The reasons why the Green New Deal won’t really work are fairly subtle. A person really has to look into the details to see what goes wrong. In this post, I try to explain at least a few of the issues involved.
[1] None of the new renewables can easily be relied upon to produce enough energy in winter.
The world’s energy needs vary, depending on location. In locations near the poles, there will be a significant need for light and heat during the winter months. Energy needs will be relatively more equal throughout the year near the equator.
Solar energy is particularly a problem in winter. In northern latitudes, if utilities want to use solar energy to provide electricity in winter, they will likely need to build several times the amount of solar generation capacity required for summer to have enough electricity available for winter.
Figure 1. US daily average solar production, based on data of the US Energy Information Administration.
Hydroelectric tends to be a spring-dominated resource. Its quantity tends to vary significantly from year to year, making it difficult to count on.
Figure 2. US daily average hydroelectric production, based on data of the US Energy Information Administration.
Another issue with hydroelectric is the fact that most suitable locations have already been developed. Even if additional hydroelectric might help with winter energy needs, adding more hydroelectric is often not an option.
Wind energy (Figure 3) comes closest to being suitable for matching the winter consumption needs of the economy. In at least some parts of the world, wind energy seems to continue at a reasonable level during winter.
Figure 3. US daily average wind production, based on data of the US Energy Information Administration.
Unfortunately, wind tends to be quite variable from year to year and month to month. This makes it difficult to rely on without considerable overbuilding.
Wind energy is also very dependent upon the continuation of our current economy. With many moving parts, wind turbines need frequent replacement of parts. These parts need to be precisely correct, with virtually no tolerance for change. Sometimes, helicopters are needed to install the new parts. Because of the need for continued high-technology maintenance services, wind energy cannot be expected to continue to operate for very long unless the world economy, with all of its globalization, can continue pretty much as today.
[2] Depending upon burned biomass in winter is an option, but we already know that this path is likely to lead to massive deforestation.
Historically, people burned wood and other biomass to provide heat and light in winter. If biomass is burned for heat and light, it is an easy step to using charcoal for smelting metals for goods such as nails and shovels. But with today’s population of 7.7 billion people, the huge demand for biomass would quickly deforest the whole world. There is already a problem with growing deforestation, especially in tropical areas.
It is my understanding that the Green New Deal is focusing primarily on wind, hydroelectric, and solar rather than biomass, because of these issues.
[3] Battery backup for renewables is very expensive. Because of their high cost, batteries tend to be used only for very short time periods. At a 3-day storage level, batteries do nothing to smooth out season-to-season and year-to-year variation.
The cost of batteries is not simply their purchase price. There seem to be several related costs associated with the use of batteries:
- The initial cost of the batteries
- The cost of replacements, because batteries are typically not very long-lived compared to, say, solar panels
- The cost of recycling the battery components rather than simply leaving the batteries to pollute the nearby surroundings
- The loss of electric charge that occurs as the battery sits idle for a period of time and the loss related to electricity storage and retrieval
We can get some idea of the cost of batteries from an analysis by Roger Andrews of a Tesla/Solar City system installed on the island of Ta’u. The island is in American Samoa, near the equator. This island received a grant that was used to add solar panels, plus 3-day battery backup, to provide electricity for the tiny island. Any outages longer than the battery capacity would continue to be handled by a diesel generator. The goal was to reduce the quantity of diesel used, not to eliminate its use completely.
Based on Andrews’ analysis, adding a 3-day battery backup more than doubled the cost of the PV-alone system. (It added 1.6 times as much as the cost of the installed PV.) The catch, as I pointed out above, is that the cost doesn’t stop with purchasing the initial batteries. At least one set of replacement batteries is likely to be needed during the lifetime of the system. And there are other costs that are more subtle and difficult to evaluate.
Furthermore, this analysis was for a solar system. There seems to be more variation over longer periods for wind. It is not clear that the relative amount of batteries would be enough for 3-day backup of a wind system, or for a combination of wind, hydroelectric and solar. The long-term cost of a solar panel plus battery system might easily come to four times the cost of a wind or solar system alone.
There is also the issue of necessary overbuilding to make the system work. On Ta’u, near the equator, with diesel power backup, the system is set up in such a way that 40% of the solar generation is in excess of the island’s day-to-day electricity consumption. This constitutes another cost of the system, over and above the cost of the 3-day battery backup.
If we also eliminate the diesel backup, then we start adding more costs because the level of overbuilding would need to be even higher. And, if we were to create a similar system in a location with substantial seasonal temperature variation, even more overbuilding would be required if enough capacity is to be made available to provide sufficient generation in winter.
[4] Even in sunny, warm California, it appears that substantial excess capacity needs to be added to avoid the problem of inadequate generation during the winter months, if the electrical system used is based on wind, hydroelectric, solar, and a 3-day backup battery.
Suppose that we want to replace California’s electricity consumption (excluding other energy, including oil products) with a new system using wind, hydro, solar, and 3-day battery backup. Current California renewable generation, compared to current consumption, is as shown on Figure 4, based on EIA data.
Figure 4. California total electricity consumption compared to the sum of California solar, wind, and hydroelectric production, on a monthly average basis. Data used from the US Energy Information Administration through June 30, 2019.
California’s electricity consumption peaks about August, presumably due to all of its air conditioning usage (Figure 5). This is two months after the June peak in the output of solar panels. Also, electricity usage doesn’t drop back nearly as much during winter as solar production does. (Compare Figures 1 and 5.)
Figure 5. California electricity consumption by month, based on US Energy Information Administration data.
We note from Figure 4 that California hydroelectric production is extremely variable. It appears that hydroelectric generation can vary by a factor of five comparing high years to low years. California hydroelectric generation uses all available rivers, so any new energy generation will need to come from wind and solar.
Even with 3-day backup batteries, we need the system to reliably produce enough electricity that it can meet the average electricity generation needs of each separate month. I did a rough estimate of how much wind and solar the system would need to add to bring total generation sufficiently high so as to prevent electricity problems during the winter. In making the analysis, I assumed that the proportion of added wind and solar would be similar to their relative proportions on June 30, 2019.
My analysis suggests that to reliably bridge the gap between production and consumption (see Figure 4), approximately six times as much wind and solar would need to be added (making 7 = 6 +1 times as much generation in total), as was in place on June 30 , 2019. With this arrangement, there would be a huge amount of wind and solar whose production would need to be curtailed during the summer months.
Figure 6. Estimated share of wind and solar production that would need to be curtailed, to provide adequate winter generation. The assumption is made that hydroelectric generation would not be curtailed.
Figure 6 shows the proportion of wind and solar output that would be in excess of the system’s expected consumption. Note that in winter, this drops to close to zero.
[5] None of the researchers studying the usefulness of wind and solar have understood the need for overbuilding, or alternatively, paying backup electricity providers adequately for their services. Instead, they have assumed that the only costs involved relate to the devices themselves, plus the inverters. This approach makes wind and intermittent solar appear far more helpful than they really are.
Wind and solar have been operating in almost a fantasy world. They have been given the subsidy of “going first.” If we change to a renewables-only system, this subsidy of going first disappears. Instead, the system needs to be hugely overbuilt to provide the 24/7/365 generation that backup electricity providers have made possible with either no compensation at all, or with far too little compensation. (This lack of adequate compensation for backup providers is causing problems for the current system, but it is beyond the scope of this article to discuss them here.)
Analysts have not understood that there are substantial costs that are not being reimbursed today, which allow wind and solar to have the subsidy of going first. For example, if natural gas is to be used as backup during winter, there will still need to be underground storage allowing natural gas to be stored for use in winter. There will also need to be pipelines that are not used much of the year. Workers will need to be paid year around if they are to continue to specialize in natural gas work. Annual costs of the natural gas system will not be greatly reduced simply because wind, hydro, and water can replace natural gas usage most months of the year.
Analysts of many types have issued reports indicating that wind and solar have “positive net energy” or other favorable characteristics. These favorable analyses would disappear if either (a) the necessary overbuilding of the system or (b) the real cost of backup services were properly recognized. This problem pervades studies of many types, including Levelized Cost of Energy studies, Energy Returned on Energy Invested studies, and Life Cycle Analyses.
This strange but necessary overbuilding situation also has implications for how much homeowners should be paid for their rooftop solar electricity. Once it is clear that only a small fraction of the electricity provided by the solar panels will actually be used (because it comes in the summer, and the system has been overbuilt in order to produce enough generation in winter), then payments to homeowners for electricity generated by rooftop systems will need to decrease dramatically.
A question arises regarding what to do with all of the electricity production that is in excess of the needs of customers. Many people would suggest using this excess electricity to make liquid fuels. The catch with this approach is that the liquid fuel needs to be very inexpensive to be affordable by consumers. We cannot expect consumers to be able to afford higher prices than they are currently paying for fossil fuel products. Also, the new liquid fuels ideally should power current devices. If consumers need to purchase new devices in order to utilize the new fuels, this further reduces the affordability of a planned changeover to a new fuel.
Alternatively, owners of solar panels might be encouraged to use the summer overproduction themselves. They might set the temperatures of their air conditioners to a lower setting or heat a swimming pool. It is unlikely that the excess could be profitably sold to nearby utilities because they are likely encounter the same problem in summer, if they are using a similar generation mix.
[6] As appealing as an all-electric economy would seem to be, the transition to such an economy can be expected to take 150 years, based on the speed of the transition since 1985.
Clearly, the economy uses a lot of energy products that are not electricity. We are familiar with oil products burned in many vehicles, for example. Oil is also used in many ways that do not require burning (for example, lubricating oils and asphalt). Natural gas and propane are used to heat homes and cook food, among other uses. Coal is sometimes burned in making pig iron and cement in China.
Figure 7. Electricity as a share of total energy use for selected areas, based on BP’s 2019 Statistical Review of World Energy.
Electricity’s share of total energy consumption has gradually been rising (Figure 7).* We can make a rough estimate of how quickly the changeover has been taking place since 1985. For the world as a whole, electricity consumption amounted to 43.4% of energy consumption in 2018, rising from 31.2% in 1985. On average, the increase has been 0.37%, over the 33-year period shown. If we assume this same linear growth pattern holds going forward, it will take 153 years (until 2171) until the world economy can operate using only electricity. This is not a quick change!
[7] While moving away from fossil fuels sounds appealing, pretty much everything in today’s economy is made and transported to its final destination using fossil fuels. If a misstep takes place and leaves the world with too little total energy consumption, the world could be left without an operating financial system and with way too little food.
Over 80% of today’s energy consumption is from fossil fuels. In fact, the other types of energy shown on Figure 8 would not be possible without the use of fossil fuels.
Figure 8. World Energy Consumption by Fuel, based on data of 2019 BP Statistical Review of World Energy.
With over 80% of energy consumption coming from fossil fuels, pretty much everything we have in our economy today is available thanks to fossil fuels. We wouldn’t have today’s homes, schools or grocery stores without fossil fuels. Even solar panels, wind turbines, batteries, and modern hydroelectric dams would not be possible without fossil fuels. In fact, for the foreseeable future, we cannot make any of these devices with electricity alone.
In Figure 8, the little notch in world energy consumption corresponds to the Great Recession of 2008-2009. The connection between low energy consumption and poor economic outcomes goes back to many earlier periods. Energy consumption growth was unusually low about the time of the Great Depression of the 1930s and about the time of the US Civil War. The vulnerability of the financial system and the possibility of major wars are two reasons why a person should be concerned about the possibility of an energy changeover that doesn’t provide the economic system with adequate energy to operate. The laws of physics require energy dissipation for essentially every activity that is part of GDP. Without adequate energy, an economy tends to collapse. Economists are generally not aware of this important point.
Agriculture is dependent upon fossil fuels, particularly oil. Petrochemicals are used directly to make herbicides, pesticides, medications for animals and nitrogen fertilizer. Huge quantities of energy are necessary to make metals of all kinds, such as the steel in agricultural equipment and in irrigation pumps. Refrigerated vehicles transport produce to market, using mostly oil-based fuel. If the transition does not go as favorably as hoped, food supplies could prove to be hopelessly inadequate.
[8] The scale of the transition to hydroelectric, wind, and solar would be unimaginably large.
Today, wind, hydroelectric, and solar amount to about 10% of world energy production. Hydroelectric amounts to about 7% of energy consumption, wind about 2%, and solar about 1%. This can be seen on Figure 8 above. A different way of seeing this same relationship is shown in Figure 9, below.
Figure 9. World hydroelectric, wind and solar production as share of world energy supply, based on BP’s 2019 Statistical Review of World Energy.
Figure 9 shows that hydroelectric power is pretty well maxed out, as a percentage of energy supply. This is especially the case in advanced economies. This means that any increases that are made in the future will likely have to come from wind and solar. If hydroelectric, wind and solar are together to produce 100% of the world’s energy supply, then wind and solar, which today comprise 3% of today’s energy supply, will need to ramp up to 93% of energy supply. This amounts to a 30-fold increase in wind and solar between 2018 and 2030, based on one version of the Green New Deal’s planned timing. We would need to be building wind and solar absolutely everywhere, very quickly, to accomplish this.
[9] Moving to electric vehicles (EVs) for private passenger autos is not likely to be as helpful as many people hope.
One issue is that it is possible to mandate the use of EVs, but if the automobiles cost more than citizens can afford, many citizens will simply stop buying cars at all. At least part of the worldwide reduction in automobile sales seems to be related to changes in rules that are intended to reduce auto emissions. The slowdown in auto sales is part of what is pushing the world into recession.
Another issue is that private passenger autos represent a smaller share of oil consumption than many people would expect. BP data indicate that 26% of worldwide oil consumption is gasoline. Gasoline powers the vast majority of the world’s private passenger automobiles today. While an oil savings of 26% would be good, there would still be a very long way to go.
One study of EV sales in Norway suggests that, with large subsidies, these cars are disproportionately sold to high-income families as a second vehicle. The new second vehicles are often used for commuting to work, when prior to the EV ownership, the owner had been taking public transportation. When this pattern is followed, the savings in oil use from the adoption of EVs becomes very small because building and transporting EVs also requires oil use.
Figure 10. Source: Holtsmark and Skonhoft The Norwegian support and subsidy policy of electric cars. Should it be adopted by other countries?
If one of the goals of the Green New Deal is to level out differences between the rich and the poor, mandating EVs would seem to be a step in the wrong direction. It would make more sense to mandate walking or the use of pedal bicycles, rather than EVs.
[10] Wind, solar, and hydroelectric have pollution problems themselves.
With respect to solar panels, a major concern is that if the panels are broken (for example, by a storm or near the end of their lives), water alone can leach toxic substances into the water supply. Another issue is that recycling needs to be subsidized, to be economic. The price of solar panels needs to be surcharged at the front end, if adequate funds are to be collected to cover recycling costs. This is not being done in the US.
Wind turbines are better in terms of not being made of toxic substances, but they disturb bird, bat, and marine life in their vicinity. Humans also complain about their vibrations, if the devices are close to homes. The fiberglass blades of wind turbines are not recyclable, and many of them are too big to fit into standard crushing machines. They need to be chopped into pieces, in order to fit into landfills.
Adding huge amounts of 3-day battery backup for wind turbines and solar panels will create a new set of recycling issues. The extent of the recycling issues will depend on the battery materials used.
Of course, if we try to ramp up wind and solar by a huge factor, pollution problems will rise accordingly. The chance that raw materials will prove to be scarce will increase as well.
There will also be an increasing problem with finding suitable sites to install all of the devices and batteries. There are limits on how densely wind turbines can be spaced before the output of one wind turbine interferes with the output of other nearby turbines. This problem is not too different from the problem of declining per-well oil production caused by too closely spaced shale wells.
Afterword
I could explain further, but that would make this post too long. For example, using an overbuilt renewables system, there is not enough net energy to provide the high salaries almost everyone would like to see.
Also, the new renewable energy systems are likely to be more local than many have hoped. For example, I think it is highly unlikely that the people of North Africa would allow contractors to build a solar system in North Africa for the benefit of Europeans.
Note
*There are two different ways of comparing electricity’s value to that of total energy. Figure 7 uses the more generous approach. In it, the value of electricity is based on the amount of fossil fuels that would need to be burned to produce the electricity amounts shown. In the case of electricity types that do not involve the burning of fossil fuels, these amounts are estimated amounts. The less generous approach compares the heat value of the electricity produced to the total heat value of primary energy sources. Using the less generous approach, electricity corresponds to only about 20% of primary energy supply. The transition to an all-electric economy would be much farther away using the heat value approach.
When I look at the current situation in the world, we often come into contact with the two seemingly opposing phenomena, which represent the same thing: I am talking about the gerontocracy and kindermanagement. Both of them are about the lack of the knowledge of the real world, about the wishful thinking and the disrespect of the facts.
The periods of pre-collapse in the human history are full of such stories where old farts walk hand in hand with the blinded young enthusiasists to the brink of the abyss.
And such is also the story of the renewables: the old farts and the blinded young enthusiasists lead the society to the collapse:
https://catholicoutlook.org/co/wp-content/uploads/2019/04/Pope-Francis-Greta.jpg
Source: https://catholicoutlook.org/pope-francis-meets-young-climate-change-activist/pope-francis-greta/
https://www.irishcentral.com/news/vatican-financial-collapse
“According to The Telegraph, the amount of money donated by ordinary Catholics to the Church has plummeted from €101 million in 2006 to €70 million in 2016 and may now be less than €60 million.”
Czechoslovakia in 1986:
http://www.pluska.sk/thumb/images/gallery/plus7dni/z-domova/2012/11/husak/pionieri-tasr.jpg?w=800&h=1000
I second that. A veritable blog within a blog. And where are you? Some island off the coast of UK? (I had even thought one time of returning to Pitcairn Island!)
Like a circle in a spiral, like a wheel within a wheel… Hubbs, I’m on the Hebridean island of Islay, famed for its whiskies.
Hubbs, were you actually from Pitcairn?!
And now, a note of hope in all the gloom, a green, beautiful future with plentiful energy for all, and why not, or as has been said, “What do we have to lose?”
https://www.zerohedge.com/energy/holy-grail-energy-finally-within-reach
It is no longer twenty years away, it is closer to ten or so years. Why not? Really, what do we have to lose? Financially, it would be hugely disruptive and many assets would almost immediately become sunk costs.
Dennis L.
“The [UK] CBI said its quarterly expected orders balance sank to -19 in October from +10 in July, the lowest since April 2009, driven by a steep drop in orders expected from overseas.”
https://uk.reuters.com/article/us-britain-economy-manufacturing/uk-industry-outlook-weakest-since-2009-on-brexit-and-world-slowdown-cbi-idUKKBN1X113L
“Germany has tumbled into recession as global trade tensions, disruption to the car industry and worries over Brexit take their toll, according to the country’s central bank.”
https://www.thisismoney.co.uk/money/markets/article-7597465/Germany-tumbles-recession-global-trade-tensions-worries-Brexit-toll.html
Harry
I am very impressed by your level of endurance. You’ve been posting articles daily for years now and they’re all pertinent and useful. Thank You
Yes, top dedication, let’s recall his Q2/Q3 2018 msm quotes from periphery-raw suppliers which signaled the incoming slowdown.. Thanks again.
You are all very welcome. It is easily done and I really enjoy the feedback from Gail and other commenters.
I’m aware that a lot of the articles I am posting at the moment are essentially expressing the same alarm about the impotence of central banks in the context of what may be a worsening global downturn, so I hope it doesn’t get monotonous.
By all means let me know if it does!
The WSJ has an article on something we have talked about:
All About the Money: Why Hong Kong Matters So Much to China.
The article has many nice charts. Unless you have a subscription, you will likely need to do a search for the article.
Show ME the Money..no vegetables for youuuu!
YahooFINANCE
Chinese Contractor Ends Oil-Project Deals With Venezuelan Firms
Fabiola Zerpa
BloombergOctober 22, 2019, 12:00 AM EDT
(Bloomberg) — China’s leading oil contractor in Venezuela terminated deals with local providers at oil projects due to lack of payment from the state oil company. But exiting is proving a challenge to both sides.
China Huanqiu Contracting and Engineering Corp., known as HQC, an affiliate of China’s biggest energy company China National Petroleum Corp., told local providers that their contracts were being terminated, citing “the extremely difficult situation of this project,” according to a document seen by Bloomberg.
Local oil service companies were invited to negotiate exit terms and payments due with HQC officials. The move follows HQC’s decision in early September to halt work at the biggest China-Venezuela joint venture due to lack of payment on the part of Petroleos de Venezuela SA
This is what Collapse looks like…coming soon to your own neck of the woods…
Don’t say you weren’t warned….
A CNPC spokesman declined to comment. Multiple calls and emails to HQC and its listed parent China Petroleum Engineering Corp. went unanswered
Yes, Those in charge will not answer your calls for HELP…ain’t that a surprise!
https://m.youtube.com/watch?v=7cT_rIyoMCM
Don’t be afraid to Ask for HELP….Rule #52
US energy firms are having problems with the money as well. Energy firms seem to account for nearly half of US debt trading for less than 80 cents on the dollar.
From WSJ Wave of Financial Stress Hits Low-Rated Companies
https://www.wsj.com/articles/wave-of-financial-stress-hits-low-rated-companies-11571736606
https://gailtheactuary.files.wordpress.com/2019/10/volume-of-bonds-priced-below-80-cents-on-the-dollar-wsj.png
“Halliburton tightening its purse strings:
“Halliburton Co on Monday promised more cost cuts after reporting a bigger-than-expected drop in quarterly revenue as the oilfield services looks to counter weak demand from North American shale producers…
“The biggest hydraulic fracking services provider, which earlier this month cut 650 jobs in North America, said it would take steps over the next few quarters that will lead to $300 million in annualized cost savings.”
https://www.todayonline.com/world/halliburton-profit-falls-32-weak-north-america-drilling
And a further curtailing of production for conventional oil may be on the cards:
“Crude oil prices skyrocketed over 2% on news that OPEC – the organization of petroleum exporting counties – and its allies are debating whether to extend and potentially increase crude oil supply cuts. OPEC+ has already curbed crude oil production owing largely to protracted slowing global GDP growth.”
https://www.dailyfx.com/forex/market_alert/2019/10/22/crude-oil-prices-jump-on-OPEC-supply-cut-hopes-this-december.html
As Gail says, this is what peak oil looks like.
The oil price jump comes on the rumor. When the news of the cut actually comes, prices may very well fall.
It seems like we heard similar results from Schlumberger recently, too. Customers are renting fewer drilling rigs.
As mentioned above, you can check out Patzek, he has done some estimates on what kind of investment is needed for getting the rest of alt oil out.. I’d guess it’s out of the market’s allocation capacity. Hence we can either expect gov scheme support (aka “emergency mode”) or let it all bust..
The places that need support are Saudi Arabia, Venezuela, Iran, Iraq, etc. I don’t see the US providing support for all of these other countries.
Also, coal consumption needs to be kept up, if oil consumption is to keep from dropping. I don’t think that this is something Patzek would figure out. It is really a matter of prices staying high enough. If prices are too low, exporters cannot collect enough tax revenue on their exports.
“The European Central Bank is running low on sovereign bonds to buy — that undermines the credibility of its pledge to keep going until inflation picks up. If inflation takes two years to firm, the ECB could face a shortage of about 60 billion euros ($67 billion) in debt during the next phase of its asset-purchase program.
“At the present pace, the central bank could run out of bonds in little over a year, according to calculations by Bloomberg Economics.”
https://www.bloomberg.com/news/articles/2019-10-21/ecb-restarting-qe-will-need-more-purchase-of-private-debt-chart
“Negative interest rates are now a fact of life in Europe and Japan, and multiple other countries including the United States are lowering their target policy rates.
““It is not really clear how we are going to get out of this,” Stanford University economics professor John Taylor said at a meeting of the Institute of International Finance.”
https://www.kitco.com/news/2019-10-21/Negative-rates-forever-Central-bankers-look-for-an-exit.html
“Central bankers are doing their part, but the unintended consequences of easy money are rising, writes John Authers.
“And companies aren’t investing the way policymakers hoped, signaling anxiety about the economy. “
https://www.bloomberg.com/news/newsletters/2019-10-21/the-world-fiddles-while-the-economy-burns
We have been getting “asset growth” as interest rates fall. This asset growth benefits the rich, primarily. At some point, the decline in interest rates has to come to an end, and the system looks like it might collapse.
The legacy system might collapse – the new will be rushed in (private armies, fenced off agriculture areas, abandoned infrastructure, local / distant range trade separation, ..). Not saying it must happen in the very next step though, but that’s very likely the mid/long term destination.
World….
When legacy systems collapse and armies move in, destruction seems to follow; the buildings in some middle eastern cities are mere shells if that. Closer to home think of Atlanta in the 1860’s, surly an extreme form of urban renewal. Running any group is a challenge, it is my opinion and an opinion only, a group needs to be more than private, there has to be a belief in something greater than self.
Peak oil missed price, focusing only on money misses who we are deep down as humans, how we have been shaped to survive as a group over many thousands of years.
Agriculture as I keep saying is not Little House on the Prairie, it is very challenging, hard work and the weather is not always your friend. Armies know how to blow things up, a crop takes a season and when that season is done, the next season does not come for many months.
Dennis L.
As I have mentioned before, if one has a portfolio of individual securities, not a fund the growth of assets has been impressive, but if one wants cash an asset needs to be sold so going forward fewer assets are available to generate a return. This is the same with a fund but one does not see the sale of the assets, it is hidden in the gross amount. It is chasing one’s tail, and the only solution is to harvest some of the asset growth, save the rest and hope to invest when the asset is priced at a lower cost. This has not worked very well for anyone so in essence one appears wealthier but is going broke with assets that do not throw off cash, e. g. a house, once it is sold one needs a tent or has to rent an apartment, etc.
Dennis L.
“It is not really clear how we are going to get out of this,”
No kidding!
It’s that “Per Capita” factor that holds the key.
“More than half of the world’s banks are too weak to survive a downturn, according to a survey from consultancy McKinsey & Co.
“A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday.”
https://www.business-standard.com/article/international/half-the-world-s-banks-are-too-weak-to-survive-a-downturn-mckinsey-119102200142_1.html
“…running a bank in Europe, already an uphill struggle since the crisis, is about to get even harder. “Bank executives in Europe are depressed, despondent and concerned; there’s a confluence of factors that is undermining profitability in the medium term,” said one adviser to several large European lenders.
““There are genuinely fundamental questions about their future.””
https://www.ft.com/content/09469d28-f410-11e9-b018-3ef8794b17c6
“UBS (UBSG.SW) reported a fall in income and pre-tax profit on Tuesday, as it warned that the global economy remains “challenging.”
“The Swiss bank reported pre-tax profit of $1.3bn for the third quarter, down 21% on the same quarter last year… Profit declined in all businesses except asset management. UBS blamed the “challenging environment” for the performance.”
https://uk.finance.yahoo.com/news/ubs-q3-results-low-negative-rates-restructure-profit-challenging-065302931.html
I just read that the global Repo market is USD 5 Trillion daily operation. The Fed’s Repo operation is just a USD 75 Billion operation, and its window is only open to primary dealers, banks that are associated with the Fed.
If those primary dealers won’t lend to smaller banks in distress, then the Repo market explodes, and the smaller banks collapse.
Wow! I hadn’t realized that the global Repo market is anywhere near USD 5 trillion. We seem to have a lot of pieces of the financial system that can go wrong.
“Buyback spending is plummeting as companies spend less amid growing global uncertainty. According to Goldman Sachs, buyback spending slowed 18% to $161 billion during the second quarter, and the firm anticipates that the slowdown will continue.
““During full-year 2019, we expect S&P 500 cash spending will decline by 6%, the sharpest annual decline since 2009,” the firm says.”
https://www.cnbc.com/2019/10/21/goldman-warns-buybacks-are-plummeting.html
“JPMorgan Chase & Co. says the money-market stress that sent short-term borrowing rates surging last month is likely to get much worse despite the Federal Reserve’s attempts to inject billions of dollars into the financial system.
“The Fed has offered overnight loans and started buying up to $60 billion of U.S. Treasury bills a month in an effort to ease pressure in the vast repo market, where banks typically lend their assets in exchange for short-term financing.”
https://finance.yahoo.com/news/jpmorgan-warns-u-money-market-093439609.html
How can share prices stay high without buyback spending?
A double whammy. Shares have been purchased back by corporations at the highs. If buy-backs falter, the price per share drops and the stampede for the exits accelerates in a negative feedback loop-unwind, resulting in a worse situation than would have occurred- interest rates not been lowered to near zero which allowed corporations to float more debt to buy back shares. What a mess.
I hadn’t thought through those secondary effects!
There have never been this many articles openly questioning the central banks ability to combat a global downturn. There’s something in the wind:
“The world’s finance ministers and central-bank governors gathered this past weekend in Washington and looked out at a global economy badly in need of treatment…
“…the IMF calls it a “synchronized slowdown.” The revised outlook is already the weakest since the crash 10 years ago, and the risks in the forecast are very much, as economists say, to the downside.
“This would be concerning under any circumstances, but the prospect of recession under current conditions is truly alarming. The hesitant recovery of the past decade has depleted the conventional tools of macroeconomic policy. In many countries — not least the U.S. — fiscal stimulus and persistent budget deficits have boosted ratios of public debt to national income. Next time, governments will be reluctant to lean as heavily on extra public borrowing to raise demand, rightly or wrongly fearing lack of fiscal space.
“”Monetary policy is all but exhausted too, with interest rates either close to their effective lower bound (as in the U.S.) or slammed down against it (as in the European Union).
“”Another legacy of that previous recession, and the extraordinary measures taken to contain it, is heightened financial fragility. With abundant quantitative easing and super-low interest rates, financial conditions have been kept loose to support asset prices, press down on yields and strengthen demand. The measures were necessary, but the result is outlandish asset valuations and heightened credit risk. Recklessly inflated house prices were a main cause of the crash; in many countries, they’ve soared again on the back of cheap credit. Banks have added capital since 2009, but not enough to make them safe…”
https://www.bloomberg.com/opinion/articles/2019-10-21/imf-growth-forecasts-world-economy-is-stumbling-toward-disaster
“Ian Stewart, Deloitte’s Chief Economist in the UK:
“The global recovery started in 2009 and is long in the tooth. The world is overdue a slowdown. The fact that the IMF, and most economists, are forecasting a short-lived downturn, a classic ‘soft-landing’, might seem like good news.
“But when growth is softening, as it is now, forecasts are more than usually lagging and fallible. (The IMF, and most economists, did not forecast the last recession, which was the biggest since the 1930s, until it had almost arrived.)
“What matters more than the IMF’s forecasts is their analysis. It is downbeat… The risk of the slowdown becoming a recession is rising.”
https://reaction.life/a-global-recession-could-be-just-around-the-corner/
“In cities around the world, people are taking to the streets…”
Pictures:
https://www.bbc.co.uk/news/newsbeat-50123823
The list of areas with protests gets longer. And I am certain this list is not complete.
It’s not, for sure. There are many others. Baku in Azerbeijan is the latest to be rocked by protests (low energy prices surely playing a role here):
“Police in Azerbaijan on Saturday detained scores of protesters, including the leader of the main opposition Popular Front, at the start of a planned rally against low salaries, corruption and a lack of democracy in the energy-rich ex-Soviet state.”
https://www.independent.co.uk/news/world/azerbaijan-police-detain-protesters-ali-kerimli-popular-front-a9163006.html
It’s spreading like a virus.
But still talking as if it were just any ‘recession’ that is in the process of happening…..
It’s onion peeling defense..
For NOW they are making sure the “slowdown” has been ~correctly analysed and predicted beforehand in msm and policy circles, so when we enter more serious stages of the incoming recessions-depression-GFC or what have you – THEY will continue to be relevant in advisory role (and executive-policy planning) for the next steps. That’s the most important thing to them, not loose all the levers of the global fin cartel. And IF they eventually are to loose it at some future junction – they want to at least nudge the course – profile of the events in order to help the insiders get out.
Afterall, CBs have been around for centuries, and are pretty much versed in the scheming technology vs temporary plane focused govs and naive lower pecking order investors not mentioning the mostly gullible general public in the bottom of the pyramid.
The ignorance of history displayed by modern economists never ceases to amaze me. We Have Been Here Before.
It was not “helicopter money”; it was “caravel money”: the gold looted from Central and South America by the Spanish conquistadors. Gold that at first made Spain very rich, and which was expended on diplomacy, military adventurism, and unchecked spending by the Crown and the nobility.
All looked well in the short term; in the longer term it led to ruinous inflation and the destruction of Spanish power. Because there was no real production for which that gold could be exchanged, and so it created profligacy rather than prosperity.
Which is exactly what the central bankers are doing today, with exactly the same result.
That is an interesting parallel you draw, Robert.
I’m not too aggrieved by the central banks’ increasingly surreal interventions since the GFC, as I suspect we’d be in a much worse mess without them. I do wish they’d distributed their “caravel gold” in a more egalitarian fashion though.
People don’t make the connection. Confiscation of wealth from the rich will lead to inflation in food prices, for example. It will also lead to lower asset prices, I expect, since there will be fewer buyers for them. Derivatives may very well crash.
Indeed, there is nothing / few to confiscate in the physical sense.
Assembled art and ~60room mansion palaces have in the end very relative price – value appraisal.
As you mentioned several times already, their wealth are digits on computers, backed by loans / dividends / simply rent churning contracts how to redirect money flows out of the economy, all locked up in offices of various tax heavens across the world.
But inside that niche there is even smaller inner elite group out of them with access to GOV bunkers or their own facilities, private armies and land endowments ready to be switched over to nucleus of future feudal dominions.
Someone will need to do the real work of obtaining food and fresh water on a regular basis, however. I hope this inner elite group has a lot of ability in these areas. If they don’t, the people they bring along to help with these issues may take over, enjoying the fruits of their own labor.
That’s a good point, but usually it is someone from the security apparatus who eventually takes over the former master. In terms of the labor and hands on expertise itself, yes, but you can keep a lot of documented know-how canned and later use generalist staffers to implement it and let them slowly venture into these respective fields as their full careers. Obviously at certain level, you have it all, e.g. a trillionaire with a bunker on his estates would provide place for say local doctors and several experts in various important fields (agriculture).. And in doomsday gov situation bunkers that’s all by default.
The events of the 1590s had suddenly brought home to more thoughtful Castilians the harsh truth about their native land – its poverty in the midst of riches, its power that had shown itself impotent… For this was not only a time of crisis, but a time also of the awareness of crisis – of a bitter realization that things had gone wrong. It was under the influence of the arbitristas that early seventeenth-century Castile surrendered itself to an orgy of national introspection, desperately attempting to discover at what point reality had been exchanged for illusion….
The arbitristas proposed that Government expenditure should be slashed…
Most of the arbitristas recommended the reduction of schools and convents and the clearing of the Court as the solution to the problem. Yet this was really to mistake the symptoms for the cause. MartínGonzález de Cellorigo was almost alone in appreciating that the fundamental problem lay not so much in heavy spending by Crown and upper classes – since this spending itself created a valuable demand for goods and services – as in the disproportion between expenditure and investment. ‘Money is not true wealth,’ he wrote, and his concern was to increase the national wealth by increasing the nation’s productive capacity rather than its stock of precious metals. This could only be achieved by investing more money in agricultural and industrial development. At present, surplus wealth was being unproductively invested – ‘dissipated on thin air – on papers, contracts, censos, and letters of exchange, on cash, and silver, and gold – instead of being expended on things that yield profits and attract riches from outside to augment the riches within. And thus there is no money, gold, or silver in Spain because there is so much; and it is not rich, because of all its riches….’
The Castile of González de Cellorigo was…a society in which both money and labour were misapplied; an unbalanced, top-heavy society, in which, according to González, there were thirty parasites for every one man who did an honestday’s work; a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow.
J.H. Elliott, Imperial Spain: 1469-1716
Thanks for the information!
People never seem to understand that true riches come from the goods and services an economy is able to make. They do not from financial wealth.
That’s correct wealth is the net productive capacity. It isn’t precisely the means of production that controls it. Rather it’s the personal productivity in proportion to cost of worker maintenance in the aggregate.
When we consider the primary economic systems each has weaknesses. Capitalism frees stranded assets for production but requires perpetual growth so are inherently destructive. Command economies don’t require perpetual growth but lack motivation for personal productivity. So they devolve into totalitarian states.
So there has to be the right balance of ownership vs production.
The best to date was the Mosaic law which maintained a national economy for 7-800years.
One key element was the land could not be sold in perpetuity. It would return as family inheritance every 50years. This gave individuals the opportunity to prosper by not locking people out financially because of a few owning the means of production. In the event of hardship the land could be sold and would be priced according to its productive potential up to the next jubilee year.
Another feature was fixed pricing of labor. A days wage was set as well as a slaves price. Money was lent without interest in the event of need but with interest in the event of profits.
Those who came to poverty could glean the fields maintaining their personal productivity and dignity.
Interestingly the cities were unaffected by the jubilee. So property in them could be sold in perpetuity. This gave them a source of equity that could be leveraged for profit and investment. But the land that supported the city remained among the families it had been apportioned to. Creating natural demand that hard workers could prosper from.
It was a perfect balance that if followed led to security and prosperity.
If you image for a moment had the world developed with those economic principles what life would be like. Quite a different place from where we are today.
Right. The debts that were forgiven were a small portion of the total, particularly related to the agricultural output. If a farmer “got behind” because of bad weather, there was little chance he could catch up. As long as the debt was owed to a central authority (king, or something similar), it was possible for forgiveness to occur in jubilee years. Now that debt acts as backing for someone’s pension plan, it is much more difficult to do this kind of forgiveness.
Thank you, JT. Yes, he was one of the few voices of sanity in Spain at that time. His monograph, “Memorial de la Política necesaria y útil restauración a la república de España” might have saved the country, had it been written in 1550 not 1600. His influence on Adam Smith has also gone mostly unremarked.
I confess to having not read JH Elliott, but he sounds like a good resource also. Most of my knowledge of that period comes from Fernand Braudel (as you might have guessed).
Hind sight is always 20/20 don’t you agree?
If only the great economic thinkers of today were walking backwards they wouldn’t be stumbling over what’s been established in the past.
It was in just that period in Spain that my family grew quite rich as lawyers (and through good marriages), bought a title (although Phillip IV short-changed them on that!) and put their money into land, thereby staying secure for the next 4 centuries.
The estate only became a liability in the second half of the 20th century, we got rid of it, and I suspect it will turn to some kind of desert very shortly: droughts and storms are regularly wiping out crops these day in that region, and nearly half the wells produce unfit water due to pollution!
Land, from being so secure, is now very risky indeed, unless you can feed off subsidies, and they are declining in the EU.
So, the country went to pieces, more or less, but they prospered: rather like the financiers and those who service them today, who are unaware – and do not care – how life is falling to pieces for those below them in the age of booming and faked GDP and cheap money……..
Still, I’m grateful for their naked greed and ambition, as the coat of arms they bought is quite pretty with a green tree and hearts, which is quite decorative.
Very interesting personal perspective
Powerful sub thread, thanks.
Agreed; thanks, all – I learnt a lot. Nice to have you popping up again, JT Roberts.
The story is, in some sense, obvious. It is not possible to keep lowering interest rates, and that is what the economy has been surviving on since 1981. We have a big problem.
‘Something in the wind’: preparing us for extraordinary measures?
Justifying yet another bail-out?
Or maybe even the’ fairness’ of a bail-in of ‘those who have most’?
Yep, it’s uncanny, brewing..
If we look back at the historical time-space highlights the clarity of self evident correct explanation always prevails in the end.
Some faction clearly panicked (prematurely) badly from the early/internal PO prediction scenarios, hence 2001 and the follow up oil wars or rather mil deployment at major oil/natgas provinces and or trade hubs secured the signorage.
Nevertheless, unipolar world still holding together by decent surplus cushion, so after ~2008 meltdown the world was able to organize grandiose liftathlon printing at least a dozen $T in synchronized fashion among major IC hubs, besides pushing other control tools and policies.
Nowadays, another resources-consumption rate unbalance chapter is approaching and the propensity for global coordination is a mess.. so the sparks could be way larger this time.
Hard to estimate the shock to basic assumptions and feelings of prosperity in the core economies should people find their saving ‘bailed-in’ this time around.
But all we are hearing is the desperate weakness of the banks, so bail-outs at the very least must be in the pipeline.
Some opine that bail-outs will be politically unacceptable a second time: but if they occur what else will we be able do but look on?
I’m afraid the system must fork fairly soon, doesn’t matter on what prefabricated soft lie or real or prefabricated plot etc.. So, generally it could be under the banner “Saving the Earth” or “correcting the Wall St. greed & fraud” but eventually, some sort of forced austerity for almost everybody is in the pipeline before ~2030. Not sure about sequencing-stages.
Given the ongoing “low key” protests around the globe already, Yellow Vests (fuel-tax), now Chile (public transit price hike) – this will likely need extraordinary circumstances to roll out..
“Mervyn King, the former head of the Bank of England: “It is time for the Federal Reserve and other central banks to begin talks behind closed doors with politicians to make legislators aware of how vulnerable they would be in the event of another crisis.”
For some reason peak oil dot com hasn’t worked for about 24 hours. Not sure why.
Does it really matter? It’s an aggregate news site and you have one or two trolls hijacking every thread with childish comments. You can’t take the site seriously anymore. I used to go there to read comments by shortonoil but he’s long gone probably because of the clowns who have ruined the site. And the site doesn’t have a moderator.
I agree. The threads for the articles on the left are certainly that way. The threads ‘experts’ set up on the right are much better. Shortonoil still posts on the right side – just look for his name – not always there but it is about 1/2 the time.
Lately the site has had a lot of weird posts put on there, some with Russian writing, others trying to advertise stuff. Maybe that’s why they shut it down to rework it or simply close it permanently. I just thought it was worth noting since it is or was a peak site.
It seems that for general overview you can visit say twice per year over Ted Patzek’s site for the PO related technical updates for world/regions, and filtering out the cheesy political stuff..
In terms of PO, the bottom line remains, the enhanced recovery gave us decade or two more oil the early most pessimistic POilers expected. Now we are entering the age of consequences. Still it’s a spongy moving target, without further large investments in $T (private or GOV/CB printed) there could be supply crunch even before ~2025, but most likely during ~2025-35. Luckily enough of natural gas will likely provide some sort of fall back option for some limited plateau but not expect the same society by then.. it will be very different in terms of consumption patterns.
“very different in terms of consumption patterns.”
You are probably right, but it doesn’t have to be that way. As I analyzed recently, 12% of Saudi Arabia in solar farms and a bunch of F/T plants would produce 100 Mbbl of synthetic oil a day.
World…, thanks for the tip on Patzek’s site.
The natural endowment of all these British islands is more or less gone, once so beautiful and fertile……
That’s HOW BAU OPERATES!
Rule #1…more, more, more…
Oil companies wasting natural gas, emitting large amounts of greenhouse gases
The New York Times recently looked at data on the way energy companies deal with natural gas in the three largest U.S. shale oil fields — the Eagle Ford and Permian Basin fields in Texas, and the Bakken field in North Dakota that straddles the border with Canada. Oil drilling companies, from the largest like BP to the smallest like Exco, flare and vent the natural gas that comes up the well as a byproduct of the fracking process. The increased use of flaring and venting comes after firms such as Exxon Mobil and BP pledged over the summer to reduce the two practices
https://www.yahoo.com/news/m/3d979f8e-a5a7-3a78-9f9e-e40b1f606eb6/oil-companies-wasting-natural.html
The headline assertion about flaring in general: “The World Bank estimates that flaring last year emitted more than 350 million tons of carbon dioxide globally, equivalent to the greenhouse gas emissions of almost 75 million cars
There are several reasons companies waste the natural gas. There might be no pipelines to carry it away from the well, or pipeline transport and packaging fees might cost more than a company can make selling the gas. Or there might be so much gas that the pipeline network can’t carry it away quickly enough, and companies don’t want to shut down wells.
No, God forbid…shut the well down!!!??? BAU…BABY…FULL THROTTLE 🙄…
Right into a brick wall…lovely..
Oh, Preppers a must see is the movie Zombieland 2 with Woody Harrelson that will give great rules after BAU ends and we enter a new mindshift of reality!
https://m.youtube.com/watch?v=xD5U4ivil_E
Rule number 1…CARDIO….the click is hilarious…..
https://www.youtube.com/watch?v=9xe3BWPsBTU
I thought this guy was hight on “renewables”, has he had a revelation or did he always sound like this but I was to “Microsoft? No thanks!” to notice?
“…that doesnt solve the reliability problem…” Reliability is more importnat than the majority of the people think. The renewables are unreliable.
He sees things more realistically, i.e. the nuclear power is reliable and suitable for ageing and declining populations:
As MG mentioned, he is interested in the field and actively invests in new nuclear power designs, especially smaller sized modular type. However, on the real world – existing industrial capacity scale China and Russia are decades ahead to anybody else. If the Europeans recommit their efforts they could perhaps catch the train, but that’s very unlikely given the deepening and prevailing gretenism.
The first video above is from February 18, 2019. https://www.thegwpf.com/bill-gates-slams-unreliable-wind-solar/
I am glad Bill Gates finally gets it. As he says, “Here’s Toyko, 27 million people, you have three days of a cyclone every year. It’s 23GW of electricity for three days. Tell me what battery solution is going sit there and provide that power.”
The problem with renewables is the reliability. They also don’t give basic things we use today, including steel and cement.
“including steel and cement.”
They could. About half the steel is made in arc furnaces. Cement could be made in electrically heated rotary kilns.
If you can afford the conversion loss, energy of any kind can be converted into another.
Blast from the past, these are decade+ old documentaries, but also going back to the situation of early mid 1970s and the crucial effect of oil on rejuvenation for the UK. Not explicitly, but lot of OFW/Surplus linked issues, actually at one point they acknowledge the early-mid 1980s mad inrush of money/credit/wealth revenue from NorthSea oil lost momentum later (I gather nowadays it would be discussed under ECoE/Surplus hat). Surprisingly curbed demand through high oil priced mentioned.
Also, the discussion of the marvels of the 3D seismic, long distance directional drilling, even prolonging longevity of the old oil fields (re-drilling) and or extending the lifespan of the high grade permeability rocks in these specific plays, technologies which are starting to churn the dividends by that point big time. Well, that’s in rearview mirror NOW.
Simply, it was hitting one time jackpot, obviously the technology helping extraction around the world eventually as well. Yet time is still ticking forward..
https://www.youtube.com/watch?v=hP2LnW2vsdw
https://www.ft.com/content/2e6c8dea-1855-11e7-9c35-0dd2cb31823a
It’s the last frontier (for now?), drilling in fracture zone where NorthSea shelf and the deeper Atlantic bed start come together, interesting visualizations by FT. Since than it has been derated to half billion barrels, but a test floating rig is already sucking juice there, began this summer.
ps the prospect for UK’s oil 2025-30 and beyond looks crashy..
The link is accessible only from G: search line typing:
“shetland oil years ft 3.4.2017”
Can’t they frack the North Sea and suck it up with a long plastic straw?
Given the links above, according to latest discoveries, the W Shetland area seems to have also shale formations apart from these more valuable light oil crude deposits. On the other hand or rather the bottom line being the shallower North Sea proper is on the retirement trajectory for all sectors (Norway, UK, NL/DK?). But as discussed few pages back “perhaps one day” it would be also possible to burn the low quality stuff (incl. coal) in the shelf/ocean bed and somehow just draw out the energy output out of it.
The scope of my posts was more about the ever increasing complexity-investment treadmill to reach these frontier resources, W Shetlands were probed in the early-mid 1970s but the technology and other considerations had to wait several decades till now or quite recently to be drilled and processed there. They are just slowing down the relentless downfall of the nearby NorthSea shelf oil plays..
Of course, I quite understand what you are getting at. The Golden Age of North Sea Oil is behind us. We’ve spent the bulk of that natural endowment.
The first documentary is about whether Scotland received adequate benefit from its oil wealth, or if too large a share went to London.
The second documentary starts out, “Oil is key to understanding Scotland’s past, present and future.” Very true!
Thanks for the short summary, but actually there are much more hidden gems..
– post colonial UK facing oil embargo even needed IMF bailout
(important because UK’s role as one of the key global fin signorage hubs has been preserved) NorthSea oil and gas bonanza saved the day
– massive infrastructure and consumption pattern build up ensued for next several decades (present and future liability)
– cool animation about what type of work/energy actually barrel of oil brings to the table; different energy carrier products
– collusion of GOVs in manipulating oil revenue and oil basin production data estimates
– shelf vs deeper sea, oil industry infrastructure various, ..
– much more..
Thanks for the additional items. It is hard for me to find time to watch an hour long video.
In this Year of Fire, we see protester around the world setting fires to purge their rage and anger. As I see it, having studied the blogs of Gail and of Tim Morgan, this is down to two factors: peak oil and neo-liberalism. Gail would perhaps rather characterise peak oil as peak finance.
Of the two problems, we can do nothing about peak oil. Resources get depleted, and the low-hanging fruit is gone. As for neo-liberalism, some politicians must be looking at these protests around the world and wondering. Wondering whether they will end up swinging from lamp posts. So now some are starting to reconsider the economic system. As is even the Financial Times, in a timid sort of way. Click on this free FT link about “The New Agenda” and scroll down to the bottom of the page:
https://aboutus.ft.com/en-gb/new-agenda/?segmentId=58faf1a5-41a3-0485-e2b0-f045491b585a
And see this piece – The age of wealth accumulation is over:
https://www.ft.com/content/fd13020e-b502-11e9-bec9-fdcab53d6959?segmentId=56a414e9-1544-b801-9546-2d038c8b8694_
So far as I can tell, if our politicians and economists really got behind this, they could indulge in some redistribution. That depends on whether they have the will, but remember FDR’s “New Deal”. Then again, the mega-rich have their wealth hidden away in tax havens. How easy would that be to do with? The age of the internet changes things too. The internet is impossible to police rigorously.
But then Gail reckons that neo-liberalism is in a sense a symptom of peak oil or peak finance, if I read her correctly. So would any attempted redistribution be more than a sticking plaster?
Interesting thoughts!
There was a very definite shift in the way the economy behaved after 1981 compared to before 1981. I think of the change as before and after Reagan was elected. Wikipedia to this period. It is characterized by the belief that a market-based economy works best. It includes such ideas as privatization, deregulation, free trade and reductions in public spending. Globalization grew out of neoliberalism.
Wikipedia contrasts this with the practices in place between 1945 and 1980, which it calls “the post-war Keynsian consensus.” I think of this as the “look out for the little guy period.” It was a period of utility pricing for electricity and Texas Railroad Commission pricing for oil (at least up to 1973). People recognized the need for energy and for wages to get back to the little guy. Medicare was added during this period, as was the interstate highway system.
I have data on both periods, so this is an interesting question. With controlled pricing, oil prices stayed low for a long period. Utility prices stayed low as well, partly because the prices of the fuel they used stayed low. But when diminishing returns became too big a problem, a different approach had to be used. This is when wage disparity started exploding.
I am not an economist, so I don’t tend to attach these fancy names to the different periods. Energy prices were low and stable during 1945 -1873 period. In fact, the stability started during the Depression.
https://gailtheactuary.files.wordpress.com/2019/10/many-factors-have-influenced-oil-prices.png
Of course, interest rates have fallen since 1981.
https://gailtheactuary.files.wordpress.com/2019/08/3-month-and-10-year-us-treasury-rates-through-july-2019.png
“But when diminishing returns became too big a problem, a different approach had to be used. This is when wage disparity started exploding.”
To an extent, how wages are distributed is down to the political system. Within the constraints of energy resources, political systems – and even economic ones – can be adjusted. Will our politicians attempt a fairer redistribution of wealth? Or will we go down the old Latin American route of shanty towns and repression? I suspect it will be the latter.
Problem with redistribution I think is keeping the productive (in a technoindustrial civilisation) segment motivated.
If everyone gets the same noone would do anything extra, like living in a really expensive city.
The rich will of course not have anything redistributed, not downwards at least.
But there are more billionaires than ever. There is certainly room for a fair amount of redistribution. I am not talking about equal pay for everyone. For instance, in pre-neoliberal days in the Netherlands, there was a widely adhered to policy that company directors should not be paid more than 15 times the average wage. Compared to that, the disparities nowadays are massive. And what do billionaires do with their money, apart from inflating the price of property and wasting it on brand names?
I’m not sure this loop is entirely correct.
It’s like predicting that under UBI regime nobody would be willing to tinker and experiment long hours just for the fun of it. Actually most(many) of scientist and technicians are like that.. it’s the joy of creation driving the discovery process. And for that “sanctuary of creation” you obviously need surplus resources not to be bothered with bare d/d survival; that holds true for the crude capitalist or UBI like commie systems or even feudal alike..
I’m not disputing there are intersections like creative and greedy(social status) oriented people profiles merged into one person as well, but it’s not the majority among the creative ones.
Among craftsmen, I’ve met some greedy ones -who had made much more than they expected and got carried away – but a distinct minority: most would probably work just for food and lodging if the job was stimulating and satisfying enough. The pleasure of exercising a skill is the payment in a way. I’ve never known a good craftsman who wanted to retire, either. Vocation as opposed to a job.
And of course nurses and plumbers and IT support technicians work just for the fun of it.
And UBI will never happen.
DJ, this smells like astroturf argument.
Sorry, I just reacted to yours /productive sector kept motivated/ line..
I’m not proponent of UBI, could be attempted shortly somewhere, but likely not universally for long time. We don’t know the collapse profile, it could be likely the second oil peak and GFC around ~2025-35 followed by austerity mandate and that would resemble UBI (mostly food/basic consumables denominated). Followed by short lived lower plateau and the final oneway crash out from high technological society level..
Yes, UBI will likely be attempted in some form somewhere, but on larger scale?
What would politicians do if not buying votes by taxing some and give to others?
And sheeple does seem to all think UBI is giving away money to non-deserving (but all other kinds of handouts are ok)
You need a gap between what you get for working and what you get anyway (no matter if called UBI or something else), otherwise people won’t bother working.
Gail,
I thought the Texas Railroad Commission existed to regulate the amount of oil produced so prices would not go too low, this was to avoid financial problems for the oil companies, when the US went peak oil, the raison d’etre for the Comission ceased.
Dennis L.
This was likely another function of the Texas Railroad Commission.
When the TRC started with the function in the early 1930s, the problem was low prices and overproduction. As the cost of production rose, the issue was rising worldwide demand but prices too low for producers. It certainly did not make sense to invest in new fancy techniques at the low market prices. In a sense, this was one of the causes of US peak oil in the 1970s.
The big issue with prices, without the TRC’s intervention, is that they are terribly unstable. They do not respond to higher costs of oil producers. They only respond to higher “demand,” and this depends heavily on wage disparity. Look at the chart I posted previously. It is the instability of the system that creates a problem that must be regulated in some way or other. They way it has been regulated to date is by raising interest rates (up until 1981) and lowering interest rates (after 1981). Once we run out of room to lower interest rates, there is a huge issue of erratic oil prices causing big economic problems. They gyrate all over.
“So far as I can tell, if our politicians and economists really got behind this, they could indulge in some redistribution. That depends on whether they have the will, but remember FDR’s “New Deal”. Then again, the mega-rich have their wealth hidden away in tax havens.”
What is important, if I am reading Gail correctly, is that it is the amount of resources that the global economy can convert into goods and services each year that really matters. Already it looks like it is starting to make ‘smaller batches’, as underlying energy and resource-constraints and their surface manifestations slow it down.
The billions of $ sitting in tax havens are potential claims on resources, not real wealth.
David Korowicz:
“…the large-scale predicament and the emergent socio-economic stresses that we are beginning to experience has very little to with fraud, corruption and the greed of a tiny few. It has a lot to do with our human civilization running into limits…
“Anyway – who are we angry at, the “One Percent”, or a fraction thereof? Most of their financial wealth is based on abstract future promises that cannot be turned into goods and services except at the margins. A lot of that wealth is financial, where total observable global financial wealth has a value of about 350% of Gross World Product – if the wealthy tried to convert their share of this into money the value would vaporize (who would buy the assets?). And what of the £50 million Belgravia mansion and the Old Masters collection? These are sometimes called Velben goods, they are goods that are desirable because their price is high, and they are usually relatively unique and made from resources produced long ago. Again if the rich tried to sell at any scale, the price would crash.
“But let us imagine the super-rich, by desire or because they were forced to, could sell off their wealth getting say 3 time GWP in ready cash to help the poorer world, it could still not increase the flow of goods and services produced in the world except marginally (assuming the resultant inflation did not turn the economy into a tail-spin) – to do that requires the energy, resources, and the coordination of a complex socio-economic system that is already straining at these limits.
“What’s more, if all the super-wealthy’s personal resource and energy consumption was shared per-capita over the world it would barely register; there’s too few of them and anyway after the mega-yacht and a couple of car collections and running a few homes, more energy and resource consumption just takes so much, well, work! For example, there are 60,000 ships of weight greater than 10,000 tons in the world, a little time on Google should convince you that there are only a tiny number of personal super-yachts this size – it’s a mere statistical blip on the total number. Most of the super-richs’ wealth requires almost no resources in global terms, it’s just abstract status markers.”
https://www.resilience.org/stories/2014-03-25/anger-complicity-in-a-time-of-limits/
Good points!
But if there were some redistribution to the bottom, a lot more people would be able to afford even cheap goods. That would help push up the price of oil and make producers more profitable and viable.
The number of billionaires may be few, but by definition they have billions of pounds or dollars. Here in the UK we have had a huge rise in people depending on food banks – and food is usually the cheapest of anyone’s living expenses. A billion pounds divided by 66 million (the population of the UK) would give each person 15 pounds and 15 pence. When I consider that I pay only 22 pence for a large sandwich baguette (no filling) from the supermarket, that is very filling for lunch (with some egg and tomato or whatever), that is very cheap. Even 15 pounds per person would make a difference to the poor. And it could be more than 15 pounds if targeted at the poorest sections of the population.
David Korowicz makes some good points, but they are mostly defensive because he is clearly not interested in the poor or low-paid. It’s easy to come out with a long list of if’s and buts. A very small fraction of billionaires’ wealth would make a difference to those at the bottom.
The greatest damage to the ‘working poor’ in Britain has surely been done by asset inflation as manifested in rents: here for instance it was possible before 2008 to rent a whole 3-bed house (and sub-let a room usually) for about £650 per month.
Now, that can be the price of a rented room for a single person in a shared house! Many people have been driven out of town,and the burden is crushing.
Redistribution/stimulus, to be effective, would have to give average people at least another 25% or so in income in order to make up for all the basic living-cost rises, not just a modest rise per week, so great has the fall in prosperity been over the last decade. Dr Tim Morgan is good at measuring this.
ive watched this developing for a long time
we are in the process of returning to this….
https://www.bl.uk/collection-items/the-rookeries-of-london-a-survey-of-londons-poorest-quality-housing
cities need low waged people to make them run…better off people take advantage of this
In the 1960s, our family used to pay 10s/6d a week to rent a spartan but by no means slummish terraced house in Bethnal Green. A pint of beer in the pub would have cost about a shilling in those days.
The scandal of the post-WW2 period in London was when councils classified streets rented privately to the working class, falsely as ‘slums’ so that they could go in, bulldoze them, and build modern public housing which has often now turned into truly dangerous estates. They destroyed much that out friends the Germans failed to hit.
I quite agree. The urban tower block housing estates of the sixties and seventies were Stalinist in their effect; breaking up communities, and adding to the psychological isolation and alienation of residents, many of whom ended up feeling trapped in their vertical “prisons”.
The old terraces may have had outside loos and no hot running water, but at least had a backyard with enough space to grow some roses and tomato plants and hang out the washing. I remember their house-proud housewives living very happily in them. They were not generally slums, but they were classified as such in order to justify knocking them down.
https://youtu.be/VEbqROyR3mI
It is the physics of the situation that divides up the actual goods and services among the many potential customers. There is actual food grown, for example. The fact that these people have 15 pounds and 15 pence extra doesn’t mean that there will be any more food to divide up. At best, the higher payments will raise the prices paid to farmers for eggs, tomatoes, and other fillings for the sandwiches, sufficiently that they will produce more of them in the future. But you have to keep the system up. In general, the money that the wealthy have doesn’t equate to sandwich filling. It is usually pixels on a computer.
Oh, he is brilliant, Korowicz. Yes, claims on energy far in excess of what can possibly be realised by the real economy.
One may add that the extraordinary prices realised at auction or in private sales for works of art reflect very complex games being played – supported by behind the scenes deals and guarantees by auction houses like Sotheby’s and Christie’s – with what are in effect tokens of status traded among the super-rich, and also having some use as collateral in wider schemes. Their value could simply collapse in a flash. It’s a deeply manipulated market.
But all this is hard for ordinary people to grasp when they look at dazzling real estate valuations and art prices – it must be real, surely……
FDRs new deal didnt so much resdistribute money
it pumped and redistributed fossil fuels—the rich got richer as a result while the poor grew better off for a few decades
That’s excellent point.
It’s been a while, but when I drive truck, back in the 90’s, I went through Washington DC a few times and going around I-495 beltway I counted the street light posts and there were enough to take care of the House of Representatives and the Senate and a few more for lobbyists and such. I can’t remember the actual numbers.
“The world’s fourth largest car industry [India] is now formally in crisis mode and massive job loss is feared to impact a 35 million people working directly or indirectly in car manufacturing. Many companies, such as Maruti-Suzuki, Tata Motors and Ashok Leyland have already introduced non-working days (forced leave without pay).
“Most of the investments in the Indian car industry were driven by the prospected growth of the country’s middle class and its appetite to buy new cars. The uptake was there indeed but is not demonstrating the exponential growth that was expected. The country’s GDP growth has started to slow down and a more frightening, but familiar phenomenon is starting to spook the market: a shadow banking crisis…
“When people stop paying and the shadow banks don’t have enough funding to reimburse the money they have loaned from regular banks, a financial crisis is only months away…”
https://www.globalfleet.com/en/taxation-and-legislation/asia-pacific/features/banking-crisis-india-dropping-car-sales?a=YHE11&t%5B0%5D=India&t%5B1%5D=Fleet%20sales&curl=1
Oops! Non-working days will bring down a debt bubble economy.
Indian billionaires and GOVs over-invested in car biz home (+abroad) and it flopped..
As if India did not have already more pressing needs, well solving or alleviating these is hard or impossible to monetize/capitalize on afterall, so why bother.
Interesting species these humanoids..
Economic volatility in 2019 has seen the number of profit warnings by UK-listed firms surge to its highest since the financial crisis…
“Profit warnings jumped on the back of Brexit concerns, with almost a quarter of firms issuing warnings citing Brexit as a key factor, according to new data from accounting firm EY.”
https://www.belfasttelegraph.co.uk/business/uk-world/profit-warnings-for-uk-firms-surge-to-highest-since-financial-crisis-38612564.html
“Millions of apples have been left to rot in UK orchards as Brexit uncertainty worsens a labour shortfall, the National Farmers’ Union (NFU) has warned…
“Brexit fears are fuelling a shortage of workers as more EU nationals are leaving the UK amid concerns about freedom of movement and stricter immigration checks, experts say.”
https://www.independent.co.uk/news/uk/home-news/brexit-no-deal-fruit-picking-apples-national-farmers-union-eu-workers-harvest-a9163781.html
“More than 150 lorry drivers have staged a protest at the Irish border in a bid to highlight the importance of free-flowing movement…
“The protest was brought to a standstill at the main border route, as hundreds of drivers and their supporters turned out to “show the world” what custom checks and infrastructure would look like.
“There are about 13,800 border crossings every day between the Republic and Northern Ireland.”
https://www.belfasttelegraph.co.uk/news/northern-ireland/brexit-more-than-150-lorries-hold-crossborder-protest-38613504.html
– apples left to rot in UK orchards –
yep, that’s classic trait of “capitalism” lets food rot or similarly like lets park thousands of brand new cars (from overproduction) in the open by the elements of harsh weather to slowly depreciate without use hence easier metal scrapping few years down the road..
Interesting species these humanoids..
Al that waste is distressing. Shows how vital dirt-cheap imported and hard-working) labour has become to certain sectors of the UK; same for elderly care – terrible wages, so most are newly-arrived Africans, others mostly E. European, at least in London. A tough job with difficult schedules, but someone somewhere makes a lot out of them….
The millions of apples left to rot situation sounds like too little demand–too much wage disparity. The Depression of the 1930s was characterized by low demand.
“‘It’s like putting an obese patient on a high-carb diet but forcing him to take pills to suppress the side effects,” says Elwin de Groot, head of macro strategy at Rabobank.
“The patient in question is the global economy and the diet of fry-ups and cheeseburgers represents the ultra-low interest rates that have led to a mountain of corporate debt.”
https://www.telegraph.co.uk/business/2019/10/21/global-19-trillion-debt-timebomb-brink-blowing/
That is a great quote. We try to live on debt and more debt, but it doesn’t work.
“Publicly, finance ministers and central bank governors have held off on raising fears that a global recession is coming — but in private, international and national officials are not nearly so certain…
“Erik Nielsen, chief economist of UniCredit, predicts a global recession in 2020.
““Our difference with the IMF baseline is that we assume [trade] policies will not improve,” he said.
“His concern, shared by many officials, is that any further rounds in the trade wars would confront policymakers with the unpalatable prospect of attempting to counter recessionary forces with a nearly-empty toolbox.
“Pinelopi Goldberg, the World Bank’s chief economist, came closest to articulating these fears in public.
““Policy is supposed to remove instability, instead it is suppressing old certainties. No one knows what tomorrow will bring,” she said.”
https://www.ft.com/content/987733a4-f316-11e9-b018-3ef8794b17c6
“Financial industry chiefs are worrying about how much help central banks can offer if governments don’t step up with more help by unleashing more fiscal support…
““They’re in a very difficult corner at the moment,” UBS Group AG Chairman Axel Weber said at a conference hosted by the Institute of International Finance in Washington. “Central banks are running out of the efficiency of their tools. Taking interest rates negative will not have the same impact” as lowering the old interest-rates lever.
“Weber added that the acceptance of policy makers using their monetary tools is more challenged in the absence of fiscal policy coming in. “Central banks have maneuvered themselves into a difficult corner,” he said.
“State Street Corp. Chief Executive Officer Ron O’Hanley took the same thought a step further, saying that monetary policy “just doesn’t work anymore on its own.””
https://www.bloomberg.com/news/articles/2019-10-19/financial-titans-say-uncertainty-is-souring-the-mood-imf-update
Doesn’t it sound like finally adopting the Japanese way for the whole global from now on, i.e. direct naked intervention for ever to purchase goods, services..
Last stage of LaLa land? Why not, it will work decade or two easily..
Japan is unusual in that it has a huge current account surplus and is a net creditor to the world, so it can to some extent “get away” with its central bank owning an asset pool larger than the size of the economy it is trying to stimulate. Plus the Yen and Japanese debt are regarded as safe havens, simply because historically they have been.
I’m not at all convinced that the same model will work on a global scale. If the entire world economy sinks into ‘Japanification’, ie anaemic growth, very low inflation or deflation etc. something in the financial system will break.
Thanks, I was more after the implied message from these links, they seemed to be all worried about the next level of policy tools needed at this junction. And that could be only some sort of GOVs/CBs support again on global synchronized fashion. Hence I offered the sort of Japanese model. If the policy captures/highjacks the major hubs you can’t avoid it, and it also can’t crash the system at first.
“…they seemed to be all worried about the next level of policy tools needed at this junction. And that could be only some sort of GOVs/CBs support again on global synchronized fashion.”
They are and it could.
The question is what can they do at this point to really stimulate growth that will not increase the likelihood of a major financial shock even as they try and postpone one?
Central banks can’t just endlessly distort capital allocation without dire consequences.
The things that Japan invests in don’t really bring growth. They seem to be make-work projects like building unneeded roads. Their run of good luck regarding debt defaults cannot go on indefinitely.
JAPAN SEPT. EXPORTS -5.2% Y/Y
So what happens if Japan’s current account surplus disappear?
I still don’t understand why some nations have high inflation, while others fight deflation. Is it the current account balance?
If the current account surplus disappears, it will mean that the citizens of Japan can suddenly afford to buy all of the goods and services created by Japan. This hasn’t happened in the past. The US, with its special status as holder of the reserve currency is one of the few that can accomplish this. India has been able to do this as well.
I am not sure I understand much of the inflation story either.
Inflation/deflation partly has to do with where currencies float relative to each other. If a currency is falling relative to the dollar, all commodities (including energy products) will become more expensive. It will tend to send countries with lower currency levels into recession.
Also, if a country is growing rapidly, goods and services should (in theory) be becoming relatively cheaper to its citizens. In a rapidly growing country, I would expect that wages would be rising much more rapidly than the price of goods and services. Inflation is a measure only of the increase in the price of goods and services. In a rapidly growing country, everything should be galloping along, both wages and prices.
We do need something. The question is, “Will anything work?”
Politicians’ logic:
“Something must be done.
This is something.
Therefore we must do it.”
https://youtu.be/vidzkYnaf6Y
here is a possibility that not many believe in there may be a plan b in action remember my prediction that the collapse would happen in december 2018 i think i nailed it because if the peak for world oil production was november 2018 then the beginning of the collapse would be in december 2018 because the collapse of the financial system may be a drawn out affair based on an ongoing decline of world oil production therefore a slow collapse may be “the elders” plan b. the elders probably came out with the idea of “man-made” climate change so that when the slow collapse happened and co2 started dropping we could all celebrate
I expect that it will take quite a while for CO2 to start dropping because of lags in the system.
Well speaking of Hopium here is a funny article from CNBC. Shiller says because of the “image” of Trump and spending that there will not be an economic slowdown for years! I really went in to the wrong field; this guy is able to spout off what he thinks without any specifics and get paid millions of dollars! He really did hit the lottery…he might as well be saying I think Americans are going to eat more salads this year because Beyonce is pushing them.!? This really is scary,, people who do know what is going on will not be able to speak but this bozo is
https://www.cnbc.com/2019/10/20/shiller-recession-likely-years-away-due-to-bullish-trump-effect.html