Economies won’t be able to recover after shutdowns

Citizens seem to be clamoring for shutdowns to prevent the spread of COVID-19. There is one major difficulty, however. Once an economy has been shut down, it is extremely difficult for the economy to recover back to the level it had reached previously. In fact, the longer the shutdown lasts, the more critical the problem is likely to be. China can shut down its economy for two weeks over the Chinese New Year, each year, without much damage. But, if the outage is longer and more widespread, damaging effects are likely.

A major reason why economies around the world will have difficulty restarting is because the world economy was in very poor shape before COVID-19 hit; shutting down major parts of the economy for a time leads to even more people with low wages or without any job. It will be very difficult and time-consuming to replace the failed businesses that provided these jobs.

When an outbreak of COVID-19 hit, epidemiologists recommended social distancing approaches that seemed to be helpful back in 1918-1919. The issue, however, is that the world economy has changed. Social distancing rules have a much more adverse impact on today’s economy than on the economy of 100 years ago.

Governments that wanted to push back found themselves up against a wall of citizen expectations. A common belief, even among economists, was that any shutdown would be short, and the recovery would be V-shaped. False information (really propaganda) published by China tended to reinforce the expectation that shutdowns could truly be helpful. But if we look at the real situation, Chinese workers are finding themselves newly laid off as they attempt to return to work. This is leading to protests in the Hubei area.

My analysis indicates that now, in 2020, the world economy cannot withstand long shutdowns. One very serious problem is the fact that the prices of many commodities (including oil, copper and lithium) will fall far too low for producers, leading to disruption in supplies. Broken supply chains can be expected to lead to the loss of many products previously available. Ultimately, the world economy may be headed for collapse.

In this post, I explain some of the reasons for my concerns.

[1] An economy is a self-organizing system that can grow only under the right conditions. Removing a large number of businesses and the corresponding jobs for an extended shutdown will clearly have a detrimental effect on the economy. 

Figure 1. Chart by author, using photo of building toy “Leonardo Sticks,” with notes showing a few types of elements the world economy.

An economy is a self-organizing networked system that grows, under the right circumstances. I have attempted to give an idea of how this happens in Figure 1. This is an image of a child’s building toy. The growth of an economy is somewhat like building a structure with many layers using such a toy.

The precise makeup of the economy is constantly changing. New businesses are formed, and new consumers grow up and take jobs. Governments enact laws, partly to collect taxes, and partly to ensure fair treatment of all. Consumers decide which products to buy based on a combination of factors, including their level of wages, the prices being charged for the available goods, the availability of debt, and the interest rate on that debt. Resources of various kinds are used in producing goods and services.

At the same time, some deletions are taking place. Big businesses buy smaller businesses; some customers die or move away. Products that become obsolete are discontinued. The inside of the dome becomes hollow from the deletions.

If a large number of businesses are closed for an extended period, this will have many adverse impacts on the economy:

  • Fewer goods and services, in total, will be made for the economy during the period of the shutdown.
  • Many workers will be laid off, either temporarily or permanently. Goods and services will suddenly be less affordable for these former workers. Many will fall behind on their rent and other obligations.
  • The laid off workers will be unable to pay much in taxes. In the US, state and local governments will need to cut back the size of their programs to match lower revenue because they cannot borrow to offset the deficit.
  • If fewer goods and services are made, demand for commodities will fall. This will push the prices of commodities, such as oil and copper, very low.
  • Commodity producers, airlines and the travel industry are likely to head toward permanent contraction, further adding to layoffs.
  • Broken supply lines become problems. For example:
    • A lack of parts from China has led to the closing of many automobile factories around the world.
    • There is not enough cargo capacity on airplanes because much cargo was carried on passenger flights previously, and passenger flights have been cut back.

These adverse impacts become increasingly destabilizing for the economy, the longer the shutdowns go on. It is as if a huge number of deletions are made simultaneously in Figure 1. Temporary margins, such as storage of spare parts in warehouses, can provide only a temporary buffer. The remaining portions of the economy become less and less able to support themselves. If the economy was already in poor shape, the economy may collapse.

[2] The world economy was approaching resource limits even before the coronavirus epidemic appeared. This is not too different a situation than many earlier economies faced before they collapsed. Coronavirus pushes the world economy further toward collapse. 

Reaching resource limits is sometimes described as, “The population outgrew the carrying capacity of the land.” The group of people living in the area could not grow enough food and firewood using the resources available at the time (such as arable land, energy from the sun, draft animals, and technology of the day) for their expanding populations.

Collapses have been studied by many researchers. The book Secular Cycles by Peter Turchin and Sergey Nefedov analyze eight agricultural economies that collapsed. Figure 2 is a chart I prepared, based on my analysis of the economies described in that book:

Figure 2. Chart by author based on Turchin and Nefedov’s Secular Cycles.

Economies tend to grow for many years before the population becomes high enough that the carrying capacity of the land they occupy is approached. Once the carrying capacity is hit, they enter a stagflation stage, during which population and GDP growth slow. Growing debt becomes an issue, as do both wage and wealth disparity.

Eventually, a crisis period is reached. The problems of the stagflation period become worse (wage and wealth disparity; need for debt by those with inadequate income) during the crisis period. Changes tend to take place during the crisis period that lead to substantial drops in GDP and population. For example, we read about some economies entering into wars during the crisis period in the attempt to gain more land and other resources. We also read about economies being attacked from outside in their weakened state.

Also, during the crisis period, with the high level of wage and wealth disparity, it becomes increasingly difficult for governments to collect enough taxes. This problem can lead to governments being overthrown because of unhappiness with high taxes and wage disparity. In some cases, as in the 1991 collapse of the central government of the Soviet Union, the top level government simply collapses, leaving the next lower level of government.

Strangely enough, epidemics also seem to occur within collapse periods. The rising population leads to people living closer to each other, increasing the risk of transmission. People with low wages often find it increasingly difficult to eat an adequate diet. As a result, their immune systems easily succumb to new communicable diseases. Part of the collapse process is often the loss of a significant share of the population to a communicable disease.

Looking back at Figure 2, I believe that the current economic cycle started with the use of fossil fuels back in the 1800s. The world economy hit the stagflation period in the 1970s, when oil supply first became constrained. The Great Recession of 2008-2009 seems to be a marker for the beginning of the crisis period in the current cycle. If I am right in this assessment, the world economy is in the period in which we should expect crises, such as pandemics or wars, to occur.

The world was already pushing up against resource limits before all of the shutdowns took place. The shutdowns can be expected to push the world economy toward a more rapid decline in output per capita. They also appear to increase the likelihood that citizens will try to overthrow their governments, once the quarantine restrictions are removed.

[3] The carrying capacity of the world today is augmented by the world’s energy supply. A major issue since 2014 is that oil prices have been too low for oil producers. The coronavirus problem is pushing oil prices even lower yet.

Strangely enough, the world economy is facing a resource shortage problem, but it manifests itself as low commodity prices and excessive wage and wealth disparity.

Most economists have not figured out that economies are, in physics terms, dissipative structures. These are self-organizing systems that grow, at least for a time. Hurricanes (powered by energy from warm water) and ecosystems (powered by sunlight) are other examples of dissipative structures. Humans are dissipative structures, as well; we are powered by the energy content of foods. Economies require energy for all of the processes that we associate with generating GDP, such as refining metals and transporting goods. Electricity is a form of energy.

Energy can be used to work around shortages of almost any kind of resource. For example, if fresh water is a problem, energy products can be used to build desalination plants. If lack of phosphate rocks is an issue for adequate fertilization, energy products can be used to extract these rocks from less accessible locations. If pollution is a problem, fossil fuels can be used to build so-called renewable energy devices such as wind turbines and solar panels, to try to reduce future CO2 pollution.

The growth in energy consumption correlates quite well with the growth of the world economy. In fact, increases in energy consumption seem to precede growth in GDP, suggesting that it is energy consumption growth that allows the growth of GDP.

Figure 3. 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.

The thing that economists tend to miss is the fact that extracting enough fossil fuels (or commodities of any type) is a two-sided price problem. Prices must be both:

  1. High enough for companies extracting the resources to make an after tax profit.
  2. Low enough for consumers to afford finished goods made with these resources.

Most economists believe that an inadequate supply of energy products will be marked by high prices. In fact, the situation seems to be almost “upside down” in a networked economy. Inadequate energy supplies seem to be marked by excessive wage and wealth disparity. This wage and wealth disparity leads to commodity prices that are too low for producers. Current WTI oil prices are about $20 per barrel, for example (Figure 4).

Figure 4. Daily spot price of West Texas Intermediate oil, based on EIA data.

The low-price commodity price issue is really an affordability problem. The many people with low wages cannot afford goods such as cars, homes with heating and air conditioning, and vacation travel. In fact, they may even have difficulty affording food. Spending by rich people does not make up for the shortfall in spending by the poor because the rich tend to spend their wealth differently. They tend to buy services such as tax planning and expensive private college educations for their children. These services require proportionately less commodity use than goods purchased by the poor.

The problem of low commodity prices becomes especially acute in countries that produce commodities for export. Producers find it difficult to pay workers adequate wages to live on. Also, governments are not able to collect enough taxes for the services workers expect, such as public transit. The combination is likely to lead to protests by citizens whenever the opportunity arises. Once shutdowns end, these countries are especially in danger of having their governments overthrown.

[4] There are limits to what governments and central banks can fix. 

Governments can give citizens checks so that they have enough funds to buy groceries. This may, indeed, keep the price of food products high enough for food producers. There may still be problems with broken supply lines, so there may still be shortages of some products. For example, if there are eggs but no egg cartons, there may be no eggs for sale in grocery stores.

Central banks can act as buyers for many kinds of assets such as bonds and even shares of stock. In this way, they can perhaps keep stock market prices reasonably high. If enough gimmicks are used, perhaps they can even keep the prices of homes and farms reasonably high.

Central banks can also keep interest rates paid by governments low. In fact, interest rates can even be negative, especially for the short term. Businesses whose profitability has been reduced and workers who have been laid off are likely to discover that their credit ratings have been downgraded. This is likely to lead to higher interest costs for these borrowers, even if interest rates for the most creditworthy are kept low.

One area where governments and central banks seem to be fairly helpless is with respect to low prices for commodities used by industry, such as oil, natural gas, coal, copper and lithium. These commodities are traded internationally, so it is not just their own producers that need to be propped up; the market intervention needs to affect the entire world market.

One approach to raising world commodity prices would be to buy up large quantities of the commodities and store them somewhere. This is impractical, because no one has adequate storage for the huge quantities involved.

Another approach for raising world commodity prices would be to try to raise worldwide demand for finished goods and services. (Making more finished goods and services will use more commodities, and thus will tend to raise commodity prices.) To do this, checks would somehow need to go to the many poor people in the world, including those in India, Bangladesh and Nigeria, allowing these people to buy cars, homes, and other finished goods. Sending out checks only to people in one’s own economy would not be sufficient. It is unlikely that the US or the European Union would undertake a task such as this.

A major problem after many people have been out of work for a quite a while is the fact that many of these people will be behind on their regular payments, such as rent and car payments. They will be in no mood to buy a new vehicle or a new cell phone, simply because they have been offered a check that covers groceries and not much more. They will remain in a mode of cutting back on purchases, not adding more. Demand for most kinds of goods will remain low.

This lack of demand will make it difficult for business to have enough sales to make it profitable to reopen at the level of output that they had previously. Thus, employment and sales are likely to remain depressed even after the economy seems to be reopening. China seems to be having this problem. The Wall Street Journal reports China Is Open for Business, but the Postcoronavirus Reboot Looks Slow and Rocky. It also reports, Another Shortage in China’s Virus-Hit Economy: Jobs for College Grads.

[5] There is a significant likelihood that the COVID-19 problem is not going away, even if economies can “bend the trend line” with respect to new cases.

Bending the trend line has to do with trying to keep hospitals and medical providers from being overwhelmed. It is likely to mean that herd immunity is built up slowly, making repeat outbreaks more likely. Thus, if social isolation is stopped, COVID-19 illnesses can be expected to revisit prior locations. We know that this has been an issue in the past. The Spanish Flu epidemic came in three waves, over the years 1918-1919. The second wave was the most deadly.

A recent study by members of the Harvard School of Public Health says that the COVID-19 epidemic may appear in waves until into 2022. In fact, it could be back on a seasonal basis thereafter. It also indicates that more than one period of social distancing is likely to be required:

“A single period of social distancing will not be sufficient to prevent critical care capacities from being overwhelmed by the COVID-19 epidemic, because under any scenario considered it leaves enough of the population susceptible that a rebound in transmission after the end of the period will lead to an epidemic that exceeds this capacity.”

Thus, even if the COVID-19 problem seems to be fixed in a few weeks, it likely will be back again within a few months. With this level of uncertainty, businesses will not be willing to set up new operations. They will not hire many additional employees. The retired population will not run out and buy more tickets on cruise ships for next year. In fact, citizens are likely to continue to be worried about airplane flights being a place for transmitting illnesses, making the longer term prospects for the airline industry less optimistic.

Conclusion 

The economy was already near the edge before COVID-19 hit. Wage and wealth disparity were big problems. Local populations of many areas objected to immigrants, fearing that the added population would reduce job opportunities for people who already lived there, among other things. As a result, many areas were experiencing protests because of unhappiness with the current economic situation.

The shutdowns temporarily cut back the protests, but they certainly do not fix the underlying situations. Instead, the shutdowns add to the number of people with very low wages or no income at all. The shutdowns also reduce the total quantity of goods and services available to purchase, regardless of how much money is added to the system. Many people will end up poorer, in some real sense.

As soon as the shutdowns end, it will be obvious that the world economy is in worse condition than it was before the shutdown. The longer the shutdowns last, the worse shape the world economy will be in. Thus, when businesses are restarted, we can expect even more protests and more divisive politics. Some governments may be overthrown, or they may collapse without being pushed. I fear that the world economy will be further down the road toward overall collapse.

 

 

 

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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4,744 Responses to Economies won’t be able to recover after shutdowns

  1. Tim says:

    I’ve been looking forward to Gail’s latest report, and also dreading it.

    • Covidinamonthorayearoradecade says:

      like many, I prefer to hear the truth with all of the dread it may contain…

      thanks, Gail… many truths and spot on…

      this one highlight just before the conclusion:

      “With this level of uncertainty, businesses will not be willing to set up new operations. They will not hire many additional employees.”

      this is inevitable, that any closed business that does reopen will almost definitely not be attaining full capacity and full service…

      a reopening business will have to gauge the level of demand for its goods or services, and this will happen very quickly…

      as in China, many/most closed businesses are going to find that their demand has crashed, and never mind “new operations” and “additional employees”, it will be an achievement for any business to reopen at half capacity…

      the dread will become real…

  2. Likewise, Tim. Diminishing returns, indeed, Gail.

    I hope what was considered politically impossible is going to become politically inevitable. It has been abundantly clear to me for a very long time that we need to rethink urban infrastructure, particularly within low-income and informal settlements—especially given that new infectious diseases will likely continue to spread rapidly into and within cities. I think it is past due for an overhaul of current approaches to urban planning and development.

    I’m not a Milton Friedman follower, however, I think there is an opportunity to promote more holistic solutions, today, similar to what transpired in the 1930s with The New Deal.

    “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible become politically inevitable.” -Milton Friedman

  3. Bei Dawei says:

    “Looking back at Figure 2, I believe that the current economic cycle started with the use of fossil fuels back in the 1800s. The world economy hit the stagflation period in the 1970s, when oil supply first became constrained. The Great Recession of 2008-2009 seems to be a marker for the beginning of the crisis period in the current cycle.”

    In the 1800s, national economies were not as interlinked. Also, the switch to oil from coal was a natural one, so the rise of the present cycle should really extend back to the Industrial Revolution.

    At the other end, economic Depressions occurred during the 19th century as well (although at various times in various countries, and for various causes). These recent ones aren’t so unique.

    • Covidinamonthorayearoradecade says:

      though of course this Depression is unique…

      entirely global, and incredibly deep…

  4. Larry says:

    Virtual hugs to Gail if she is into such things. I am always appreciative of the way she illuminates current events.
    First we must survive physically. Second we must carry on economically. The second may be near impossible but it doesn’t matter if the first objective is not accomplished.

    • Thanks for the virtual hugs.

      Economically is pretty much as important as physically. There are a whole lot of other things besides COVID-19 that we could die of. The fear of COVID-19 is really a distorted fear for most people. I see Chris Martenson is saying that Germany’s 0.4% death rate from COVID-19 seems to be a correct calculation, in his video recorded March 30. He thinks his earlier estimates may be high, because there were too few cases with little or no symptoms in the base.

      People should be worried about not being able to get drugs from overseas for a whole lot of diseases because of broken supply lines. That didn’t make it into the post.

      I always worry that the US central government will simply give up and hand over its functions to the individual states. If states can figure out a way to give Social Security, Medicare, money issuance, bank and pension guarantees, and a whole lot of other things, fine. Otherwise, everyone is on his/her own.

      • Xabier says:

        If that is the true fatality rate, then ironically the most at-risk group will be all the over-exposed hospital staff, not the general population.

        It also means that with universal masks, mass testing and selective quarantines, it could have been contained without crashing everything and all low-risk, mostly younger, groups could have gone about their lives unmolested.

        • Ed says:

          Xabier, it would mean the whole thing is just global hysteria. I better understand Easter Island now. Will there be an out group we can blame?

    • Fast Eddy says:

      Why must we survive?

      So we can continue to moan about how WE are destroying the planet? And how WE need to do something about it?

      You can’t have your cake (carry on economically) and eat it too (save the planet)

      So we have to choose.

      Open your eyes Larry — the solution is at hand!

      The Wuhan Plague is the planet’s Last Stand.

      It is fighting desperately to remove the scourge… no.. no… the CANCER…. that has metastasized to nearly 8 billion cancerous cells….

      You are cheering for the wrong team Larry.

  5. Adam Welch says:

    Thank you Gail. Very well thought-out analysis as usual.

  6. Hide-away says:

    Thanks for the new article Gail.

    It is interesting how the markets also believe the general narrative and are not as forward thinking as most give them credit for. It was obvious to me the stockmarket was heading for a big plunge back in late January. The obvious catalyst was coronavirus, however the market kept rallying higher on it’s last legs, as the narrative was ‘coronavirus is not a problem’. Of course that was incorrect.

    It seems to me the market does not understand the energy dissipative structure that the world economy is. For this reason I expect markets to rally as we start to see the numbers of coronavirus victims/death fall, only to run into a brick wall later as companies slash forecasts and growth plans.

    I think for some of us, the path forward is just very obvious, while most of the world is in a state of disbelief.

  7. You made a good case that we should not have shut down the economy because of the virus. You did not however offer an alternate plan. Let’s assume you are right and we send everyone back to work. What then do we do with the people who get sick in numbers too large for the health care system to handle? I suppose they could stay at home to recover or die however this would be very hard on family members. Is this what you propose?

    There is another issue I think needs to be addressed. You more than anyone know that we are living on borrowed time. Let’s say we go back to work and thus avoid collapsing the economy in 2020. If we print lots of money and are very lucky we might keep the game going for another 10 years. After which we collapse anyway, and probably with more suffering and a higher risk of war due to the even larger debt bubble. Perhaps the virus offers an excuse for us to take our medicine now, rather than later when we’ll be even sicker?

    • Wearing KF94 masks seems to be a good alternative to shutting down businesses, if I understand this Korean infectious disease specialist.

      They seem to be fairly inexpensive. The are not quite as good as the P95 masks, but close enough. There seem to be quite a few areas of the world that are making more use of masks and not shutting down nearly as much.

      I didn’t figure out where I could put that in the post. The knee jerk reaction is just “shut down everything,” without thinking that there are other ways of doing social distancing that are a whole lot less harmful.

      • GBV says:

        I think you’ve ignored/avoided the crux of Rob’s comment (the same question I continue to ask here at OFW):

        “After which we collapse anyway, and probably with more suffering and a higher risk of war due to the even larger debt bubble. Perhaps the virus offers an excuse for us to take our medicine now, rather than later when we’ll be even sicker?”

        Why do you continue to suggest BAU be maintained when you simultaneously admit collapse is unavoidable? What makes you believe that no (further) harm is being done by extending BAU versus collapsing now and forging whatever future we can with what little is left on God’s (polluted, exploited) Green Earth?

        -GBV

        • CTG says:

          Why do you continue to suggest BAU be maintained when you simultaneously admit collapse is unavoidable? What makes you believe that no (further) harm is being done by extending BAU versus collapsing now and forging whatever future we can with what little is left on God’s (polluted, exploited) Green Earth?

          So that we can enjoy the last moments of BAU since nothing can be done. I know more of the commenters here know that the endgame is inevitable. It is just a matter of “when” and “how”. Gail’s blog has been around for many years (since 2007??). People come and people go. Those who are here know that it is just a matter of time.

          I do guess that this is the end of the road because there is no way “stopping the worldwide economy” for months will be consequence-free.

          So, raise a glass or wine, whiskey, juice, water or whatever you are allowed to drink and toast to good health and enjoy BAU.

          Most of the old timers here are not pessimistic. We are all enlightened and we are all practical people who do not moan the end of days. We lead our lives as normal human beings. What we subscribe to is not a belief but reality.

          • Xabier says:

            The Romans built some magnificent luxury villas in Britain, and I suspect the owners kept up the under-floor heating, the sauna, drinking fine imported wines, going out hunting, and buying pretty slave girls right up to the end of the system’s viability.

            The collapse came, and the villas soon lay under scrubs and woodland.

            That’s all one can do: go with it to the very end.

            It’s impossible to prepare for system collapse, or insulate oneself for the simple reason that the current system demands full participation if one is to be viable.

            One cannot stand with one foot in the present and another in a ‘collapsed’ future.

            There is no such future: the collapsing system will take one with it.

          • GBV says:

            “So that we can enjoy the last moments of BAU since nothing can be done.”

            Hate to break it to you, but life will go on for many (even if only for awhile) after BAU ends.

            Those of you who wish to party it up until BAU ends and are unwilling to do anything to help future generations deal with the harsh future that faces them (i.e. start to plant the seeds for a future, post-BAU existence, regardless of how meagre it may be) are cowards who have no sense of responsibility. Your way of thinking – “Use it all up! Suck it dry till there’s nothing left! Have a few drinks and then just die!” – has and will be the cause of so much suffering on Earth.

            -GBV

      • Pintada says:

        Everyone should wear a mask in anything like a social situation. I predict, that before this is over anyone not wearing one in public will be taking their life into their hands.

        In fact, I predict that before the end of the year someone in the US will beaten by a mob for not wearing a mask, and either end up in the hospital or dead.

        • doomphd says:

          if you are sick, then wearing a mask in public is helpful to others. if you are healthy, then wearing a mask will not stop you from getting the disease, especially those other than n95 masks, which are hard to breathe in.

          • Nope, the Asians clearly demonstrated that with mass adoption of even sub par masks you stop the exponential spreading, and most importantly you especially knock down the leverage of the “super-spreaders” who are often asymptomatic blokes..

            Now, the prospect of further echo contagion, following peaks, and reintroduction from abroad are still a bummer, but that’s for another discussion.

          • Xabier says:

            Even an imperfect mask reduces viral-load and discourages face and hair- touching.

            Ironically, those old ‘Plague Doctor’ outfits from the 17th century would be quite good: fully-covered head to toe, hat to keep virus off one’s hair, etc.

            • Yes, I forgot to mention the [viral load] aspect, which is super important as weaker immune systems can’t cope suddenly with such “horse kick” impact event.. Specifically, when travelling (or going into low ceiling shop) in mass transit, the close proximity breathing, coughing, loud talking, sneezing, .. tends to produce large dense sprays of viral loads.. He who at this point still travels without goggles, mask and gloves in subway, train, bus has got clearly a suicide wish in mind. Interestingly this point not stressed on W-msm enough (at all), well likely because of private parking slot at office and posh car status with filtered A/C, so they just don’t care about the unwashed..

    • Stephen says:

      Perhaps this 2020 collapse will leave us a minimal chance of survival. Whereas a continuation of pedal to the metal BAU may have been fun but guaranteed our extinction.

      • Covidinamonthorayearoradecade says:

        speaking of guaranteed, if/when this virus crisis subsides, every attempt will be made globally to push the pedal down as far as possible…

        no more pedal to the metal 2019 version, but the 2021 version will try to get back there, though failure is certain…

        perhaps pedal half way to the metal…

        • Tango Oscar says:

          Congress is preparing a 4th Coronavirus stimulus package as we sit here reading. Trump said last night he wants 2 Trillion in it just for infrastructure alone. These guys are going to spend like it’s going out of style in order to prevent a full on collapse.

    • CTG says:

      Rob,

      In response to your last paragraph:
      “There is another issue I think needs to be addressed. You more than anyone know that we are living on borrowed time. Let’s say we go back to work and thus avoid collapsing the economy in 2020. If we print lots of money and are very lucky we might keep the game going for another 10 years. After which we collapse anyway, and probably with more suffering and a higher risk of war due to the even larger debt bubble. Perhaps the virus offers an excuse for us to take our medicine now, rather than later when we’ll be even sicker?”

      Based on what is happening and my own personal opinion, the “borrowed time” and the “real actual time” is converging and it is probably only a couple of months difference. There is no more “10 years”. To me, this is akin to

      We have built up a large pile of brush, wood, twigs, dry tinder for a large fire (all the debts)

      We do not have enough manpower, willpower and political will to clear the dry brush (reduce debts and be more responsible)

      We have also put in a large stash of gasoline (printing money) among the pile of dry tinder

      All it takes is a spark and it can be from any sources (this virus is one of them) for everything to burn fiercely.

      The first will start out small and possibly you can contain it (GFC2008) but you still keep adding fuel and dry tinder.

      This time round, the spark (virus) is totally different. It not only sparks the dry tinder, it makes all the firefighters sick and some of them even ran away. The spark (virus) is not just a spark but a flamethrower that keeps on going (very infectious).

      So, to me, the future is now here. I find that it is just impossible to paper this over.

      We can still kick the can but we ran out of road

      • In 2008 I felt like you do now and was proven wrong. Now I’m older and more cautious in my predictions. They can get away with printing a lot of money because citizens don’t understand what’s going on and don’t want to know.

        • psile says:

          They can control the printing of the money, for now, but they can’t control what happens to the money, or where it goes. Nor can they be on both sides of the transaction. Like Mac 10 said:

          “Just because I paid a million dollars for a brick, doesn’t mean that all bricks everywhere are worth a million dollars”. Price discovery will continue to work its way through the system as trillions in debt are either defaulted on, paid down, or written off.

      • GBV says:

        The fire may be unavoidable, but if you survive it then you have a responsibility to clean up the mess you made / contributed to.

        Stop hiding behind the inevitably of collapse – recognize that on the other side of collapse, hard work and sacrifice awaits us all. If you don’t plan to stick around for it, that’s fine, but feel free to lend a hand and do something useful for those that do before you shuffle off this mortal coil.

        -GBV

        • Fast Eddy says:

          I love the smell of radiation in the morning… it smells like…. extinction

          (and extinction of humans is the best thing since sliced bread)

    • Xabier says:

      Yes, they should die at home and the logistics of burying or cremating them en masse have to be addressed.

      Hard on their families? Of course, but that’s life.

      The death is the hard thing, not the location. It was the norm until very recently to die at home after all.

      But we seem to want to put the whole burden of life and death on to ‘professionals who are human beings likely to catch the virus themselves – do we really have the right to do that?

      I fear very much for a surgeon friend who has volunteered to work in a Covid ward: his life may well be wasted.

      I fear for all of them, badly-equipped and working long hours in so contagious an environment.

      • Harry McGibbs says:

        “Yes, they should die at home and the logistics of burying or cremating them en masse have to be addressed. Hard on their families? Of course, but that’s life.”

        This will I suspect be the situation here on Islay, should the virus make it here, as we only have one ventilator and the population is skewed towards the elderly. Palliative care at home will likely be the norm.

    • Ed says:

      Rob, the idea of a slower kinder collapse sounds nice but in the end the number of humans needs to decrease significantly. Maybe the kindest would be a fast killing virus. This does not seem to be it too little killing.

  8. “Most economists believe that an inadequate supply of energy products will be marked by high prices”

    That was the oil price shock in 2008 caused by a kink in the crude oil production curve in 2005

    You had a graph in previous posts, showing the max oil price going down, showing the affordability problem:

    “the world economy was in very poor shape before COVID-19 hit”

    10 Mar 2020
    Impact of Corona Virus similar to some earlier peak oil scenarios
    http://crudeoilpeak.info/impact-of-corona-virus-similar-to-some-earlier-peak-oil-scenarios

    They way I see it now is that the Corona virus is accelerating what happened after 2008

    Massive money printing is happening right now. In Australia:

    Federal Government offers $130b in coronavirus wage subsidies for businesses to pay workers
    https://www.abc.net.au/news/2020-03-30/coronavirus-wage-subsidies-government-businesses-workers/12103108

    I expect that governments will be reluctantly forced to take over many essential companies. We are on the way to a war-time economy

    • Covidinamonthorayearoradecade says:

      “I expect that governments will be reluctantly forced to take over many essential companies.”

      yes, and not only do I expect it also, but I sure hope they do it sooner and not later, which could mean too late…

      essential companies are modeled in some of those Leonardo Sticks…

      • Yes, this has been predicted here for years, the last stage of IC must be definition involve some sort of (semi/mixed) authoritarian – re-distributive type of govs. It’s almost like autoimmune over response to fatal condition, followed by death..
        Now, this stage could last few months to years to few decades..

    • Thanks for your links. I am sure that the “secured” loans of oil companies are a lot less secure now, with the price of oil dropping. Lender may be getting worried that this will stick around for a while. More downgrades in loans can be expected.

  9. Stephen says:

    Thanks Gail for another great article.
    Yes those believing the V shaped recovery meme will be greatlyly disappointed.
    I just hope that after several years of cascading declines there is a bottom that can maintain a few essential services. And of course I’m also worried about the poisoned crop lands and radiation pools Paul.

  10. matteo says:

    What’s great about this blog is that it doesn’t portray the economic system in an energy- and physics-blind way. Still, an “economy” is also a social phenomenon. Money is a human narrative used for and by the self-organising process.
    This system relies on growth to exist. Why? Because 85% of the money is created by private banks giving loans. If interest is not repaid on those loans, there are defaults or the money in circulation goes to zero. Hence, new loans need to be taken out somewhere by somebody in the economy so that existing debt can be repaid by the others. Now, new loans are granted only when somebody is deemed credit-worthy, i.e. when they show some future economic growth prospect. This future economic growth entails the use of energy to perform some thermodynamic process. The economy therefore relies on growing energy supply and on a growing supply of those resources that are transformed and transported using said energy supply.

    So there is no physical reality behind this human narrative. We could set up a deflationary economic system with a stable money supply reflecting the fact that energy and resources are actually limited. Any growth would have to be compensated by degrowth somewhere else, instead of by growth somewhere else. This is not unthinkable. Ageing societies for example degrow their consumption. A lot of cement and steel used for construction could be spared by using lighter sheltering materials and habitat models, and so on… Nominal capital expressed in money would not grow, but Earth’s resources would be depleted more slowly and some could even be consumed at regeneration’s pace.
    Why not?

    • CTG says:

      Our system is designed to grow in order to survive. You can read up how our system is design. Without growth, our system paralyses. It would be good if you can investigate this as it will take long an article to keep you updated on this. There are plenty of reading material outside.

      • Stephen says:

        That’s why we need a new system.

        • matteo says:

          Exactly, we’re still a bunch of apes. There are many ways in which we can organise ourselves to access, use and share the resources available within the laws of physics.
          This mental shortcut of growth as necessary is sloppy.

    • Stephen says:

      I hope we’ll have an opportunity to try degrowth before it’s too late.

      • Fast Eddy says:

        Um… in case you had not noticed… we are trying degrowth right now.

        How do you like it?

      • Xabier says:

        ‘De-growth isn’t like that, it’s just a sweet-sounding name for Collapse.

        One can’t try a shot in the head just to see how it is….

        ‘De-growth’ lulls people into thinking it might a pleasant reality, a better, non-consumerist world.

          • CTG says:

            You are talking about degrowth for everyone, which is not possible under this “overshoot situation”

            Our society and overall system has a critical threshold or tipping point. We will not know about this tipping point until it is over. Once it is over, it is unlikely that other than the Amazon tribes to survive. Not even the Amish because we are still interconnected. We still need the fruits of industrialization to survive.

            Assuming that you manage to escape the horrors of urban collapse and went deep into the woods. Do you even have the skills, tools and knowledge to survive ? Do you know that you need at least 2-3 months from planting your vegetables before you can even harvest? What are you planning to eat while waiting for harvest. Do you know that at times, there are crop failures? whar are you going to eat?

            Here is an example of tipping point : There is no “undo”

            A lot of people really love to talk about degrowth without even thinking of practical matters. I guess they just cannot see it

            • matteo says:

              Well one person who is really practical and does loads of practical calculations is Vaclav Smil, he’s written a whole book on growth and he does think we can degrow.The heart of the matter is that energy abundance has created a system geared to waste. There is waste everywhere and a lot of “non-wasted” energy and resources that go into things that are not needed for survival and not needed to make us happy. There is so much waste everywhere that we can perfectly organise a degrowing societies within the laws of physics. We need however to change not physical reality, but our mental representations in order to get there and clearly if we fail to see this and collapse before, we will not get there.

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