spiked.

To try to solve the many issues that arose, there was a need for more elite workers–what we today would call managers and high-level government officials. In some cases, a decision would be made to expand the army, in order to try to invade other countries to obtain more land to solve the problem of inadequate resources for a growing population. All of these changes led to a higher needed tax level and more high-level managers.

What tended to bring the system down was the growing wage inequality and the resulting low wages for ordinary workers. Governments needed ever-higher taxes to pay for their expanding services, but they had difficulty collecting sufficient tax revenue. If they raised taxes to an adequate level, workers found themselves without sufficient money for food. In their weakened state, workers became subject to epidemics. Governments with inadequate tax revenue tended to collapse.

Sometimes, rather than collapse, wars were fought. If the wars were successful, the resource shortage that ultimately led to low wages of workers could be addressed. If not, the end of the group might come through military defeat.

Today’s Fundamental Problem: The World Economy Can No Longer Grow Quickly

Because of our depleted resources and because of the world’s growing population, the only way that the world economy can now grow is in a strange way that assigns more and more output to various parts of “overhead” (Figure 2), leaving less for workers and for unemployed individuals who want to be workers.

Automation looks like it would be a solution since it can produce a large amount of goods, cheaply. It doesn’t really work, however, because it doesn’t provide enough employees who can purchase the output of the manufacturing system, so that demand and supply can stay in balance. In theory, companies that automate their operations could be taxed at a very high rate, so that governments could pay would-be workers, but this doesn’t work either. Companies have a choice regarding which country they operate in. If a tax is added, companies can simply move to a lower-tax rate jurisdiction, where no tax is required for automation.

The world is, in effect, reaching the end of the Stagflation period on Figure 3, and approaching the Crisis period on Figure 3. The catch is that the Crisis period is likely to be shorter and steeper than illustrated on Figure 3, because we live in a much more interconnected world, with more dependence on debt and world trade than in the past. Once the interconnected world economic system starts to fail, we are likely to see a rapid drop in the total amount of goods and services produced, worldwide. This will produce an even worse distribution problem–how does everyone get enough?

The low oil, natural gas, and coal prices we are now seeing may very well be the catalyst that brings the economy to the “Crisis Period” or collapse. Unless there is a rapid increase in prices, companies will cut back on fossil fuel production, as soon as 2016. With less fossil fuel production, the total quantity of goods and services (in other words, GDP) will drop. Most economists do not understand that there is a physics reason for this problem. The quantity of energy consumed needs to keep rising, or world GDP will decline. Technology gains and energy efficiency improvements provide some uplift to GDP growth, but this generally averages less than 1% per year.

Figure 4. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil's Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

Figure 4. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

Are There Political Strategies to Solve Today’s Wage Inequality Problem?

Unfortunately, the answer is probably, “No.” While some strategies look like they might have promise, they risk the possibility of pushing the economy further toward financial collapse, or toward war, or toward a major reduction in international trade. Any of these outcomes could eventually bring down the system. There also doesn’t seem to be much time left.

Our basic problem is that the world economy is growing so slowly that the ordinary workers at the bottom of Figure 2 find themselves with less than an adequate quantity of goods and services. This problem seems to be getting worse rather than better, over time, making the problem a political issue.

These are a few strategies that have been mentioned on political sites for fixing the problem:

  1. Provide a basic income to all citizens. The intent of this strategy is to try to capture a larger share of the world’s goods and services by printing money (or borrowing money). This money would hopefully allow citizens to purchase a larger share of the goods and services available on the world market. If the pool of goods and services is pretty much fixed in total, more goods and services purchased by one country would mean fewer goods and services purchased by other citizens of other countries. I would expect that this strategy would not really work, because of changing currency relativities: the level of the currency of the country issuing the checks would tend to fall relative to the currencies of other countries. The basic problem is that it is possible to print currency, but not goods and services. There is also a possibility that printing checks for everyone will encourage less work on the part of citizens. If citizens do less work, the country as a whole will produce less. Such a change would leave the country worse off than before.
  2. Lower interest rates, even negative interest rates. With lower interest rates, the interest portion of the Interest and Dividend sector shown on Figure 2 can theoretically mostly disappear, leaving more money for wages on Figure 2 and thus tending to “fix” the wage problem this way. Low interest rates also tend to reduce dividends, because companies will choose to buy back part of their stock and issue very low interest rate debt instead. If interest rates become negative, the sector can completely disappear. The ultra-low interest rates will have negative ramifications elsewhere. Banks are likely to have a hard time earning an adequate income. Pension funds will find it impossible to pay people the pensions they have been promised, creating a different problem.
  3. Get jobs back from foreign countries through the use of tariffs. Some jobs might be easier to get back from foreign countries than others. For example, programming, call center operations, and computer tech support are all “service type” jobs that can be done from anywhere, and thus could be transferred back easily. In situations where new factories need to be built, and materials sourced from around the world, the transfer would be more difficult. Businesses will tend to automate operations, rather than hire locally. The countries that we try to get the business from may retaliate by refusing to sell needed devices (for example, computers) and needed raw materials (such as rare earth minerals). Or a collapse may occur in a country we try to get jobs back from, so fewer goods and services are produced worldwide.
  4. Keep out immigrants. The theory is, “If there aren’t enough jobs to go around, why give them to immigrants?” In a world with sagging GDP, job growth will be slow or may not occur at all. There may be a particular point in keeping out well-educated immigrants, if there aren’t enough jobs for college-educated people who already live in a country. Of course, Europe has been doing the opposite–taking in more immigrants, in the hope that they will provide young workers for countries that are rapidly aging. (Another approach to finding more workers would be to raise the retirement age–but such an approach is not politically popular.)
  5. Medicare for all. Medicare is the US healthcare plan for those over 65 or having a disability. It pays a substantial share of healthcare costs. The concern I have with “Medicare for all” is that because of the way the economy now functions, the total amount of goods and services that we can choose to purchase, for all kinds of goods and services in total, is almost a fixed sum. (Some people might say we are dealing with a zero-sum game.) If we make a choice to spend more on medical treatment, we are simultaneously making a choice that citizens will be less able to afford other things that might be worthwhile, such as apartments and transportation. The US healthcare system is already the most expensive in the world, as a percentage of GDP. We need to fix the overall system, not simply add more people to a system that is incredibly expensive.
  6. Free college education for all. As the situation stands today, 45% of recent college graduates are in jobs that do not require a college degree. This suggests that we are already producing far more college graduates than there are jobs for college graduates. If we provide “free college education for all,” this offer needs to be made in the context of entrance exams for a limited number of spaces available (reduced from current enrollment). Otherwise, we sink a huge share of our resources into our education system, to no great benefit for either the students or the overall system. We are back to the zero-sum game problem. If we spend a large share of our resources on college educations that don’t really lead to jobs that pay well, more people of all ages will find themselves unable to afford apartments and cars because of the higher tax levels required to fund the program.
  7. Renewables to replace fossil fuels. Despite the popularity of the idea, I don’t think that adding renewables provides any significant benefit, given the scenario we are facing. Renewables are made using fossil fuels, and they tend to have pollution problems of their own. They don’t extend the life of the electric grid, if we are facing collapse. At most, they might be helpful for a few people living off grid, if the electrical grid is no longer operating. If the economic system is on the edge of collapse already, fossil fuel use will drop quickly, with or without the use of renewables.

Conclusion

It would be really nice to “roll back” the world economy to a date back before population rose to its current high level, resources became as depleted as they are, and pollution became as big a problem as it is. Unfortunately, we can’t really do this.

We are now faced with the question of whether we can do anything to mitigate what may be a near-term crisis. At this point, it may be too late to make any changes at all, before the downward slide into collapse begins. The current low prices of fossil fuels make the current situation particularly worrisome, because the low prices could lead to lower fossil fuel production, and hence reduce world GDP because of the connection between energy consumption and GDP growth. Low oil prices could also push the world economy downward, due to increasing defaults on energy sector loans and adverse impacts on economies of oil exporters.

In my view, a major reason why fossil fuel prices are now low is because of the low wages of “ordinary workers.” If these wages were higher, workers around the globe could be buying more houses and cars, and indirectly raising demand for fossil fuels. Thus, low fossil fuel prices may be a sign that collapse is near.

One policy that might be helpful at this late date is increased focus on contraception. In fact, an argument could be made for more permissive abortion policies. Our problem is too little resources per capita–keeping the population count in the denominator as low as possible would be helpful.

On a temporary basis, it is also possible that new programs that lead to rising debt–whether or not these programs buy anything worthwhile–may be helpful in keeping the world economy from collapsing. This occurs because the economy is funded by a combination of wages and by growing debt. A shortfall in wages can be hidden by more debt, at least for a short time. Of course, this is not a long-term solution. It simply leads to a larger amount of debt that cannot be repaid when collapse does occur.

 

 

 

 

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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1,299 Responses to Why we have a wage inequality problem

  1. MG says:

    We can not trust economists, as they have a skewed view of the reality and, based on that, their projections are not reliable: the chief economist of the Ministry of Finance of the Slovak Republic has probably drowned in the Danube river while canooing

    http://spectator.sme.sk/c/20126987/well-known-economist-is-missing.html

    “Filko probably was not wearing a life jacket, as the rescuers say that if he had one, he would probably be able to swim to the bank, the public-service broadcaster RTVS reported.”

    How can we believe such persons?

  2. Artleads says:

    “One policy that might be helpful at this late date is increased focus on contraception. In fact, an argument could be made for more permissive abortion policies. Our problem is too little resources per capita–keeping the population count in the denominator as low as possible would be helpful.”

    Contraceptive and legal-abortion availability seems to be issue of the moment. Cases are pending in the SCOTUS.

    http://www.theguardian.com/law/2016/feb/16/us-supreme-court-cases-antonin-scalia-death-impact-abortion-voting-rights

    Contraception
    “Zubik v Burwell: This case deals with the application of the supreme court’s decision holding that requiring employers who raise a religious objection to provide contraception to women as part of employer-provided health insurance violated the Religious Freedom Restoration Act. The federal government has attempted to compromise by arranging coverage independently if an employer sends a letter stating its religious objection. Some employers have held that even having to write that letter violates their religious freedom. It is possible that chief justice Roberts and/or justice Kennedy will find the government’s accommodation reasonable and provide a fifth vote to uphold it. If they do not, most but not all lower courts have found the accommodation acceptable. Likely outcome: messy, but probably at least a partial liberal win.”

    It seems a reasonable expectation for public opinion to weigh on the side of having another woman appointed to the court (to replace recently departed Scalia). If that were to happen, It might not hurt the chances for contraceptive and abortion rights rollbacks to be reversed on a more permanent basis.

    • Yes, having another woman on the Supreme court might help.

      • Artleads says:

        If people are into activism of any sort, I would suggest putting a women’s movement to secure contraception/abortion rights at the very top- of the agenda. Counter intuitively (if one votes) major support should go to Sanders. That will at least lead to a crisis which can drive a pro choice movement. Even if one supports Clinton, pushing her “left” in an extreme way can only help forward such a movement. She should not have an easy time of it.

  3. chsm1th says:

    Excellent work and chart, Gail, as always–the “shrinking pie” analogy explains the situation aptly, As I have noted in my own work on automation, the other problem with Guaranteed Income for All funded by taxes on the owners of robots is that automation = commoditization, which means all your competitors can buy the same robots and software, which means there is no scarcity value in the output (with rare exceptions based on marketing/design like Apple). So profits will collapse as automation commoditizes goods and services.

  4. Yoshua says:

    A lot of highly intelligent people understand that we have a problem, but their understanding of the problem seems to be of politico economic nature.

    A Nobel prize winner like Paul Krugman seems to view the problem of inequality not as a resource problem, but as a distribution problem. He seems to believe that Keynesian economics will snap us out this depression. He views the Euro crisis as a flawed monetary policy. The problem in his mind seems to be of abstract nature and not of material nature. He makes a good case on each problem, but he seems to entirely ignore that our economy is fueled by a finite resource.

    Marxists will of course see this as the end of Capitalism and as the beginning of a Communist paradise. Everybody seems to see what they want to see. In a strange way this is turning into a very interesting time, although I see the death and destruction that has started.

    I believe that the collapse has already started with Greece, Spain, Portugal, Ukraine, Syria, Yemen…

    • I think Ukraine and Syria are more proxy wars over controlling the flow of hydrocarbons, rather than States collapsing. More to do with external interference than overshoot and decline on their own.

      Triage seems to be the way of it – like putting tourniquets on your limbs to save your head and torso, the outer, less important states collapse first, in the less important regions. Looks like Latin America and Europe are going down first, North America and East Asia last.

      • Yoshua says:

        How they collapse isn’t perhaps the prime question… the under laying cause is the global depletion of resources. We could perhaps add Afghanistan, Iraq, Libya, Sudan and Somalia to the list as well ?

    • Not many understand that our problems are connected with living in a finite world, and the problems of reaching its limits. Instead, they assume that there is some other problem.

      • Yoshua says:

        Inform Krugman. I doubt that he would inform the public if he saw the problem with your eyes.

        There are of course other problems as well. The Euro isn’t an optimal currency… and then he would return to his models.

    • DJ says:

      Venezuela, Afghanistan, Somalia …

      Instant and total collapse?

      • Fast Eddy says:

        Not yet.

        We have never seen a total collapse — because aid agencies would rush in to maintain a country facing complete collapse….

        I am not aware of any country that is completely disconnected from BAU.

        Even North Korea has electricity and petrol and trades with other nations.

        • DJ says:

          … and a lot of Volvo 240s.

          When everything else is gone those Volvos will still be rolling. Driven by rats and cochroaches.

      • Greg Machala says:

        Yeah those places were barely treading water anyway.

    • Lizzy says:

      Agreed. Well said.

      • Fast Eddy says:

        Paul Krugman understands the problem.

        The reason he is pedal to the medal with his support of stimulus is because he understands that growth is over.

        Of course he knows the policies that he is the front man for will blow up the economy —- just as the central bankers know this….

        But around 2002 when the cheap oil began to run out the Elders were faced with two options:

        1. Stand back and watch the world collapse.

        2. Throw everything including the kitchen sink at this and squeeze out as many years as possible.

        Obviously they chose door number two — thank the lord for that.

        • Brendon Crook says:

          “Obviously they chose door number two — thank the lord for that”

          The other creatures who dwell on this planet will be thankful for this also, those that survive…………………………………
          The industrial blight upon this planet can’t go away fast enough for he rest of life on it……………..

          • Fast Eddy says:

            Brought to you by the monstrosity otherwise known as humanity – the sooner we are wiped off the planet the better:

            • Brendon Crook says:

              This culture has no sympathy, no caring & no connection to anything outside humanities own sphere of illusions of its own superiority.
              It dwells in the sick fantasies of shopping centres, high rise units & street level coffee shops, all the while oblivious to the callousness of this sick culture, the lies it exports & the indoctrination it embraces.

              The sooner this Ship of Fools goes under the better…………………………..

            • Fast Eddy says:

              humane
              hjʊˈmeɪn/
              adjective
              adjective: humane; comparative adjective: humaner; superlative adjective: humanest

              1. having or showing compassion or benevolence.
              “regulations ensuring the humane treatment of animals”
              synonyms: compassionate, kind, kindly, kind-hearted, considerate, understanding, sympathetic, tolerant, civilized, good, good-natured, gentle; More
              lenient, forbearing, forgiving, merciful, mild, tender, clement, benign, humanitarian, benevolent, charitable, generous, magnanimous;
              approachable, accessible;
              rarebenignant
              “regulations ensuring the humane treatment of animals”
              antonyms: cruel, inhumane
              inflicting the minimum of pain.
              “humane methods of killing”
              2. formal
              (of a branch of learning) intended to have a civilizing effect on people.
              “the humane education of literary study”

              Quite possibly the sickest joke ever.

              Misanthropy – https://en.wikipedia.org/wiki/Misanthropy
              Misanthropy is the general hatred, distrust or contempt of the human species or human nature.

              That would be me…. I’d like to add the word disgust to that definition though

            • Brendon Crook says:

              I agree 100%.

              To be called misanthropic doesn’t endear oneself to the zombies & never has but I know you don’t care & nor do I………………………

              We live in a culture of sickness, delusion & alienation & if I knew how to bring this to a halt quickly
              I would but I see no other way other than the total dissolution of this screwed up culture as it dives into oblivion & I hope it comes quick.

              The other creatures who’ve been caught up in humanities sick notions of grandeur will be so relieved when this psychologically deluded sick culture fades into obscurity…………………………

            • Fast Eddy says:

              Ted tried….

  5. HARM says:

    The tide has actually been RISING for the past 40 years, not FALLING as Gail claims (productivity per worker & GDP). So why is it that only the YACHTS have been lifted?

    • Did you read the article?

      First, the claim is that the economy has not been growing fast enough, not that it has not been growing.

      There are a bunch of parts to it that I can see. One is globalization. If someone in China is willing to do an unskilled job for a quarter as much as an unskilled American, who gets the job?

      Next is automation – why pay an American $12 per hour or a Chinese worker $3 per hour, if you can buy a robot that works for $0.25 per hour?

      I think even if the economy was growing 8 percent per year and oil was infinitely available at $20 per barrel, these two issues would still be causing problems for the more developed nations. Then you stack on oil limits, raw commodity limits, arable land limits, demographics, pollution, taxes and regulation, etc.

      • Tom Skowronski says:

        So,how many widgets can these robots buy when they are paid $0.25 per hour?

        • “So,how many widgets can these robots buy when they are paid $0.25 per hour?”

          Exactly, that is why real wages for all but the top tier workers have stagnated in the West, and things are starting to look pretty rough even in China.

        • Greg Machala says:

          This is the closed minded thinking of CEO’s and share holders. They assume they are the only ones clever enough to think of this and every other company will loose out to their innovative ideas. Problem is, every company has and is automating even more. Once every company does this, no one is left with a job to buy the trinkets being produced.

    • I tried to explain in the post. Try reading it again. THere are a few winners, and lots of losers, in the current system.

    • JuanDonJuan says:

      the rising tide lifts all yachts
      if you only have a leaky dinghy, not so much
      Part of the problem being that the rate of return on Capital has far exceeded the return on Labor, in large part because the relaxation of restrictions on Capital flows over the last 30+ years has enabled the International/multinational/transnational corporations and banks to break the balance of power between Labor and Capital. Not for the first time, but it seems that we fail to look at historical trends and corrections to see where the inflection points are. The TBTF banks and businesses of today, the Robber Barons of the late 19th century, the failure to consider that the strength of a society is as much determined by the health of the roots as by the size of the entity. Economics divorced from Political Economy is a false science. Rational Markets-with human participants is a non sequitur. And GDP is not necessarily the best indicator of economic health. Ten people making a million dollars a year and 90 making a thousand dollars a year is not the same as a hundred people making 50,000 a year, even though one is a ten million dollar economy and the other only half that

      • interguru says:

        “Robber Barons of the late 19th century,”

        At least they left behind steel mills, railroads, refineries, etc, Today’s robber barons leave in their wake worthless paper and homeless people.

        • Greg Machala says:

          Yes so much of what seems to have value today will be worthless junk. In addition, the poor overall quality of workmanship in the infrastructure of today will mean most of it will be gone in 30 years time. All those power tools will be mostly junk without electricity.

      • Good points, Juan!

  6. Don Stewart says:

    Dear Finite Worlders
    An interesting observation at Peak Oil:
    ‘Saudi consumption has been increasing by 2.4% per year. Almost exactly what the Etp Model says it must. As their fields peak out their ability to export will go down, and they are probably at that point already.’

    The Etp model attempts to forecast the oil which is needed to produce oil. If the Saudis (or anyone else) can no longer increase the volume, then the requirement for increased oil consumption just to produce oil means that the oil available to the rest of the economy (or for export) must shrink.

    Don Stewart

    • Veggie says:

      Don,
      I think you just described the “Export Land Model”.

      https://en.wikipedia.org/wiki/Export_Land_Model

      As fields decline, (and/or the domestic usage increases), there will be less to export.

      • Don Stewart says:

        Veggie
        I don’t think the Export Land Model explicitly considers the increasing energy cost of producing oil. The ELM model, as I understand it, simply extrapolates the domestic consumption of energy into the future. The answers might be similar, but I think that if one understands what is happening with the energy cost of production, it adds some texture. For example, I believe it is Bloomberg which currently has a story on the stresses in the Saudi economy. While the stresses undoubtedly are mostly a result of the fall in revenue from oil sales, it is also instructive to consider that the Saudis cannot increase production (at least many people think they cannot) and they are using more oil to produce oil, and there is less physical volume to support their non-oil GDP.

        Don Stewart

        • Veggie says:

          Don,
          Good point. I think you are right. The energy and wage cost of production are additional to the ELM model.

          • JuanDonJuan says:

            that would be the EROEI predicament

            • “that would be the EROEI predicament”

              Ah, man. Here we go again with EROEI vs ETP vs CAGR vs whatever as different means of measuring the cost of extracting oil … round and round we go. Please, save us all the hassle and go read everything ever written by the Hills Group.

  7. Pintada says:

    Dear Uh … Somebody (it could be VanKent, or maybe Stilgar, I don’t remember, and am too lazy to look up the conversation right now – sorry);

    You were wondering how on earth the Military Industrial Complex in general and the modern US leadership in general could be so stupid. You pointed out several of the really stupid things they have done.

    I tried to point out (and failed – my fault not yours) what our friend Mr. Orlov said here:
    http://cluborlov.blogspot.de/2016/03/always-attack-wrong-country.html#more

    You see, the policies were completely effective … just not what you or I would consider.

    Sincerely,
    Pintada

  8. James Bond says:

    Gail are you one of these people who is facing a smaller share of the wage and so you write these articles to try to justify your situation? It is a finite resources planet aside from oil that renews itself and soon fusion, but it has nothing to do with population size or resource size. Just a few elites in the world who own 90% of the claims to these resources. Thats where inequality comes from!

    • “It is a finite resources planet aside from oil that renews itself ”

      Are you claiming that oil spontaneously regenerates at a rate that is always equal to or greater than the rate of extraction?

      So, we we pumped out 200 million barrels per day, the Earth would generate 200 million barrels per day?

      • Greg Machala says:

        Baaaahahahahah. Hahahahaha. If anyone actually believes that oil regenerates itself as we pump it out then there is no hope to educate them. It is all faith based. The truth doesn’t matter.

    • You are more than a little mixed up. Oil doesn’t renew itself.

    • Mayland says:

      Ant renewal rate of oil is enormously slower than we extract and use it and fusion has been 10 or 20 years away for longer than the 55 years I have been on this planet. What is your point exactly?

  9. Veggie says:

    Further to Don Stewart’s discussion on the French Market Gardeners….
    Here in Canada we have a similar example.
    Jean-Martin Fortier runs a 1.5 acre non mechanized farm in Quebec which distributes food to 200 families. The farm averages over $135,000 per year in sales and net profits easily provide for his family. More info here….
    http://www.motherearthnews.com/organic-gardening/six-figure-farming-with-jean-martin-fortier-zbcz1501.aspx
    This appeals to me on a personal level, however adopting this worldwide and fast enough just seems impossible.
    This could be a solution if only the planet did not have so many food consumption machines (Humans). I fear that we are way past the point of changing the system. Especially with conglomerate food lobby directing government decisions regarding food production.

    I am happy to say that there is a strong movement in Canada towards local grown food and a noticeable growth in micro-farming. This is a path I would like to take regardless of the big picture outcome.

    • Don Stewart says:

      Veggie
      Jean Martin Fortier visited the farm in France a couple of years ago. He was also here in North Carolina last winter. A very impressive young man.

      I was visiting with Peter Bane, a veteran permaculturist, and told him how Fortier placed his building on his property so that workers would spend as little time as possible walking to the toilet. Bane replied ‘that kind of thinking is why he is making money’.

      Don Stewart

    • Artleads says:

      Different subject completely, but one touching on something that could at least be looked into but won’t be due to the operating system of our civilization.

      Nuclear Waste

      \”Artists think spatially, even if they think about that space in very limited terms. They could think in broader terms, but they are constrained in their thinking by a cultural system based on limiting and limited imagination, especially visual imagination. Various kinds of spatial thinking could be applied to nuclear waste. Land use planning is a case in point. But here’s another. What would happen if nuclear waste were buried six feet deep in sturdy pipes running linearly for thousands of miles?

      I heard somewhere that nuclear waste is being stored (or had been stored) for a significant period of time in metal drums left outside at Los Alamos Labs. Maybe that waste is of a low grade, but I don’t know. Maybe only low grades nuclear waste could be “safely” buried linearly as I suggested, but I don’t know that either. Like nearly everyone in the lay public, I know so little about nuclear waste–and that has happened by the design of our civilization itself–that it would not compute to those few who are well informed on the issue.

      Conducting nuclear waste along thousands of channelized miles could allow for universal education on the subject of nuclear technology, but that is not how our civilization works. It is designed for suppression of thought. It is designed, in an extraordinarily crude and insensitive way, to benefit powerful interests who value and profit from the ignorance of the many.”

  10. Low oil prices. What they do to US shale oil production

    30/3/2016
    US shale oil peak in 2015
    http://crudeoilpeak.info/us-shale-oil-peak-in-2015

    • Greg Machala says:

      I think there is a lag to cutting back on capex and the production. So, I think the USA is heading into a period where shale oil production will decrease faster and faster each month as oil prices stay down. To reverse that trend will also take time and another period of lag. So, shortages my happen if prices don’t go back up. Logically it seems to me there is a critical time period here we are dealing with as to how long prices stay too low before shortages and chaos ensue.

      • One of the issues is how badly damaged the companies are. Have they laid off so many employees that they really can’t restart? that could be a problem.

    • Thanks! Nice charts!

      Does anyone keep track of shale NGLs, or doesn’t that make sense? NGLs started rising about the same time as crude from shale. We see a fair amount of information on crude increases and decreases, but not as much on NGLs.

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