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. MG says:

    Magnesium and energy supply in brain:

    “Conclusions
    Our study suggests that local energy supply plays a critical role in controlling the density of functional presynaptic terminals, demonstrating the link between energy supply and efficacy of synaptic transmission.”

    https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4504454/

    • I am afraid the article is a little beyond me. Would taking magnesium supplements perhaps be helpful, if magnesium is involved with energy in cells?

      • MG says:

        Yesterday and today I again met the people who complained that they have a diagnosis of high blood pressure or magnesium defficiency or some initial problems with memory. So I again searched for some studies regarding magnesium supplementation. Based on the experience with an elderly person in my family and my own experience I can confirm that elevating brain magnesium levels enhances memory or the use of transdermal magnesium in a bath can lower the blood pressure.

        This energy connection in the given study seems to me very interesting: without the magnesium, the plants or the humans become zombies, as their energy generators (mitochondria) cease to function.

        “These studies provide the mechanistic understanding of how elevating brain Mg2+ concentration can prevent age-related memory decline in old rats [62], reverse cognitive decline in Alzheimer’s Disease (AD) model mice [71] as well as ameliorate cognitive decline in subjects with mild cognitive impairment (MCI) (GL et al. manuscript in submission).”

        Mitochondria Need Magnesium
        https://drcarolyndean.com/2018/06/mitochondria-need-magnesium/

        • Thanks! So it looks like magnesium is good both for the brain and for keeping calcium in the bones.

          • MG says:

            Erythrocyte intracellular Mg2+ concentration as an index of recognition and memory

            https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4890594/

            “Discussion
            In the present work, for the first time, we found that endogenous Mg2+ level, which was represented by the RBC [Mg2+]i, was correlated with recognition memory and spatial memory in rats. The possible mechanism for this phenomenon was: the RBC [Mg2+]i represented the brain ECF [Mg2+] level, the latter affected the density of Syn-(+) puncta and ultimately regulated memory. We also confirmed the aging associated endogenous Mg2+ deficiency, and found that compensation of RBC [Mg2+]i deficiency by exogenous Mg2+ administration rescued the memory decline in aged rats.”

        • Niko B says:

          MAgnesium is the central element in chlorophyll (makes plants green) that powers photosynthesis. Without it most plants are dead.

          • Lastcall says:

            And leafy greens are way the best source if they are properly grown. If you have not much room/time, just growing a few leafy greens in actual soil is a good plan.

        • Chrome Mags says:

          One word, banana.

          • Rufus says:

            Even better : dark chocolate ! … and almonds.

            • beidawei says:

              I eat all these things regularly! Hooray, I must have healthy photosynthesis.

            • Davidin100millionbilliontrillionzillionyears says:

              I’m going to try to eat some dark chocolate every day for the next 40 years… if I can, I think I will live to be 100…

              just checked my multivitamin bottle, and it contains only 25% of the RDA for magnesium… I have been taking a separate magnesium for many years… a multivitamin with 100% magnesium would be a (relatively) huge pill…

              anyone who goes the multivitamin route should know this…

              and noticed the B12 in the multivitamin is 500%…

              I’m no health expert, but I suspect that a daily multivitamin is a plus…

              I think the cost is about 10 or 15 cents per day…

              cost of health products are a factor…

            • Dark chocolate and almonds is my favorite!

          • Tim Groves says:

            Magnesium deficiency.
            Magnesium deficiency everywhere!

            When you do battle with magnesium deficiency, you’d better be armed with something a bit stronger than a bunch of bananas, a box of chocolates and a bag of cashew nuts, although the certainly help.

            Carolyn Dean is the Gail of Magnesium
            She’s well worth listening to.

  2. Xabier says:

    I’ve been looking at ‘Forces TV,’ which as far as I can gather tells British soldiers. their families, and the general public, what to think: incredible titles to some videos, eg ‘(Unit X) On the Russian Front Line’.

    Russian front line? ! ! Is this a time slip, are they really the Wermacht in 1942?!

    That phrase would properly describe a position taken during a real campaign, not deployment to a ‘frontier region’ (itself an interesting turn of phrase) which is at peace. It is not a ‘front line.’

    Another video shows Scots soldiers pleased as punch to be training for a proper fight rather than ‘various missions throughout the world’. A proper fight with….? Well, they don’t say explicitly in that one, but frontiers are mentioned again…

    Well, there you are: whatever is happening on the energy front, the propaganda front is lively.

    • Sounds like plots for a video game. Forget the real world.

      • Tsubion says:

        Let the games begin!

        https://nationalinterest.org/blog/buzz/russia-says-it-can-shoot-down-hypersonic-missiles-58922

        The missile supposedly can hit targets above 300,000 feet, which would give the weapon potential to hit orbital satellites. And it supposedly can intercept multiple ballistic missile warheads descending through the atmosphere at Mach 20. “The S-500 is expected to able to detect and simultaneously attack up to ten ballistic missile warheads flying at speeds of over 4 miles a second,” said Sputnik News.

        There go your orbital power satellites Keith!

        The real question is why have nuclear weapons not been used in conflict since the end of world war 2?

        Korean war, vietnam war, the middle east. Supposedly nukes are deterrent, last resort. But if a nuke attack can be absorbed as stated above then there goes your deterrent.

        Communication sats can be neutralised too so there goes your eye in the sky. All the fancy tech only works under perfect conditions against a weak defenseless nation. Russia is doing its best to support these weak defenseless nations (allies) with anti threat defenses but in the end Russia will be weakened too.

        America’s power grid can be crippled long term by sabotaging transformers.

        Subsea internet cables are relatively easy to sabotage too with robotic subs.

        Very easy to get conflict going with false flag attack if you have nothing left to lose.

        • We conveniently added all of the cute little smart meters on the sides of people’s houses in the US (and some other places) so that utility companies don’t need to send out meter readers. They can also cut off service, if a person doesn’t pay. Or create rolling blackouts, if there is not enough to go around. But hackers can quite possibly affect these systems as well.

          We now have all kinds of Internet control of our electricity system in general. For example, I would expect that the integration of intermittent electricity to the rest of the grid is done basically over the internet. How secure is this system?

          • Tsubion says:

            Oh we have them here in spain too. Cute little red lights on them at night. Very creepy.

            5G is next. Even though it makes zero economic sense to roll it out so quickly. Think about how much infrastructure (all the antennas) and work this requires.

            There is a reason all of these systems are being forced into place. But if I explain it people would just call me a conspiracy theorist. Even though the plans are all there for anyone to see in their literature.

            A global digital coin or coins is coming. The central banks will pretend to be against it but they are the ones that developed it. Once enough people are on board and the most popular coins are made user friendly, then the central banks will have everyone where they have always wanted them.

            All transactions at all levels will be recorded and taxed like never before. But people will love the convenience. One button purchases, send money anywhere anytime in the world, raise money for your projects, take donations etc without having to go thru paypal, youtube, patreon which are basically middle men taking a big slice.

            Remember, income tax started at very low rates then increased gradually to where we are now. So it will be with the new transaction methods until people are locked in.

            I think more people are coming to understand how vulnerable the whole system is, ususally from the perspective of their own industry.

            For example, most people thought they were protected behind a firewall or a password etc. Now we know that most computers on the internet are vulnerable at the hardware level (intel chips) (nvidea chips) (huawei) and that governement agencies and big tech have always been the biggest hackers.

            Passwords are near enough useless and only a few people bother to use two factor authentication. The systems being prepared go beyond simple biometric recognition which isn’t really good enough. They combine two or three factors that will be infallible.

            This level of identity security works both ways. Now everyone knows who everyone else is and noone can be anonymous. Noone can play outside the system. Everyone is locked in. Non compliance with the system will activate an immediate red flag.

            China is very far along in implementing this kind of system. America and EU have them too but they are a bit more subtle. All activity is monitored. Anything unusual activates a red flag. Most humans are far more predictable than they think they are. Most humans police themselves because they are terrified of being unusual.

            And of course… all of this requires more energy than you can shake a stick at!

            • If there are some remaining groups of countries working together, I can almost imagine a single currency for all in a group. But thinking about how poorly the Euro has worked, I really think that this is a pipe dream from a higher-energy period. A single currency works well when there are surpluses to share. It works a whole lot less were when there isn’t enough to go around. Or when one of the members starts failing, and the others need to bail it out.

            • John Doyle says:

              Dysfunctional, totally a tribute to Neo-liberal policies , and that is why it will fail and why Brexit is a good idea, to be followed by Italy. When that happens the Eurozone will have to change or crack up.

            • Computer security, now that a whole lot of things are stored in the cloud, seems more and more iffy.

              And as you say, it all requires a whole lot of energy. It is not clear that it even can be scaled up.

            • Tsubion says:

              Gail, yes, exactly. I have no idea how a global currency is supposed to work. It’s so far removed from what we actually need. Everyone managing their own currency worked very well for a long time.

              What we do need to remove are all the middle men that claim their pound of flesh. They are being replaced by algorithmns.

              I agree with John Doyle that the monstrous entity known as the EU should never have been allowed to exist. What nation state in their right mind hands over soveriegnty and currency control to a dictatorial supranational group that would make H.itler blush.

              Not to worry. I think the EU is in the process of falling apart. The thing is, the remaining nation states will also find it harder to manage their own affairs with many of them falling apart too.

              The plan is to blame the collapse on the new nationalisms so that a new wave of global socialism can rise. At this point, I just don’t see how any of that can hold together. As Gail says, it will become harder for centralised organisations of any kind to manage everything.

    • Grant says:

      Hardly any British forces left these days – I can’t imagine how they can justify a TV station.

      • Xabier says:

        Quite. The British task force shown in training in the film to terrify that evil dictator bent on conquering Europe, Putin, is only 350 men…….

      • Harry McGibbs says:

        “Almost One In Ten British Troops Are ‘Clinically Obese’

        “According to latest figures, almost 18,000 members of the British armed forces are clinically obese.”

        https://www.forces.net/news/almost-one-ten-british-troops-are-clinically-obese

        • Grant says:

          I seem to recall some articles about extremely fit and muscular professional athletes – Rugby players from memory – who rate as clinically obese as measured by the system used for the calculations.

          On the other hand when a relative was in hospital for a few days recently for a planned operation on a foot problem I could see, with no need for measurement or calculation, that something like 80% + of the nurses were clinically obese by any measure.

          One might think of it as an age related thing but from observations even the youngest were affected. Having been in the profession long enough to be fully qualified at some level seemed to be the only criterion.

          Well, either that or the definition by which we categorize individuals.

  3. Sven Røgeberg says:

    Thanks for the new article, Gail. Just the following section is a bit unclear to me: «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.»
    I think i get the point, but will the mechanism you describe, by which the US can grab a larger part of the energyresources, «solve the issue of ever-increasing wage disparity» (in the US.)?

    • I am not sure that the tariffs can do very much, but the tariffs are in the direction of making the US more independent. Part of what they do is move the value of the dollar higher, and this by itself tends to make energy products relatively more expensive for other countries.

      Our current economy is so complex it is difficult to see that without the supply chains from everywhere in the world any country can do very much. For example, with respect to rare earths, it is not just that China is extracting them; China is also processing them. Trying to keep pollution down in this process is likely to be expensive, too. In China, looking the other way would be an option. Here, that is less likely. There would be a whole lot of hurdles to overcome for the US to extract and process the rare earths sufficiently.

      Debt for all of this new investment might be an issue as well. Of course, when people see what appears to a new opportunity, they are likely to see a huge “growth” opportunity and invest there.

      • doomphd says:

        IIRC, one of the reasons that the REE mines in California were shut down was because of environmental issues. China has really trashed the region where they extract and process the REE. It may never be remediated. That is always an issue with mining when the economics goes south. Unfortunately, it is a universal problem.

        • Dennis L. says:

          I read the same thing a few years back, CA was once a source of REE, environmental concerns moved it off shore. Add in the cost of remediation and it would appear renewables are less renewable.

          Dennis L.

  4. SuperTramp says:

    Preppers….this is what you will have to deal with….
    Have a car not too old 2013, 33,000 miles on it. Needed to drain and fill CVT fluid, no problem and $15 quart and did it 2 times because of of the torque converter.
    Anyway, thought all was well, ounce of prevention. … Week later something unrelated happened,
    A vigorous leak from a hole in fin/tube of the radiator sprung and good thing noticed it in the parking lot! Made it back home after buying 2 gallons of water.
    No way to repair, not a hose or radiator cap…the radiator is PLASTIC and Aluminum…no way to fix..
    Replace and good luck finding one right away.
    Went on the internet and ordered one with fast delivery for about $100.00.
    So, just one part goes bad the car is useless, battery, starter, tires, brakes, spark plugs or wires and many other parts.
    I already had 2 batteries and tires recalls to reprogram the computer.
    High technology will not save use post BAU….no way, Jose!

    • Dennis L. says:

      What you say seems to be too true. For an example watch Welker Farms on YouTube replacement of a transmission on one of their old tractors, it is an off the shelf truck transmission, they seem to farm 10K plus acres in Montana. Modern technology is optimized to the point where it can only be made in a few factories in the world and hence not repairable. New technology is incredible while it works, comparison of my Camry Hybrid with a 1960’s car proves the point although the older cars had distinctive style.
      Modern technology has also eliminated the redundancies in labor, there maybe only a handful of designers who understand various parts and assemblies where previously there were a roomful at drafting tables with no chance of ransomware charged on the prints. FEA is now done in real time during design as opposed to a mechanical engineer with a sliderule.

      If one can be found, an old Dodge with a Cummins mechanical diesel sells at a higher price now than when new. A Toyota Tacoma does most jobs as well(yes, sometimes a large heavy truck is needed), with less maintenance and cheaper fuel while it works, when it stops, a computer is most often necessary to repair.

      I live in the present, enjoy technology, believe Gail is correct, it is a tough place to live, not something discussed with friends as it disaffirms many lifestyles.

      Best,
      Dennis L.

      • Grant says:

        Few people consider the long term cost of complexity. Worse still even fewer consider the lack of functional redundancy in complexity in software systems.

        A modern car, for marketing purposes presumably, has an ‘infotainment’ system that computer controls just about everything. Very nice, I suppose, if one’s road systems or incident recovery strategies mean you will be spending many more hours in the vehicle going nowhere because roads are closed but totally pointless for basic A to B travel needs.

        However as integrated system there is every chance that having a hardware failure of some sort in, say, the vehicle’s internal ambient lighting system might result in a system shutdown due to poor software design and have the vehicle go into limp mode (or worse.)

        The fix might be a new computer unit – especially once the software release is no longer supported (probably for marketing reasons á la the Apple approach to operating systems) – and suddenly the vehicle becomes uneconomic to repair.

        Once upon a time this was known as planned obsolescence and was generally driven by people’s desire to have the latest and greatest status symbol since other than looks nothing much changed technically for years and the maintainable vehicles could pass down through the earnings pyramid providing utility to justify the initial cost of the build labour and materials. Until rust or an accident or a major mechanical failure due to poor maintenance eventually led to their demise.

        Back in the late 70s and early 80s the manufacturers were driven, inter alia, by changes in safety legislation and the consumer’s desire for a longer lasting product (especially in areas where rust was a problem) to use better materials and more of then for added strength. But also greater impact protection through deformable structures.

        So manufacturers started to build vehicles that, with minimal care, had metal bodies that would last for 20 years rather than 5 on rust zones and engines and transmissions that would last 250,000 miles (or much more in some high mileage usage cases) instead of 50,000 miles. A far better use of mined metals and the energy that went into creating and distributing the vehicles than had previously been the case since ‘modern’ vehicles came into being in the late 1940s and and the 1950s through 60s.

        The only downside, from a economics perspective, was that the safety regulations meant that even some quite minor damage could result in a vehicle being assessed as uneconomic to repair and therefore the utility of the net energy savings possible via longer life spans was not always achievable.

        As safety demands moved on this situation developed and the concept of now claiming on insurance for accident compensation, paid through ever increasing insurance premiums reflecting the greater risk of vehicle replacement rather than repair, now meant that roofs were cut off vehicles, making them trash, any time someone answered “a little” to the question “Do you have any neck pain?”

        The manufacturers were not averse to seeing their vehicles chopped apart so readily. In a small way it would help them replace the complexity of long term spare parts supply by selling the story of “continual improvement” and so regular changes to components – especially electronic components – that would make long term spare parts logistics an expensive problem.

        Much of the continuous development work was forces upon them by regulation – either for safety or for engine emissions and then latterly the demon CO2/Carbon ‘pollution’ challenge. Yet more complexity required for the technical solutions to those socio political problems.

        So as vehicles are regularly updated and sold around the world in ever greater variety of con figurations to suit local regulation, what do you do about making spares inventory for the long term?

        If you think an electronic component will last about 8 years but your constant development means it’s life in manufacturing is less than a year, what do you do about making extra boards during the manufacturing run in order to set them aside (accepting storage costs) for 8 years and then hoping that there are enough vehicles out there with enough failures to justify the stocking costs?

        Or do you simply hope that a small quantity of the component with a high retail price will be enough to either make some profit or drive the problem away and perhaps allow you to sell more new ‘boxes’ aided by the constant flow of regulation driven technical changes?

        Once you have a business model that offers a 20 year product for marketing purposes but only a few years of realistic support for maintenance needs it is quite easy to change management policies away from ‘make them last for long term profit from maintenance activities’ (where keeping things maintainable and the same for as long as possible would be desirable) to ‘we are just selling a box and letting go as soon as out warranty expires’, the underlying philosophy is likely to change.

        So all of the gewgaws are added to make the ‘box’ attractive at an emotional level no matter what that might add, or how it might add it, to maintenance complexity or cost and the chances of functional redundancy.

        So the problem with adding complexity is that it, in effect, reduces the return on the energy expended to build the product and brings forward the point at which replacement and the use of energy to make the replacement is necessary. Also the cost of disposing of what might well be perfectly usable but ‘too expensive to risk repairing’ items.

        It should be really interesting when those manufacturing concepts reach the home construction industry perhaps leading to the life span of a property being less than the period of loan required to buy into it. One could envisage the value of caves increasing rapidly …

        • Thanks for your very fine comment.

          I would point out that those who calculate inflation will try to claim that there is no real inflation, if all kinds of complexity is added which somehow sort of benefits the system. Certainly, fancy entertainment systems and fancy braking systems have added value to the customer, so are not inflationary. The poor customer, whose wages don’t rise in inflation-adjusted terms, finds vehicles increasingly unaffordable.

  5. Yoshua says:

    WTI

    A breakdown from trendline…a retest…a rejection…and now comes the crash?

    https://pbs.twimg.com/media/D7QPsaAWsAE7p-A?format=jpg&name=large

    • You have studied these patterns more than I have. Clearly, prices are not going back up to the high prices we had in the past. Some people think everything is fine. But the big drop a couple of days ago was an eye-opener.

      Crude oil stocks have been rising since March 15, which is over two months ago, suggesting that the price needs to fall further. China has even more problems than it is telling us about. Its private passenger auto sales have been down over the previous year for 10 months, now. April 2019 sales were down 17.7% from a year earlier. Year to date sales through April were down 14.6%.

    • Davidin100millionbilliontrillionzillionyears says:

      that’s a cool graph… it looks like the “lower highs” scenario for future oil prices…

      “A breakdown from trendline…a retest…a rejection…and now comes the crash?”

      so $76 last October is on the trendline, and $66 in April is below the trendline, and $59 now is even further below…

      no certainty at all, but this suggests that $66 will be the high for 2019…

      but the past doesn’t guarantee the future… global events, the big players on the global stage, a big black swan… Resource Wars, more/bigger tariffs, Currency Wars… there are many scenarios where the oil price could spike…

      but the OFW scenario lately is proving to be the closest to reality…

      any spike will be brief, and prices will drop again…

      • Tsubion says:

        Is there an OFW scenario?

        I mean I’m trying to see where I fit on the curve between Fast Eddy and Keith Sattelite…

    • psile says:

      Beautiful technical setup! Have you shorted it?

  6. The planting of corn in the US Midwest had been significantly delayed by wet weather. Window closing for Midwestern corn farmers to plant crops amid persistent wet weather. Also, in the WSJ, Floods Swamp US Farm Belt.

    It is not clear how this will play out in practice. The WSJ points out loss of sales of seeds, fertilizer, and even equipment.

    Grains are stored from year to year, so even if there is a poor crop year, it may not make a big difference. If the total corn crop is reduced, a person might guess that exports would be affected. Mexico is the biggest export recipient of US corn, at about 25% of the total.

    Ethanol production could theoretically be affected. If ethanol is blended into gasoline, it raises the “octane” of the gasoline and and also makes the fuel somewhat cleaner burning. The US uses more ethanol in gasoline than other countries. The ethanol blending percentage in the US could be scaled back in many places and still comply with laws (or laws could be changed).

    Also, exports of ethanol could be reduced. Exports accounted for 10.4% of US ethanol production in 2018 according to EIA data. The US produces about 58% of world ethanol production. Imports of ethanol, in any significant quantity, seem unlikely.

  7. As few days ago Rodster posted here link to Martenson, there was also linked recent presentation (or newest ver? Q1/2019) of his take on geologic and human scale timelines. It resonates a lot with the discussion here and at Surplus of the past days and weeks..

    • Obviously meant Prof Patzek’s presentation inside..

    • Another ver of this talk with slightly hilarious Q&A at ~52min mark..

      • Hideaway says:

        It is just a new way of presenting what Meadows et al told us about nearly 50 years ago in ‘The Limits to Growth’.
        Instead of heeding warnings we go on a merry way like yeast in a bucket of sugary water until we run out of food or poison the environment or both.

        • Yep, but there are few treasured snippets and hinted links in his presentations and Q&A rounds, which might be of interest to seriously interested into these matters. Patzek seems as serious near-mid term doomer.. as my recollection of him from mid 2000s are not that spectacular. Also, his recent tenure as teaching Gulfie kids (and advising govs) wider depletion issues raised some eyebrows when announced some years ago. The fact he must gently cover it – balance the message by the call for joint UN action is secondary, tertiary for us..

          Well, yet another heavy bullet into the skeleton of ‘TPTB must fly by night blindly’ theorists..

          • Tsubion says:

            Well, yet another heavy bullet into the skeleton of ‘TPTB must fly by night blindly’ theorists..

            Exactly!

            The blind think everyone is blind.

      • Mark says:

        Thanks for posting, at 1:06 he issued a bus ticket to Deluistan, but in a very kind way. lol

    • Interesting! I see he comes to the idea that the world might be sustainable wiht a population of 1 billion people. He evidently doesn’t understand the problem of a shrinking population and a shrinking economy in general.

  8. SuperTramp says:

    Scratch Mexico from my list to be an expatriate!
    Gone baby GONE….No retirement for YOU, so sorry!
    Americans’ Life Savings Disappear From Mexican Bank Accounts
    Americans say money they had at Monex is gone and the bank isn’t helping them.
    The transfer didn’t happen. Juan didn’t show, Zavala didn’t return calls, and Kathy and Jim Machir discovered that their nest egg was gone. When the Machirs and other San Miguel expatriates met with Monex officials in early January, the bankers told some of them that about $40 million was missing from as many as 158 accounts, many belonging to English-speaking Americans. A dozen people interviewed by Bloomberg News say that bank statements Zavala sent them purporting to show full accounts were apparently falsified. Most say the bank has told them little since they filed complaints, and some say Monex tried to settle for far less than the balances owed. “When they told us we had 6 pesos [32¢] in our accounts, I just felt sick to my stomach,” Kathy Machir says. “Since then, they have not dealt with us in good faith.”
    Mexican authorities try to prosecute these cases but often aren’t successful.” In 2018 there were 7.3 million complaints of fraud involving 18.9 billion pesos, about $1 billion, according to Condusef, Mexico’s consumer protection agency. That’s more than double the number of claims in 2014.
    Next step…here in the United States…by a stroke of a pen….bye, bye, $$$….but we will issue stock in it’s place…ha,ha🤗
    https://www.bloomberg.com/news/articles/2019-05-23/expats-millions-in-life-savings-disappear-from-mexican-accounts

    Boy, these folks are S.O.L….Uncle Sam will not lift a finger and Mexican authorities have gringos on the bottom of the help list!

    • Davidin100millionbilliontrillionzillionyears says:

      Mexico has recently tipped over from being a net exporter of oil to being a net importer…

      that’s the proverbial handwriting on the wall…

      lawlessness seems to be increasing, and Creeping Collapse is on the way… a la VZ…

      this will be an increasing problem for the US…

      perhaps an effective wall should be built on the US southern border…

    • Xabier says:

      Love the bit about the authorities ‘trying’ to prosecute the cases: while the public prosecutor is having a drink with the crooked bank manager, his first cousin, no doubt.

      In a time of Collapse, don’t be a despised – and rich – foreigner in a fundamentally corrupt, clan-and gang-ridden culture: simple isn’t it?

      Why people can’t see that I don’t know.

      ‘Oh, but the place is so sunny,and the people so smiley, and it’s so cheap……..’

      • Tim Groves says:

        When it’s fiesta time in Guadalajara,
        Then I long to be back once again
        In Old Mexico.

      • Tsubion says:

        Can I say clan and gang ridden, drug fueled, greed driven culture… is all we’ve ever had.

        All that appears cheap and shiny will end up costing you a fortune!

        Or something like that…

        How much will it cost to clean up and filter all the micro plastic from our environment? Oh wait, no need to worry, our lungs are doing a stellar job. Carry on.

    • Duncan Idaho says:

      As a recent resident of Mexico, one just needs to pay attention.
      Mexico is not for everyone– but if you get it, much freer than The States.
      Coming back to the US border is a drag.

      • Tsubion says:

        Are you suggesting that the exceptionally trustworthy mainstream media… exagerates?

        • Duncan Idaho says:

          If you don’t live there, you haven’t a clue.

          • Tsubion says:

            You didn’t get shot then?

            I’m trying to understand what you mean when you say… “but if you get it”

            What do you have to do specifically to “get it”

            And not get shot.

            You mean life is normal unless you wander off the beaten track or down a dark alleyway?

            Same as everywhere else?

  9. SuperTramp says:

    Can’t wait for the paper our FE will publish on his multiple experiences in his back to the land ventures….probably read something like this…
    Be Receptive to the Good Earth”: Health, Nature, and Labor in Countercultural Back-to-the-Land Settlements
    Modern environmental activists unified behind calls for a change in how humans understood their relationships with nature. Yet they approached their concerns through a variety of historical lenses. Countering arguments that suggest environmentalism had its deepest roots in outdoor leisure, the countercultural back-to-the-land movement turned to a markedly American practice of pastoral mythmaking that held rural life and labor as counter to the urban-industrial condition. Counterculturalists relied specifically on notions of simple work in rural collective endeavors as the means to producing a healthy body and environment. Yet the individuals who went back-to-the-land often failed to remedy conflicts that arose as they attempted to abandon American consumer practices and take up a “primitive” and down-to-early pastoral existence. Contact with rural nature time and again translated to physical maladies, impoverishment, and community clashes in many rural countercultural communes. As the back-to-the-land encounter faded, the greater movement’s ethos did not disappear. Counterculturalists used the consumption of nature through rural labor as a fundamental idea in a growing cooperative food movement. The back-to-the-land belief in the connection between healthy bodies, environments, and a collective identity helped to expand a new form of consumer environmentalism.
    https://www.researchgate.net/publication/24176258_Be_Receptive_to_the_Good_Earth_Health_Nature_and_Labor_in_Countercultural_Back-to-the-Land_Settlements

    Getting back to Mother Nature without BAU ain’t no fun at all!
    Read the manuscript and tales to put shivers up ones spine regarding the drudgery and hardship to exist in harmony with nature. This translated in not nice behavior to ones fellow community members. FE was right, nawing on a turnip and some bitter greens, along with a couple of crab apples will try ones nerves after enjoying the bounty of BAU.
    BAU, BAU, Long live BAU!

    • This article is actually from 2008. I am sure that if someone looked at the many groups that popped up a little before then, they would have found a similar pattern, or worse.

    • Davidin100millionbilliontrillionzillionyears says:

      “Contact with rural nature time and again translated to physical maladies, impoverishment, and community clashes in many rural countercultural communes.”

      this is what survivors of The Bottleneck can expect to face…

      so, if BAU ends and IC collapses, remember that it is better to not survive…

      “BAU, BAU, Long live BAU!”

      yes! BAU FULL THROTTLE, BABY!

    • Xabier says:

      One has to be born a peasant and embedded from birth in a traditional way of life: it’s just not something one can opt into, dropping in from Mars as it were.

      I also suspect that the personality types who see themselves as ‘counter-cultural’ are not the optimum for making a stable rural community.

      In a traditional peasant community, the defective personalities are either controlled by peer-pressure from the well-adapted, or quite simply eliminated: they ‘go to the bad’ and starve, or are expelled, or even executed for crimes.

      The selfishness and narcissism of consumer culture translates very badly to a real agricultural community.

      • SuperTramp says:

        On another note, long while!e ago read a title regarding communities, such as, the Shakers that were successful for a time, as well as, other intentional communities, such ax, Twin Oaks. The common thread of each was each was capable and lucky enough to establish trade relations with the outside economy with a product, be it furniture, seeds, or service to enhance their living. Outside jobs for members with a skill or profession were prized.
        There are a number of reflective studies on the web that are fascinating to read about them now. One such is a thesis by a Sangdon Lee, entitled Commune Movements in the 1960s and 70s in Britain, Denmark and the United States.
        https://www.google.com/search?q=commune+movements+in+the+1960+and+70s+in+britain+dennmark+and+united+states+lee&oq=commune+movements+in+the+1960+and+70s+in+britain+dennmark+and+united+states+lee&aqs=chrome..69i57.33487j0j8&client=tablet-android-lenovo&sourceid=chrome-mobile&ie=UTF-8

        Not sure if the link above works….
        Ten years ago went to a newly established intentional community in the Black Mountains of North Carolina, Earth Haven, based on Permaculture.
        http://www.earthaven.org/
        From I remember they sought outside support from a variety of sources.
        Not sure of the Ecovillage movement….in Boston and Charlotte remember several being established and the topic stressed was making a living. Happiness is Positive Cash Flow!🤑

        • Buying used things cheaply seemed to be an important part of this system. This only works if there are new things being made, somewhere in the system.

          • Yes, given the available tech miracles such as hv farming nets, and using all kinds of second hand farm equipment out there, it’s very ~easy to produce lotsa healthy food in permaculture style these days for NOW.. This favorable ratio would necessarily drop severely (to ~mere subsistence and very little marketable surplus) when spare parts and fuels are unobtanium and or low tech replacements are the only way forward, btw just for illustration a pro hedge laying guy tops ~5-15m per day only, so to parcel out even smallish 20ha estate would take insane amounts of time and resources (to pay / feed him). Nevertheless to stay in (euro) cities while caliphate or (north amerigo) gangs take over is not better option either..

      • Tsubion says:

        Very good points!

        I simply can’t imagine any SJW millenials working the fields. They would want overseer positions and time off to die their hair purple. They’re very well adapted to telling others how they are doing something the wrong way. (ninnying)

        We could always engineer a generation of neo peasants complete with hunchbacks and clawed hands to solve the problem. Will that do?

        • Grant says:

          Hmm.

          Brave New World.

          • Tim Groves says:

            That has such people in it?

            Actually, there’s no need to engineer those sorts of deformities.
            Decades of back-bending and back-breaking peasant labor will tend to do that to a body.

            • Grant says:

              Indeed but I was thinking more of Huxley’s book and selective breeding for function purpose via mechanised systems.

              The objective today seems to be to bypass the need to breed and go straight to robots. Or, possibly more dangerous to humanity in the long term, artificially intelligent machines.

  10. Davidin100millionbilliontrillionzillionyears says:

    Strategic Tariff Aided Resource Wars… main theme:

    because this is what human beings do…

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