Seven Reasons Why We Should Not Depend on Imported Goods from China

It seems to me that the situation in China is far different from what most people think it is. Even if we would like to depend on China, we really cannot.

Reason 1. When we depend on goods from China, an amazingly large share of the world’s industrial activity gets concentrated in China.

The five largest users of energy in the world are China, the United States, India, Russia, and Japan. The International Energy Agency shows total energy consumption as follows for the year 2016:

Figure 1. IEA’s estimate of energy consumption (total fuel consumed, or TFC) by sector in 2016 for the top five energy consuming nations. Mtoe is million tons oil equivalent. Source: IEA. Non-energy use is the use of fossil fuels as a material to create end products that are not burned. Examples include medicines, plastics, fertilizers, asphalt, and fabrics.

When these countries are compared, restricting our analysis to the portion of energy used by industry, we find the rather disconcerting result shown in Figure 2:

Figure 2. Chart by the International Energy Agency showing total fuel consumed (TFC) by industry, for the top five fuel consuming nations of the world.

China consumes more fuel for industrial production than the next four countries listed (United States, India, Russia, and Japan) combined. Of course, we don’t know exactly the corresponding amounts for other countries of the world, but we can observe that if a country is concerned about its CO2 emissions, the easiest way to reduce these emissions is to send heavy industry elsewhere, such as to China or India. There are likely many countries that are primarily service economies, thanks to the option of outsourcing most industry to other countries.

Much of the discussion I have read regarding sending industry elsewhere has been in the direction of, “As advanced as our economy is, we don’t need heavy industry; service jobs will substitute. Industry can be developed at lower cost elsewhere. Everyone will be better off with this arrangement. The invisible hand will provide jobs and goods and services for everyone.” In addition, corporations saw the possibility of adding customers from around the world. Not too many thought about the real-world problems that might result.

Clearly there is a problem with the jobs being lost to China and other Emerging Markets. When new service jobs are added, they often do not pay as well the industrial jobs they replaced. In fact, there might not be enough jobs in total, if automation plays an important role as well.

Another issue is that the level of industrial concentration can be a problem. We are now depending on China and perhaps a few other countries to provide for a large share of the “stuff” we use. Even if China is not the only provider, it is often an important part of the supply chain. If something should go wrong (for example, widespread riots in China), we don’t have a Plan B.

Reason 2. China needs energy products to make the goods it uses for itself and for the goods it exports. China’s own energy supply is faltering. Because of China’s huge size, it is becoming increasingly difficult to keep China’s energy consumption rising sufficiently rapidly using imported energy.

China’s own energy production is shown in Figure 3. (Note: Hot off the press! New BP report released this week.)

Figure 3. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

It is easy to see that China’s coal production hit its highest point in 2013 and has stayed at a lower level since that date. Also, China’s highest oil production occurred in 2015, with lower production since that date. China’s total energy production has been rising recently, but only with great effort. Total energy production is only 8.9% higher in 2018 than it was in 2012, implying an increase of less than 1.5% per year, relative to 2012 amounts.

A standard workaround for inadequate energy production growth is imported energy products. Even with these imports, it has been impossible to keep total energy consumption rising as rapidly as it rose in the 2002 to 2007 period. The cost with imports is greater, also.

Figure 4. China energy production by fuel, plus line showing its total energy consumption (including imports), based on BP 2019 Statistical Review of World Energy data.

In 2018, China imported 71% of its petroleum (either as crude or as products), and 43% of its natural gas. It was the largest importer in the world with respect to both of these fuels.

In 2018, China’s coal imports shrank as its own coal production surged. This was almost certainly a change planned by China. China would much prefer producing its own coal (and keeping the jobs within the country) to importing coal from elsewhere. China imported 4% of its coal from elsewhere in 2018.

Reason 3. The commodity demand from China is so huge that, to a significant extent, it determines world commodity price levels. Where regional energy prices exist, China’s choice regarding whether or not to import from a country can influence local price levels.

Chile is the largest copper producer in the world. A recent article regarding problems associated with lower copper prices notes that the demand for Chilean copper has been driven “almost entirely by the expanding Chinese economy over the last three decades.” For many commodities, China consumes over half of the world’s commodity supply. If China’s industrial demand is growing, prices will tend to rise, allowing more of the mineral to be extracted. Higher commodity prices tend to be needed over time because the ores of highest concentration (and otherwise easiest to extract ores) tend to be extracted first. Ores extracted later tend to be more expensive to extract, so higher prices are required for extraction to be profitable.

This situation of China playing an extremely large role in commodity prices holds for a very large number of commodities. If China is building widgets or any other product, using a particular commodity, China’s need to buy this commodity in the world market will tend to hold up world prices for the commodity. This situation holds even for fossil fuel prices.

Reason 4. Over the next few years, China’s coal supply is likely to fall significantly because of depletion. This lower fuel supply is likely to lead to a shrinkage of China’s industrial capability, and, indirectly, falling world commodity prices of all kinds.

The problem that China is encountering in Figure 3 is “peak coal.” This is a similar problem to that encountered by the United Kingdom immediately before World War I, and to that Germany encountered just before World War II.

Figure 5. The timing of the peaks is peculiar, relative to wars.

Coal tends to be the industrial fuel of choice because it is cheap. Goods made with coal tend to be inexpensive, especially if wages paid to workers are low and if the company making the goods does not spend much money on pollution prevention. Hydroelectric can be an adequate substitute for coal, if the water flow can be depended upon. Wind and solar are too intermittent and not sufficiently inexpensive to be adequate substitutes for coal. Wind and solar (included in “Other Ren” on Figure 3) are also far smaller in quantity than coal.

Outsourcing a large share of the world’s manufacturing to China seemed like a great idea back when it was started, often in the early 2000s. If, at some point, China cannot really handle the responsibility it has taken on, outsourcing gets to be a huge problem.

The reason why coal prices cannot rise very high is because if they do, the prices of finished goods will need to rise as well. Wages of workers around the world will not rise at the same time because the higher cost of production takes place due to something that is equivalent to “growing inefficiency.” The coal mined is of lower quality, or in thinner seams, or needs to be transported further. This means that more workers and more fuel is needed for each ton of coal extracted. This leaves fewer workers and less fuel for other industrial tasks, so that, in total, the economy can manufacture fewer goods and services. Because of these issues, countries experiencing peak coal are pushed toward contraction of their economies.

Unfortunately, rather than leading to high prices (to compensate for the higher extraction costs), running short of inexpensive-to-extract fuel tends to lead to war, or to tariff fights. Countries whose coal is depleting will try to maintain their own supply as long as possible. They will invent excuses to stop importing coal. Back in September 2018, the Financial Review reported, “China has introduced unofficial restrictions on coal imports in a bid to prop up domestic prices by slowing down customs approvals at key ports.” China needed higher internal prices to make it profitable to extract coal from its depleting coal mines.

Figure 6. Chart showing prices of Brent Oil, China Qinhuangdao Spot Coal price, and Asian Marker Coal, all in US$ of the day. Amounts from BP 2019 Statistical Review of World Energy. Note also that the units of coal (ton) are much larger than the units of oil (barrel) used on this chart. Thus, the same number of dollars of buys a much larger quantity of coal than of oil; coal is cheaper.

If higher coal prices really were possible over the long term, it would make it possible to open new mines in more distant locations. The location of coal mines is important because transport costs by rail or truck tend to be high. China built the large ghost city of Ordos, Inner Mongolia, on the expectation that coal prices would rise, making development of coal in the area profitable. Unfortunately, coal prices fell, making the project not economic. I visited the area in 2015, after teaching a short course on Energy Economics in Beijing. There was a large almost empty airport, and few vehicles were using nearby multi-lane roads.

Reason 5. All of the concern about future tariffs artificially raised China’s 2018 industrial production and commodity prices. Because production was brought forward into 2018, China’s production and world commodity prices can be expected to be lower in 2019 and in future years.

Manufacturers wanted to front-run tariffs, so they tended to ramp up production in advance of the tariff implementation date. This higher production in turn tended to raise commodity production and prices around the world. Note on Figure 6, above, that coal and oil prices are both higher in 2018 than in 2017. Prices in 2019, not shown, are tending to trend downward again.

China badly needed higher coal prices in order to help its coal extraction. Thus, part of the reason that China was able to continue to function as well as it did in 2018 was because of all of the discussion about future tariffs. If this discussion had not taken place, employment in China would likely have been lower. With this lower employment, sales of automobiles and smartphones would have been lower as well.

Note, too, that even with the demand brought forward into 2018, China’s economy was not functioning very well in 2018. Private passenger automobile sales for the year fell by 4%. Smartphone sales fell by a worrisome 15.5%. Clearly, workers were having difficulty buying the kinds of goods a person would expect a growing economy to be selling. I would attribute these problems to the peak coal problem mentioned earlier, making it increasingly difficult to increase the amount of industrial operations provided by China’s economy.

Reason 6. The Chinese economy has been gradually changing and adapting to hide its energy problems. Even more changes will be needed in the future, potentially affecting the world economy, with or without tariffs.

The Chinese economy reports carefully massaged GDP numbers, which many analysts consider to be inflated in recent years. Its debt level keeps rising to try to keep all of its operations going.

We know that China discontinued one major industry at the beginning of 2018: recycling plastic and other types of low-valued recycling. With low oil and natural gas prices, this type of recycling cannot be profitable. Of course, discontinuing a major industry can be expected to lead to a loss of jobs within China. But, on the positive side, it frees up coal and other energy resources in China for other industries that can (perhaps) make more profitable use of them.

On a world basis, the loss of the plastic recycling industry becomes a problem. If rich countries are willing to subsidize the cost of sending plastic recycling to China, this subsidy allows containers that bring goods to rich countries to be sent back to China with a paid load inside. Thus, operating the plastic recycling industry helps keep the cost of shipment of goods from China to the US or Europe down because the shipping costs only need to cover the one-way cost of transit, rather than also covering the cost of shipping the empty container back. Without the subsidy to pay the freight of the plastic recycling, costs for the shipping industry rise, making international trade more expensive. Eliminating the subsidy that rich countries are paying to ship otherwise-empty containers back full of mixed trash is part of what pushes the world economy to contraction.

Other countries are not taking over very much of China’s role in recycling plastic, either. The net effect is that the loss of recycling is one of the things pushing the world toward contraction.

China has no doubt been cutting back in other ways as well. It is likely that it is not building as many uninhabited cities and roads that are really not needed. Ugo Bardi recently posted this chart showing global cement production.

Figure 7. World Cement Production by Ugo Bardi from a blog post on January 19, 2019.

China produces over half of the world’s cement; part of the reduction we are seeing relates to China’s falling use of concrete in new buildings and roads.

In some cases, China is moving in the direction of being a service economy. A recent video states that of the $237.45 cost of producing an iPhone in China, Chinese workers only provide assembly services, worth $8.46. The US contributes $68.69 of the cost, mostly in the design and distribution phases. The parts are generally outsourced from other parts of the world.

One way of looking at what is happening in China’s economy is to analyze the country’s oil consumption in terms of the relative amounts of diesel (used primarily by industry) and gasoline (often used by private passenger vehicles).

Figure 8. Gasoline and diesel consumption for China, based on data from 2019 BP Statistical Review of World Energy.

Based on Figure 8, it appears that China’s industrial growth suddenly leveled off about 2012. This, not by coincidence, is about the time that China’s coal problems were becoming apparent in China. China’s gasoline consumption has continued to rise, however. It appears that once it became apparent that its coal supplies were starting to seriously deplete, China began to “grow” China’s economy more as a service economy. After 2012, most growth seems to have come in the non-industrial sectors of China.

Reason 7. A major concern should be a financial collapse, far worse than 2008, both in China and for the world as a whole.

The world needs growing energy supply to support the world economy. China is increasingly having difficulty with its energy supply. When China has trouble with its energy supplies, the world as a whole has a problem with its growth in energy supplies.

A few months ago, I showed the role China has played in the world economy is this chart:

Figure 9. Ten year growth in world energy consumption, divided between the blue portion associated with rising population, and the red portion associated with higher energy consumption per capita, which I have called “Living Std.”, meaning “Higher Living Standards.”

China added a little bump in GDP growth at the end of the nearly 200-year time period shown, after it joined the World Trade Association in December 2001. The energy added by China (mostly in the form of coal) allowed the world economy to continue to grow, when it otherwise would have been up against limits.

Now we are reaching a situation where China’s energy production is likely to flatten or fall because of the depleted state of its coal mines, and the fact that coal prices can’t rise high enough, for long enough, to open new mines. The world economy, over the period shown, has always had rising energy consumption. In most cases, energy consumption rose faster than population growth, allowing some growth in the standard of living over time.

Changing to a situation of shrinking energy consumption per capita would likely be extraordinarily traumatic. Population would likely fall. Commodity prices would drop to low levels. Debt would tend to default; prices of shares of stock would fall. Many governments would fail. If shrinking energy consumption per capita starts in one country (whether China or elsewhere), it could easily spread to other countries around the world.

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. The decade of 1860 to 1870 was the decade of the US Civil War. The decade of the 1930s was the decade of the Great Depression. The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

We also know that world energy consumption and GDP growth tend to be highly correlated.

Figure 10. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

This is as we would expect, because energy consumption is required for the many aspects of GDP growth. Transportation, heating and/or cooling, and electricity all require energy consumption, for example.

The recent divergence between GDP and energy consumption on Figure 10 may be the result of overstated GDP amounts by China, India, and other countries. If a country wants to appear inviting for new investment, there is a temptation to overstate GDP since other countries seem to be doing so, without penalty.

Back during the Great Recession of 2008-2009, our problem was with homeowners who took out loans that were far higher than they could really afford. Today, we have whole economies taking on more debt than properly stated GDP reports would suggest they are able to handle. We go from one version of optimism regarding debt levels to another.

Conclusion. If a person doesn’t understand how badly the energy situation is working out for China, or how important energy consumption is, it is easy to think that the problems China is facing are primarily tariff-related. In fact, China’s situation is a very worrisome one, with or without tariffs being added.

To fix the situation, China would need a very cheap, non-intermittent, locally produced, non-polluting additional energy source. This energy source would also need to be rapidly scalable. Such an energy resource doesn’t appear to be available.

 

 

 

 

 

 

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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890 Responses to Seven Reasons Why We Should Not Depend on Imported Goods from China

  1. Sven Røgeberg says:

    «The conversation about a Green New Deal is bold, timely, and necessary. The most important component of the Green New Deal as currently drafted is its commitment to complete decarbonization. That is the destination, the moon for our moonshot. The question is: how do we get there? What we learn is it is at least twice as easy as we think.»
    View at Medium.com

    • I read that Medium piece with a mixture of hilarity and sadness

      hilarity that anyone could confuse ‘Electrical power abundance” with abundance of everything else–that somehow the two are linked in a pattern of infinite growth.

      then an overwhelming sadness that this sort of thing will be believed by the great mass of unthinkers, who remain convinced that provided we generate enough electricity, our cornucopia will go on delivering goodies in ever-increasing volumes.

      The picture says it all: we can go on building/using roads using the power of windmills and solar power, and presumably planes, trains as well—not to mention hospitals, and every kind of factory.

      Wheels will continue to deliver wealth.

      still the old ”moonshot” thing is trotted out–ignoring the fact that moonshots are/were a colossal expenditure/waste of fossil fuel energy

      Ask yourself why the apollo program didnt continue?—insufficient return on energy invested. It really was that simple.
      The chinese will find that out soon enough when the aura of prestige evaporates and they just bring back rocks and photographs—just like the last visitors (if they actually go there at all.

      • Harry McGibbs says:

        For more hilarity and sadness, Norman, take a look at socialist firebrand, Aaron Bastani’s manifesto – ‘Fully Automated Luxury Communism’.

        “Fully Automated Luxury Communism claims that new technologies will liberate us from work, providing the opportunity to build a society beyond both capitalism and scarcity. Automation, rather than undermining an economy built on full employment, is instead the path to a world of liberty, luxury and happiness.”

        • Tim Groves says:

          Now that more Americans are waking up to just how low their place is on the pyramid wealth, it’s understandable that quite a few of them are dreaming of a socialist or communist promised land.

        • Xabier says:

          Amusing. That is exactly what my mother was taught at school in the early 1950’s: a world of infinite leisure was dawning, enabled by technology…….

          When will they get the basic psychological point that having everything, materially, does not lead to happiness, only to neurosis and a sense of meaninglessness?

          It would have to be a balanced by a sense of society moving to some desirable end-point: as for instance Soviet citizens, who were guaranteed food and housing, clothing, etc, still felt that their lives had an ultimate purpose in constructing something new and eventually achieving full Communism, always on the horizon.

          Only some very rare psychological types might truly flourish in a world of guaranteed plenty without effort – artists mostly, as it would give them complete freedom to pursue their art and their own targets without financial worries. But they often do this anyway without financial reward, its their nature.

          • doomphd says:

            you could say the same about some scientists, but most of the ones i know are very interested in the pursuit of money, for their salaries and for the support of their research projects. success in this endeavour is rewarded with tenure, promotion and receipt of academic awards. failure usually means administrative positions or exit from academia.

        • Kowalainen says:

          Yes, it will be communism for the owners of the highly automated mass production capability, Not for you and I. It is a big club of wealthy business interests that will reap the seeds they sow with the latest automation and AI push.

          And listen carefully, what have you done lately to be a member of that club?

      • Hideaway says:

        Norman, all those types of articles I’ve ever read make the same error, they always look at the cost of building a ‘renewable future’ in terms of dollars and never in terms of energy.

        Whenever I bother to challenge someone that thinks of a renewable future, based on electricity, I just concentrate the argument down to copper. e basically need at least double the current copper produced per annum for the 25 years it would take to build a renewable system, just for the solar and wind farms (based on 5.5t/Mw, current ave), plus associated charging facilities for cars, trucks, boats etc. The amount used on top of this for the electrical appliances (cars/trucks/boats/tractors etc) is extra.
        I then point them to how the copper grades mined are declining (from 1.2% to 0.6% on average) over the last 20 years, and ask the simple question of where does the extra energy come from to get all the necessary copper??

        People usually just fumble some answer about not knowing how depleted copper was, or something similar, but really find they have no answer at all and their original thought of ‘easy’ transition to renewables is not so easy.

        Of course the conversation gets changed at that point with something like “they will figure it out”, but people just want to talk about something different if I try to talk further realities.

        As I alluded to a couple of days ago, the Charles Mackay book “Extraordinary Delusions and the Madness of Crowds” is really relevant to our future, with ongoing civilization itself being the mass delusion.

        • Greg Machala says:

          Exactly Hideaway! One must think in terms of resource expenditure, not dollars, to get the true picture. But so many folks make the mistake of pricing “renewables” in terms of dollars. Presumably to make “renewables” appear more useful than they really are.

      • Dan says:

        Completely agree and a good analysis. The conclusion. I come to through the haze of sadness and hilarity is that maybe the whole and only point is to give hope. People need hope without it they become wild and dangerous.

        • Grant says:

          You know Dan things are becoming so bizarre now that I have come to the same conclusion. It may all be simply an exercise in hiding the truth whilst those in authority hope fervently that a miracle will suddenly appear from the world of technology.

          Someone I know who has a neighbour whose son is, apparently, quite involved with some hi-tech fossil replacing energy generation academic project (possibly based on Hydrogen?) has heard that there is strong hope of an imminent breakthrough.

          However what they may mean I have no idea.

          If they have come up with a way of combining some readily available and cheap to obtain components that require little or no energy to make ready, add some water and suddenly one has copious amount of electrical power via the gas produced, then indeed a miracle might be possible.

          However, if I owned a farm I would not be betting its value on such a result.

          • Ed says:

            Hydrogen is just a medium of exchange for energy. In physics we know energy is conserved. The energy value of hydrogen and by products is EXACTLY equal or less than (if some waste) to the energy of the input materials plus whatever heat/electric was applied.

    • psile says:

      The moonshot was a handful of people, for about 15 minutes. What this is proposing is akin to landing everybody on the Moon – permanently.

      To paraphrase (unsure who made this comment originally).

    • ljgljhvf76507gtp89 says:

      Critical thinking is not taught in school . Learning institutions have largely become political indoctrination centers. When the so called transition to clean energy is shown to be a farce with the most rudimentary logic the response is anger. Most people do not possess the ability to do a analysis. When this skill is needed cognitive dissonance is felt and avoided. The prevalent paradigm is one of like and dislike as a real entity, The physical universe is believed to be malleable to any idea no matter how nonsensical. It may be for the best. We are fundamentally unable to function in a capacity appropriate to our potential now. We are unable to even come to terms with our flaws and weaknesses as a species and our inability to change in any meaningful fashion. Better to live deluded or in sadness? All i know that is appropriate is to try to show some compassion now. Compassion now does make a difference now to those creatures suffering now. I realize that decision is a function of feelings and perhaps the prevalent paradigm. Its the best I can do. As far as the future I am as powerless and puny as the rest.

    • Grant says:

      https://www.spiked-online.com/2019/06/20/politics-available-in-any-colour-so-long-as-its-green-2/

      It’s been a few years since it became evident that the ‘green’ agenda was purporting to be driven by Science but is ultimately an entirely political adventure.

      Maybe more people are beginning to work that out but the majority seem to be so influenced by the propaganda that any critical thinking possibilities they had are in hibernation. Or they have simply given up caring. That catch all phrase “It is what it is” comes to mind. Abandon hope all ye who enter there.

      Perhaps this goes some way to explaining why I rarely meet anyone who seems to have a well considered grasp on our current use of Energy and the potential challenges in the not too distant future.

      Does no one think of the children?

  2. Dennis L. says:

    Peak Food?
    I am sure many of you have noticed the weather is changing, rain has been very heavy this year and farming is having a difficult time of it. What if we have passed peak food? Exogenous forces, ie weather could have some interesting effects. So, in economic terms is food elastic or inelastic? Droughts have happened and been recorded, but Noah had a flood and low lands in the Midwest are flooded, crops have been killed and it is too late to replant.
    When I go to purchase food I am amazed at the variety and the still low cost combined with almost effortless collection as compared to a hunter gather’s efforts to secure dinner, which many on this site seem to think we will become. The good news probably is with a hunter gather there is no salt added as in prepackaged food and certainly much less fossil fuel is required to run down dinner. The real issue then becomes the net energy problem, when dinner fails to provide sufficient calories to cover the hunt. An interesting physiological question is what the ideal body mass of a hunter is so as to have the most efficient musculature with the least amount of excess mass to use additional energy? Too little fat and a just in time food collection system could result in some problems.

    Dennis L.

    Dennis L.

    • DJ says:

      10-15% bodyfat is plenty for making it through a few weeks with little food.

      I think it is unrealistic fattening up like a bear and survive on fat for months.

    • There has always been a lot of variability in weather. Early people understood that they needed to put aside stores for times of crop failure. Even with crops in storage, famines have been very common historically. We have lived in a very unusual time. Fossil fuels have allowed us to have far more than we need.

    • Volvo 740 says:

      Energy products (food, gas, electricity, etc) all have the problem that the bottom 20% need some to survive also. As we saw in the chart above they are pretty much broke (at least compared to the rest of the US population), and beyond that there’s people across the world, easily 1B that have very little in terms of financial resources.

      That creates tremendous price pressure on these products. In the future there is going to be shortages, but as Steve from Virginia likes to put it: Shortages don’t make anyone richer. Shortages can lead to closed auto plants, and other “bad” events. Usually negatively impacting someone.

      I think the big risk right now, is that all those “horizontal straws” are starting to suck dry, and then who knows what happens. Cliff warning ahead.

  3. Grant says:

    It recently occurred to me that slavery (not a subject we studied at school in the UK) had been a source of cheap additional energy, for the most advanced societies at any time and worldwide, for some millennia before the build up to the industrial revolution.

    In many ways one might consider that there is still some element of the concept of slavery throughout today’s global economics although in general it will purport to be something different.

    The most logical result of increasing cost of energy to drive machinery and its attendant needs could be to drift back towards a form of slavery. Perhaps without the invidious direct ‘ownership’ concept that was once used but something more akin to the financial indebtedness that might mean an individual is somewhat under the control of anyone who can give them a means of earning enough, by some means or other, to obtain at least food and shelter and from time to time a little of something that passes for security.

    This comes to mind. For the well known lyrics, obviously.

    https://en.wikipedia.org/wiki/Sixteen_Tons

    • pale dark people sold darker dark people to white people.

      Each transaction was an exercise in energy transfer—the white people couldn’t capture dark people themselves—they needed the paler dark people to do that.

      They were shipped to America as an energy resource, just like oil is now, the paler dark people were paid in ‘energy’ in the form of metal goods and guns—which they used to capture more dark people—ad infinitum, or so they thought.

      Which is the same ‘ad infinitum’ philosophy we have now

      • Tim Groves says:

        You’ve highlighted only a small fraction of what passed for slavery back in the day. Light to medium-dark dark civilized people also captured barbarian people of all colors and fed them into the human-resource-powered economy of the civilized world from Casablanca to Cathay. Without continuing access to fresh chattel, it would be difficult to keep the farms, factories, mines, navies, and harems well-staffed, and that would be the end of civilization.

        • Xabier says:

          My favourite slavery statistic: 25-75% death rate in making eunuchs out of boys, but they fetched a price 8-times higher on the slave market.

          Worth a punt, put in those terms.

          Long before evil white imperialist capitalism…….

          One of the most extraordinary journeys made by a slave was that of a Basque girl captured in the Pyrenees by the Arab slavers who, when it was discovered she had an exceptional singing voice, was sent to Mecca to learn Arab Classical music, and then re-imported to Cordoba to entertain the Caliph. Probably not so bad a deal, as she enjoyed prestige.

    • DJ says:

      “The most logical result of increasing cost of energy to drive machinery and its attendant needs could be to drift back towards a form of slavery.”

      I think the logic breaks on up to 10 kcal fossil energy needed to create 1 food kcal.

      Population must go way lower before energy can be substituted by manual labor.

      • Grant says:

        Surely that’s a chicken an egg situation DJ?

        But as and when the machinery stops working (for whatever reason and there could be many) it seems likely that any return to the use of human energy would also have some effects upon the population.

        • DJ says:

          No.

          Food for billions of people can only be produced by fossil fuels.

          So first population must die off to what can be sustained by organic agriculture.

          Then manual labor can substitute energy work.

          • Organic agriculture of today contains many unsustainable elements. Most irrigation is unsustainable. If nothing else, it tend to add salinity to the soil.

            Crop rotation is not sufficient to get all of the elements back in the soil. Some elements must be brought from a great distance. Waste products of humans and animals need to go back to the soil.

            Somehow, all of the microbe and animal pests must be dealt with. For example, bird netting is an organic approach to keeping birds away from fruit. But this netting is not available without fossil fuels. Rabbits need to be kept away from some crops.

            All in all, the amount that can be raised with manual labor is far less than the amount that can be raised with today’s organic agriculture.

            • DJ says:

              Agreed

            • Grant says:

              Rabbits may need to be attracted rather than kept away – so long as there is still fire and enough fuel to attempt to cook them.

            • Hideaway says:

              The ‘organics’ practiced by today’s ‘organic farmers’ is laughable, and I’m a former secretary of an organic certifying body (about 30 years ago).
              What people call and allow as ‘organic’ is closer to a religion than a method of farming, plus whenever the ‘sustainability’ card is played in making decisions, 99.9% of the people in the industry have no idea about what sustainable really means.

              Some of the ‘organic farms’ I know of rely on huge truckloads of chook manure from non-organic farms, where they compost it with huge machinery used to turn it while it cooks. They then use large tractors to spread the compost on fields for whatever crop. The number of holes in the concept of organic and sustainable is just ridiculous, but people will pay a premium thinking they are helping the planet by buying such produce.

              The farmers themselves also think they are sustainable, well in conversation any way. Once you make them realise that no huge (non organic) chook farm down the road and their model collapses, they talk seaweed extracts etc, and getting by with some alternative source of nutrients.

              My argument is simple like Gail’s above, you need to replenish the soil with exactly what you take away or there will be a limiting factor, ie Liebig’s law of the minimum.

              These days while not wanting a whole cocktail of chemicals on my food, so we farm with minimal inputs (no sprays, why poison ourselves?), we do use some modern aids like NPK as our soils were never going to grow what we want to grow without the extra help. We use lots of organic principles, but I’m under no illusion that when collapse comes for energy production world wide, the same will happen to every farm.

              We could probably feed 500 with the production from our patch, if I increased intensity, but after TSHTF that number will decline to about 5% of that at best.

              The food riots and revolution in North Africa and the Middle East back in 2011 were a warning for what to expect in the future IMHO, only the energy production and food shortages will become negative feed-back loops on one another.
              Sudden trouble in the ME, that could lead to farmers (in western countries) not being able to use their tractors due to lack of fuel, will increase the food shortage problems, that will further reduce fuel supplies etc, etc.

              At some point we just run into shortages anyway, but it seems we were nearly Trumped into an early collapse just the other day.

            • Shortly after I started writing about energy issues, I started trying to see first hand what was being billed as organic. I realized back then that quite a bit that was being billed as organic wasn’t sustainable with manual labor and a few hand tools.

            • JesseJames says:

              The rule is, if it is sold in a chain grocery store of any kind, regardless of publicity or propaganda, it is factory food and not even close to healthy or sustainable. I don’t care how much they label/certify it as organic…whatever they label it, it is factory food. Putting pretty picture of the farmers family petting the sheep does not make it organic.
              People who wish to get their food second hand, ie by buying it in an building called a grocery store are getting adulterated, contaminated, chemical laced stuff labeled as food.

            • ;lksfhd86 says:

              Food stamps are a subsidy for organic food. No one who has to pay cash can afford it.

            • Kowalainen says:

              For sure the life style of the farmers need to be adopted to close proximity to the farm lands for any real and sustainable organic and ecological farming.

              If there is a will, there is a way and plenty of hard work.

            • This eco-village uses a huge number of devices that would no t be available without fossil fuels. The chicken cages, for example, and the big container for carrying cabbages, as another. How is an eco village lifestyle supposed to be sustainable?

            • Kowalainen says:

              No one is doubting that. Their footprint is however reduced and gives them purpose in life.

              It’s just. Nice. It’s how we should be doing it; with style, humanity, technology, speed and grandeur.

              Absolutely not with unfettered nihilistic frivolous consumerism.

          • Grant says:

            Lack of available food would tend to push population lower.

            Not just by starvation of course.

            Disease and conflict would have their time as well.

            • Hideaway says:

              A real eye opener for me was about 30 years ago when I quit the organic industry to concentrate on my own farm and style of farming. On the certifying committee for organic farms, a farmer wanted to certify a property where the soil had unbelievably high levels of DDT and DDEs.
              The organic committee was going to reject it outright, but legal action on the fruit quality changed minds quickly. The farmer was made to have random samples of his fruit (apples) tested for the pesticides and a range of derivatives.
              The organic committee was certain that this would settle the issue, but it a found that none of the poisons in the ground translocated to the fruit.
              The fruit came up residue free, to as good as soils never sprayed with anything. He received his organic certification.
              Over the years testing always showed residues on fruit sprayed or on properties next to those that sprayed, but high soil levels of ‘nasties’ did not translocate through the plant.

              Basically most of what is portrayed as important organic principles is rubbish, and what is sprayed onto the crop all important. Organic industries allow some sprays that simply shouldn’t be allowed, but because it is ‘natural’ is perceived as good (and allowed).

              Organics certification is about as safe and trustworthy as OPEC oil reserve numbers.

    • Lots of “interns,” working for room and board, and not much more. Called by a modern name instead of slaves.

      • Grant says:

        True although even the rewarded are still slaves to the system in one way or another.

        People earning significant sums in Banking careers sometimes refer to themselves as Wage slaves awaiting the opportunity to retire.

        The Illusion of Freedom sustains us all. Some are less free than others.

  4. Harry McGibbs says:

    “HSBC said that the airline market is growing at its slowest rate since the financial crisis, leading it to conclude that the underlying problem was a collapse in demand… The cautionary note follows a profit warning from Frankfurt-listed Lufthansa on Tuesday.”

    https://www.ft.com/content/cbfdfa20-9275-11e9-b7ea-60e35ef678d2

    • Harry McGibbs says:

      “Gudrun Asta Gunnarsdottir found herself at ground zero of Iceland’s latest crisis. Four months into her second pregnancy, the 33-year-old check-in desk operator was told she was one of 315 workers being laid off at Reykjavik’s international airport.

      “The news came as “a shock” and “caused a lot of sadness for everyone, especially because a lot of people are now looking for work at the same time,” said Gunnarsdottir…”

      https://www.bloomberg.com/news/articles/2019-06-20/icelanders-in-shock-as-tourism-collapse-halts-economic-miracle

      • Harry McGibbs says:

        “Global oil consumption rose last year at the slowest rate since 2014, as higher prices and broad deceleration in manufacturing activity and freight movements took their toll on fuel use and petrochemicals. Consumption is likely to rise even more slowly in 2019, given the further weakening of most manufacturing and freight indicators since the start of the year.”

        https://www.reuters.com/article/oil-consumption-kemp/column-global-economic-slowdown-hits-oil-consumption-kemp-idUSL8N23Q4D1

      • maybe someone will correct my arithmetic here

        but if 312 workers are laid off, I’m guessing that’s 10% of the airport workforce (give or take), of say 30 k people total

        Iceland has a population of about 300,000

        300k people means a working population of about 100000

        so how can a population that size have a third of its workforce working in air traffic and continue with the delusion that it’s sustainable?.

        Even if my figures are way out on airport staff, that would still leave about a quarter or a fifth of Icelanders working in air traffic services, which is still a crazy proportion

        • apologies for a senior moment there

          got my %’s wrong—before all and sundry point it out

          • Harry McGibbs says:

            Easily done!

            Their capelin fishing seizing was a total bust as well, compounding their economic misery, but I haven’t been able to find out why.

        • Tim Groves says:

          Norman, this seems to be part of an ongoing rationalization (read “cost-cutting”) effort on the part of the airport operator Airport Associates. They hired a lot of people three or four years ago to cope with expanding tourist traffic and now they are rationalizing. Sack people, offer them new employment at cheaper rates, rinse and repeat.

          From April 2019:

          Of 315 Airport Associates employees who were laid off in the wake of WOW’s bankruptcy next week, 205 will be offered new contracts, RÚV reports. The positions range between 50% employment and full-time.

          Airport Associates provides terminal service at Keflavík Airport. The company laid off 315 members of its staff of 400 last week following WOW air’s announcement the airline was ceasing operations. Though Airport Associates provides support service to around 20 airlines at Keflavík, WOW air flights accounted for around 50% of its workload.

          For some of the company’s employees, the layoff is their second in less than six months. Airport Associates laid off 237 workers at the end of November, reinstating 156 of their jobs in late January. The layoffs were also in response to WOW air’s financial difficulties, as the airline itself let go 100 employees in December as part of a significant downsizing of operations.

          https://www.icelandreview.com/news/airport-workers-offered-new-contracts/

          The government airpor company Isavia runs over 30 airports and landing strips in Iceland. Their current number of employees is 830 (or 1,040 including subsidiaries).

          According to some corporate information i was reading, the combined total of jobs with Airport Associates an another company IGS at Keflavik increased from 967 to 1,490 between 2015 and 2016.

      • I hadn’t realized how bad Iceland’s problems were. There are quite a few US flights to Scandinavia that stop in Iceland.

    • SUPERTRAMP says:

      HAHAHA, ….collapse in demand!?? That’s a good one….here in the States the Airports I deal with ALL have MAJOR EXPANSION projects for the NEXT TWENTY YEARS!!!!
      MIAMI, FORT Lauderdale, Charlotte NC, Dallas Fort Worth TX….multi billion $$$$ spending and no end in sight.
      Need I go into details?
      Booming growth is expected at Fort Lauderdale-Hollywood International Airport. These changes will make it an ongoing construction zone for the next 20 years. An intermodal center near U.S. 1 will connect a people mover to other transportation, possibly Brightline in the future, and with the potential for future connections to cruiseships at Port Everglades and the Broward County Convention Center. Increased lanes will be added to improve traffic flow, and a hotel and commercial center on the airport property. Expansion of gates are in the plans as well as more airy, interior transformations.
      The Fort Lauderdale airport of the future will have millions more passengers each year. But the time to get ready for them is now.
      Future construction projects and improvements include:
      — An elevated people-mover circling the airport terminals and connecting to a transportation center above U.S. 1. The center could allow future passengers to connect to Brightline or another rail service, or make a connection that takes them to the Broward County Convention Center or cruise ships sailing out of Port Everglades.
      — Terminal expansions increasing the number of gates from 62 to 95, allowing for hundreds of more flights a day to and from the airport.
      — Widening the terminal roadway with more curb space for picking up and dropping off passengers.
      — Adding a new hotel that would be built with an adjacent nine-level parking garage on the airport right next to the terminals, complete with conference space and an exterior courtyard.
      — Installing higher ceilings, wider corridors and expansive windows. These changes are already visible from recent construction work and would continue with future expansions, along with more shopping and restaurant options for travelers.
      The airport currently is in the middle of $3.2 billion in improvements that has added gates, built a runway above Federal Highway, added new parking, stores and shops, and which will internally connect all the terminals so travelers will no longer have to go outside to get from one terminal to another.
      “We know that we’re in the billions of dollars. But again, this is a 20-year planning horizon,” Airport Director Mark Gale said. “We know we have a population in Broward that is growing and we have airlines … that want to grow.”
      New terminal in DFW and CLT and Miami just announce and BILLION plus expansion/renovation.
      More, more more

      • Collapse in demand happens at this point mostly in other countries. People in Britain buy fewer vehicles. In fact, people in other European Countries buy fewer vehicles. Germany finds fewer orders for its products from China. Venezuela buys fewer goods, because of the low cost of oil. Other oil exporters buy fewer goods. In the US, young people delay buying homes and having families because of all their college loans and their relatively low wages even with a college degree.

        All of this is the lower demand I am talking about. A person cannot simply demand a new car or home. He or she has to have and adequate income, and probably needs to take out a loan. If the conditions are not right for this to happen, “demand” stays too low.

        • Now, the question remains, what if the collapse in demand is temporary or more precisely doesn’t matter much at this point of overall prop up support, before new stimulative fix is in again or are we entering serious new situation for real.. ?

          You see, we have had exceptionally moribund growth for past decade (synchronized with exploding debt), so why we can’t have from now yet another one, this time moribund de-growth for decade+ with the obvious help of even more ‘creative’ BAU extension tools..

          Mind you, the mega trends such as over saturated markets, falling surplus disposable – purchasing power, stagnating demography, increasing cost of accessing energy, .. etc. still being valid forces. But as noted by that linked new study few pages back, human civilizations tend to go into very large and lengthy over hangs first, and collapse only at some point quickly afterwards (quick process of years/decades).. So, who should be the judge to measure said over-hang exposure – is it ripe enough today?

          Unimaginable things ca intervene still, like for example the US ‘wining’ the tariff – sanction attack on China in terms of destabilizing them first..

        • SUPERTRUMP says:

          Being on the bottom gets DEEPER
          June 16 marked the 12th year that Congress hadn’t raised the federal minimum wage, the longest amount of time the minimum wage has remained unchanged since it was first established in 1938. The last time the U.S. government raised the minimum wage was in May 2007 — that decision increased wages to $7.25 an hour starting July 24, 2009
          Until 1980, Cooper says, Congress increased the minimum wage “relatively regularly — every five years or so.” But in the last 40 years, he explained, Republicans started to strongly oppose minimum wage increases.
          “It wasn’t raised at all during the Reagan administration,” he said. “That’s when we saw nine, 10 years between increases.”
          https://finance.yahoo.com/news/minimum-wage-hasnt-been-raised-for-the-longest-time-in-history-151448519.html
          But Tax cuts very the very wealthy are deemed socially acceptable, because we are told taxes are “evil” and government “waste”.

          While inflation levels are holding steady the purchasing power of the current minimum wage has steadily eroded over the last decade. Since the minimum wage was raised to $7.25, its purchasing power has declined by 17%. That’s a loss of $3,000 in annual earnings for full-time minimum wage workers. Since reaching its buying power peak in 1968, the minimum wage has lost 31% in purchasing power. That means that effectively, minimum wage workers are “earning” more than $6,800 less than they would have in 1968 — when the minimum wage was only $1.60
          Like Gail posted…the policies of the Fed hurt the underclass

  5. Harry McGibbs says:

    “Companies are taking a much more cautious view on mergers and acquisitions this year, particularly when it comes to transactions involving the United States and China, as the world’s two biggest economies square off in an escalating trade war, according to deal advisers.

    “Transaction volumes – and the value of deals – are down, driven by fewer mega deals and increased uncertainty about the global economic outlook, advisers said.”

    https://www.scmp.com/business/companies/article/3015089/talk-global-recession-emerges-amid-us-china-trade-war-deal-flows

  6. Yoshua says:

    EIA is cooking the books to support oil prices. U.S crude inventories are 222 million barrels higher than reported.

    https://pbs.twimg.com/media/D9dMsQ2WsAAg66c?format=png&name=900×900

    • Do you have a link to the Arthur Burman post that this seems to be from? Art is the person behind Labyrinth Consulting.

      • Yoshua says:

        There is no article, just this graph and some comments by him on his Twitter account.

        • Harry McGibbs says:

          That’s a lot of oil to go ‘missing’. Cushing has a capacity of 85 m/b for context.

          I wouldn’t be surprised though. It seems the dangers of very low oil prices are well understood by TPTB:

          “…cheap oil became bad news for the fragile global economic recovery. With that, central banks stepped in early last year [2016] and responded with coordinated easing (which included direct asset purchases, which likely included outright oil and oil-related ETFs). Oil bottomed the day the Bank of Japan intervened in the currency market, and prices jumped 50% in a month as other major central banks followed with intervention.”

          https://www.forbes.com/sites/bryanrich/2017/11/24/oil-prices-primed-for-melt-up-into-year-end/#60d5c09f160b

  7. psile says:

    When you’re pushing on a string…

    Just to give some background: The coalition government was returned to power in the recent Australian federal election, and thought it would be a good idea to try and blow up the housing bubble some more, by enlivening “animal spirits”. Cutting interest rates, and making it easier for more sub prime loans to be written. But it seems to be having the opposite effect on the electorate.

    Oh dear…

    Consumer confidence tumbles after the Reserve Bank cuts rates

    If the Reserve Bank had hoped to fire up the economic engine room of consumer spending with a rate cut last month, it will be sorely disappointed by the initial reaction.

    The 0.25-percentage-point cut sent consumer sentiment tumbling from net optimism to pessimism, according to the latest Westpac-Melbourne Institute survey.

    “Responses over the survey week show a marked drop-off after the Reserve Bank’s official rate cut,” Westpac’s Matthew Hassan said.

  8. Harry McGibbs says:

    “Forget Brexit, there’s something far more worrying afoot in Europe: Italy’s debt problem. It’s on course to spark an existential crisis for Europe’s single currency area, the eurozone.

    “While the European Union will aim to fix the problem it looks like they’ll be no escape from the coming calamity, experts say.

    “”[…] it does seem a matter of ‘when’ rather than ‘if’ – another full-blown sovereign debt panic will happen,” states a recent report from London-based financial firm TS Lombard. The report continues bluntly:

    “The bottom line is that as and when a serious new crisis blows up, the Italian government is positioning itself to demonstrate to its voters that it has not sought to leave the Eurozone, but rather that the Eurozone is leaving Italy.

    “In other words, Italy’s government is gearing up to inform the European Union it has had enough. Then the ruling parties will tell Italy’s population that the EU is to blame for everything.”

    https://www.forbes.com/sites/simonconstable/2019/06/20/doomed-how-theres-no-way-out-of-the-debt-crisis-for-italy/#1eb32d9b68bb

  9. Harry McGibbs says:

    “Growth in global wealth ground to a halt in 2018 as major equity market corrections lowered the value of many investors’ assets, according to a report by Boston Consulting Group…

    “When the firm adjusted for the rebounding dollar, wealth in 2018 actually declined by 1.6%… “For the first time since 2008, we saw wealth growth was negative when you take into account all the factors,” said Anna Zakrzewski, global leader of BCG’s wealth-management practice…”

    https://www.investopedia.com/global-wealth-falling-for-first-time-since-2008-a-warning-to-investors-4690970

  10. ktoś says:

    Warsaw PL, under construction, after 4 decades of Russian occupation:
    https: //tinyurl.com/yxonz45f
    Wider view: https:// i.imgur.com/gt4jbFr.jpg
    https:// i.imgur.com/WoGkxKp.jpg
    https:// i.imgur.com/9YiNfnL.jpg

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