The Economy Is Like a Circus

The economy is like a circus. It comes to town, and eventually it leaves town. We get paid in tickets to this circus. As long as the circus stays in town, we can use our tickets. Once the circus leaves town, we are pretty much out of luck.1

The reason the circus stays in town is because the economy stays in sufficient balance that the economy can go on. This is much like the way many other self-organized systems function. For example, our bodies continue to function as long as there are suitable balances in many different areas (oxygen, food, water, air pressure). Ecosystems continue to function as long as there is sufficient rain, adequate temperatures, and enough sunlight.

There are many different views as to what limits we reach in a finite world. Some people think we will “run out” of oil, or of energy products. Some think that the energy return will fall too low, as measured in some manner. I see the adequacy of the energy return as being very much tied to the financial system. Thus, the forecast by US Atlanta Fed GDPNow indicating that first quarter 2017 US GDP growth will only be 0.5% is likely to be a problem, assuming it is correct.

Our economy operates on economies of scale. Once we get too close to shrinking, or actually start shrinking, we reach a point where the economic circus starts to leave town. At some point, we will discover the circus is gone. The economy we thought we had, will have left us. If some people are survivors, they will need to pick up the pieces and start over with an entirely new system.

What the Economy Needs to Do to Keep Functioning

For our economy to continue functioning, a number of variables are important:

  • Prices of commodities – Prices cannot be too high for the consumer to afford goods made with them. They also cannot be too low for producers. If prices of oil and other commodities are too low for producers (as they are now), producers need to keep raising debt levels to stay in business. There is a risk that production will stop from lack of adequate new investment, or from the bankruptcy of producers.
  • Wages of non-elite workers – These wages need to be high enough so that workers can afford goods made with commodities, such as cars, homes and computers. These big purchases tend to use commodities even after they are made, adding to “demand” for commodities. If commodity prices such as oil are too low (as they are now), it is likely related to the inadequate wages of non-elite workers.
  • Mandatory payments required of non-elite workers, such as taxes, health care, and education – It is not just wages of non-elite workers that are important. So are required payments, such as payments for taxes, healthcare and education. Clearly, the lower these payments are for non-elite workers, the better the economy functions.
  • Interest rates – Low interest rates are helpful for some parts of the economy, while high interest rates are good for other parts. Low interest rates help create affordable monthly payments for goods such as homes and cars. If interest rates decline, the market prices of assets such as real estate, shares of stock, and bonds tend to rise. These rising values are of great benefit to owners of these assets, since they can sell these assets and use the proceeds to add to current consumption. Conversely, high interest rates are important to pension plans and to others depending on investment income. Banks have a problem if there is not a big enough “spread” between short and long interest rates.
  • Increase in debt – An increase in debt indirectly makes the economy “look” much better. Increasing debt acts to raise wages, since some of this growing debt adds to funds available for wages. The higher wages tend to increase demand for goods, and thus indirectly raise commodity prices. A virtuous circle starts, pushing up economic growth, provided an adequate quantity of very cheap energy products is available (under $20 barrel oil, for example) that can be used to make goods and services. Increased debt works less and less well, as the price of energy products increases.
  • Inflation rates – The higher the inflation rate, the easier it is to repay debt with interest, since most debt is not adjusted for inflation. Also, high inflation rates help keep prices of homes and other buildings from falling as they age, making the use of mortgages more feasible. If the price of a commodity, such as oil or coal, is high and then falls, debt based on the prior high value of the commodity is likely to become a problem.
  • Quantity of energy products affordable by economy – It takes energy products to produce goods and services. If the price of commodities is low, it is possible for buyers to purchase a large quantity of these products, even on a low budget. Current relatively low prices tend to help the economy, even if producers cannot afford to make adequate investment in new production with such low prices. Thus, today’s low energy prices make the economy look good for at a short time. Afterwards, the outlook is less rosy.

Ultimately, the issue at hand in determining whether the “circus will leave town” is whether non-elite workers are able to adequately make a living. We know from biology that the return on the labor of animals must be adequate (animals must be able to get enough food by walking, swimming, or flying) or their populations will collapse. The same thing is true for humans. We also know that prior civilizations that collapsed often had wage disparity problems. When this happened, non-elite workers were no longer able to pay adequate taxes. Their nutrition became poorer. They tended to become more susceptible to epidemics. These were things that pushed the economy toward collapse.

The goods and services that non-elite workers can buy with their wages represent the benefits of our fossil fuel powered energy system, as distributed to the most vulnerable workers in the system. Once these benefits start falling too low, the system can no longer function.

There are some indications that benefits are already too low for the economy to keep functioning in a “normal” manner. A major such indication is the fact that energy prices have remained far too low since mid-2014. It is becoming increasingly clear that there really is no oil price which is both high enough for producers and low enough for consumers. We may be living on “borrowed time,” using an increasing amount of debt to support energy producers.

Thus, world economic growth rates may already be too low to keep the world economy operating. Regulators who consider only the US do not seem to understand the world situation. Because of this, they can easily make moves that make the situation worse, rather than better. For example, they have already started raising interest rates and are planning to sell securities currently held by the Federal Reserve.

A Few Graphs Giving Hints of Our Problem

Economists have not understood what our problems really are, so they have tended to omit some important issues from their analyses. I put together a few graphs that might give a little insight as to what is happening.

Interest Paid by Households 

Interest paid by households is important because this money is transferred to banks, insurance companies, and pension plans. It leaves the households who paid this interest poorer. Buying goods using debt is convenient, but it has a cost involved.

BEA Table 7.11 shows a category called, “Interest Paid by Households.” If we compare this to BEA “Wages and Salaries,” we find the relationship shown in Figure 1. Admittedly this is not an exact comparison; there are some people who are not wage earners who are making interest payments, for example. I have not tried to offset “interest paid by households” against “interest received by households,” because the households benefiting from interest payments are likely very different households from those making interest payments. They are likely richer, and at a later stage in their lives.

Figure 1. US Household Interest Paid (from BEA Table 7.11 Interest Paid and Received by Sector and Legal Form of Organization) divided by Wages and Salaries from BEA Table 2.11, “Personal Income and its Disposition.”

The pattern might be described as follows:

  • A rapid run-up in interest payments that took place until about 1986
  • A general flattening, with new peak in 2007
  • A rapid fall starting in 2008

It seems to me that the pattern up to 1986 reflects the general run-up in consumer debt levels during this period. The amount of interest paid is also affected by interest rates, such as ten-year treasury rates.

Figure 2. US Federal Bonds 10 year interest rates. Graph produced by FRED (Federal Reserve Economic Data).

Interest rates started falling in 1981. These higher rates only gradually worked their way into the system because many people had bought houses earlier and were able to keep their existing mortgages at low interest rates. The amount of debt outstanding continued to rise, allowing the total amount of interest paid to continue to rise until 1986.

After 1986, rising debt amounts and falling interest rates came closer to offsetting each other (Figure 1). By 2008, the economy was in a severe recession. In order to help get out of the recession, interest rates were lowered through Quantitative Easing. These lower interest rates, besides helping the economy in general, helped oil prices gradually increase back to the $100+ per barrel price level that they needed to be profitable. Oil prices had temporarily dropped below $40 per barrel in December 2008.

Figure 1 shows that interest payments for several years amounted to about 12% of wages for households. Interest payments are now down to 8% of wages. Even at this level they are significant. They are likely higher than this for those with low wages and high debt. If interest rates rise significantly, the most vulnerable are likely to find their discretionary income reduced.

Rising Healthcare Costs 

Figure 3 shows a comparison of US healthcare costs to GDP and to wages. A huge increase in costs is evident in the 2001-2005 periods, and also in the 2008-2010 period, especially compared to wages.

Figure 3. US Healthcare costs as a percentage of GDP and as a percentage of wages. Healthcare costs from cms.gov. Wages and salaries and GDP from BEA.

The increase in healthcare costs since 2008 is one of the costs putting pressure on the economy, and leading to a need for lower interest rates.

The Affordable Care Act should be affecting amounts for the latest years, since the ACA started increasing the number of people with insurance starting about 2014.

Figure 4. Kaiser Family Foundation chart of percentages of non-elderly people without healthcare insurance, from this Source.

A person might wonder why 2014 and 2015 costs didn’t rise more, with so many more people added to the system. Perhaps care that was being given “free” by hospitals is now being charged back to patients. Or perhaps many of the people choosing to purchase coverage through the program were already insured elsewhere in the system, so were not really added to the healthcare system through the Affordable Care Act.

One very recent US healthcare change is the addition of an automatic penalty for not having healthcare insurance. This penalty began for tax year 2016, filed in the beginning of 2017. This provision particularly hurts young people, because rates are structured in such a way that the rates for young people subsidize the rates for older people. Thus, young people often find that buying health insurance is far more expensive than their out of pocket costs for health care would have been, without insurance.

Young people who are affected by this new requirement will find that they need to cut back on other expenditures (such as restaurant visits), if they are meet the requirements of the law–either buy healthcare insurance or pay the mandated penalty. This change will begin to adversely affect the economy in 2016. Bigger impacts are likely in early 2017, when taxes are filed.

Falling Wages Relative to GDP, and Rising Wage Disparity

The path to lower wages as a percentage of GDP has been a bumpy one. The general pattern is that when the economy is booming, wages tend to grow as a percentage of GDP. Recession tends to send wages down as a percentage of GDP. US wages seem to have increased somewhat since 2013, perhaps because the price of oil is down, and the US dollar has risen to a relatively high level. This is part of what allows some people to talk about the “tightening labor market,” and gives them confidence in the economy.

Figure 5. US wages and salaries divided by US GDP, based on BEA data.

There has been significant growth in wage disparity since about 1980, both in the US and in many other developed countries. Figure 6 shows some data for the US.

Figure 6. United States Income Distribution_1947-2007 in 2007$. The data source is “Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 1947 to 2007”, U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Graph is from Wikimedia Commons http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

As the economy becomes more “complex,” in other words, “specialized,” wage disparity tends to be more of a problem. Work that could previously be done by manual laborers is done by machinery, or is transferred to low wage countries. Many people lose their jobs, and have difficulty finding good-paying replacement jobs. All of this contributes to inadequate wages for non-elite workers.

Role of Inflation and Rising Commodity Prices in the Economy

We rarely stop to think how important inflation is to the economy. For example, if inflation is sufficiently high, it will slightly offset normal depreciation in values of homes and business properties. Thus, home and business property values will tend to slightly rise over time. If banks can count on values of structures rising, rather than falling, over time, lenders can assume that mortgage loans are fairly risk-free, because the lender can count on getting its money back through the sale of the property, if the mortgage-holder defaults.

This same principle holds when energy properties, such as coal mines and oil fields, are financed. As long as energy prices keep rising, there is a good chance loans can be repaid. Once energy prices fall, debt defaults become a problem. Oil exporting countries also find that the taxes they can collect fall significantly. As a result, energy-exporting countries are in a far worse economic position once energy prices fall. Exporters of other commodities, such as metals, have a similar problem if prices fall.

In the last two paragraphs, I mentioned the impact on lenders and governments of rising or falling prices. Owners of properties are also affected by rising or falling prices. If prices rise, these owners can sell their assets, and make a profit. In fact, these owners have often purchased their properties with debt. If the price of the property rises, but the amount of debt is unaffected by inflation, the owner of the property can often get a disproportionate benefit of the price rise. Of course, if the value of a property falls, the property-owner is disproportionately affected by the fall of the price.

We are so used to a rising-price scenario that we have little understanding of how a flat or falling price scenario might work.

To get a little idea of how much inflation has in the past been working through to asset prices in the United States, I looked at some information provided by the US Bureau of Economic Analysis. I compared these amounts to GDP, rather than asset prices, to get an idea of how much impact they have, relative to each current year’s activities (Figure 7). There is about $3 of assets of the types BEA analyzes for every dollar of GDP, so the impact, relative to GDP, is about three times as high it would be, relative to the asset prices themselves.

If this same relationship holds elsewhere, a person can see why a commodity-producing country might have a big problem, if the price of that commodity suddenly falls. There is huge “balance sheet” impact that doesn’t directly affect current GDP as reported (since GDP has to do with current goods and services produced). But it can have a major impact on the country, as it goes forward, because affected loans are much less likely to be repaid. Countries often try to be lenient with lenders, hoping that commodity prices will rise again. But if the drop in prices is permanent, countries must use more and more extreme measures to hide the problem of loans that have a low probability of repayment in a low-priced commodity environment. Eventually, these loans seem likely to default, if prices do not rise sufficiently. China and many commodity-exporting countries seem to be affected by this problem.

 

Figure 7. Changes to US Fixed Assets, based on BEA Table 5.10, Changes in Net Stocks of Produced Assets.

BEA shows three amounts of interest with respect to US assets (Figure 7):

  1. Inflation – Changes in asset values based on changes in the general price level
  2. Re-evaluation total – Changes to asset prices in particular; includes changes because assets are taken out of service because of disaster or because a business is no longer profitable. Note the spikes related to the housing bubble of the 2003-2006 period and the corresponding dip during the Great Recession of 2007-2009.
  3. Depreciation – Expected amount of new investment needed to offset “consumption of fixed capital.” This rate is quite high, (about 15.7% of GDP recently) because the asset base includes fairly rapidly depreciating assets, such as cars and computers, besides buildings of all types, and intellectual property such as computer programs.

The last year shown is 2015. Inflation (relative to GDP) was only 1.2%, and the re-evaluation total was only 0.3% of GDP. (Calculated as percentages of the assets involved, these inflation rates would be only a third of these amounts.) These low inflation rates make it very difficult to operate a debt-based economy. A shift from inflation to deflation would be a major problem. Unfortunately, it is very difficult to get much inflation, if the wages of non-elite workers remain very low.

Conclusion

We have kept our economy expanding through growing debt use and growing energy use. I described this process in my post, What has gone wrong with oil prices, debt, and GDP growth?

Now we seem to be reaching the end of the line. The economy is getting very close to shrinking. When this happens, we are getting close to economic collapse–the economic circus is starting to “leave town.”

People who think our only problem is “running out” and “high oil prices” don’t see the problems the economy is developing right now. These problems are much more subtle, but they can have a devastating effect. The Federal Reserve talks about inflation rates above 2% being too high, but inflation rates below 2% are at least equally problematic. Somehow, the debt system needs to keep operating for the whole system to work.

We are now at the point where the economy is decidedly unstable. Little things can affect it, like the Affordable Care Act requirement that uninsured people buy healthcare insurance, or pay a penalty. Low commodity prices make debt repayment more difficult in countries producing those commodities.

We should not be too surprised if the economic circus starts to leave town. There are simply too many pieces that are now unstable. The US Government is facing a shutdown in the near future, unless its debt ceiling can be raised and funding can be enacted. The world is depending on China for economic growth, but China’s debt is becoming unmanageably high. Japan’s debt is also unreasonably high. Oil exporters are becoming increasingly unstable, with continued low prices. We can find problems in almost every country of the world. It looks like it is only a matter of time, until one of these problems starts a downward spiral.

 

Note:

[1] Thanks to commenter “Lastcall” for this analogy.

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 inadequate supply.
This entry was posted in Financial Implications and tagged , , . Bookmark the permalink.

1,952 Responses to The Economy Is Like a Circus

  1. Cliffhanger says:

    The University of Alaska Anchorage is displaying a professor’s painting that depicts Captain America holding the severed head of President Donald Trump.
    http://www.campusreform.org/?ID=9072

    • Cliffhanger says:

      “We are all in the gutter, but some of us are looking at the stars.” ― Oscar Wilde

      • Have you ever read Wilde. If you had you would know that he had a special brand of mockery for people with that ability to use an aphorism impotently and vapidly as you just did.

        • I imagine in your case your looking up at those twinkly lights with childish wonder and then annoy the rest of us by saying something equally banal stolen from another author you probably haven’t read or fail to understand. You see when Wilde said some of us are looking at the stars he was part of an aesthetic movement that abhorred conventionally of expression. Yet quoting Oscar Wilde is the height of conventional expression when one has nothing to say – something you have proven on this blog already. Sad but we all have our particular faults. Yours just happens to be in the domain of understanding and expressing complex issues.

          • Fast Eddy says:

            Nicely put….

          • Cliffhanger says:

            “The scientific man does not aim at an immediate result. He does not expect that his ideas will be readily taken up. His work is like that of the planter – for the future. His duty is to lay the foundation for those who are to come, and point the way.”
            -Nikola Tesla

        • doomphd says:

          Oscar to his caretaker after being placed upon his deathbed: “Either this wallpaper goes, or I do!”

  2. ITEOTWAWKI says:

    A startup’s $1 million flying car is officially rolling out to buyers in 2020:

    http://www.businessinsider.com/aeromobil-1-million-flying-car-deliveries-begin-2020-2017-4

    Everything will be fine folks….we at OFW have been wrong…things are going great and they’re only going to get better 🙂

    • Fast Eddy says:

      Kiwirail to dump electric trains and replace with diesel on North Island main trunk line
      http://www.stuff.co.nz/national/politics/87810900/Kiwirail-to-dump-electric-trains-and-replace-with-diesel-on-North-Island-main-trunk-line

      Excellent!

      • Artleads says:

        “”The doubling up of service facilities, inventory, training and maintenance required with two separate systems on the line adds to the inefficiencies and unreliability,”

        And they shouldn’t waste money destroying those sidelined electric trains either. A train museum might buy them.

    • ITEOTWAWKI says:

      Hahaha about Timbuk 3’s song “The Future’s so Bright” from wikipedia:

      “Pat (the writer of the song) revealed on VH1’s 100 Greatest One-Hit Wonders of the 80s that the meaning of the song was widely misinterpreted as a positive perspective in regard to the near future. Pat somewhat clarified the meaning by stating that it was, contrary to popular belief, a “grim” outlook. While not saying so directly, he hinted at the idea that the bright future was in fact due to impending nuclear holocaust. The “job waiting” after graduation signified the demand for nuclear scientists to facilitate such events. Pat drew upon the multitude of past predictions which transcend several cultures that foreshadow the world ending in the 1980s, along with the nuclear tension at the height of the Cold War to compile the song.”

      Plus ça change…

  3. Fast Eddy says:

    There are some significant parallels between trees and humans re: communities, competition and the never-ending quest for growth….

    How do trees live? Do they feel pain or have awareness of their surroundings? Research is now suggesting trees are capable of much more than we have ever known.

    In The Hidden Life of Trees, forester Peter Wohlleben puts groundbreaking scientific discoveries into a language everyone can relate to.

    In The Hidden Life of Trees, Peter Wohlleben shares his deep love of woods and forests and explains the amazing processes of life, death and regeneration he has observed in the woodland and the amazing scientific processes behind the wonders, of which we are blissfully unaware.
    Much like human families, tree parents live together with their children, communicate with them and support them as they grow, sharing nutrients with those who are sick or struggling and creating an ecosystem that mitigates the impact of extremes of heat and cold for the whole group.

    As a result of such interactions, trees in a family or community are protected and can live to be very old. In contrast, solitary trees, like street kids, have a tough time of it and in most cases die much earlier than those in a group.

    Drawing on groundbreaking new discoveries, Wohlleben presents the science behind the secret and previously unknown lives of trees and their communication abilities; he describes how these discoveries have informed his own practices in the forest around him. As he says, a happy forest is a healthy forest, and he believes that ecofriendly practices not only are economically sustainable but also benefit the health of our planet and the mental and physical health of all who live on Earth.

    After a walk through the woods with Wohlleben, you’ll never look at trees the same way again.

    http://www.audible.com/pd/Science-Technology/The-Hidden-Life-of-Trees-Audiobook/B01KMNFUIQ

    • Artleads says:

      ” There is no more clear-cutting, and logs are removed by horse teams, not machines. In one portion of the forest, old trees are leased as living gravestones, where families can bury the ashes of kin. In this way, the forest generates income without murdering trees.”

      • Artleads says:

        “Is sprawl so bad?”

        Not as bad as ideological purity, I suspect. If the future is some kind of melding of civilization and “wilderness,” there might be an up side to sprawl. You want the infrastructure of civilization and you also want to rescue vanishing wilderness. You get more for your money if you use the sprawl infrastructure as the base for an intentional, overlaid wilderness. This could represent a huge evolutionary leap in human settlement.

        https://www.planetizen.com/node/92350/which-most-sprawling-city-world

    • Yorchichan says:

      Gotta be a cue for Rush:

    • xabier says:

      Which, of course, clearly vindicates dear old Prince Charles and his conversations with plants.

      Or maybe they are thinking:

      ‘ How on earth can I get away from this bore?!! No, don’t hug me! If only I weren’t rooted to the spot…’

      • Artleads says:

        For decades now, I’ve been saying nice things about Charles–and even once sent him a letter that turned up in the wrong place. Talking to the plants is nothing. It’s when you start talking to doorknobs and spoons that you worry.

        But this article takes me way beyond Charles, and questioning the entire role of trees in cities: I posted this in the Land Use section of the NBL forum:

        Trees seem to do better in (family) clusters. Lone trees do less well. Street trees form a linear grouping, however. I imagine that the family dynamic in linear grouping is much curtailed. Also, planted urban trees must not have the family essence that occurs in the wild, where there are parent trees and their offspring. A great many urban trees can be planted at the same time, while the surrounding urban pavement might preclude their tree offspring from forming

        • xabier says:

          My personal bug-bear is hedge flails: after a drive with a friend through another county a couple of months ago I almost felt like weeping at what it does to hedgerows, miles of devastation, torn and shattered branches. An old hedge is a beautiful thing.

          Having planted a triple thorn hedge this winter, a proper Old English one, I must admit to the odd chat with my young proteges every now and then. ….. 🙂

          • Artleads says:

            Hadn’t heard of hedge flails, but looked it up, finally not having a clue why anybody would do these things to hedges!

            • xabier says:

              What I saw was in the winter and merely barbarous to the trees.

              The real villains flail hedges much later, timed just so as to destroy nesting birds!

              The local authority grass and verge cutting gangs are also fairly enthusiastic wildlife destroyers, although the situation is improving in some places.

              Prince Charles, you may be pleased to hear, learnt the art of maintaining hedges the old way using a billhook (which the English used to stick on a long pole to deal with those pesky Scots every now and then – multi-purpose tooling.) Well, he has to fill in his waiting time somehow…..

      • Fast Eddy says:

        And then there is this….

  4. Cliffhanger says:

    Strong people make great societies and good times.
    Good times make people weak, lazy, complacent.
    Weak, lazy, people weaken society and suffer bad times.
    Bad times create strong people.
    Repeat.

  5. Cliffhanger says:

    he real GDP growth numbers in the U$ are actually zero to negative. The published ones have been fake for years. The real way to measure GDP is by energy used and net energy use has been dropping, not growing. An economy cannot grow if there is no growth in energy use as is becoming obvious with reality in America. It will become even more obvious in the days to come as the infrastructure continues to collapse and the chaos grows. Civil war? Greater Depression? Both? We shall see.

  6. Creedon says:

    Thanks for mentioning net energy Cliff. I agree that net energy is the key. Creating an infinite supply of fiat money is not economic growth. People are still working and driving their cars, however. Just because they can create and infinite supply of fiat money and produce oil at less than cost simply means that we are all using oil at less than cost.

  7. jeremy890 says:

    Living in South Florida one is shocked on what has happened in just the last few years.
    If you rent, you are being squeezed and housing is less and less affordable to buy.

    According to the report, the Miami metro area is the third-least affordable for renters across the country. Los Angeles ranked No. 1, with rents at 47.6 percent of income; San Francisco ranked No. 2, with rents at 46.1 percent of income. The New York area came in at No. 4, with rents at 41.4 percent of income.

    The underlying problem: As rents have risen, wages have remained stagnant, said Jack McCabe, an analyst who studies the local real-estate market.

    “You can make a pretty good case that, by and large, household incomes here have been flat or declining over the last eight years,” he said about South Florida.

    Read more here: http://www.miamiherald.com/news/business/real-estate-news/article71332267.html#storylink=cpy

    In Miami-Dade County there’s a battle going on between short term rentals and the government.
    A popular means to earn money to afford to live here is to rent out a part or all of your home or property. Of course, the Hotel and tourist industry cries unfair advantage because up to now no local taxes were paid.

    Here is the recent lawsuit battle in the courts

    The plaintiffs are seeking declaratory and injunctive relief. They’re asking the court to declare vacation rentals legal in suburban areas of Miami, to stop the city from adopting new ordinances against short-term rentals, prevent any legal action against the hosts and to deem unlawful the city commission’s policy of requiring members of the public who speak up to share their personal information.

    The local Airbnb battle has reached a boiling point in recent months with the mayors of Miami and Miami Beach speaking out against the platform. Miami Beach has imposed $20,000 fines against violators since March 2016. Last week, Miami-Dade County and Broward County passed tax deals that would allow each county to collect resort taxes — 6 percent in Miami-Dade and 5 percent in Broward — from Airbnb.

    Read more here: http://www.miamiherald.com/news/business/article144684814.html#storylink=cpy

    • Artleads says:

      By banning airbnb, isn’t the city limiting a source of taxes?

      • jeremy890 says:

        Hotels and Resorts wants it banned, the local government wants restrictions, regulations and TAXES.

        • Artleads says:

          So when air bnb sells a service (rents out a place) there is no tax on what they collect? The resorts and hotels have less of a case, it seems. If the city gets at least the same amount of taxes from air bnb as from the hotels (which should be able to stay in business and attract a different clientele?), while benefiting (an increasingly broad spectrum of) property owners?

          • jeremy890 says:

            Artleads, the article links explain it all in more detail, it has been on the local news here lately.
            The fact is homeowners are now being FORCED in this cottage industry to cover their cost of living which Rising much faster than their income.

            • Fast Eddy says:

              Airbnb is essentially illegal in every city it operates…. just as Uber is…

              With respect to airbnb you need a license to operate a guest house/hotel – this is an expensive proposition — this is why many serviced apartments require a one month minimum stay — they do not want to pay for the expensive license. There are also various regulations that must be followed before one can run a guest house.

              Likewise with taxis there are higher insurance requirements – licensing and so on — there are also rules that must be followed.

              Ten years ago if you just slapping a Taxi light on a private car and started to pick up fares — you would have been prosecuted

              Ten years ago if you just put up a sign on your property renting it out as a hotel you would have been prosecuted.

              Not now. There have been a few prosecutions of Airbnb hosts and Uber drivers… but for the most part nothing has been done.

              One has to wonder if this is because both services help cushion the blow for many as we head towards the end of days….. Have the authorities said – hands off these two types of businesses because they are generating income for significant numbers of people.

              I wonder how many of the jobs being created in the US are for Uber drivers and guest house Airbnb operators? Self employed…..

            • Artleads says:

              “One has to wonder if this is because both services help cushion the blow for many as we head towards the end of days….. Have the authorities said – hands off these two types of businesses because they are generating income for significant numbers of people.”

              Then the “authorities” are very clever in how they disguise the desperate underlying realities. I’ve seen third world examples of where private cars called “robots” pick up people, and even the ones without govt sanctioned licence plates don’t come in for much apparent prosecution. But that’s the third world, where everybody knows they’re poor–no pretense of the Dream life.

            • ITEOTWAWKI says:

              FE says: “One has to wonder if this is because both services help cushion the blow for many as we head towards the end of days….. Have the authorities said – hands off these two types of businesses because they are generating income for significant numbers of people.”

              Excellent comment FE. It reminds me of an article I read a couple of years ago that is similar to what you are saying. From the article:

              “In other words, Uber is not simply the result of clever, 21st century business acumen, but is rather, almost by default, the shrewd adaptation of industrialism and its technological “progress” to the resource shortages of tighter times. Call it an unintentional disguise of industrial civilization’s collapse if you’d like.”

              Here’s the full blog entry entitled:

              “The Uber Disguise of Industrialism’s Collapse”:

              http://fromfilmerstofarmers.com/blog/2015/june/the-uber-disguise-of-industrialisms-collapse/

            • I just got back from Brussels. One woman I happened to meet (in an airport) worked in the Danish wind industry. She mentioned that Danish wind subsides are being cut back. It looks like subsides have already been cut for onshore wind.

              https://stopthesethings.com/2016/05/01/denmark-slashes-wind-power-subsidies-to-curb-runaway-power-costs/

              There is an article about proposed cutting subsidies for offshore wind as well. http://www.offshorewind.biz/2017/01/25/report-denmark-mulling-offshore-wind-subsidies-cut/

              “Danish energy minister Lars Christian Lilleholt will submit a proposal to cut subsidies for offshore wind projects in the second half of 2017, Bloomberg reports.

              The wind industry is showing signs of being able to compete with conventional power generation sources such as fossil fuels, but for the industry to be really competitive, subsidies must go, Lilleholt was reported as saying.

              Lilleholt said that phasing out of subsidies is one of the pre-requisites in the country’s transition to green energy.

              I might mention the “Stop these things” site that I linked to above tries to cover wind energy around the world. It is not exactly unbiased, but most commercial sites aren’t either. https://stopthesethings.com/about/

            • Uber “works” because there are a lot of people who are not earning “enough.” They can drive for Uber, a few hours a week, and help offset the cost of owning their cars. Some work full time for Uber, and earn a meager amount. Also, the company is losing a huge amount of money. They need much higher rates to be profitable, but this would drive away much of the market.

            • Kenny Starfighter says:

              Über was just banned in Denmark. I think the government needs the taxes from regular taxies. But they are so expensive, that I can’t remember the last time I took one.

            • It is easy to overlook the fact the government needs taxes from many sources to keep its operations going. Lower fares by cutting out taxes don’t really work.

            • Artleads says:

              I can see not wanting to hurt the hotel industry (and the taxes it brings in), but powerful industries tend to overdo it, wanting as much as they can get, and even more than is good for them. The regular home owners need help too (reducing government services for them, etc.). And you have to factor in their buying power, and the taxes that provides the city.

              But why does the relationship between the powerful hotel folks and the aspiring air bnb folks have to be antagonistic? The latter should have a reduced, affordable tax rate, and it would seem that the more facilities there are the better for taxes? At the same time, are there any efforts to distinguish the hotel services from the air bnb ones? Can each entity be required to carry PR literature for the other? Has anyone looked how they can complement each other in a way that raises the city’s profile and increases, over all, its tax base?

            • Fast Eddy says:

              You really haven’t the slightest clue how the business world, economy and world work …

              Tra al f789ing la…. why can’t we be friends why can’t we be friends.. imagine there’s no possessions…. we are the world…. koombaya…. all we are saying….

            • Artleads says:

              “You really haven’t the slightest clue how the business world, economy and world work”

              No. You do. You’re a businessman, and I respect your knowledge enough that I don’t even dream of imposing my ignorance of the insider business issues you discuss, preferring to stick with what I know.

              What do I know (and that you obviously don’t)? Planning. I’m not a professional planner like Froggman. I didn’t go to planning school (an extremely good thing!). But I went to the very best art schools in the world. This has given me the sense of connections that most planners lack. The planning profession throughout the world is dysfunctional, to say the very least. They are not able, for instance, to understand the underlying issues of scarcity that FW is all about. They also lack the aesthetic and visual training to see opportunities that are right in front of them.

              I’ve been doing my community planning work for 30 years, and have been widely recognized for it. But please don’t expect me to change the world all by myself. I can’t help it if most people (including you) are far behind. I know how community building works. You do not. So please stick to what you know, show a degree of modesty, and don’t make yourself look foolish by confusing business with planning. Planning is a broader, more inclusive subject than business.

            • Fast Eddy says:

              ‘change the world all by myself’

              What would you change if you could?

              The way I see it — the only change that would have made a difference was if we had remained living like the animals we are — hunter gatherers.

            • but if you were not a doomster, what would you do all day long

          • Artleads says:

            The article isn’t the clearest, since they don’t begin at the beginning–which is that the business elites of Miami Beach want to protect their stock-in-trade, which comprises the massive tourist industry. If airbnb could afford hotel tax rates (which it can’t) that might make a difference (although the “law” doesn’t account for even that). So if you put all the facts on the table, what serves the short, medium and long-ish term interests of the people within that jurisdiction? I do not see where anyone has asked or answered that question. It’s all about legal rights (a seemingly disingenuous ploy resulting in winners and losers rather than winners and winners). Law seems to serve only a limited role–as a carrot or a stick–but tends, without a proactive approach alongside it–to have little constructive efficacy. If there can’t be a win/win, then whatever serves the interest of the majority (rather than just the elites), as well as what makes the system most effective, is what should be supported.

    • Greg Machala says:

      It is getting harder and harder to keep a lid on all of the problems. Problems keep popping up everywhere as we reach limits to growth.

    • Artleads says:

      If the issue is to keep industrial civilization going on a fraction of current energy, there might be some small transitional steps to help out. One might be a large (structured/experimental?) increase in homeless shelter, exquisitely designed to be “invisible.” Very carefully structured across disciplines so that they do not create more problems than they solve. It’s an issue for the highest level of “design” sophistication, “management” and collaboration. Same thing might apply to air bnb’s, perhaps. Someone in my community has an air bnb made as a teepee, rented for (maybe) $20/night. Compost toilet too.

      • Artleads says:

        Of course, the materials involved would be mostly free.

      • Fast Eddy says:

        Deeper into DelusiSTAN../..

        • Artleads says:

          True. No one will take perfectly reasonable steps to ease the pressure, since no one believes the pressure will be significant. Or let’s say they won’t take those steps in what I’d think was a timely, smooth way. But it really doesn’t matter. The self organizing system is the one which gets things done (in its own way), and it is always right.

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