How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

Why have long-term interest rates generally fallen since 1981? Why have asset prices risen? Can these trends be expected to continue? The standard evaluation approach by actuaries and economists seems to be to look at past patterns and assume that they will be repeated.

The catch is that energy consumption growth plays a hugely important role in GDP growth. It also plays an important role in interest rates that businesses and governments can afford to pay. Energy consumption growth has been slowing; it is hard to see how growth in energy consumption can ramp back up materially in the future.

Slowing growth in energy consumption puts the world on track for a future like the 1930s, or even worse. It is hard to see how GDP growth, interest rates, and inflation rates can ramp up in the future. More likely, asset price bubbles will pop, leading to significant financial distress. Derivatives may be affected by rapid changes in prices and currency relativities, as asset bubbles pop.

The article that follows is a partial write-up of a long talk I gave to a group of life and annuity actuaries. (I am a casualty actuary myself, which is a slightly different specialty.) A PDF of my presentation can be found at this link: Reaching Limits of a Finite World

 

Slide 1

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Slide 4

After the audience had a chance to answer this question (mostly with yes), I gave my answer: “Yes, indeed, it is possible to build a model that gives misleading results, and not understand the situation.” For example, a flat map works as a perfectly adequate model in some situations. But when longer distances are involved, a globe is needed. A two-dimensional model works for some purposes, but not for others.

Slide 5

The model in Slide 5 is the familiar Supply and Demand model used by economists. According to the model, if Demand increases from D1 to D2, then price will increase from P1 to P2. The rising price, in turn, will allow the quantity produced to rise from Q1 to Q2, based on the upward sloping supply curve S. This model is true in some cases, but it is not always true.

Supply and Demand Are Both Affected by Reaching Limits

As the economy approaches energy limits, lack of sufficient growth in energy consumption affects both Supply and Demand. Diminishing returns leads to high costs on the Supply side. Because of this, the cost of producing oil and other energy products tends to rise.

At the same time, businesses find that they cannot pass on these higher costs to their consumers because the wages of consumers don’t rise with rising energy costs. Diminishing returns acts like growing inefficiency; it takes more materials, more labor, more tax dollars, and more debt to produce the world’s overall mix of energy products, leaving a smaller amount of resources for producing end products (such as homes, cars, and bicycles) that consumers really want.

Persistent high energy costs lead businesses to try to find workarounds to reduce total costs. A major target for cost reduction is labor costs. If some labor costs can be replaced by lower-paid labor from overseas, or by robots, the company can perhaps make a reasonable profit, even with higher prices for oil and other energy products. The catch is new lower-cost labor force does not create as much Demand for goods and services as was available before jobs were replaced by robots or sent overseas. Workers in China and India will buy some goods and services, but the quantity will likely be lower than if the jobs remained in the US, Europe, and Japan.

We end up with a tug-of-war between the high prices that the producers of energy products need and the low prices that the many low-wage workers around the world can afford. Energy products are used in making pretty much everything, including food, homes, cars, and computers. As young people need to live with their parents longer, and as demand moves to lower-waged countries overseas, the lack of buying power tends to pull energy prices down below the cost of production. Energy prices below the cost of production are just as much a product of reaching energy limits as high energy prices!

Peak Oil is Another Two-Dimensional Model

Before we go on, I should probably offer some more explanation. Some of you may have thought that I would be talking about the Peak Oil story today. I consider the Peak Oil story to be another two-dimensional model. It gives some insights, but it really does not give a good explanation of what can be expected as we go ahead. Its emphases on oil and on high prices are both wrong, in my opinion.

Geologists coming up with the Peak Oil model relied on the incorrect Supply and Demand model of economists. They did not understand that both Demand and Supply are affected, as energy limits approach. They also never considered what the energy needs of the economy really are–total energy consumption needs to grow, if enough goods and services are to be produced for the growing world population. Rising energy consumption is also needed to keep commodity prices high enough to keep production from collapsing from low prices, due to inadequate Demand.

The Role of Added Energy

Many of you have heard the saying, “As you sow [seeds], so shall you reap.” In other words, the effort you put in can be expected to correspond to the end product that is produced. This saying is somewhat true if an economy uses only human labor to produce goods and services. For example, if a person digs a ditch for five hours, the result will correspond to effort put in. Increasing the hours of digging to six can perhaps add 20% to the length of ditch that can be dug. (There is the detail that it even takes energy products to make a shovel. Perhaps the example should be digging a ditch with a stick, and thus using only human labor!)

If a person really wants to dig a ditch quickly, he needs ditch-digging equipment and diesel fuel to operate the equipment. The ditch-digging equipment is made with energy products; it also uses energy products while it is operated. If energy consumption per capita is rising, then businesses, on average, can use increasing amounts of energy to increasingly leverage the labor of the workers they hire. This seems to be what leads to productivity growth.

This is why I talk so much about energy consumption per capita, and the importance of falling prices of energy services (including efficiency gains) to encourage the growth in energy consumption. One example of energy services (whose costs need to fall) would be the cost of heating a 1,000 square meter home (including efficiency gains in furnaces and insulation). Another example would be the cost of transporting 100 kilograms of grain 100 kilometers.

Slide 6

In fact, over time, the cost of energy services has been falling. The fall in costs more than offset the growing quantity of energy consumed. Thus, the cost of energy services is becoming a smaller and smaller share of world GDP. This falling share of energy products as a percentage of the world GDP seems to be necessary, if the remainder of the world economy is to grow. If the cost of energy products starts to rise, it will tend to crowd out some of the discretionary goods and services that the world economy has been able to add, as the world economy has grown.

Higher Energy Prices Are Damaging to the Economy; Lower Energy Prices Encourage GDP Growth

Energy needs to be consumed by the system, whether workers dig ditches with shovels or with ditch-digging equipment. If energy is very expensive, it is likely that all that employers can afford is the equivalent of shovels for workers to work with. If energy becomes less expensive to use (including efficiency gains), then it becomes possible to scale up the use of tools using energy, and the economy can expand. As a result, workers can become more efficient, businesses can make more profits, and the government can collect more taxes. The falling price of energy services seem to be the major force underlying GDP growth.

Conversely, if oil consumption growth is constricted by a spike in oil prices, we know (based on the work of Economist James Hamilton) that the US economy tends to go into recession. Higher prices make it difficult for both businesses and consumers to buy energy products. Falling energy consumption is damaging to the economy, because the creation of goods and services depends on the use of energy products.

High Correlation Between World GDP and Energy Consumption

Slide 7

Energy consumption is not mentioned at all on the economists’ supply and demand model (Slide 5), but it is clear that energy consumption is highly correlated with economic growth. There is a reason for this: it takes energy products to make both goods and services. It even takes energy to heat and light an office for workers, and to make and power computers.

Economists tend to miss the connection between energy and the economy because they tend to perform their analyses on an individual country basis. The connection between GDP growth and energy growth is less clear on a country-by-country basis because individual countries can reduce their energy consumption by shifting some of their manufacturing to less developed countries, confusing the analysis. The International Energy Agency has concluded that higher oil prices can be expected to have an adverse impact on the world economy as a whole.

The Economy Is a Self-Organized System Operated by Energy

Slide 8

The reason for the strange behavior of energy prices near limits is because the system is very interconnected. It is a self-organized system that gradually changes over time. New customers are added over time. These customers are often also wage-earners. They decide what to buy based on their own wages, and based on other considerations, such as the prices of competing products and whether inexpensive financing is available.

Businesses make decisions based on what they think customers might want. They also consider products offered by competitors. Governments play a role as well, both in regulation and taxation.

Physics indirectly helps determine prices, wages, and profits, because the economy uses energy to make goods and services. If a rapidly growing amount of cheap energy is available, it becomes easy for businesses to make a profit and raise wages. As businesses grow, economies of scale tend to increase profits. Higher energy prices tend to reverse these beneficial effects.

Oil Prices Are Now Too Low for Many Oil Producers

Slide 9

If you are not familiar with energy price trends, it probably would be worthwhile to take a minute to look at the strange price pattern shown on Slide 9. If you are coming from a financial background, you will probably be familiar with the financial disruptions of 2008, but not the high oil (and other energy) prices of the same period. The steep drop in prices corresponds to the time of major financial distress.

Most United States infrastructure, such as interstate highways, pipelines, and electricity transmission systems, were built in the pre-1970 period, when the inflation-adjusted price of oil was generally less than $20 per barrel. Thus, in a sense, most of the oil prices we are seeing in recent years on Slide 9 are high, relative to historical costs. The question becomes, “How high a price can the economy withstand?” It becomes very expensive to replace a worn-out pipeline built with $20 per barrel oil using $120 per barrel oil.

On Slide 9, prices required by oil exporting countries (such as Saudi Arabia, Venezuela, and Norway) seem to be well over $100 per barrel. Such a high price is needed if these countries are to be able to collect enough tax revenue and also have funds for investment in new fields to replace depleting fields.

On the other hand, the economies of the United States, Europe, and Japan do very much better if oil prices are low. They would prefer prices under $50 per barrel. This is the price mismatch mentioned on Slide 9.

Extended periods of low prices can be expected to lead to two adverse impacts over a period of several years:

  1. Falling growth in energy production. Investment in new fields to offset declining production from existing fields is likely to fall. The big drop in oil prices occurred in 2014, and it is now four years later. Many analysts expect growth in oil production to slow in the next few years, because of inadequate investment. Coal, natural gas, and uranium have somewhat similar problems, with falling prices discouraging reinvestment.
  2. Collapsing governments of oil exporting nations. Governments of countries that export oil are often very dependent on the high price of oil to collect adequate tax revenue. The central government of the Soviet Union collapsed in 1991, after several years of low oil prices. Lack of adequate tax revenue could cause a similar problem today. Venezuela is particularly at risk, but Saudi Arabia and many other countries could follow.

It is ironic that Venezuela reports the highest oil reserves in the world. These reserves can only be extracted if energy prices are much higher than today. This would seem to require higher wages of non-elite workers around the world. If wages were much higher in countries such as India and Nigeria, they could afford goods such as motorcycles and air conditioning, helping push up world demand for energy products.

Slide 10

It is clear that the growth rate of energy consumption simultaneously affects Supply and Demand.

An important point on Slide 10 is the fact that growing debt acts as a helper for energy consumption. It allows consumers to afford goods and services with their monthly wages, and it allows businesses to pay for new tools for workers over the lifetime of those tools. In a sense, debt is the promise of future goods and services made with energy products.

Money is a type of debt. We can print money, but we can’t print cheap-to-produce energy products. Thus, at some point, there can be a mismatch between promises of future goods and services and the quantity of affordable energy products available to create those goods and services. This is part of what is likely to cause debt defaults.

Slide 11

Slide 11 lists some of the things that seem likely as we reach the limits of cheap-to-produce energy supply. I will describe these issues more, later in this talk.

Slide 12

Slide 12 is an outline of the rest of the talk. This post primarily covers Points 1 and 2. Thus, this article relates primarily to GDP growth, interest rates, and asset prices. Slides are shown for Points 3 and 4 as well.

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In recent years, it has become increasingly apparent that the ability of humans (and pre-humans) to cook part of our food supply has had a major impact on our ability to be different from other animals. We could eat a wider variety of foods, and we could get more energy value from those foods. Our bodies could evolve in a very different way. Our brains could become bigger, and our jaws and gut could be smaller.

Slide 15

Even back in hunter-gatherer days, humans were using more energy than similar animals. Now, in the industrial period, we are using 80 times as much energy (=8000/100) as a human-like animal would use, considering the various types of supplemental energy available to us. Some people have described the situation as having 80 energy-slaves for each person. This makes it possible to do tasks, such as farming and digging ditches, in a more efficient way than using sticks as tools.

Slide 16

Besides the usual tools, we have many related ways of using energy, with the goal of eventually providing more goods and services. Energy can be used to organize data on computers. Energy can be used to provide advanced education on topics helpful to growing the economy. If individuals or businesses are paid wages or interest payments, they can use those proceeds to buy energy products, such as a new car, or an overseas vacation. Thus, energy consumption growth affects every part of the economy.

Slide 17

Growing debt is extremely important in growing the world economy. I describe the situation more fully in this article: What has gone wrong with oil prices, debt, and GDP growth?

Technology is what most people focus on, as being the way to move the world economy forward. However, it takes energy products to make the new machines made possible by technology. Without a steady supply of energy products, we cannot maintain existing roads, or the electric grid, or the internet.

Slide 18

Anyone who has purchased a home knows that interest rates are very important in determining what price of home a particular buyer can afford. Here I show a range of monthly payments, for a 30-year, $300,000 mortgage at various interest rates. It is clear that a person can afford to buy a great deal more house at a low interest rate than a high interest rate. If interest only loans are available, costs are lower still.

Slide 19

Everyone who works with interest rates is aware of this pattern in 10-year US Treasury interest rates. The peak in interest rates was in 1981, and there has been a downward trend most of the time since that date.

Slide 20

The interest rates that regulators can easily adjust are short-term interest rates. When these interest rates are increased, they tend to induce recession. There may be a lag in timing. The increase in short-term interest rates in the 2004 to 2006 period seems to have been instrumental in popping the subprime debt bubble and bringing on the Great Recession of 2007-2009. This is my article relating to this issue: Oil Supply Limits and the Continuing Financial Crisis

Slide 21

When energy consumption is growing rapidly, and there are productive projects that can be added (interstate highway system, long distance electric grid, interstate pipelines, first-time telephone service for many people, growing number of trucks and airplanes), then it is possible for the economy to grow rapidly.

In this rapidly growing economy, the economy could easily ramp up long term interest rates without damaging the economy because the underlying growth rate was so high. In a sense, the higher interest rates were analogous to inflation affecting food and energy prices. There was so much growth in demand for goods and services that the economy could afford to pay rising interest rates during the period between World War II and 1981.

Slide 22

The period since 1981 is a period when investments have become much less productive, from a point of view of allowing more goods and services to be produced. Instead, growth is coming from selling more services to each other, and sending more manufacturing to lower-cost parts of the world.

Since 1981, we find ourselves with an increasing amount of old infrastructure that needs to be maintained. Fixing this infrastructure doesn’t really improve productivity. New investments simply keep productivity from falling.

One recent innovation has been the internet. It gives us more information, and it relieves us from the burden of having to use the phone book or go to the library. Thus, it makes us more productive. But in many ways, it is not as important as many earlier inventions, such as the internal combustion engine, the light bulb, and the telephone. There is a temptation to computerize all kinds of data and to expect data mining to solve all our problems. A person wonders what the true cost/benefit is.

Innovations in medicine now allow more 85-year-olds to live to be 86-year-olds and allow more cases of cancer to be cured. But the big changes, brought about by antibiotics and better sanitation, occurred before 1981.

Another growth area has been higher education. The payback is often wages that are barely high enough to live on. How are college graduates who cannot find high-paying jobs going to be able to repay their loans and still get married and have a family?

Admittedly, some investments have been productive. This is especially true when new factories, roads, and ports have been installed in emerging markets. But a large share of recent investments have been aimed at making vehicles more fuel efficient. Or trying to reduce CO2 emissions. These do not really have a payback in lower-cost goods and services.

Interest on debt can only be paid if the economy is truly growing, and thus has a sufficient margin to pay interest with. This seems to be less and less possible outside of emerging markets. I would expect that this is why long-term interest rates are persistently low.

Slide 23

The decline in the ten-year interest rates should make homes more affordable. The long-term decline in shorter-interest rates should make vehicles more affordable. In spite of this boost to the economy, US GDP growth rates have persistently fallen. World GDP growth rates have fallen as well.

Slide 24

There is relatively little storage available for commodities of most types, including oil. As a result, even a small change in demand can lead to a major price shift.

I show in Oil Supply Limits and the Continuing Financial Crisis that the peak in oil prices corresponded to the peak in US debt in several categories, including credit cards and home mortgages. Once US debt stopped rising, the demand for oil fell, and prices dropped precipitously.

Quantitative Easing (QE) by the US Federal Reserve began near the end of 2008. It acted to lower interest rates, especially long-term interest rates. These lower interest rates helped get oil prices back up closer to the level required by producers. But once QE stopped in 2014, prices slid back down. As noted earlier, recent oil prices are far too low for most producers. But they do help stimulate the economies of oil importing countries.

Slide 25

If a business adds debt to expand a factory, this may lead to more wages. The chart indicates that growing non-financial debt does not always lead to higher wages. Sometimes it leads to asset bubbles.

Slide 26

Disposable personal income (DPI) is income that individuals receive, including payments such as Social Security and Unemployment Insurance. This amount is netted out for taxes paid. If we divide DPI by population, we get per capita DPI. This amount is not inflation adjusted; it gives us an estimate of how much incomes have been rising, including payments made to compensate for inflation.

Clearly, there have been huge changes in the growth of per capita DPI over time. Prior to 1981, per capita DPI was rising rapidly, as more women joined the workforce, and as companies gave cost of living raises, in an attempt to keep their employees. In several years, per capita DPI was rising at over 10%.

Families with rapidly rising incomes were looking for ways to spend their new-found wealth. This seems to be at least part of the reason for the high inflation rates of this period. Without this rapid run up in DPI, it is hard to see how the oil prices spikes of the 1970s could have occurred.

Now, the economy has slowed greatly. DPI per capita is sputtering along at less than 4% per year. With this low rate of increase in funds available for spending, it seems like the current economy will not be able to support a big spike in oil prices.

Slide 27

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Slide 28

If the economy is not really growing, it is very difficult to pay interest. This is why a person would expect interest rates to roughly follow GDP growth. Back before 1981, GDP growth was significantly greater than 10-year Treasury yields. Since then, 10-year Treasuries have tended to yield a little more than GDP growth (including inflation). Very recently, the pattern seems to have returned to the pre-1981 pattern.

Slide 29

If interest rates are lower, more people can afford to buy a given house, or a piece of land, or shares of stock. The additional demand tends to bid up asset prices.

Slide 30

This should be clear from Slide 29.

Slide 31

Interest rate assumptions often were originally made when interest rates were higher.

Slide 32

Payments to individuals in a particular year act as a way of dividing up goods and services available in that year. If the share of goods and services going to those who are paid interest rises, it will mean fewer goods and services are available for others. History says that it is the non-elite workers that are most likely to be “shorted,” if there are not enough goods and services to go around.

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Even a decline in coal consumption is a problem, if it causes total energy consumption per capita to fall! Wind and solar cannot possibly make up the shortfall. Also, their installed cost is high, if the cost of intermittency workarounds is included.

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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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1,963 Responses to How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

    • Davidin100millionbilliontrillionzillionyears says:

      “Meanwhile, the lowest-quality borrowers in the U.S. are defaulting on subprime loans – which constitute about one-fifth of auto lending since 2007 – at a faster clip than during the financial crisis, Fitch Ratings says. Yet investors seem complacent.”

      complacent?

      sure…

      we’ve seen auto company bailouts and lender bailouts…

      it “worked” before, so why not again?

    • zenny says:

      My bank gives me 3.4% tax free that is enough risk for me $cdn

      • $CDN relativity to USD seems to depend on the price of oil: the higher the price of oil imported from Canada, the better the exchange rate, relative to the USD. If Canadian prices get a better price for their oil, the exchange rate becomes more favorable for Canada.

  1. Baby Doomer says:

    $3 a gallon gas?

    Looks like 1970’s siphoning gas, is back into style.

    • Baby Doomer says:

      All the harbingers of collapse are visible: crumbling infrastructure; chronic underemployment and unemployment; the indiscriminate use of lethal force by police; political paralysis and stagnation; an economy built on the scaffolding of debt; nihilistic mass shootings in schools, universities, workplaces, malls, concert venues and movie theaters; opioid overdoses that kill some 64,000 people a year; an epidemic of scides; unsustainable military expansion; gambling as a desperate tool of economic development and government revenue; the capture of power by a tiny, corrupt clique; censorship; the physical diminishing of public institutions ranging from schools and libraries to courts and medical facilities; the incessant bombardment by electronic hallucinations to divert us from the depressing sight that has become America and keep us trapped in illusions. We suffer the usual pathologies of impending death. I would be happy to be wrong. But I have seen this before. I know the warning signs. All I can say is get ready.

    • Or perhaps the election of Trump is the result of a physics problem–too little energy to go around. The economy as a dissipative structure needs to behave as it is behaving.

      • thats the reality that most people dont understand

        difficult economic periods throw up fascist dictators because gullible voters are convinced thayt prosperity can be voted into office

        germany collapsed—thus hit ler got elected.

        they are doing the same in venezuala

        all supported by one faction or another

        • xabier says:

          Stressed people believe that prosperity can be voted into office because they always tend to believe that some other group has stolen their prosperity (I was watching Erdogan’s election ads, same message – the West made us weak!).

          This is as far away from grasping an interconnected and collapsing system, with dimishing returns – as explained by Gail – as one can imagine.

          Let’s see what happens in Italy now…….

      • Fast Eddy says:

        Trump was placed in power to entertain.

        Obama was placed in power to offer hope.

  2. Davidin100millionbilliontrillionzillionyears says:

    Maduro wins!

    Maduro wins!

    Venezuela is saved!

  3. @Fast

    Churchill was responsible to at least half, and probably more , of all deaths attributed to H. it. ler.

    The Bengal Famine of 1943 , only known to the people living that region, was not well known until , out of all people, a Ph.D of Physics educated at Caltech wrote a book about it.

    https://en.wikipedia.org/wiki/Churchill%27s_Secret_War

    In short, Churchill denied food aid to famine-striken Bengali, and at least 3 million starved to death (and probably more but who keeps stats in that part of world when WW2 was in full rage).

    • need to get this bengal famine/churchill thing as straight as possible–so let’s put it in perspective

      ww2 killed 50m—give or take

      so let’s put a timeline on ww2 without churchill’s leadership

      1940–there was a ”make peace movement” –so uk makes peace with hitler. chirchill resigns and retires
      uk becomes a subject nation—churchill probably arrested and shot

      1941, japan attacks usa, as part of the germany-japan axis–hitler also declares war on usa—but usa is now isolated

      uk is not available to usa as an aircraft carrier—so usa withdraws in on itself.

      german industry remains intact–and continues work on the atomic bomb, and the means of delivering it—nothing can stop them

      with britain out of the war—japan invades india, and australia/NZ… germany invades the middle east….both are after oil.—their armies meet, probably in pakistan. British colonies become granaries, manned by slaves,

      by 1944/5/6—germany has the atomic bomb, and the means to deliver it

      washington nuked—game over for the usa and north america.

      The USA would have been a subject state of the geman/japan axis.—-and yes there would have been lots of people willing to do hitler’s bidding in every respect if that had happened.

      so when the utter nonsense of churchill’s responsibility for ww2 deaths goes flying around—i feel its time for a dose of reality

      churchill made mistakes, but he saved all our necks—in a lteral sense.

      as to the bengal famine—that was a scorched eath policy in the face of the japanese advance. there was no ”refusal to send food to bengal”—the means to do that in 1943 didnt exist—we were fighting for our lives

      unfortunate i agree—but i’ve just set out the alternative.

      maybe that was preferable?

      • The world could not support the number of humans alive at that point, unfortunately. There was an energy resources per capita problem. When this happens, everyone tries to push the problem off onto someone else. It is the same problem we are encountering today.

        We blame those who were most successful in “saving” their own people.

      • Yorchichan says:

        I’m sure the Soviet people would have been saddened to hear their great part in the defeat of Nazi Germany was not enough to merit a mention in your fiction. You do know that in Russia, WW2 is viewed as being almost entirely between the Soviet Union and Germany, with all other confrontations being viewed as minor side shows? Even at the height of Allied involvement, 80% of the German War effort was directed on the Eastern Front.

        Nazi Germany never had the industrial capacity to beat the United States in the race to acquire an atomic bomb, certainly not while it was engaged in total war with the Soviet Union. Germany’s defeat was inevitable so long as it was opposed by the USA and the Soviet Union. You overestimate the importance of the UK.

          • An animated data-driven documentary about war and peace, The Fallen of World War II looks at the human cost of the second World War and sizes up the numbers to other wars in history, including trends in recent conflicts.

        • Yep, Norman is largely off base on this particular topic.
          Unfortunately, most of the public has been subjected to heavy indoctrination in terms of real allied contribution to defeating Nazi Germany. US fought for superpower status only, UK for patching up the already dying empire for another few years, the waiting and stalling in opening new fronts was evidently on purpose, while only Nazis and Soviets were in total extermination war effort in the total scheme of things..

          Also in terms of the nuclear bomb it’s a bit wild scenario.
          The Nazi science in this field was largely “decapitated” (emigrated out) prior WWII, it’s very doubtful they could match or supersede the US effort in the late 1940s/early 1950s of this alternative scenario. Plus the delivery method is questionable, US had the capability of long distance bombers and larger navy as opposed to Nazis, while we might acknowledge they were ahead in early (ballistic) missiles research.

          Adolf after getting his revenge for WWI, punishing France and their/British Low countries friends, was basically in the next round tricked to a challenge how to chip away the Soviet/Russian resources (yet again in history) and when it appeared as failure – the blow back prospect – now looking even worse, i.e. Russian marching again into Paris/Atlantic coast, the US+UK finally boosted up the effort.

          The WWII was gargantuan release of energy = rewriting of history, as the Germans were kicked out from Baltic, Central and Eastern Europe, parts of Balkans and other enclaves they helped to build up for almost two thousand yrs.

        • futhark says:

          You speak a lot of truth, Yorchi. But don’t forget the hypocrisy of Stalin, who indulged in the Nazi-Soviet pact and took part of Poland and kept it after the war, as well as parts of Finland, Romania and Slovakia. And Stalin was at least as monstrous to his own citizens as Hit ler.

        • Fast Eddy says:

          My first trip abroad — I had a stop in Hawaii on the way to Korea — and I had my first encounter with British public school types at a guest house…

          Sarcastic… condescending full of themselves complete asssssholes…. I forget which war the US had just provoked but they were going on and on about how the UK had a seat at the table and were making the big decisions…

          I said nothing –but was thinking — you f789ing clowns have not had a seat at any table since WW1… the UK presence at the table ever since has been to clean up the dishes of the new master of the manor….

          I had the inclination to mention this at the time — then beat the sh it out of whichever one of these pieces of shi t took offence… then leave…. but there was a pretty hot Australian girl also staying there — and she – to my amazement – stripped off her top when we went down to the beach….

        • doomphd says:

          WWII in Europe was basically over after the fall of Stalingrad in 1943. afterward, it was just the Germans being stubborn, as they are wont to do. it’s true that the Russians/Soviets did most of the heavy lifting in defeating the Germans, but they also got a lot of material assistance from the yanks via Detroit-made trucks and tanks. the UK did make a nice stationary aircraft carrier, one that did not have to worry about the German U-boats, a formidable threat to all Allied shipping.

          the US practically defeated the Japanese Empire single handedly, after rolling up their sleeves and getting the job done. amazing that they could defer this task until the war in Europe was basically over. MacArthur, Nimitz were amazingly good.

      • Fast Eddy says:

        I am not focused on the justification for the actions — every mass-murderer has justifications – including Hi tl er.

        Genghis Khan if we could interview him… would no doubt would trot out why slaughtering entire villages was a crucial military strategy.

        King Leopold is another uber villain that belongs on our list… chopping off hands in the Congo was also justified… because he really needed that rubber sap collected…

        And let us not forget the UK’s use of concentration camps and scorched earth (leading to starvation) in the Boer War….

        Napalm and Agent Orange in Vietnam…..

        Whatever it takes – is not a new phenomenon… we’ll fight dirty if necessary.

        My point is that … it is rather odd that we celebrate Churchill … in spite of what he did… yet we vilify others who committed similar atrocities.

        Imagine if the Germans were to erect a statue of Mr H in Berlin 🙂

        • futhark says:

          “And let us not forget the UK’s use of concentration camps and scorched earth (leading to starvation) in the Boer War”

          Very true. And machine-gunning Zulus by the thousand. Surprisingly, Napoleon was the first to use concentration camps – in Haiti, against the native non-whites.

          In the 1950s, white Kenyans tortured and murdered up to 160 000 Mau-Mau suspects. Read about them and you learn of the “castration pliers” that they used.

        • zenny says:

          Mr H was not all bad he was kind to animals and loved dogs. He should have a statue with a dog at his heel.

      • SomeoneInAsia says:

        If the Brits (and other Europeans) had never done what they did since the early 19th century, the rest of the world would have just chugged along as it had always done for centuries.

        No massive deforestation or ocean acidification.

        No radiation or nuclear threats of any kind.

        No major extinction of species after species.

        And no impending collapse now awaiting us all. A collapse whereby several billions of us will have to go.

        Would have seemed a rather more preferable alternative to me.

        • when a fresh energy source becomes available to any species, that species will grab it and use it

          this applies equally to bacteria in a petri dish as human beings on a planet

          that is what we have evolved to do, and…..in a collective sense…..we have no choice about it.—yes we can look back and see the wrong path we took (almost certainly a dead end), but energy consumption promised wealth. It is too late to stop our wheels turning. History is what it is.

          so once a fire was lit under the first steam engine, we as a species became set on a course of maximum consumption until that particular source of energy runs out. Try to imagine the 18th c ironmaster destroying his furnace to prevent the wreckage of the future.

          We consume for the day, to survive today, and procreate for today, pollution and destruction are largely disregarded

          just like bacteria, we assume our energy resource will always be there,…..absence of it is inconceivable to the vast majority of humankind

          we might find another energy resource to carry on consuming, or we might not—-bacteria do not enjoy the luxury of ”future concept”—we do.
          so we convince ourselves we are immortal, and invent gods and pay politicians to confirm that

          • Fast Eddy says:

            https://en.wikipedia.org/wiki/Ted_Kaczynski#Summary

            Industrial Society and Its Future begins with Kaczynski’s assertion that ” the Industrial Revolution and its consequences have been a disaster for the human race.”[75][76]

            Kaczynski states that technology has had a destabilizing effect on society, has made life unfulfilling, and has caused widespread psychological suffering.[77] He argues that because of technological advances, most people spend their time engaged in useless pursuits he calls “surrogate activities,” wherein people strive toward artificial goals. Examples he gives of surrogate activities include scientific work, consumption of entertainment, and following sports teams.[77] He predicts that further technological advances will lead to extensive human genetic engineering and that human beings will be adjusted to meet the needs of the social systems, rather than vice versa.[77]

            He believes that technological progress can be stopped, unlike some people, who he says understand some of its negative effects yet passively accept it as inevitable,[78] and calls for a return to “wild nature”.[77]

            • he is quite correct of course—and industrialial society is a dead end—-literally probably

              but it cannot be stopped voluntarily—it will stop when the energy source that drives it ends

              after that—our lifestyle is anybody’s guess

        • Grant says:

          So you are suggesting that all human creativity in terms of fossil fuel powered industrialisation would not have developed anywhere else?

          Also that living conditions and life expectancy would not have changed for any reason?

          How many billions of humans would have been conceived before dying at can early age?

          Very early in many cases. Early by 21st century standards in others.

          How would the starvation numbers work out for those centuries?

  4. Fast Eddy says:

    It all depends if M Fast is in the room… her howls of despair might set off a tsunami that takes out those cracked ponds at Fookasheema .. and ends Japan as we know it… Korowiczing the supply chain .. and taking down BAU

    I will make sure to move to the other room … next time…. this is high risk stuff

  5. MG says:

    The new measures agains falling too deep into debt for the private persons in Slovakia enter into force gradually as from July 1st: the maximum indebtedness can not surpass 8 months’ wages of the debtor.

    The maximum limit is thus EUR 70 000 in average for 1 person and EUR 140 000 for married couple. If you take a mortgage in the height of EUR 70 000, you can not take another loan for a car or partly also the lease. Th finance lease is a consumer credit, oparating lease not.

    https://ekonomika.sme.sk/c/20824738/banky-obmedzia-pozicky-nielen-na-byty-ale-aj-auta.html?ref=trz

    • If a country wants recession, limiting loans is a good way to create this result.

      I suppose someone will find a way around this problem–businesses may be able to still get big loans, and long-term rental of cars may be the new big thing, for example.

      • theblondbeast says:

        Plenty of ways around this if continued increasing consumption of resources per capita is the goal. Tax credits, government writeoff of debt as a category. I think we’ll see an effort in GFC II. My question is “at what point can production not actually increase.” I think the answer is when so much of our effort goes into energy production and capital maintenance that we have no surplus left over to grow. It’s hard to spot because some capital is always deteriorating. But I think if we honestly looked at decaying infrastructure we would realize that there is already no capacity available to both fix/maintain and add more. Growth is already coming at the expense of breakdown.

      • theblondbeast says:

        Another excellent option would be to heavily tax creditors and all rent-seeking activities but not tax labor at all. This is of course social engineering. Maybe the class structure brings the system down first?

        • The problem we have had in recent years is the offshoring of business enterprises, so that governments could not tax their activities. That left a greater share of the tax to be collected from labor.

          This is a chart I made using recent data from the US BEA data.

          The chart will not show the effects of the tax cuts taking place at the end of 2017.

          If you are talking literal rent-seeking activities (renting out buildings, for example), higher taxes will mean that owning rental property doesn’t make sense, unless the higher taxes can be passed on to renters. I think that this tends to disproportionately hurt lower wage workers, because they are the ones who tend to be renters. Higher fees on energy extraction will mean energy extraction is less profitable and fail more quickly.

          • theblondbeast says:

            The off shoring is a big problem. Much of this comes also from globalization and pressures to allow international business. The same goes for the declining revenue from excise/customs.

            Debt is a definite utility required for the economy to continue – but the way we create our corporations and financial institutions have more flexibility. There is some reason to think that these systems function this way in part to limit consumption (wealth inequality) as resources get scarce, but I think more could be done.

            Possibly the debt/financier problem pops up when the economy is weak. It’s like a parasite that can’t hurt a healthy host but makes a weak one collapse when energy resources aren’t growing.

            While I generally agree with your points about taxation the issue with real estate taxes has a lot to do with loan origination. The value of real estate is closely related to what a bank will loan for the property. I think capital gains is a better strategy than trying to tax rental income because of the pass-through function you mention.

            Taxing ordinary citizens is not necessary to fund governments which create their own currency. It only functions to regulate inflation and implement social goals like income distribution.

            So a strategy like getting rid of FICA taxes for instance and merely financing unemployment through government debits would increase real income. Whether this created inflation or not would depend a lot on how consumption/production can actually increase.

            We have to create more money to allow economic growth – we don’t have to do it through the banking system, yet 97% of all money is created by banks which includes interest rates that are leading to deflationary pressure and wealth inequality.

            We could do a lot better in this realm but might not actually have the resources for people to increase their standard of living, unlike the 30’s where sufficient intervention could really speed things up.

            • djerek says:

              An alternative organization with less financial overhead (and other rent seeking as well) would make the system more efficient and make harder energy extraction more feasible since there’d be less other overhead and more ability to support the overhead of energy costs.

  6. MG says:

    The fight for university students:

    The young Slovaks leave Slovakia for studying in the neighbouring Czech Republic. As the populations of both countries are getting older, the fight for students between the universities sharpens: the common historical background is revived and the Slovak students can now write their papers at the Czech universities in Slovak.

    https://presov.korzar.sme.sk/c/20830193/studentka-univerzita-u-nas-a-v-cechach-diametralny-rozdiel.html?ref=av-left

  7. Harry Gibbs says:

    “Comparing today’s populists and nationalists to the Nazis and fascists of 80 or 90 years ago is pointless. But I see much clearer parallels between the fall of Germany’s Weimar Republic and the vulnerability of Europe’s liberal elites. Some of the current defenders of the liberal order are making the same mistake as, for example, the German Centre party of the early 1930s, by underestimating the scale of the threat that they face…

    “To someone such as Mr Salvini [Italy’s populist in-chief], a financial crisis is not a threat but a promise, one that allows him to pull the plug on euro membership…

    “If liberal democracy fails to deliver economic prosperity for a sufficiently large portion of the population over long periods, it ends — along with the financial and economic institutions it has created.”

    https://www.ft.com/content/d622ff62-5a79-11e8-bdb7-f6677d2e1ce8

    • Harry Gibbs says:

      “There is no relief for Italian sovereign debt this morning, with the prospect of a meeting between populist coalition partners and the president bringing the anti-establishment Five Star and League parties closer to government. It would be the first time two Eurosceptic parties had run a major eurozone economy, under a wide-ranging and detailed manifesto for power that includes calls for an overhaul of all EU fiscal and monetary rules.”

      https://www.ft.com/content/a9237226-5cc2-11e8-9334-2218e7146b04

      • the italians make exquisite ”things”—no question about that

        but to do it they must import raw energy/ materials—and the cost of that is rising beyond the level that their trading economy can stand

        the result will be inevitable collapse because they are trading on infinite deficit….which of course their polticians regard as irrelevant

        • Harry Gibbs says:

          Speaking of politicians regarding the relationship between energy and the economy as irrelevant, my mind was boggled at the weekend when I took the time to review the energy policies of political parties in the UK – completely clueless! Bandying about the term ‘zero-carbon energy’ like that is an actual thing and making impossible promises about renewable grids and cars.

          The Tories want to open up the UK more widely to fracking, of course, and have just changed the planning laws to facilitate that. We do need the gas, I suppose.

          https://www.carbonbrief.org/election-2017-what-minfestos-say-energy-climate-change

          • The scientific community cannot seem to point out the obvious–wind and solar cannot possibly be a solution.

            • SomeoneInAsia says:

              The scientific community cannot seem to bother at all about the human predicament. Day in day out they prattle on about string theory, dark matter, how many dimensions we live in and the like, but show zero interest in things like resource depletion and the limits to growth. (The late Albert Bartlett is one notable exception.)

  8. Harry Gibbs says:

    “China’s growing debt load has sparked fears of a financial crisis in the world’s second largest economy. In a move to tackle the surging debt, a top official with China’s stock market regulator has proposed equity financing to reduce their dependence on debt.”

    https://www.indiatvnews.com/business/news-amidst-fears-of-growing-debt-load-china-proposes-equity-financing-to-tackle-crisis-443190

    • Harry Gibbs says:

      “China is slamming the brakes on infrastructure investment to reel in soaring local debt, but the move is certain to hurt regions reliant on public works projects, widening the country’s already stark economic gaps.”

      https://asia.nikkei.com/Economy/China-curbs-infrastructure-spending-as-local-debt-climbs

      • The article also mentions correcting inflated GDP growth figures reported by some of the provinces.

        Falling infrastructure investments will tend to push commodity prices downward.

    • Equity financing, in many ways, is not a whole lot different from debt financing. It allows businesses to go forward, hire workers, and repay past debt. It is what has kept shale companies operating, when they have not been really profitable. But it prevents the problem of net being afford required payouts, even if they represent interest only payments on debt.

      How about equity financing for Greece’s government? Who wants to buy a share of it? Or for the student who cannot really afford a new car loan? But for unprofitable businesses, they may be a way of hiding the problem for a while.

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