The Energy Problem behind Trump’s Election

The energy problem behind Trump’s election is not the one people have been looking for. Instead, it is an energy problem that leads to low wages for many workers in the US, and high unemployment rates in the European Union. (The different outcomes reflect different minimum wage laws. Higher minimum wages tend to lead to higher unemployment rates; lower minimum wages tend to lead to higher employment, but unsatisfactory wage levels for many.) The energy problem is also reflected as low prices of oil and other commodities.

To try to solve the energy problem, we use approaches that involve increasing complexity, including new technology and globalization. As we add more and more complexity, these approaches tend to work less and less well. In fact, they can become a problem in themselves, because they tend to redistribute wealth toward the top of the employment hierarchy, and they increase “overhead” for the economy as a whole.

In this material, I explain how inadequate energy supplies can appear as either low wages or as high prices. Basically, if energy supplies are inadequate, workers tend to be less productive because they have fewer or less advanced tools to work with. Their lower wages reflect lower productivity (Slide 20).  Slide 6 offers some additional insights.

Trump’s election seems to reflect the cooling effect that our energy problems are having on the economy as a whole. Citizens are increasingly unhappy with their wage situation, and want a major change. Trump’s election may at least temporarily have a beneficial effect, since it may work in the direction of reducing complexity.

Long term, however, it is hard to see that the policies of any elected official will be able to fix our underlying energy problems.

I wrote up my post as a presentation. It can be downloaded at this link: The Energy Problem Behind Trump’s Election. I thought this might be a way of putting together quite a bit of material into one place. I have displayed the images of the PDF below the fold, for those who would like to read them as a post.

I hope the large number of images does not cause viewing problems. Let me know if you have suggestions for making this material more accessible.

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Section 1: Trump’s Election Reflects the Winds of Contraction

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Section 2: The Surprising Role of Energy

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Section 3: Humans’ Unusual Use of Energy

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Section 4: The Role of Complexity

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Section 5: Where we are now with respect to energy and the economy

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Section 6: Trump’s Solution and Final Thoughts

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This entry was posted in Financial Implications and tagged , , , , , by Gail Tverberg. Bookmark the permalink.

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.

1,893 thoughts on “The Energy Problem behind Trump’s Election

  1. Here is an article in Slovak that tries to analyze what would happen to the profits of several selected companies from various sectors operating in Slovakia if we increase the wages of the workers in various ways:

    http://blog.etrend.sk/iness/mozu-si-firmy-dovolit-vyssie-mzdy.html

    The main points are:

    – Even the low increase in net wages has big impact on the costs of the companies
    – The companies with higher share of capital (machines) have better “buffer” as regards the wage increases, when the production unit is manmachine (I am not sure, if this is the right term in English, could not find it fast, but it is the production unit consisting of man and machine), the constant costs of capital (machine) make the effect of costs increases of the human share smaller. These are the companies where the share of the wages on the product is lowest.
    – The banks are an extreme case: their good results depend on the cost of the capital and the cost of risk
    – The companies with the under the average wages are far more sensible to wage increases in absolute values. The wage increase of EUR 100 has a bigger impact than in the companies with higher wages, especially when they are service-oriented companies.

    So the wages of the employees of TESCO or Slovak Post have a little potential to be increased significantly. Moreover, IBM recrutes the employees from a different pool than TESCO or Slovak Post, so the wages in IBM are double the wages of TESCO or Slovak Post, as IBM faces higher competition when recruiting workers.

    • Excepting debt growth is kaput, has been since 2008. Growth reports are after overhead reductions……store closures, asset liquidations, employee shedding, energy use reductions. There will be a proverbial last straw, most of us are wondering when.

    • I know that raising wages in restaurants tends to make the restaurant food unaffordable and, for that reason, tends to put restaurants out of business. The other alternative seems to be for management to find some form of automation that eliminates enough jobs at the same time that the wage increase goes in, so that costs can be kept the same. For example, automated ordering in fast food restaurants.

      It is hard to really model the situation, because there are so many “moving parts” to it. Falling total wages of workers, whether through layoffs or through falling income per hour is a good way to reach collapse.

      • Low margin businesses such as fast food restaurants … many retailers such as Walmart… would obviously be impacted the most by higher wages as they would be forced to increase prices or lay people off — otherwise they would face bankruptcy.

        Difficult to increase prices in this environment…

  2. If the world total energy production has reached a plateau… then a population growth will lead to a fall in energy per capita… then the opposite must be true as well… decapitations will increase energy per capita.

    Any volunteers ?

  3. So now that Italy is collapsing, guess where all the money goes? Right into that U. S. stock market. Go figure. I thought we were all supposed to collapse because of the tinker toy model or something like that.

    • don’t forget the law:

      If a nation doesn’t produce sufficient indigenous energy from within its borders to supply e aspirations of its people, it must beg buy borrow or steal it from somewhere else, or sink back to a sustainable level.

      as money is only a token of energy, the same rule applies to the Italian money market..

      It is a law that does not apply instantly, but over time shuts a country down despite all the riot and mayhem (these have yet to happen in Italy).
      I said Italy was next after Greece, (which is now in a growing state of privation after the ”borrowing” phase) then Spain and probably france

      • Are you for real? Italy is a province, part of the EURland, which is again a cog in larger wheel of global bankster feudalistic structures, so exactly nothing is about to crash anytime soon. As demonstrated numerous time here before, the CBs are just warming up.. in terms of debt saturation.

        Italy will now most likely muddle through ~2018 for the next parliamentary elections. And after that it’s quite unlikely a gathering of serious overwhelming ~2/3 majority of various populists can get to even agree to force some serious proposal not mentioning real action plan on leaving the EUR and phasing back the much cheaper Lira economic model. In the meantime though, there will be many “sky is falling (again)” not moments but rather another wave of just chicken little announcements, even at worst some attempts to bail-out (put in on .it gov pile of debt books) or perhaps bail-in escapades might proceed.. Unpleasant for many yes, profit making/keeping for the very few yes indeed, this will be seen just as an episode from the rear-view mirror of more pressing realities of OFW as experienced sometime ~2025-2035.

        • Perhaps John Key should reconsider… he could run for another term then retire and still have years to spend with his family

      • If the EU falls apart, there are going to be a lot of countries with problems, I expect. Germany has benefitted greatly from the EU organization. It will do less well also. It is a big energy importer.

        • the EU flowed together on a tidal wave of oil-prosperity after ww2, kindly funded by American loans.

          It was the first time in history that a conquering army had not looted and destroyed its foe after winning a war.
          so for the first time in 2000 years the nations of the european continent did not need to attack each other to grab resources.
          so instead we decided to combine into a ‘single market’ for the common good.

          which was fine as long as there was more than enough for everyone.
          right now we are reaching the end of that ‘time of plenty’ so europe is devolving into its nation states again—because there is no prosperity to hold them together.

          It may look different—but the same thing is happening in the USA.
          As ‘plenty’ disappears the USA will fall apart too, as will its ‘democracy’. It too will devolve into ‘nation states’.
          which explains the rise of fascist ideology once again

          democracy is the child of prosperity, it can never live as an orphan

  4. From the Guardian, by Paul Mason:

    “The Soviet Union collapsed overnight. Don’t assume western democracy will last for ever”

    https://www.theguardian.com/commentisfree/2016/dec/05/soviet-union-collapsed-overnight-western-democracy-liberal-order-ussr-russia

    Extract:

    “But when the country that designed globalisation, imposed it and benefited from it most votes against it, you have to consider the possibility that it is going to end, and suddenly. If so, you also have to consider a possibility that – if you are a liberal, humanist democrat – may be even more shocking: that oligarchic nationalism is the default form of failing economies.”

    Here he slides into over-optimism:

    “Our last great hope will be ourselves. And there are enough of us to stop this second great collapse towards oligarchy and nationalism. We are networked, aware, educated and – for now – psychologically resilient. As we link together and resist we can learn a lot from those who have been doing it, quietly, in Russia.”

    • Mr. Mason is one of the more reasonable and rational Guardianistas. But due to a failure of imagination because he’s surrounded at that DelusiSTANi paper by an unpleasantness of hardcore cultists, he doesn’t appreciate that net energy decline is a falling tide that lowers all boats, or that the sudden end of globalization could also herald the sudden end of industrial society, period.

    • Right! And the Soviet Union collapse in some sense was not very bad, because the rest of the world held together, and because the individual states held together. It also helped that Russia was energy self-sufficient. Once oil prices rose again, Russia was again able to develop its oil exports and prosper.

  5. BREAKING NEWS!

    Following the shock announcement that he will step down from office, John Key was issuing a no comment as to why four lorries were seen delivering 40 foot shipping containers and placing in the paddock out back of his home.

    Mr Key was also spotted at Mitre 10 numerous times throughout the week apparently loading up on gardening tools.

    He was overheard asking one of the staff ‘do you by any chance sell solar powered disco balls — and if not – do you know where I might get my hands on one — it’s rather urgent’

    • Engineers always think that they can figure out the risk to nuclear devices by adding up their perception of risks of various types.

      Insurance people know that when it comes to insurance policies, they can be written on two different bases: (1) named perils, or (2) all risk. No matter how complete the “Named Perils” policies are, the cost of the “All Perils” policies nearly always comes out higher. There are things that engineers cannot forecast in advance.

      • I’m foreseeing human hubris in advance. Can’t put a monetary value on my risk assessment.

        Gold Teepee
        writes
        “You’d naturally shut down the reactors if there’s a serious tsunami warning in place. Technically there’s not that much of risk beyond the structural damage a serious tsunami could cause. Not to mention tsunamis don’t appear from nowhere, you’d have some warning.”
        The most confident people always seem to be the people who know the least about a given subject,just say what people want to hear…and re the ones usually tasked with emergency planning.

      • I didn’t looked at Durham’s paper, but I wouldn’t be surprised if their tsunamis are equivalent to US EMPs, i.e. metaphors for the end of bau (while emp taskforce did used the words “financial black swan”)

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