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. Pingback: Pandemia przyspieszy upadek gospodarki globalnej | Blog exignoranta

  2. el mar says:

    Here are terrible news for you: 100 (hundred) percent of all people who died or will die where or will be alive before.

  3. Yoshua says:

    “St. Louis Federal Reserve Head says Americans should be tested for COVID-19 daily and forced to display a badge on their clothing with the result.”

    Testing, testing…

    • Yoshua says:

      • Only a badge for now? What an incrementalist with rising career potential.
        /sarc off

      • 09876 says:

        Bad dog!
        stay in the dog house
        wear a mask
        wear a tag
        get vasuenuated
        roll over
        beg
        fetch

      • Tim Groves says:

        Well, you could test negative today and then get sneezed on by the postman tomorrow.

        The St. Louis Federal Reserve Head is a minion of the El-ders, isn’t he?

        • Kowalainen says:

          Yeah, and carrying that stuff around as particles on your sexy new badge, clothes, hair, hands and shoes. It is all BS. The only effective mitigation strategy is:

          1. PPE, N95-N99 face masks for everybody
          2. HEPA air filtration in houses, apartments, hospitals, offices and public spaces
          3. Antimicrobial coats on surfaces and PVP-I on humans

          These so called “medicines” and “ventilators” is merely addressing the consequences of not implementing effective mitigation in steps 1-3.

          The US military seems to be a bunch of practical people, have you guys got down implementing 1-3 yet?

          • There are people who are allergic to PVP-I (which I think of as “Betadine”). I know that my husband is, for example. I expect with widespread use, the allergy problem would get worse, rather than better.

            I expect that PVP-I would inadvertently get into the food supply as well. Don’t you think that having this chemical around in large quantities could be a problem?

            • Hugh Spencer says:

              Povidone Iodine seems to have become the go-to antiseptic/anti viral – however it comes in a variety of strengths (although these never seem to be specified) 10% in alcohol is the standard 1% available iodine. It’s our standard first aid treatment. People with iodine sensitivity are rare. However I don’t see the point of drinking a diluted solution (unless you have goiter). I suspect a 20:1 dilution with alcohol or even water would be a quite effective anti viral wipe down. Of course it was developed as a no-sting substitute for tincture of iodine.

    • Sounds like lots of money for those making COVID-19 tests. Too bad they don’t work terribly well. Control of population, as in China!

      • Yoshua says:

        There’s either something very bad about this virus…or…they use it for population control during the collapse.

        Or maybe both…

        I really don’t know.

        • Dennis L. says:

          What is happening is very difficult to understand. It may well be that those who have learned how to grab the levers of power understood that in an age of excess energy, perception was reality and they manipulated perception across the spectrum. Financial reality was perception, governing perception was reality. It is probably self organizing and no one is even close to being in control.

          Man is most resilient, what does not work is discarded one way or another. Currently the issue is a virus, with us as individuals we are wondering if we are one of those who survive due to genetics or one who needs intervention.

          Groups that chose the wrong way are not unlike lemmings, periodically so it is said they go off a cliff, but not all. It is well known the earth is past carrying capacity for humans, perhaps it is time, the metaphorical Greta’s of the world may be having their time. Most likely that time will not resemble the media events to which they have habituated themselves, reality will be somewhat different, close and personal.

          Many on this site have expressed interest in enjoying their popcorn as the world fails. It will be interesting to see their reactions as it becomes up close and personal.

          Dennis L.

          • Xabier says:

            Those people probably imagine they will be in the auditorium, when in fact they will on the stage, in the limelight…..

            • Slow Paul says:

              Collapse comes to one person at a time. You get trouble paying bills, lose your job, eating scraps, moving to cheap run down living arrangements. Getting robbed. No televised collapse with spectacular nukes going off or zombie hordes moved down.

        • Z says:

          There is no “virus”
          It is 5G directed.

        • DJ says:

          If it is to control population numbers, dont it have to kilo way more?

          Covid has so far killed about 8 hours of population growth.

  4. MCW says:

    I summarise Gail, from this and prior posts and her recent interview on Collapse Chronicles, where she begins by outlining the imminent dangers of our world economy and living patterns prior to the coronavirus shutdowns. I take it she thinks the global economy, national and maybe state governments, and even our industrial civilisational patterns of living will probably collapse within a few months. I extrapolate this to mean that within several more months control by local authorities, or some emergent perhaps war lord type systems depending on the local situation, will increasingly ration food, movement, electricity, gas, water supply, etc. using emergency laws enforced by police or military.

    I am in Perth Western Australia and conclude that the system will decline in a relatively gradual step-wise manner compared to other nations and states. I am hunkering down, prepping, and planning for home-self defence. Paraphrasing Gail and other posters (apologies), I tentatively foresee, mainly in my national, state and local communities:

    1. Wage and wealth disparity will greatly increase creating big problems and leading to an increase in individual and organised crime burglaries, crime, and assaults.
    2. The total quantity of essential goods and services available to purchase will decrease and those available will rise in price perhaps markedly.
    3. It will become increasingly that the world economy is in worse condition than it was before the shutdown. The longer the shutdowns continue the worse it will be. I fear things will be even worse than the 1930s.
    4. There probably will be more local wars, and threats of war as the world solidifies into defence pacts blocs and trading blocs. Military conscription will probably be re-introduced.
    5. Extreme weather will increase due to the changes already underway and worsened by a reduction in global dimming. This will worsen everything.
    6. There will be an increase mass migration world wide and boat people hitting Australia’s shores.
    7. Unemployed eligible persons on welfare will be asked to work in various mainly government public projects including transport, energy, water, agriculture, para-military, police, etc.

    My question is about buying or trading in cryptocurrencies. Is it worth it? I mean is the effort worth the money one presumably probably will make out of it. Or is it better to relax, live large, and thoroughly enjoy our last few weeks or months of freedom and luxury?

    • Duncan Idaho says:

      My question is about buying or trading in cryptocurrencies.
      Hint:
      I doubt it will make it into the top 100 of your concerns.

    • I agree that there may very well be steps involved. Some parts of the world may fare better than others, at least when looking at results on a week to week and month to month basis. Looking at the world ten years from now, there may be more uniformity, or more different partial solutions that sort of work in different parts of the world.

      I think electricity is one of the big question marks. Where electricity disappears, there is definitely a problem. Australia with its coal is probably in better shape than a lot of places, at least in the part of Australia using coal. The problem may be keeping the price of electricity high enough that the coal producers can make money.

      I don’t have much faith in cryptocurrencies myself. Once electricity is gone, it is clearly gone.

      Spend your money on things that you enjoy now. Some people may feel that they can plan somewhat for the future. I planted a couple of tomato plants, an eggplant, and a pepper. It doesn’t hurt.

      • Mosey says:

        Maybe the electricity will be gone but don’t worry at all, you will still be able to use batteries to get your bitcoins off of the internet, that’s just so obvious. I say go for it, buy some crypto and let us know how it works out!

        Seriously though, thanks for the crypto currency chuckle, I really enjoyed that! lol

        • Ed says:

          The internet does not run on batteries. Gigawatts of power used by the the repeaters, servers, NSA over site, domain name servers, etc….

      • Marco Bruciati says:

        I agree all

    • Marco Bruciati says:

      In Italia Will be more bad. No coal

  5. ITEOTWAWKI says:

    -“How Did Industrial Civilization Collapse?”

    -“Two Ways. Gradually (2008-2019) and Then Suddenly (2020).”

    -ITEOTWAWKI 😉

    • I am afraid you may be right. But even the suddenly part may have steps to it, and may vary by part of the world.

    • Mark says:

      I agree that it’s over, what we once had. We must have the global banks/credit markets working, and they are.
      When they go, we are over the cliff.

  6. ITEOTWAWKI says:

    Our global economic system is a ponzi scheme, we constantly need to grow and add more and more humans….our species is a ponzi scheme….we are in complete overshoot!!

    These 12 charts show how the world’s population has exploded in the last 200 years:

    https://www.weforum.org/agenda/2019/07/populations-around-world-changed-over-the-years

  7. Herbie R Ficklestein says:

    God help us….this has just begun
    Nissan laying off 10,000 workers, Honda putting thousands more on leave
    Zac Palmer
    AutoblogApril 7, 2020, 9:40 AM EDT

    As of now, Nissan has announced plant shutdowns lasting through late April. The report says Nissan plans to rehire the workers that are being laid off once work is possible again, but they won’t be getting paid in the meantime. We’ve asked for comment from Nissan to learn if everybody will be brought back on, or if Nissan has other plans in mind for restarting its factories.
    Meanwhile, the report also says that Honda will be putting half of its U.S. staff (over 10,000 employees) on temporary leave. The move affects factory workers in Ohio and Alabama factories, but it will reportedly extend to other states, as well. This temporary leave will be up at the end of April, according to the report. A Honda spokesperson says that salaries will be guaranteed through Sunday.

    Try finding another job now with everything shut down…
    There will be massive begging in the parking lots soon at the grocery stores.

    • Rodster says:

      I’m always amused by the Greenies such as Greta Thunberg who want to eliminate fossil fuels from our lives. And yet the Automobile is still such a large part of the global economy. Not only does it affect the manufacture and it’s employees but it filters down to Banks who make the loans possible, the repair shops, car care specialty services and so on.

      It’s not just factory workers who get hurt.

  8. Herbie R Ficklestein says:

    Help, help
    Americans struggle to delay mortgage payments as lenders ‘can’t handle’ 1,896% spike amid coronavirus
    Dhara SinghReporter
    Yahoo MoneyApril 7, 2020, 10:01 AM EDT
    While loan servicers can allow homeowners and landlords with mortgages backed by Fannie Mae and Freddie Mac to delay payments for up to a year due to the coronavirus, they haven’t been able to keep up with the demand from borrowers.
    The Mortgage Bankers Association reported Tuesday morning that mortgage forbearance requests had increased by 1,896% between March 16 and March 30. This is an uptick from the week before when forbearance requests jumped by 1,270%.
    Hold times for calls jumped to 17.5 minutes from under 2 minutes just three weeks ago, while the percentage of callers who hung up hit 25% from 5%, according to the MBA
    Lenders across the board, they’re doing the responsible thing in that their employees are working from home like the rest of us, so the typical efficiency of servicers is now down 25%, 30%,” said Federal Housing Finance Agency Director Mark Calabria in a recent conversation with Yahoo Finance. “They can’t handle the call volume.”

    Cheques in the mail…. sort of

  9. Dennis L. says:

    Now it is personal. Ethanol was for the farmer a source of cashflow, it transferred money from driving society as a whole to the farmer, helped maintain food supply, helped support agricultural manufacturing which provided good, union jobs. Helped support local coops which provided good off farm jobs for farmers, helped support local communities and schools. It was a redistributive process, it never worked thermodynamically as most of us know.

    Of course, all the armchair farmers can now rejoice that as Kunstler says, more people will be working on the farm. Wait until they find it is one of them who is back on the farm, it is very hard, low margin work and it looks like the margins just got worse. All margins suck without cheap energy.

    https://www.agriculture.com/news/business/poet-idles-ethanol-plants-corn-farmers-lose-home-for-27-billion-bushels?hid=ae2deb48cf78968d3b2abd8d78eb3d470b87f160&did=509530-20200407&utm_campaign=todays-news_newsletter&utm_source=agriculture.com&utm_medium=email&utm_content=040720&cid=509530&mid=31934382485

    Dennis L.

    • So the largest ethanol producers is reducing production, because people are driving fewer miles. I thought this was humorous:

      One future market for ethanol plants might be providing alcohol for the hand-sanitizing market. “We are continuing to evaluate how we can supply ethanol for hand sanitizer to help solve the shortage problem with the pandemic and provide an additional market for our product,” Lautt commented.

      • Dennis L. says:

        Yes, of course hand sanitizing is more than a small stretch.

        Ethanol was a somewhat stable market as long as miles driven remained consistent, it was a consistent price for farmers to sell into at almost any given time. It was also a source of feed(some have opinions as to the actual value) to cattle producers who one would not expect to require other sources. Ethanol was in effect a baseload for grain farmers in the midwest.

        Even in something as local as corn and ethanol it is a very interconnected market.

        Ethanol never worked as a fuel source, but ethanol did lesson the need for direct subsidizes to farmers. Farming has year long lead times assuming no crop failures, buffers need to be built in especially given the size of the world population.

        Farmers are old, lose a few of them and it is a significant part of the producer population. Around me more land is showing for sale signs.

        This is a hell of a mess.

        Dennis L.

        • COVID rates seem to be low in farm states. The population density is too low. People don’t spend enough time in shared transit options, or in restaurants. So I don’t think we have a lot to worry about directly from COVID-19 directly affecting population. Low food prices and disrupted markets are likely to be a problem, however.

          The remainder that was left after making ethanol from corn was fed to livestock of various types. It isn’t very good food for them, but they can tolerate some of it in their diet. So either this type of food will need to be replaced by something else (such as just plain corn), or livestock production will fall. Perhaps that is not an issue.

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