Why it (sort of) makes sense for the US to impose tariffs

Nearly everyone wonders, “Why is Donald Trump crazy enough to impose tariffs on imports from other countries? How could this possibly make sense?”

As long as the world economy is growing rapidly, it makes sense for countries to cooperate with each other. With the use of cooperation, scarce resources can become part of supply lines that allow the production of complex goods, such as computers, requiring materials from around the world. The downsides of cooperation include:

(a) The use of more oil to transport goods around the world;

(b) The more rapid exhaustion of resources of all kinds around the world; and

(c) Growing wage disparity as workers from high-wage countries compete more directly with workers from low-wages countries.

These issues can be tolerated as long as the world economy is growing fast enough. As the saying goes, “A rising tide lifts all boats.”

In this post, I will explain what is going wrong and how Donald Trump’s actions fit in with the situation we are facing. Strangely enough, there is a physics aspect to what is happening, even though it is likely that Donald Trump and the voters who elected him would probably not recognize this. In fact, the world economy seems to be on the cusp of a shrinking-back event, with or without the tariffs. Adding tariffs is an indirect way of allowing the US to obtain a better position in the new, shrunken economy, if this is really possible.

The upcoming shrinking-back event is the result of too little energy consumption in relation to total world population. Most researchers have completely missed the possibility that energy limits could manifest themselves as excessive wage disparity. In fact, they have tended to assume that energy limits would manifest themselves as high energy prices, especially for oil.

The world’s networked economy doesn’t work in the simple way that most researchers have assumed. Too much wage disparity tends to lead to low energy prices, rather than high, because of increasing affordability issues. The result is energy prices that are too low for producers, rather than too high for consumers. Producers (such as OPEC nations) willingly cut back on production in an attempt to get prices back up. The resulting shortage can be expected to more closely resemble financial collapse than high prices and a need for rationing. Trump’s tariffs may provide the US a better position, if the world economy should partially collapse.

Let me try to explain some pieces of this story.

1. Energy is needed to power the world economy. This fact has been missed by politicians and most economists. 

Economist Steven Keen recently developed a graphical explanation of the role energy plays in the world economy. In his graphic, he shows that workers need food (an energy product) just as machines need some sort of energy product to operate. In Steve Keen’s words, “Labor without energy is a corpse: capital without energy is a sculpture.”

Figure 1. Graphic by Steven Keen, depicting the role of energy in the economy. Energy in the form of food is necessary for human labor, just as energy (in one of its many forms) is needed for physical transformations that make the activities underlying GDP possible. These physical transformations necessarily lead to both the desired products and multiple types of waste.

In fact, there is a physics reason why energy consumption is needed in the economy. Energy “dissipation” is needed for the physical actions underlying GDP. For example, transportation requires a physical movement of people or objects. This can only happen with the use of energy. Even the use of heat or of electricity requires energy dissipation.

2. China’s huge growth in energy consumption since it joined the World Trade Organization (WTO) in December 2001 is truly amazing. It has changed the world order in a few years.

China’s energy consumption ramped up very quickly after joining the WTO in late 2001. At the same time, the energy consumption of the US and the EU stagnated, as manufacturing moved to China and other Emerging Markets.

Figure 2. Energy Consumption for the United States, China, and European Union, based on data from BP’s 2018 Statistical Review of World Energy.

As the shift in energy consumption occurred, jobs shifted elsewhere. Also, the competition with China and other low-wage countries tended to hold down wages of workers whose jobs could be shifted overseas. When we look at labor force participation rates for the US, we see that these seem to have turned down about the same time that China joined the WTO. This suggests that workers started leaving the workforce about the time competition with China ramped up.

Figure 3. US Labor Force Participation Rate, in chart prepared by the Federal Reserve of St. Louis.

3. China is now facing a problem with Peak Coal. Its level of coal production is barely sustainable because of depletion and low coal prices. 

Figure 4. China energy production by fuel, based on BP Statistical Review of World Energy 2018 data. “Other Ren” means Other Renewables. This includes wind, solar and other renewables, such as wood burned for fuel.

If China is to manufacture goods and services for the world economy as well as its own people, it needs a growing supply of cheap-to-produce energy. China’s largest source of energy is coal. China’s coal production hit a peak in 2013 and has been on a bumpy plateau, or falling, since. The problem has been a combination of (a) a higher cost of coal production, because existing mines are depleting, combined with (b) coal prices that do not rise high enough to make production from these mines profitable.

Of course, if coal prices were to rise higher, China would have a different, but equally serious problem: The cost of finished goods created for the world marketplace would be quite a bit higher, making it difficult to export them profitably. If customers’ wages rose at the same time coal prices rose, there would be no problem. The problem could be described in some sense as growing mining inefficiency because of coal depletion. Unfortunately, the world economy does not reward a shift toward inefficiency.

4. With Peak Coal occurring in China, it makes little sense for the United States, the European Union and others to depend as heavily on China as in the past.

The economy of every country today is built on debt. If the world economy is growing, this debt pile can rise higher and higher. If interest rates can be brought ever lower, this also helps the pile of debt rise higher and higher.

China’s economy also uses increasing debt to sustain its economic growth. If the economy of China should slow down or start shrinking because of energy limits, debt defaults could start overwhelming the system. Uprisings from laid-off workers might become difficult to quell. The situation could easily spiral out of control.

Economies around the world depend on China for many manufactured goods. In fact, for many minerals, China’s usage amounts to over half of the world’s consumption. This arrangement doesn’t really make sense because (a) China cannot really be depended on for the long term because of coal depletion, (b) jobs that pay well in Advanced Economies are being lost to China and other Emerging Markets, and (c) the level of concentration of manufacturing in China puts the world system at risk if China has any kind of adverse shift in its economy.

5. The whole idea of buying fuels from other countries only works as long as there is enough to go around. 

Many people are of the opinion that if there is not enough fuel of a particular kind, fuel prices will rise, and the market will continue to operate normally. There are at least two reasons why this doesn’t make sense:

Reason #1. The issue underlying rising costs of fossil fuels is nearly always depletion. For example, with coal mines, the coal closest to the surface in the thickest seams is extracted first. As this is depleted, deeper coal in thinner seams can also be extracted, but the cost tends to be higher. When depletion takes place, it is nearly always possible to extract more of the given fuel if some combination of more human labor and more technology (powered by energy) is used. Of course, adding labor and/or technology leads to a higher cost of production. 

But the prices of commodities are not determined based on the cost of production; prices are determined in the marketplace. They reflect the quantity of finished goods and services made with these commodities, that consumers (in the aggregate) can afford. Extracting coal or another fuel in what is essentially a less efficient manner doesn’t add to what consumers can afford. The combination of flat prices and higher costs leads to unprofitable producers–precisely China’s problem. Producers tend to cut back on production.

We can see that higher energy prices don’t lead to higher wages by looking at what happened when oil prices rose a few years ago in the US. We see that higher oil prices led to lower average wages because of recession.

Figure 5. Average wages in 2017$ compared to Brent oil price, also in 2017$. Oil prices in 2017 dollars are from BP Statistical Review of World Energy 2018. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Reason #2. If we look back at the timing of Peak Coal in the UK and in Germany, it looks very much as if depleting coal supply was one of the causes of both World War I and World War II. Governments know that energy supplies are required to operate their economies. If they cannot get enough energy products internally or through trade, they will fight other countries for access to supplies.

Figure 6. Image by author.

Economists, sitting in their ivory towers, have not stopped to think through the obvious. Their standard supply and demand curve does not work for energy because an adequate supply of cheap energy is needed for both the demand for goods and services (coming from wages workers earn) and the supply of goods and services. Once affordability becomes a problem, because too many people have low wages, the prices of fuels stop rising. It is the fact that prices don’t rise high enough that causes the “peaking” of oil, natural gas, and coal production. Extraction stops, even though there seem to be plenty of resources still available with current technology.

6. A major energy issue today is the fact that China and India have run through their own energy supplies and now need to import energy from outside their countries to supplement domestic supplies.

As shown in Figure 4 (above), China’s coal production stopped rising in 2013, keeping the total amount of energy it produces close to flat. To compensate for this shortfall, China has started to import oil, coal and natural gas. The difference between the thick black line and the top of the “stack” of types of energy produced in China (in Figure 7 below) represents the quantity of fuel that it has needed to import. Clearly, this quantity has been increasing.

Figure 7. China energy production by fuel plus its total energy consumption, based on BP 2018 Statistical Review of World Energy data.

India’s coal supply is not yet decreasing, but it is running into a similar problem. It needs to import more and more energy products from abroad, as its energy consumption (thick black line) rises above its energy production “stack.”

Figure 8. India’s total energy consumption compared to its energy production by type, based on BP 2018 Statistical Review of World Energy. “Other Ren” includes wind, solar, and other commercially traded renewable types of renewable energy, such as geothermal.

7. Worldwide, there is a growing need for imported fuels of many kinds.

Figure 9 shows the imports needed for five major areas of the world. In this analysis, the European Union is treated as a single unit. Thus, in this analysis, the imports it receives are only those from outside the European Union, taken as a whole.

Figure 9. Required energy imports for five major areas of the world, based on the difference of energy consumption and energy production shown in BP’s 2018 Statistical Review of World Energy.

We can see from Figure 9 that the European Union and Japan have been major importers of fuels for a very long time. India and China have only in recent years become energy importers. At the same time, the US is becoming more and more energy sufficient with its own fuel production.

Figure 10 shows the ratio of imported energy to total energy consumption for these five areas.

Figure 10. Percentage of energy imported in 2017 in Japan, India, the EU, China, and the US. Imports calculated as the difference between Total Energy Consumption and Total Energy Production based on data from BP 2018 Statistical Review of World Energy. The European Union is treated as a single unit. Thus, energy imports are those from outside the EU.

The US is clearly in a better position than other countries/groups shown, with a smaller share of energy imported in Figure 10 and a declining trend in imported energy in Figure 9. Japan, the EU and India are all subject to substantial risk if available imports should fall.

8. The ramp up of “clean energy” to date has proven to be a major disappointment. The quantities added are far below what the IEA believes is needed.

Partial confirmation of this statement can be seen by observing the tiny orange “Other Ren” bands on Figures 4, 7, and 8 for China and India, which include wind, solar, and other non-hydroelectric renewables. China is the largest user of wind and solar in the world, yet its use of these devices provides only a tiny portion of its total energy consumption.

We have known since the 1950s that fossil fuel supply would eventually become a problem. Academics, with their focus on making models, have been able to come up with hypotheses regarding what might act as substitutes. But these models tend to miss a lot of things, including the following:

  • Adverse events, such as Fukushima for nuclear.
  • The need for electricity storage and extra long distance transmission lines, as wind and solar usage are ramped up. The cost-benefit analysis is much less favorable with these added.
  • Issues that affect only some installations, such as workarounds to keep long-distance transmission lines from starting fires in dry areas, or the high cost of underground transmission lines.
  • The best sites are taken early.

It is not until the actual experience arrives that we see how these substitutes are working in practice. If we think back, the nuclear promise of producing electricity that was hoped to be “too cheap to meter” hasn’t really panned out. In fact, many Advanced Economies are cutting back on their use of nuclear.

With respect to “renewables,” (including hydroelectric, wind, solar, and others) the amount of new generation added each year seems to have hit a plateau. It may be that the additional need for storage and transmission lines are already slowing the growth of renewables.

Figure 11. IEA Renewable Net Capacity Additions as of May 2019. Source: Chart from India Times.

The IEA has started pointing out that far more energy investment is needed if sustainable development goals are to be met–about 300 GW per year, instead of the current 177 per year in additions, on average, between 2018 and 2030.

9. Donald Trump and his advisors have sensed that the current economic system is not working because of too much wage disparity. If the economic system is destined to break in one way or another, Trump can influence which way the break will occur by the imposition of tariffs.

Trump and his advisors no doubt recognize the importance of a cheap, available energy supply. They also realize that energy is an important enough factor of production to fight over. Furthermore, many past wars have been resource wars. Tariffs are, in some sense, a step toward a resource war.

One of the immediate problems at hand is too much wage disparity. Strange as it may seem, excessive wage disparity can be a sign of inadequate energy supply because in a networked economy, high prices of commodities and low wages of workers are almost “mirror images” of each other. High commodity prices tend to cut off consumption of commodities (such as oil or coal) by prices of finished goods that are too high for consumers.

Excessive wage disparity works in reverse: It sends prices of commodities (such as coal and oil) too low, cutting off production because prices fall too low for producers of these commodities. Production falls because producers cannot make a profit. When wage disparity is very high, a large share of workers have very low wages, leaving them unable to purchase more than a small amount of high-priced goods (such as cars and homes) made with commodities. It is this low “demand” that holds down commodity prices.

Figure 10 shows that wide income disparities were issues both at the time of the Great Depression and in recent years. Commodity prices have been relatively low each of these times. The problems didn’t look like shortages; they looked like gluts because of issues related to lack of affordability.

Figure 12. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

The US has raised tariffs in the past. One time was immediately before the US Civil War. Tariffs were again raised in 1922 and 1930, when wage disparities were at a high level.

Unfortunately, there is a significant chance that major parts of the world economy will start collapsing, with or without Trump’s tariffs and the trade war, because energy supplies worldwide are not growing sufficiently. In fact, some of these energy supplies are purposely being removed by producers, such as Saudi Arabia, because prices are too low.

By putting tariffs on some goods, Trump is providing a substitute for the missing high oil prices needed to slow the growth of globalization, if the issue of ever-increasing wage disparity is to be solved. The tariffs tend to raise the value of the US dollar relative to other currencies, making the cost of commodities (including fossil fuels) cheaper for US consumers than for other consumers around the world. The tariffs tend to encourage new investment in US production of many types, at the same time that they make investment in other countries, such as China, less appealing.

All of these changes indirectly give the US an advantage if there should be a partial collapse of the world economy. With the benefit of the tariffs, perhaps the partial collapse would leave some combination of countries, including the US and Canada, mostly unaffected. There might be other groups remaining as well. Weak economies, such as Venezuela, Cuba, and Haiti, would likely be pushed aside. Even Europe and Japan would likely have major problems.

Conclusion

Most observers have missed the point that excessive wage and wealth disparity can be a sign of serious energy problems, just as high prices can be a sign of short supply. They have also missed the point that coal supply is very important, just as oil supply is very important.

In the real world, when there is not enough to go around, wars are a definite possibility. A trade war is a somewhat reduced version of a war. Trump and his advisors, whether or not they understand the real situation, seem to be trying to guide the US to as good an outcome as possible, in the current situation of excessive wage disparity.

The underlying issue is likely the Limits to Growth problem modeled in the 1972 book, The Limits to Growth, by Donella Meadows, et al.

Figure 13. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil,” with dotted line added corresponding to where I see the world economy to be in 2019.

As resources become depleted, it becomes increasingly difficult to maintain economic growth. Industrial output per capita (for example, the number of new cars or number of smartphones per 1000 people) starts falling. The 1972 computer simulations did not consider wages or prices, only physical quantities of various items.

Now, as we can see how the limits are playing out in the real world, it appears that the most prominent manifestation of the world’s low resource problem is excessive wage disparity–an issue most people have never considered as being related to shortages of resource supplies. Few people have stopped to think that goods made with energy products are equally unaffordable whether the problem is prices being too high, or wages of most people being too low.

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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1,341 Responses to Why it (sort of) makes sense for the US to impose tariffs

  1. Harry McGibbs says:

    “The grand central bank experiment of the past 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round of peddling blue meth again.

    “Australia has already cut interest rates, and so has India. The European Central Bank (ECB) is talking about it, and markets are already pricing in multiple Federal Reserve cuts. The new global rate-cutting cycle begins anew before the last one ever ended. Brace yourselves as no one, absolutely no one, can know how this will turn out.

    “We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the past 10 years has been wrong. No wonder Fed boss Jay Powell wants to toss the dot plot. It’s a public record of failure.”

    https://www.marketwatch.com/story/its-game-over-for-the-fed-as-the-central-banks-credibility-crumbles-2019-06-07?fbclid=IwAR02O-N-7esFjS0_e-ISXlHCNCfcWtXHbk1VTAQC7mQhrttUq8cnHJSPE1k

    • Chrome Mags says:

      That’s because there is no way to fight back a situation in which surplus energy is constantly and incrementally declining. For those not completely understanding that, imagine California trying to fund a completely new aquaduct for runoff water from the Sierra’s to southern cal., or imagine the US trying to pave a whole new countrywide highway system. We’re having trouble just trying maintaining existing infrastructure. That’s like having the money to purchase a very expensive vehicle, then later having trouble coming up with the money to change the tires.

      • Harry McGibbs says:

        The global economy will always self-organise to try to maintain the circa 3% p/a growth rate to which it is adaptive, whether that entails the election of a pro-coal government in Australia, for example, or the obfuscation of legitimate price discovery via increasingly surreal central banking interventions. It is probably psychologically beneficial to be a fatalist in these matters.

        • I think “try” is the important word here.

          Once resource limits are hit, the economy will try to find a subset of the total world economy that can continue to grow, even if inefficient portions of the total world economy must be discarded. It will then be only this subset that continues to grow, until it also reaches limits.

      • Xabier says:

        I’ve lost the reference, but a few years back an Institute for engineers in Britain bluntly stated that no new infrastructure should be built, as the existing infrastructure could not possibly be maintained.

        What are politicians and planners doing? Building even more, above all in the ‘growth hubs’ (I live bang in the middle of one) which are meant to deliver national prosperity, spread around by the central government.

        But surely it is logical to expect whole regions of Britain outside the hubs to be left to decay, physically and in terms of commercial and government services provided, which is in fact happening alongside the crazy (and hideously ugly and shoddy) building schemes in the ‘hot’ regions.

        It all has its own momentum, and concrete will be poured and tarmac laid, as everyday life deteriorates for most, until it can’t be anymore: as Sir Harry says below, it’s best to be a fatalist and not entertain naive expectations of a sudden outbreak of wisdom, or even realism.

        • Tim Groves says:

          On a local level here in Japan, I’ve been warning people for 30 years that the uneconomic infrastructure being built now—particularly roads, bridges and tunnels—would be too expensive even to maintain in the future and so it would be smarter to build less and maintain more. At first, nobody could understand what I was saying, but these days it has dawned on most people that new infrastructure eventually ages and has to be repaired. So I am feeling vindicated on this particular issue, although I am often wrong when predicting the future.

          However, these things tend to be decided top-down. Central government lets the local and prefectural levels how much they can spend and provides most of the budget through the miracle of Chihokofuzei (state subsidies to municipalities). My local city gets 80% of its funding from the central government and only raises 20% through local taxes and bonds.

          • Japan was one place where we saw little-used roads (and fancy bridges, from island to island), when we visited. High tolls to use the little-used roads, as well.

            China (particularly Inner Mongolia) was another place where we saw little used roads. This was in an area that China had thought would be developed for more coal extraction, but really wasn’t. I believe that the cost of transporting the coal by truck made the total cost of extraction + shipment too high, relative to the cost of imported coal from other places. We traveled from a little-used new airport as well. This was in an area near ghost cities.

            Cuba was another place where we saw little-used roads. I suppose when the state decides when/where to build, and hires people to do the building, overbuilding can be the result–especially if the main reason for the building is to give people jobs. This is a photo I took when my husband and I visited Cuba a few years ago. The people in the area could not really afford cars.

        • MickN says:

          Xabier -I think that came in an interview on the Today programme- I’m pleased someone else remembers it because for me it was a real “what did he just say moment?” and people think I’m mad when I bring it up. Was it 10 years ago? He was of course completely right. I’d love to find a reference to it but like you I have been unsuccesful- probably deleted from the archives as an inconvenient truth moment.

      • It is hard to imagine, today, how much resources went into producing the rich world’s infrastructure. Now we have a hard time with even simple things, like keeping water and sewer lines repaired. They really should be replaced after some point, but we can no longer afford this.

  2. Harry McGibbs says:

    “A new study examines green growth policies as articulated in major reports by the World Bank, the OECD and the UN Environment Programme, and tests the theory against extant empirical evidence and models of the relationship between GDP and both material footprint and CO2 emissions…

    “Their findings show that empirical projections show no absolute decoupling at a global scale, even under highly optimistic conditions.”

    https://phys.org/news/2019-05-dismisses-green-growth-policies-route.html?fbclid=IwAR1Lq1mEJHSE0lSR-Qi4EaHr22O-d-2Gu1xfJtmB6A0kj4C1YjCVOWpf7n4

    • The new study is available free at this link. Is Green Growth Possible?

      According to the abstract:

      We conclude that green growth is likely to be a misguided objective, and that policymakers need to look toward alternative strategies.

      • Harry McGibbs says:

        “Billionaire Michael Bloomberg said Thursday he will spend half a billion dollars in the ‘fight of our time’ to move the U.S. away from carbon energy and combat climate change.

        “The former New York mayor and philanthropist said the $500 million investment will go toward launching the Beyond Carbon initiative, which aims to close nearly 250 coal plants throughout the country by 2030 and prevent new ones being built.”

        https://www.dailymail.co.uk/news/article-7114973/Bloomberg-pledges-500m-clean-energy-fight-time.html

          • Grant says:

            Most ridiculous, IMO, is that he is in a position to be able to release that much spending power into the economy.

            Presumably others someway down the food chain have been short changed for years to give him that possibility.

            Of course he is not the only one seeking a cause to raise the flag of the virtue signaller.

      • Country Joe says:

        At this point the Green thing is all confusion and obfuscation. BAU will last until the pension/retirement funds are cleaned out and then it’s The Correction.

        • Part of what goes wrong is that governments cannot afford to pay all of their planned contributions to the elderly. These take the form of both monthly pension payments and health care cost support. These are pretty much not funded in advance, so there aren’t “funds to be cleaned out.” The problem is that taxes cannot be raised enough to pay for all of these benefits, especially given everything else that is going wrong with the system.

      • Sven Røgeberg says:

        Interesting study. Nonetheless the autors seem to believe in the hope «to find ways to decouple prosperity and development from growth.» «Legislative limits, green taxes, shifts in public investment and working hour-reductions or new social security institutions such as a basic income all have a role to play in such a transition.»

  3. Chrome Mags says:

    This is a video about the effect of the trade war on certain types of companies. One pricing expose’ they did was on the Iphone. It is assembled in China, so the price of the product gets labeled under China’s exports to the US, however all the parts are sourced from other countries – China only assembles it at $8.46 each. The US makes 68.69 and other countries are also listed for making money on its sale. Apple doesn’t manuf. anything which is partly why they are so profitable.

    There are other examples of how the trade war is hitting the US. Definitely worth watching.

    • Thanks! Interesting.

      Regarding iPhones, I think a point could be made that if China is going to become increasingly unstable in the future, there would be great benefit to moving the iPhone assembly somewhere else, say South Korea (which gets its electric power from nuclear, rather than coal, which seems to be past peak in China). This would keep the supply chain intact, even without China’s contribution. Thus, the phones could continue to be made, without China’s contribution.

      If the phones are instead assembled in South Korea, with parts from around the world (except China), it would not seem that tariffs would be a major problem. There wouldn’t be the benefit of bringing the jobs to the US. But perhaps this is not the only point of the tariffs.

      • Sheila chambers says:

        China controls essential rare earths & other minerals, what’s to stop China from refusing to export those resources to other manufacturing countries like Korea?
        We can’t manufacture high tech electronics here any longer because we allowed US corporations to move manufacturing to China, Mexico, Malaysia, India etc leading to massive unemployment in the USA.
        The US unemployment numbers are fake, you only have to work one hour a week to be counted as ’employed’, they don’t count those forced to work part time when they need full time work, they don’t count those who gave up looking for work, those who’s unemployment has run out & the growing numbers of homeless who are also unemployed but don’t have addresses any longer so their also not counted as “unemployed”.

        Low wage service jobs can’t replace well paying manufacturing jobs with benifits. That’s another reason why so many companies here are going out of business, it’s not just because we are “all” buying online, we simply aren’t buying.
        New cars abandoned by the thousands in empty lots, people driving old wreaks & stop eating out, stop getting their hair ‘done’ etc, for an economy that thrives on consumption, that will lead to recession or depression.

        • Tsubion says:

          That’s what I pretty much see happening everywhere. I’m in Spain and it’s the same story. Employed now includes drug dealers and prostitutes. Anything to bump up the numbers. But it’s all fake.

          The whole world is a house of cards waiting to implode. I personally don’t think it will take as long as some here think it will for a large scale implosion. The whole banking industry is clutching at straws and teetering on the edge. At this point all that is required is a small gust of wind and the whole thing comes crashing down. Then we see reality.

          When much of our economy boils down to people making and serving coffee to each other, what on earth would you expect to be the outcome.

  4. Harry McGibbs says:

    “Nuclear experts have warned that two Scottish reactors should not be reopened because of cracks that could force both Glasgow and Edinburgh to be evacuated. 

    Earlier this year, worrying footage of almost 400 cracks 2mm-wide at Hunterston B in North Ayrshire were revealed. 

    “Owners EDF Energy and trade union GMB want the reactors put back into service, after they were closed in October 2018. 

    But Dr Ian Fairlie, an independent consultant on radioactivity in the environment, and Dr David Toke, of the University of Aberdeen, are warning against attempts to reopen the reactors.”

    https://www.dailymail.co.uk/news/article-7117817/Experts-warn-Glasgow-Edinburgh-contaminated-radiation.html

    • If this situation develops further that means yet another (fatal) blow for the french industry. So, the only remaining NPP industries keep soldiering on in viable manner would be left in Russia, China*, and South Korea..


      * they run and develop several designs, possibly incl. that by Bill Gates venture, so very theoretically this could one day in the future return to some location within FUSA

    • Rodster says:

      I wonder how many other NPP’s around the world and even in the US have major safety concerns? Yet we keep building more without considering the nuclear waste these power plants generate and the care and commitment that’s required for many hundreds of years before they are no longer a risk.

      • Tsubion says:

        What do you suggest we do?

        • neil says:

          I suspect the alternative is to wear a thick jumper in the dark. Scotland reverting to its default position.

          • Xabier says:

            Jumper? Och man, d’ye mean a plaid? And a nice warm, young, haggis clutched close to the heart for extra heat…..

          • Tsubion says:

            I already wear thermals and thick socks and jumpers five months of the year so I guess I’m on the right track to saving the world.

            • Grant says:

              If you are over 40 the correct solution would be to stop wearing the warm clothing (except in a heatwave] and make a pitch for a hypothermic exit before your health starts to falter slowly putting stress on medical services or you reach the age at which a pension is payable.

              If you are under 40 and still need warm clothing then avoid healthcare at any cost and accept an early checkout when it becomes available.

              That would seem to be the morally correct approach.

            • Tsubion says:

              I’m over 40. But I identify as a 25 year old. So I’m exempt. Thanks for your concern.

        • Grant says:

          Well, if life is going to fall apart by 2030 it won’t matter if people commit to building nuclear because they won’t be operational by then.

          If it all falls apart by 2050 – who will care if they are operational or not?

          • Tsubion says:

            So we should just sit around and wait for the lights to go out?

            • Grant says:

              There is no chance of that. Plenty of people out there see a way to make themselves rich between now and a form of Armageddon that might occur at some time in the future.

              If they are rich enough maybe they can dodge the worst effects of any economic catastrophe. They hope.

              Long term performance bonus is no good to them. Gotta make the gains right now! Let it all crash and burn later.

            • Tsubion says:

              Oh good. That’s a great relief. Thanks for putting my mind to rest. I’ve asked Google to map out the path to the nearest cliff… just in case.

        • Niels Colding says:

          https://www.seaborgtech.com/

          Maybe the last straw?

          • Seaborg says, “Our Compact Molten Salt Reactor, the CMSR, is safe, significantly smaller, better for the environment, and inexpensive even compared to fossil fuels.”

        • Niels Colding says:

          https://www.seaborgtech.com/
          Maybe our last straw?

      • Sorry, this has been explained numerous times a;ready, nuclear fuel is reusable-recyclable. And if you don’t posses the technology there is the -passive- option of long term storage in seismically stable (‘granite mountain’) long term deposit, which most of the major countries either already have or is under construction.

        • There is a very significant cost (both energy and human labor) associated with building and maintaining either or both of these options. If a country is running short of funds, they will likely skip them.

        • I believe that the cost of recycling spent fuel is higher than the cost of mining new uranium. This was true years ago, and uranium prices have generally been falling, since the uranium price peak in 2008 (with the price peak in oil).

          Most of the recycling of uranium that has been done has been from old nuclear bombs, especially from Russia. In fact, for many years, this was a major part of fuel for nuclear power plants.

          http://www.world-nuclear.org/information-library/nuclear-fuel-cycle/uranium-resources/uranium-and-depleted-uranium.aspx

          • As mentioned numerous time before, Russian facilities for recycling spent fuel actually enlarged recently as they will have to work not only with domestic fuel (more reactors) but also exported one as the industry supplies fuel pellets (for VVER reactors) to China/Finland/Hungary/Czech-Slovakia/ few in the Balkans.. These are multi decade deals. Several years ago, the ‘diversification’ attempt of US companies taking over that market ended up in fiasco with unreliable low quality – dangerous fuel pellets..

            Moreover the overhang from dismantled nuclear weapons is gone, it took ~30+ yrs..

            • I agree that the overhang of the dismantled nuclear weapons is gone. That agrees with what I have read too. Some people thought that the price of uranium would rise when there was no longer competition from dismantled nuclear weapons, but uranium follows the same price curve as all of the other fuels. It depends on “demand,” not on the cost of extraction/production.

        • Tsubion says:

          Except it’s not mostly stored under mountains.

          Most of the fuel is stored on site in the spent fuel ponds.

          I know you know this but it’s worth repeating. Whatever corners can be cut are ususally cut. When something goes wrong blame the cost cutters.

          At least the windmills and solar panels will just sit there and slowly rust. Not such a big deal.

          • Actually, solar panels slowly degrade and leach toxic substances into the water supply.

            https://notrickszone.com/2018/05/23/new-study-solar-module-owners-sitting-on-a-pile-of-hazardous-lead-and-cadmium/

            Wind turbines are more of a problem at the construction end of the project, as far as I know. Also, they disturb marine ecosystems.

            • Tsubion says:

              I guess nothing is really walk away safe. If infrastructure is abandoned and not decommissioned properly then entire areas will become no go zones like the Chernobyl glow in the dark theme park and Fukushima.

              But abandoned factories, bridges, refineries, industrial estates have always been danger zones. We can add solar and wind farms and batteries to the list the more that get built.

              Obviously BAU has to be fully functional for any of these toxic waste dumps to be properly dealt with. There’s so much pollution already with BAU intact. Imagine if there’s a sudden decline in services. Abandonment ends up being the cheapest option in most of these cases.

              I did see the new floating wind farms being contructed off the coast of UK. Seems like another ludicrous endeavour probably for short term profit. Maintenance of the turbines and cables under these conditions must be incredibly costly, even more so than it already is for their land based cousins.

              The turbines I can see from my window are on and off every other week. They’re on a hilltop but there doesn’t appear to be anywhere near favorable wind conditions for them to be profitable. And solar is a total no no where I live. We’re overcast half of the year.

            • Tsubion says:

              Actually… the floating turbines don’t need massive concrete bases so there is that I suppose.

      • Slow Paul says:

        Yeah, well it’s kind of a similar situation with pathogens gaining resistance to antibiotics. Or increasing dependence on the internet and the grid. We are climbing higher and higher up complexity mountain and the way back down will be steep.

    • Oh, dear. Reactors do get old. And building new ones has been too expensive and worrisome. Various people have spread the story that wind turbines and solar panels work just as well, but this is not true.

      • Grant says:

        Wind turbines and solar panels also get old.

        If in their possibly 20 to 30 year lives they can generate Xtimes the energy that was the cost of building plus Ytimes the cost of manufacturing the replacement and also cover the cost of in service maintenance AS WELL AS providing plenty of surplus for more general use … I would be surprised.

        • doomphd says:

          ironically, they will go away with the fossil fuels they were meant to replace.

          • Duncan Idaho says:

            Plutonium has a half life of 24,000 years.
            How were things 24,000 years ago?

            • doomphd says:

              humm… the Ice Age megafauna were still roaming around, but our ancestors were getting better at hunting them into extinction.

              i think the movie “Time Machine” hinted at cryptic things that were in forbidden zones. maybe those were the plutonium storage areas. our descendents will have to be so instructed, assuming there are some and that they can still read.

  5. Lastcall says:

    Well here in NZ we have banned opening new areas for offshore oil exploration. So our locally listed explorer is now shifting focus to prospects around Australia. Hows’ that for an own goal.

    As for solar panels etc, their best use is for remote small scale applications; back country huts for lighting/recharging phones/maintaining a shortwave radio presence.
    They also seem to do good work as automatic gate openers to save the horsey set from alighting their SUV’s to open and close gates; the kids won’t do it now cos they are immersed in the tech device of choice or the program being shown on the in-car screens.

    • The solar panels are also good for keeping electrical equipment in oil and gas developments operating, when they are far from regular electrical lines. They need backup batteries, of course. There can be a problem with theft, if they are left unattended for long periods of time. I saw them used back in 2008 in Wyoming for this purpose.

  6. John Doyle says:

    A recent bit of news is that the Trump regime has decided to talk with Iran without all the add ons. Apparently what has occurred to the tiny minds in Washington is that Iran has a huge weapon it can use; closing the straits of Hormuz. Thinking goes that if that happened the world oil supply would go over a cliff and the price go up to maybe $200 a barrel, thus strangling world economies.and crashing into a major problem, to put it mildly.

  7. SuperTramp says:

    Human interest story….one step away from the good old days…

    Surgeons opened her skull to remove a cancerous tumor. Instead, they found a tapeworm.
    By Lindsey Bever, The Washington Post
    Doctors diagnosed Palma with neurocysticercosis, a parasitic infection in the brain caused by the tapeworm Taenia solium.

    Bobbi Pritt, director of the Clinical Parasitology Laboratory in the Mayo Clinic’s Department of Laboratory Medicine and Pathology, said Taenia solium is not common in the United States but, when people do become infected, the parasite can present in two different forms. The most common form, she said, is the adult tapeworm, which is ingested from undercooked pork and lives in the gut.
    But there’s another, less common way to get the parasite.
    People who have the adult form shed microscopic eggs in their stool and, if they do not properly wash their hands, they can pass on the tapeworm to others, Pritt said.
    For example, Pritt said, if the person who has the adult tapeworm gets the eggs on his or her hands and then prepares another person’s food, that other person can unknowingly eat the eggs. She said the eggs then travel to the small intestine, hatch into larvae, penetrate the bowel wall and get into the bloodstream, where they can migrate throughout the entire body, including the brain
    Pritt said the adult form is treated with an antiparasitic medication, but treatment for the larval form can be complex and depends on the location and stage of infection.
    https://www.boston.com/news/health/2019/06/08/cancerous-tumor-tapeworm/amp
    Without Modern Medicine this is what the common folk will have to deal with on a daily basis without washing properly.
    Something to look forward to….Oy

  8. Pintada says:

    Maybe everyone that reads OFW also reads Dr. Morgan, so I guess this URL is just for completeness.

    https://surplusenergyeconomics.wordpress.com/2019/06/06/151-the-great-brick-wall-of-china

    • Thanks for the link. I haven’t paid much attention to the blog.

      I agree that China is in deep trouble. Morgan misses the point that China is past peak coal. This is a huge problem for the country. In fact, it is a huge problem for the world economy. China has increasingly been living a lie, covered up by more and more debt.

      I am trying to write more on a related topic myself. We depend way too much on China. China provided temporary help in growing the world economy, but that time is past, I am afraid.

      • Ian says:

        I refer you back to my comment on this blog on September 26 last year :

        “Approaching tsunami” of coal plants

        China is building an extra 259 gigawatts of coal plants, increasing capacity by 25%. This is huge, bearing in mind that apparently half the planet’s existing coal plants are in China.

        https://www.theguardian.com/world/2018/sep/26/satellite-images-show-runaway-expansion-of-coal-power-in-china

        • I know that they have been upgrading the efficiency of their coal plants. New plants added are in new locations (not in the center of town) and more efficient

          Also, local officials know that they need jobs for their people. Building and power plants in theory adds jobs both for the building process and later. Local officials likely have never considered the possibility that coal won’t really be available to operate the plants. The problem is prices that do not rise high enough for coal producers to be profitable.

          I am sure that China has no intention of running their country on wind and solar. I expect a major reason they are using these devices is because they produced more of them than they could find buyers for elsewhere–at least that is what Chinese news stories were saying about solar. One official got fired for corruption, as I recall–presumably taking bribes to use the devices.

      • Country Joe says:

        China was there when we needed them. Enough of the United Auto Workers and United Steelworkers and United this and International Brotherhood of that. Enough already with this Organized Labor BS. China was right there when we needed to send those jobs overseas and show this so called “working class ” how it really works.
        FAILURE TO COWER….. is the number one crime on our finite planet.

        • Europe and Japan were desperately short of energy. The US was in somewhat better shape, but still had energy concerns. The climate change story gave cover for sending jobs overseas to China, where coal was abundant and cheap and labor was abundant and cheap. This certainly did not help union workers. Quite a few found their wage potential lower. Some working in other industries lost their jobs too. Tech support was outsourced (via telephone) to

          But sending jobs to China did keep the economy going for a while. 2001 to 2019 is 18 years. That is quite a while!

          • Xabier says:

            The desperate energy situation in W. Europe isn’t appreciated: plans for ‘renewing’ and ‘rejuvenating’ stagnant economies – eg that of the British Labour party in The Guardian yesterday – rely on increased public borrowing, redistribution and raising taxes on higher incomes to solve all issues and maintain the infrastructure built in the decades of abundance; and, on the Neo-liberal Right, we have the usual stale exhortations to ‘innovate’ and ‘ be dynamic’ to accomplish the same end.

            How all this is meant to work out against the background of the global energy crisis, and a Europe exhausted after two centuries of intensive industrial exploitation of resources is not explained.

            Oh, of course, ‘Green New Deal’ is going to provide abundant energy, I forgot…..problem solved!

          • doomphd says:

            Western Europe needs to tuck it up, stiffen those upper lips, test the wind, smell the espresso, and make lasting friends with the Russians. Russia has vast resources and low population, Western Europe has the opposite. together they could keep most of their culture going for some time, lest they continue to accept MENA refugees.

            • Tsubion says:

              Eurasia should definitely be a thing but I think animosity between ziolondon and post ziomoscow will continue for some time. Unless it’s all a sham and MI6 and Russia’s FIS are actually best buddies and simply acting out their roles in a play.

              The Old World meets The New World is a movie that doesn’t have a happy ending. War is coming and scapegoats and saviors are coming into view as they always have done.

              Someone somewhere will profit from all this of course. At least until the curtain falls.

              Whatever comes next, all the current players will be viewed as horribly incompetent and possibly evil. And I don’t see people falling for a Union of Saintly Elders beyond that point. Trust will most certainly be at its lowest in history.

              And how do you turn things around during and after a collapse unless you have magical cheap to extract energy and resources?

      • Grant says:

        The problem, surely, is that China now entirely relies on the rest of the world and container ships.

        So much so that even when it has managed to dominate the supplies of chemicals that are key (currently) to smart people’s plans for a carbon free future they fear that other sources may upset their strategy and so wish to control those as well. Hence their activity in Africa and anywhere else that their wider , growing expertise, whether ‘bought’ from a western education system or simply copied as part of a catching up exercise after so many lost decades, can be used to influence those who run other countries that have something to offer.

        They can seek the rights to mining and minerals or they can offer to build infrastructure. It doesn’t matter so long as the end result is to keep as many balls in the air as they need to attract notional wealth advantage from external sources.

        Whether or not they wish to do so for political reasons, which they may well do, hardly matters since they MUST do it to keep the economic model running in some form.

        Having most of the developed world reliant on ones output for components may be more important than controlling the supply of larger finished products.

        • China indeed absolutely needs to keep demand up, to keep commodity prices high enough to allow continued extraction.

          Part of the problem is that most of the EU, plus Japan, are not going to provide any increased demand. In fact, with the electric car mandate in Europe, they are likely to provide a lot less demand.

          China can go around the world, offering to put in new projects in return for a long term payment plan, that includes interest. The catch is that these projects are increasingly not working out as hoped. When the world is growing rapidly, it is easy to find projects that will have good payback. When the world economy is stagnant or shrinking, adding more capacity is not helpful.

          • Grant says:

            If they can establish a near monopoly of the chemicals required (currently) to both generate and utilise ‘green’ and ‘clean’ electricity for the mandated new ‘electric only’ environment they may not win financially in conventional economic terms but they would be in a better strategic position than most – unless a few nations have managed to cling on to fossil based energy or maybe even nuclear.

            Always assuming some form of survival through transition is possible.

    • John Doyle says:

      More good reading is Yanis Varoufakis’ “Talking to my Daughter” a very readable brief history of Capitalism and the economy. His description, starting from chapter 6 “Haunted Machines” give an opinion about our interaction with machines, much alluded to in AFW. Well worth reading.It’s aimed at his 15 year old daughter so it is very easy to follow.

      • Duncan Idaho says:

        Yep, the Greek Minister of Finance who really got to the EU finance minister.
        A great mind–

        • Grant says:

          A very smart guy.

          Married a wealthy woman, so I read somewhere, allowing him the possibility to indulge whatever whims most appealed to him without too much concern for long term career security or the cost of living.

          Always a good move for a philosopher.

  9. Harry McGibbs says:

    “The elephant in the room that no one wants to acknowledge is that the “unconventional” policies that were introduced to fight a “once in a century” crisis are now the conventional policies of choice to combat the normal fluctuations of the business cycle. But zero percent interest rates and quantitative easing only worked a decade ago because people thought they were temporary. If they knew that the policies were permanent, the dollar may have plummeted and the resulting inflation may well have overwhelmed any benefits the stimulation delivered.

    “But the naïve belief that the Fed could reverse course, unwind its bloated balance sheet and normalize interest rates, kept the game going and kept the dollar strong. Now that the illusion may about to be shattered, the dollar may not survive the next round of enhanced QE and ZIRP.

    “QE4 will have to be larger than the three earlier rounds combined, as the annual Federal budget deficits could exceed 3 trillion. However, while China, Russia, and many emerging market nations were eager buyers of Treasuries during those initial rounds, they may likely be sellers of Treasuries during the next round. That means none of the inflation created to finance QE would be exported. So the big price increases next time may take place in the supermarket rather than the stock market. Americans would finally be forced to deal with the adverse effects of inflation that we have been spared for the past 10 years. It’s not going to be pretty.”

    https://www.fxstreet.com/analysis/the-fed-stops-pretending-201906100556

    • Good points! More and more unconventional policies are needed, just to stay level.

    • That has been always a plausible ‘end game’ scenario but I doubt the specific timing-sequencing they offer in the article. I edu-esti-guess it’s more for the ‘GFCv3’ as the dollar regime is chiefly supported not only by gov-cb pillars only but rather via affluent upper classes across the global, incl. factions inside China, Russia, India, .. In order to affect change as to brake the status quo of the legacy system those people have to panic first, and they won’t panic out of just severe recession only. They will change their ways only by witnessing the host entity for the system going down, be it civil unrest (FUSA), major natural disaster, war disproportionate humiliation (e.g. Iran sinking carrier group), energy implosion (alt. oils scam abruptly ending and or mixing lite+heavy oil suddenly impossibility + Gulfie export embargo), etc..

      We are NOT there YET.

  10. Harry McGibbs says:

    “China’s import unexpectedly contracted by -8.5% yoy in May. That’s the large contraction since July 2016, indicating underlying weakness in the economy. Exports did unexpectedly rose 1.1% yoy. But that was likely because of front-loading ahead of new US tariffs. Trade surplus, thus, widened to USD 41.7B. Meanwhile, trade with US continued to deteriorate.”

    https://www.actionforex.com/live-comments/205923-chinas-trade-surplus-widened-on-sharp-contraction-in-imports/

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