Reaching the End of Early Stimulus – What’s Ahead?

Many people thought that COVID-19 would be gone with a short shutdown. They also thought that the world’s economic problems could be cured with a six month “dose” of stimulus.

It is increasingly clear that neither of these assumptions is correct. Despite the claims of epidemiologists, our best efforts have never been able to reduce the number of newly reported COVID-19 cases for the world as a whole for any significant period of time. In fact, the latest week seems to be the highest week so far.

Figure 1. Chart of worldwide COVID-19 new cases, in chart prepared by Worldometer with data through September 20, 2020.

At the same time, the economy, despite all of the stimulus, is not doing very well. Airlines are doing very poorly. The parts of the economy that are dependent upon tourism are having huge problems. This reduces the “upside” of economic recovery, pretty much everywhere, until it can be corrected.

Another part of the world economy doing poorly is clothing sales. For example, many fewer people are attending concerts, weddings, funerals, out-of-town business meetings and conventions, leading to a need for fewer “dressy” clothes. Also, with air travel greatly reduced, people don’t need new clothing for visiting places with different climates, either. Most clothing is bought by people from rich countries but made by people in poor countries. This cutback in clothing purchases disproportionately affects people who are already very poor. The loss of jobs in these countries may lead to an inability to afford food, for those who are laid off.

Besides these difficult to solve problems, initial programs set up to help mitigate job losses are running out. What kinds of things might governments do, if they are running short of borrowing capacity, and medical solutions still seem to be far away?

In Section A of this post, I outline what I see as some approaches that governments might take to try to “kick the can down the road” a while longer, as well as some general trends regarding near term outcomes.

In Section B, I explain how our current problems seem to be related to the more general “overshoot and collapse” problems of many prior economies. I show that historically, these overshoot and collapse situations seem to have played out over a number of years. In many ways, the outcome might look more like “overshoot and decline” than “overshoot and collapse” from the point of view of an observer at the time.

In Section C, I explain two different types of “breakage” we can expect going forward, if we are really dealing with an overshoot and collapse situation. In the first, oil production is likely to fall because of the collapse of some of the governments of oil exporters. In the second, the international trade system breaks down because of problems with the financial system and countries no longer trusting each other’s currencies.

[A] Ideas for “Sort of” Addressing the Economic Problems at Hand 

The following are a few ideas regarding possible mitigation approaches, and the expected results of these attempted solutions:

[1] Programs to keep citizens in their homes will likely be extended. Mortgage repayment programs will be extended. Renters will be allowed to stay where they are, even if they cannot afford the rent.

[2] New programs may be added, allowing those without adequate income to pay for electricity, heat, water and sewer connections. These programs may be debt-based. For example, homeowners and renters may be given loans to pay for these programs, with the hope that eventually the economy will bounce back, and the loans can be repaid.

[3] More food bank programs will be added, with governments buying food from farmers and donating it to food banks. There is even an outside chance that people will be given loans so that they can “buy” food from the food bank, with the hope that they can someday repay the loans. All of these loan-based programs will appear to be “cost free” to the government, since “certainly” the crisis will go away, and borrowers will be able to repay the loans.

[4] Loans to students will increasingly be put in forbearance, to be repaid when the crisis is over. Auto loans and credit card debt may be also be put into forbearance, if the person with the debt has inadequate income.

[5] Even with all of these actions, families will tend to move back together into a smaller total number of residences. This will happen partly because citizens won’t want to be burdened with even more debt, if they can avoid it. Also, older citizens won’t want to move into facilities offering care for the elderly because they know that COVID restrictions may limit with whom they can have contact. They will much prefer moving in with a relative, if anyone will take them in return for a suitable monthly payment.

[6] As extended families move in together, the total number of housing units required will tend to fall. Prices of homes will tend to fall, especially in areas where citizens no longer want to live. Governments will encourage banks and other mortgage holders to look the other way as prices fall, but as homes are sold, this will be increasingly difficult to do. In many cases, when homes are sold, the selling prices will fall below the balance of the debt outstanding. Governments will pass laws not allowing financial institutions to try to obtain the shortfall from citizens, at least until the crisis is over.

[7] Some businesses, such as restaurants without enough patrons and colleges without enough students, will need to close. Clothing stores without enough sales will also need to close, as will retirement homes without enough residents. All of these closures will lead to a huge amount of excess commercial space. It will also lead to the loss of more jobs, raising the number of unemployed people.

With these closed businesses, the price of commercial real estate will tend to fall. Lenders will be encouraged to “extend the loans” and “pretend that asset prices will soon recover,” when renewing loans. Even this approach won’t be enough in many cases, as businesses file for bankruptcy.

[8] With fewer residences and business properties occupied, the amount of electricity required will fall. Wholesale prices for electricity will tend to fall, pushing ever more fossil fuel and nuclear electricity providers out of business. Electricity outages will become an increasing problem, as renewables become a larger share of the electricity mix and are unable to increase supply when needed. Rolling outages will become more common.

[9] Pensions of all kinds will become more difficult to pay. Government programs, such as Social Security in the US, will have less revenue to pay pensions. There are funds set aside in the Social Security Trust Fund to cover a shortfall in funding, but these funds are simply non-marketable US government debt. In theory, the US government could add more debt to the Trust Fund and make payments on the basis of this added debt. Otherwise, the US will likely need to either raise taxes or increase the “regular” government debt level, in order to continue to pay Social Security pensions as planned.

Private pensions, backed by bonds and shares of stock (and perhaps other assets), will find the values of their available assets are falling. Governments, if they are able to, will try to hide this problem. For example, regulators may develop a new way to value assets, so as to make pension funding shortfalls mostly disappear.

In the case of pension bankruptcy, government insurance is often theoretically available. In the US, Pension Benefit Guaranty Corporation provides coverage; other countries may have similar programs. Unfortunately, this program is not set up to handle a large influx of new bankrupt plans, without raising taxes. The problem then will be raising taxes enough so that one year’s pension benefits can be paid, pushing the problem down the road a bit longer.

Bank accounts have similar guarantees, with similar funding problems. The guarantee organization has very little funds available, without raising taxes or somehow increasing debt.

[10] Stock market prices will tend to fall, leading those who have purchased shares using debt to want to sell quickly, pushing the stock market down further. Currency relativities will fluctuate wildly. Derivatives of many kinds will encounter payment problems. Many ETFs likely won’t work as planned. Governments will try to figure out ways to somehow mitigate these problems to the extent possible. For example, stock markets may be closed for a time to hide the problems. Or, additional time may be given to settle purchases, so that perhaps the deficiencies can be corrected. Eventually, some banks may be taken over by governments, to assure the operation of the parts deemed essential.

[11] Eventually, governments may find it necessary to nationalize a wide range of essential businesses. These could range from trucking companies to banks to oil companies to electricity transmission repair companies. If the balance sheets of these companies are too bad, governments may simply stop publishing them.

[12] These types of actions will mostly be available to “rich” countries. Poor countries can tap their “rainy day” funds, but these will soon be exhausted. In this case, poor countries will find that there is little they can do unless international organizations bail them out. Because of cutbacks in tourism and in orders of finished goods, such as clothing, these countries are likely to encounter high levels of unemployment. Without aid, the poorer citizens of these countries will find it impossible to afford an adequate diet. With inadequate nutrition, the health of low income citizens will decline, and they will easily succumb to communicable diseases, such as tuberculosis and malaria. Death rates are likely to skyrocket.

[B] What Happens When an Economy Outgrows Its Resources? 

Most people think that the issue we are dealing with is a temporary problem associated with a new coronavirus. I think that we are dealing with a much worse problem: The world’s population has outgrown the world’s resource limits. This is why our current problems look so difficult to solve from a financial point of view. This is part of the reason many people feel that shutting down the economy for COVID-19 is a good choice. There are really many reasons for the shutdowns, besides preventing the spread of COVID-19: Keeping people inside stops the many protests related to low wages. The shutdowns appear to restore order to a troubled system. Broken supply lines from shutdowns elsewhere reduce raw materials availability, making it more difficult to keep production in one part of the world operating, when others are closed.

Overshoot and collapse is a problem that many smaller economies have encountered over the years. If I am right that we are now encountering a similar situation, there is a big change ahead. The change will not be instantaneous, however. The big question that arises is, “Over what time scale does such a collapse take place?” If it takes place over a number of years, it may look more like “overshoot and decline” than “overshoot and collapse” to those who are living through the era.

A recent partial collapse was that of the Soviet Union in 1991. The Soviet Union was an oil exporter. Oil prices had hit a high in 1981 and had been declining for 10 years when the Soviet Union collapsed. With low oil prices, it had been difficult to earn enough revenue to reinvest in new oil fields to replace the production that naturally declines as oil is extracted. Oil, directly and indirectly, had provided many jobs for the Soviet Union. After ten years of stress, the central government of the Soviet Union collapsed in 1991.

Low oil prices first slowed production growth between 1982 and 1987 (Figure 2). Oil production began to decline in 1988, three years before the government collapsed. Production gradually rose again in the early 2000s, as oil prices rose again.

Figure 2. Oil production and price of the former Soviet Union (FSU), based on BP’s Statistical Review of World Energy 2015.

What was surprising to me was the fact that consumption of all types of energy by the Soviet Union fell at the time of the central government collapse in 1991, even hydroelectric. The overall level of energy consumption never bounced back to its previous level.

Figure 3. Former Soviet Union energy consumption by fuel, based on data of BP’s Statistical Review of World Energy 2018.

What happened was that many inefficient industries were forced to close. Some of these industries were in the Ukraine; others were in Russia and elsewhere. As they closed, less electricity and less oil and gas were used.

The loss in energy consumption was pretty much permanent. The manufacturing that left the Soviet Union was replaced by other, more efficient, manufacturing elsewhere. Also, without their previous manufacturing jobs, the people of the former Soviet Union were poorer. They could not afford to buy cars and homes, keeping fuel consumption lower.

Another indicator regarding the speed of collapses is the analysis done by researchers Peter Turchin and Sergey Nefedov, regarding collapses of eight agricultural economies from earlier periods. I compiled the information they provided in the book Secular Cycles in the chart shown in Figure 4. In the cycles they analyzed, the “crisis period” seemed to last 20 to 50 years. One thing that is striking in their analysis is that epidemics often played a major role in the declines. As wage disparity grew, poorer workers ate less well. They became more vulnerable to epidemics and often died.

Figure 4. Chart by author based on information provided in Turchin and Nefedov’s book, Secular Cycles.

In these early cycles, the major industry was farming. These collapses were in the days before electricity use. In these situations, collapses tended to play out over 20 to 50 years. Our more modern economy, with its just-in-time supply lines, would seem likely to collapse more quickly, but we can’t know for certain. This analysis is thus another data point that suggests that what may be ahead could be closer to “overshoot and decline” than “overshoot and collapse.”

[C] What May Be Ahead

[1] We are likely to experience the collapse of central governments of several of the oil exporting nations, in a manner not entirely different from the collapse of the Soviet Union in 1991.

Oil prices have been low for a very long time, since 2008, or at least since 2014.

Figure 5. Weekly average spot oil prices for Brent, based on data of the US Energy Information Administration.

Most OPEC oil producers seem to require prices in the $100+ per barrel range in order to be able to fund the programs their people expect (Figure 6). One important program provides subsidies for imported food; other programs provide jobs. Without these programs, revolutions to overthrow the current leaders seem much more likely.

Figure 6. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP. Figure is from 2014.

At this point, oil prices have been below $100 per barrel since 2014, a period of 6 years (Figure 5). Stress is increasing; OPEC producers have cut production in an attempt to try to get prices up. Prices are now in the low $40s.

We should not be surprised if, over the next few years, oil production starts to fall in several areas around the world because of internal problems. Another possible impetus for the drop in production may be wars with other nations. Some such wars might be started simply to try to get the price of oil up to a more acceptable level.

We have been falsely led to believe that oil is not important; renewables can handle our needs in the future. In fact, oil is essential for today’s farming. It is essential for transportation of goods and services of all kinds. It is essential for the construction industry and for mining. Researchers in academic institutions have received grants, encouraging them to put together models regarding what could be ahead. These models tend to be extremely unrealistic.

One of the most absurd models is by Mark Jacobson. He claims that by 2050, the world economy can operate almost entirely using wind, solar, and hydroelectric. Unfortunately, we don’t have until 2050; world oil, coal, and natural gas supplies look likely to decline in the 2020 to 2025 timeframe because of low prices. Another problem with this approach is that there is not very much fossil fuel to extract, because most of what appears to be available from resource studies cannot really be extracted at the low prices set by physics. 

The underlying problem is confusion about which direction prices go, as an economy reaches limits. Economists assume that scarcity will cause prices to rise; the real story is that fossil fuel prices are set by the laws for physics because the economy is a dissipative structure. As the economy approaches limits, prices tend to fall too low for producers, rather than rise too high for consumers.The sad truth is that we can’t even count on the continued extraction of the small amount of fossil fuels that Jacobson assumes will exist after 2050.

[2] We are likely to see a huge change in the international financial system and in the international trade system in the next few years. 

As long as there were plenty of resources, relative to the world population, the optimal approach was to do as much international trade as possible. This approach would maximize world GDP. It would also add jobs in developing areas of the world without too huge an impact on job availability in the countries moving their manufacturing to lower-cost areas.

In the last few years, it has become increasingly evident that there aren’t enough jobs that pay well to go around. This is really the underlying problem with respect to the increased hostility among nations, such as between the US and China. Tariffs are being used to try to bring jobs that pay well back to those who need them. Strange as it may seem, it takes fossil fuels to create jobs that pay well.

Figure 7. World Trade as a percentage of GDP, based on data of the World Bank.

Figure 7 shows that international trade was rising as a percentage of GDP for many years, and it hit a high point in 2008. Since then it has bounced around a little below that high point. In 2020, it will clearly take a big step down because of all of the cancellation of trade related to COVID-19 restrictions.

We saw earlier that commodity prices tend to fall too low for producers. Indirectly, this means that profits tend to fall too low. Interest rates tend to follow these low profits down, since businesses cannot afford to pay high interest rates.

With these low profits and low wages, the financial system gets strained. “Debt and more debt” seems to be the way to fix the system. Growing debt at ever-lower interest rates is encouraged. These low interest rates tend to raise asset prices because monthly payments to buy these assets fall with the falling interest rates. Stock markets tend to rise, even when the economy is doing poorly.

If the many strange approaches I outlined in Section A are used to add even more debt to keep the system afloat, eventually some part of the system is going to “break.” For example, banks will stop issuing letters of credit with respect to purchases made by buyers that don’t seem sufficiently creditworthy. Banks may stop trusting other banks, especially if the banks do not really seem to be solvent. At some point, the international financial system seems likely to start “coming apart.” Eventually, the US dollar will stop being the world’s reserve currency.

My guess is that a new two currency system will develop. Governments will issue a lot of currency for local use. It will not be useful for buying goods from other countries. Much of it will be used for buying locally produced food and other locally produced goods.

Very little international trade will be done. Any international trade that will be done will occur between trusted partners, at agreed upon exchange rates. Perhaps a special currency will be used for this purpose.

In this new world, individual countries will be very much on their own. With very little fossil fuel, countries will tend to lose electricity availability very quickly. Transmission lines will go unrepaired. It will become impossible to fix existing wind turbines. Road repair will become impossible. Electric cars will likely be as unusable as gasoline powered ones.

There will likely be fighting about resources that are available, leading to countries subdividing into smaller and smaller units, hoarding what little resources they have available.


1Energy prices tend to fall too low because, as the economy gets more complex, wage and wealth disparity tend to grow, reflecting differences in training and responsibility. The problem occurs because low-paid workers cannot afford to buy very large quantities of goods and services produced by the economy. For example, many cannot afford a car or a home of their own. The spending of high-paid workers does not offset the loss of demand by low-paid workers because high-paid workers tend to spend their wages more on services, such as advanced education, which require proportionately less energy consumption. Ultimately, the lack of demand by low-paid workers tends to pull down the prices of oil and other commodities below the level required by producers.

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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.

2,450 thoughts on “Reaching the End of Early Stimulus – What’s Ahead?

  1. Very different on the street here in Cambridge today: fairly deserted (might be the weather, but Thursdays are normally quite busy) and about 75% mask-wearing, which is of course not obligatory in open spaces. A few weeks ago it was only 10-20% or so.

    Most notable non-wearers of masks: building workers, lower class elderly.

    Highest % wearing them: middle-class women, and students.

    Also, more signs of distancing and a change of atmosphere – has Bungling Boris scared them?

    Being a horny-handed artisan I do not wear one in the open air, but may start to conform, as it also brings out my lovely eyes, or so I’m told…..

    • Furthermore, by not wearing a mask on the street, we are now risking looking suspicious in the eyes of the pod-people, and in these days doesn’t really pays to appear different from our dear neighbours. From now on I will never leave my home without two masks on, and the biggest face shield. Precaution is never too much.

      • Hmm, JMS how could you be distinguished from a subversive rioter? Be careful to carry nothing that looks like a Molotov.

        I saw only one face-shield, on a shambling, depressed-looking old man, who almost looked like a tramp but was probably a miserly billionaire.

        • No no no. Only with two masks and a sturdy face-shield on you can prove you’re fully committed to the cause of public health, that you are neither a saboteur nor a bio-terrorist. Better triple safe than once sorrow IMO.

          • If proving you’re not a threat is the issue, you only need to do what everyone else is doing. If everyone is wearing a simple mask, and you wear one too, you won’t stand out. Maybe you’re being sarcastic and (not uncharacteristically) I missed the point. 🙂 Otherwise, if you shield up disproportionately, you WILL stand out.

        • didn’t mask wearing used to be reserved for bank robbers and horse thieves? I mean, you’re supposed to be hard to recognize with them on, right? bandanas were for cowboys (trail dust) and some construction work. of course, medical masks, so as not to infect the patients.

          now, you’re asked to remove your sun glasses when entering a bank, but the mask is OK. it seems so backwards now.

    • I often run on the river path here in Idaho. Its interesting that about 50% wear face masks, out in the bright sun and wind with very few people around.

  2. I will pick up on the thread with All is Dust:

    Yes, I would not rule out the adaptability of the British, although politically CBI is dominant at present and its intention is to expand the present economy as much as possible.

    TP has agreed with CBI to lift any cap of incomers and over 700,000 entered in the year to July (ONS). And that is the annual scale that the TP is looking to maintain in coming years and decades, basically as many workers as the economy can absorb. That is going to leave the population of Britain as high as it could possibly be when collapse/ downsizing happens.

    So the signs are that TP does not take energy perspectives seriously, its modus operandi is BAU at all costs. It is not looking to downsize so much as to constantly upsize as much as possible.

    UK is a capitalist state and GDP growth is its bottom line. The only alternative to that is likely a collapse of the profit, debt and growth based economy. Perpetual economic growth is built into the system. The capitalist economic model dictates what is necessary for the model to continue, growth, and there is no way that any capitalist state party is going to countenance a switch to an alternative model to capitalism.

    It seems that any fundamental change to the UK economy, that is needed to adapt to future conditions, will not occur deliberately through foresight and planning, but only through reactions to the problems of the present.

    There are recent and present tendencies toward the socialisation of capitalism; QE, ZIRP, NIRP, bank bail outs, state support for businesses, and now furlough schemes for workers, generalised state support of businesses, massive public debt. They are adaptations to the present that nevertheless adapt it somewhat to the future and that path the way for further adaptation.

    As Gail mentions in her article, the socialisation of the economy looks set to continue in the future with the nationalisation of banks to prop up the economy, and perhaps the nationalisation of the ‘commanding heights’ of the economy as Lenin put it, the structural bits of the economy that allow the rest of it to function, ‘from trucking companies to banks to oil companies to electricity transmission repair companies’.

    Those socialising policies would be intended to allow the economy to continue to function in the face of declining systemic profitability (TRPF) with a particular locus in the energy sector. The big question then would be whether they would allow it to function without growth, without overall profit. Can a capitalist economy be structurally socialised such as to bypass the most basic laws of capitalism? How is that to be squared with structural debt commitments? Or will it be necessary to simply scrap the entire capitalist system, with its profits, debts, growth, in its entirety for a wholly planned economy? Who knows?

    So, it seems likely that UK will end up where it needs to be, by the force of necessity, ‘the mother of invention’. Its gradual adaptation to the changing demands of the present will gradually adapt it to the requirements of the future – even if that ultimately requires a complete break with capitalism and a shift basically to socialism. The gradual socialisation of the economy will prepare the way and dispose the society to the eventual complete socialisation. A new scenario of no systemic growth will do away with capitalism – no growth, no profits, no capitalism.

    So, it does seem curious that UK, which does not take future energy problems seriously or any need to plan for the future, and that just keeps piling up the population to keep BAU going and without any regard for how that will square with future downsizing, nevertheless seems to be ‘ahead of the curve’ in terms of its constitutional break up and its failure to secure trade deals. I agree with you that the lady has not yet sung on trade deals but even so the tendency, be it actually realised now or not, is starkly visible with UK.

    How is it that a capitalist state that evidently does not take future change seriously yet ends up with the exact regionalism, and perhaps the economic relative isolation, that the future will anyway entail and demand? Why are those tendencies already visible? Presumably present regional and relative ‘isolationist’ change would better place the island to be adapted in the future without having to then go through all of that when everything else is going on.

    It may be blind chance, along the lines of ‘every cloud has a silver lining’ and the ‘law of unexpected consequences’. It may simply be that present government ‘failures’ to realise its intentions do by blind luck better adapt it to the changed future. But it remains ‘curious’ nevertheless.

    I suppose that one could apply the same sort of analysis as above – it is the reactions of the country as a whole to the present, not just of the government but also of SNP, its adjustment to the present that is and will adapt it to the future. Not that things always turn out ‘for the best’, they do not. That is the exoteric perspective.

    It would perhaps be quasi-mystical (if scientific) to suggest that human ideas and policies are epiphenomenal (not rooted in consciousness) to structural energy dissipation and that people are unconsciously intuiting, neurologically, the needs of the energy structure, both to maximise dissipation now and to adapt now to a lesser but still maximised dissipation in the future. If the ‘function’ of humans is to dissipate energy then one cannot entirely rule out epiphenomenal preparatory adaptation to future situations that are ‘known’ to the society but not yet consciously dominant.

    On that ‘perspective’ it would not ‘matter’ if UK is presently piling up a huge, unsustainable population and that lots will die during the transition to future, downsized ways – what ‘matters’ is that energy dissipation is maximised now and that it will be maximised, if lesser, in the future. So a perspective of epiphenomenal adaptation to energy dissipation does seem to ‘square the circles’.

    The ‘will to power’ as maximum energy dissipation, according to the operation of the maximum power principle, is thus the ‘essence of reality’ and the underlying motivational ‘force’ of human behaviour and of preparatory social adaptation, whether we consciously realise it or not. Then the perspective is one of organic function (like plants) ordered to energy dissipation, even epiphenomenally as organic function. Who knows?


    • Given the UK has more fossil fuels than the rest of Europe put together, I think we will be just fine.

      • It would depend, among other things, on what oil price the domestic market could afford. Future North Sea oil developments would require an oil price of $60-$70 to break even, which is much higher than the present oil price. Cheaper fields are still being used up but there is a view to the end of production.

        It seems highly unlikely that UK could sustain present wealth, or even population, levels through dependence on North Sea oil. The age of rapid growth, and present living standards, depended on cheap energy, about $20 per barrel, and that age is coming to an end. Frankly the break up of UK would be the least of our worries.

        Perhaps Gail could give a clearer perspective on the future of UK energy sufficiency.

          • Yes, EROEI.

            Ultimately it comes down to whether less energy goes into energy delivery than the energy obtained.

            An EROEI of 3:1 is sometimes considered viable for a prominent energy source.

            EROEI has to cover the energy costs of extraction, refining, storing, transportation, also the infrastructure involved.

            And then there is societal EROEI, the sum of all energy inputs in a society, which is highly complicated and has never been calculated in general because of the complexity of the variables.

            UK is already declining in energy consumption per capita, as Gail has pointed out on comments pg. 2, and it may be expected that ECPC would massively decline were UK to attempt self-dependence.

            So, it would seem necessary to strip away the levels of complexity involved in centralisation as energy consumption per capita falls, especially once it falls precipitously. It is simply what Empires and Unions, even countries, do as energy utilisation declines.

            Structures increase their complexity to dissipate more energy and they dissolve into parts as energy utilisation declines. It may be difficult to generate any sort of equation to suggest a general break up point but UK already seems to be headed there.

            • I would ague that what is primarily important is the overall EROEI of the whole system, for the mix of fuels available. A country that substitutes wind and solar for coal will likely see its average EROEI drop significantly. Depleting quality of coal mines will also cause a fall in average EROEI. Manufacturing will tend to move to countries with high average EROEI, leaving countries with falling EROEI with a mix of ever-lower paying service industries.

              Over time, I would argue that required EROEI may need to rise to handle a growing, more complex world economy.

              It is really the quantity of energy that is important. That quantity has to rise with rising population. EROEI requirements do not consider rising population, either.

              There is no evidence that a world economy can live on falling energy consumption. The emphasis on EROEI has tended to miss a lot of important considerations.

          • The value of oil also depends on how much value creation can be squeezed out of it.

            If a gallon of, say, gasoline, costs, say, 10 dollars to produce, sells for 5 dollars at the gas station, and helps its user create goods and services that sell for 500 dollars, then it’s pretty valuable by most standards, and government’s might well bye inclined to subsidize its production.

            On the other hand, if it costs 1 dollar to produce, sells for 5 dollars, and helps its user go joy-riding or Molotov cocktailing, then its value is dubious at best.

        • The people who put together the climate change models (including the future fuel estimates that are used) assume that there are huge deposits of coal under the North Sea that will be available in the future. These will be a major reason for climate change.

          Not everyone agrees with this view. It seems unlikely that the price of coal can ever rise high enough to make its extraction profitable. If it could be extracted, the other oil and natural gas could be extracted as well.

    • “It would perhaps be quasi-mystical (if scientific) to suggest that human ideas and policies are epiphenomenal (not rooted in consciousness) to structural energy dissipation and that people are unconsciously intuiting, neurologically, the needs of the energy structure, both to maximise dissipation now and to adapt now to a lesser but still maximised dissipation in the future.”

      IOW, every living being comes with the in-built skill to perceive which way the wind blows, ie, where is the energy ressource in any given moment and how to grab it and stock it possible. And when the resource turns scarce the standard answer is to conserve energy, consume less, lose weight, to wither, etc.

      • This is related to the fact that jobs that pay well require high energy. Showing off for others requires disproportionate use of energy. These are things that many people look for, if they are available.

        Leaders try to maximize the well-being of their people. If there is little energy available, it is important to discourage diversity. This has been China’s approach historically. In the US, with lots of energy, the tendency has been to encourage diversity.

        • Interesting, uniformity is likely a stress cue (as are exhibitions of poverty), like those cues given between plants, to indicate a source of stress and to allow anticipatory adjustment to cope with the stress; diversity (and exhibitions of wealth) is the opposite cue, that of an absence of stress.

          Military in particular, and workers generally, uniform to cue a hardiness and an ability to cope with stress. Thus societies, eg. China, impose uniformity to indicate a situation of stress and to produce a hardiness and application. Diversity indicates leisure and cues the absence of stress, and a less stressed application.

          Much of what we think of as ‘culture’ due to the variety of forms (eg. local dress), and as perhaps an organisational ‘intelligence’ peculiar to humans, is actually epiphenomenal organic function – here the communication of stress cues and the absence thereof, just like plants.

          Arguably the entirety of human behaviour is reducible to epiphenomenal organic function such as to maximise the dissipation of energy. Organisms (including humans) form complex biological structures, and social structures, to maximise the dissipation of energy according to their epiphenomenal organic functions.

          > Plant communication

          …. Stress cues

          Pisum sativum (garden pea) plants communicate stress cues via their roots to allow neighboring unstressed plants to anticipate an abiotic stressor. Pea plants are commonly grown in temperate regions throughout the world.[17] However, this adaptation allows plants to anticipate abiotic stresses such as drought….

          Upon experimentation, Falik et al. found that unstressed plants demonstrated the ability to sense and respond to stress cues emitted from the roots of the osmotically stressed plant. Furthermore, the unstressed plants were able to send additional stress cues to other neighboring unstressed plants in order to relay the signal. A cascade effect of stomatal closure was observed in neighboring unstressed plants that shared their rooting system but was not observed in the unstressed plants that did not share their rooting system.[18] Therefore, neighboring plants demonstrate the ability to sense, integrate, and respond to stress cues transmitted through roots….

          • Thanks! That does make sense. Japan is another very uniform culture.

            The individual countries of Europe tended to be quite uniform in the past, but some some countries (Sweden, Germany, UK come to mind, also France) have introduced quite a few immigrants to balance out their aging workforce. It isn’t terribly surprising that this adds stress.

            Norway, with its oil, has tended to be fairly diverse its culture, especially in recent years. I understand children in Norway are allowed a lot of latitude, for example.

            • Plants are wired to ‘sense’ some neighbouring species as stress cues. Neighbouring plants may be sensed and reacted to as beneficial or harmful.

              It could be that ethnic diversity in a society is sometimes a ‘mixed cue’ that indicates an absence of stress, due to the absence of uniformity, and also the presence of stress due to the presence of different or unfamiliar ‘plants’.

              Western media often associate ethnic diversity with the absence of stress through an association with leisure, like music videos and consumer adverts. Other media representations may be less positive like the new reports from Paris today. No doubt it all contributes to how the human brain processes the information as indicative of stress or its absence.

              No doubt the absence of uniformity can also be a stress cue, depending on the situation and the interpretation of the appropriateness of the absence, according to the hardiness and the ability to cope with stress that is attributed to the situation. Eg. uniformed or ununiformed school kids.

              It all depends on how the brain processes the information, which is likely somewhat formed through personal experience and social representations but perhaps with some default setting.

              However complex the neural and social processing of the information, it remains at base epiphenomenal organic function with analogues in plants and other animals.

              > Scientists find Plants communicate Telepathically

              …. Good Neighbours and Bad Neighbours

              According to the study: “This demonstrated that plants were able to sense their neighbours even when all known communication channels are blocked (i.e. light, chemicals and touch) and most importantly, recognise the potential for the interfering presence of a ‘bad neighbour’ and modify their growth accordingly.”

              Then, to test if they could see similar effects with a ‘good neighbour’, they tried the same experiment with other chili plants and then with basil. When there were fully-grown chili plants in their presence blocked by the plastic, the seeds showed some improved germination (“partial response”). When basil was on the other side of the plastic, they found that the seeds grew just as well as when the plastic wasn’t there….


            • * Neighbouring plants may be sensed and reacted to as potentially beneficial or harmful.

              It is an important distinction – it is about cues that allow for the anticipation of benefit or harm and for any appropriate adjustment that is due.

              Actual benefit or harm is obviously also reacted to.

      • Yes, and if ‘knowing’ and ‘thinking’ are, as we now know, activities of the nervous system, and consciousness is an acausal by-product of those complex neurological activities, then it is congruent that the human brain is basically acting much like a plant acts, to intuit the environment so as to maximise energy utilisation, and to survive according to the selection implied in the maximum power principle. Much of our behaviour is ‘unconscious’ and not necessarily fully ‘understood’ in consciousness. Our behaviour is in any case entirely determined through epiphenomenal organic function.

        (Btw. there is nothing distinctively atheistic about that perspective. Augustine, Aquinas, Luther and many others all interpret human behaviour as determined outside of consciousness.)

  3. CHS has a new post regarding the financialization of the economy but I think he and others miss the point.

    The real gainers from financialization were the retirees, the older generation. Simple math, pension plans assume and go for a 7%+ return in an economy that struggles to grow at 3%. Pension planners found people to promise the returns, the financial type did what was asked of them and skimmed some for themselves.

    Take the net present value of what is promised through various pension plans and compare it to the wealthy elite, a guess is the pension plans win, the elite got there first so they took theirs out first.

    Dennis L.

    • very reasonable.

      all when there were bankable investments, many/most that could produce a high return.

      now, net energy flat or down, so current business/new projects don’t produce good returns, so interest rates can be near zero since there is nowhere else to get higher returns.

      pensions work best with increasing energy, can continue for a while with flat energy, and will disappear with decreasing energy.

    • Actuaries didn’t understand that the growth they were observing was temporary. I don’t think that they really separated “inflation” from “real growth” either. They put together models and truly believed those models.The “history” upon which they based their assumption didn’t go back very far, either. Their history must have been limited to post World War II returns. Certainly nothing like the Depression or the World Wars could ever happen again!

      I know that my parents greatly benefited from the high interest returns. They bought a joint life annuity that assumed a 7% annual return, and my mother lived to be 95.

      You and I and a lot of commenters benefitted from the plentiful job market that was available, years ago. We also benefitted from the ability to buy homes that later appreciated in value. We could get these benefits, even without a pension. Some of us were able to get pensions, as well, in addition to Social Security promised by the government.

      It is difficult to see our children struggling with a system that works much less well. The unrealistic pension promises really need to disappear, but no politicians wants that to happen. In fact, the cost of an expensive college education is becoming increasingly questionable. The jobs just aren’t there.

      • A friend of mine is a senior fundraiser for Cambridge University, and her task is to enable poorer students to graduate without incurring any debt by funding prizes and bursaries.

        Most of the well-off alumni she approaches are 60-70, and they simply can’t appreciate how times and conditions have changed for this new generation.

        Often they will say, ‘I started with nothing, they can do it too!’

        Ironically, it is the alumni who were born rich who are the most ready to sign cheques and leave bequests, and who can gasp what has changed and also sympathise.

  4. Ms. Tverberg you are always a ray of sunshine! That said, I fear you may be closer to correct than wrong. Is much of this because our economy is entering/continuing a debt deleveraging stage (depends where you live I suppose)? The US let some gas out of the bag following 2008, but Canada where I live we just kept piling on.

    In Alberta, specifically, the bleeding is getting much worse given it’s a resource province. My brother works in oil & gas and nearly all meetings have some talking points around further layoffs. I was laid off in 2015 from an oil service company following that collapse in oil prices, but now work in healthcare analytics… so lots of COVID business in my everyday now.

    • Canada has managed to “bounce along” for a very long time. It has oil, natural gas, and hydroelectric resources. To give you an idea of how energy consumption per capita compares to some other countries, I put together this chart, comparing Canada’s energy consumption per capita with that of the US and the UK.

      Canada is “way up there.” The US fell behind with the “oil crisis” in the 1970s, when it needed to send some of its manufacturing elsewhere. It also stepped down, more than the Canada, during the 2008-2009 recession. If the economy was not doing too badly, deleveraging was not needed.

      Now that oil prices down, layoffs are needed. Some debt needs to disappear as well, especially with respect to high-priced homes in areas where workers are being laid off. I notice that the US is laying off workers in the oil fields in Texas as well, now.

  5. Enquiring minds want to know. Why did H1N1 of the early 1900″s end? The CDC site has a nice history and well as current reconstruction of the virus, but no explanation a to why it ended and was not seen again. The History Channel has a nice article referenced below.

    The History article claims 675K deaths from Spanish flu with a US population of 104M at that time so 2M deaths in today’s world would be expected. Their thesis is the pandemic ended when either those who could not fight it died, or those who could lived. It is interesting that many of the common ideas of today were applied then, nice, quick read.

    I am old, I am concerned but maybe there is nothing that can be done. We have come to expect man to conquer all, we have certainly conquered most of the biomes, viruses and bacteria are pesky little things, they do seem to win in the end as well as the beginning.

    Interesting times.

    Dennis L.

    • Thank you, Dennis, for one of your usual notes of sanity. The science is settled and has been for decades: (a) corona viruses cannot be stopped; they will eventually infect everybody; (b) effective vaccines are almost impossible because the virus mutates too fast, and if you give a virus designed for one strain to a patient infected with another strain, you are as likely to do harm as to do good.

      In other words, almost everything governments have done, and are doing, is worse that futile: it is almost entirely counterproductive. History will look back on this period with the same mixture of compassion and contempt with which we regard the flagellants who tried to avoid the Black Death.

      • “The science is settled and has been for decades: (a) corona viruses cannot be stopped; they will eventually infect everybody;”

        yes, so in the USA, 300 million times 0.2% death rate = 600,000 dead.

        that will be almost all elderly, who would have died of something else within a few years anyway. This is NOT tragic.

        otherwise, small numbers of younger unhealthier people will die, which is an additional price the unhealthy will pay for their basically voluntary health situation (obesity up to about 40%!).

        I hope health workers are better protected now, and everyone should now know about vitamin D.

        there is also a penalty for lack of knowledge about vitamins.

        ps: setting aside the somewhat rare health issues for some survivors, which should be reduced with better (scientific) medical treatments.

    • The US seems to have had vastly better luck than most of the world with the Spanish flu. It only had 675,000 deaths, compared to “at least 50 million worldwide.” The US had a death rate of between 0.6% and 0.7% of the total population, while the rest of the world had a death rate of over 3% of the total population!

      I strongly suspect that quite a few people around the world were in poor health, and that health conditions in the US were somewhat better than other countries. We know that peak coal in the UK came about 2013-2014, and that it was a coal exporter. Wage levels were way too low in the UK at that time, because the price of coal was far below the cost of extraction. The Depression and World War II followed, as did peak coal in Germany. It was low energy prices that was causing huge problems around the world, then as now.

      I wonder if the H1N1 flu was a relatively mild infection that killed a lot of very weak people at the time. If everyone else did as well as the US with the Spanish Flu, I expect that it would have never made history books. The 675,000 deaths may equate to 2 million now, but this would not have been much out of the ordinary, given all of the epidemics and famines that occurred back in those days.

      • I wonder if the H1N1 flu was a relatively mild infection that killed a lot of very weak people at the time.

        There is that possibility. Chronic poor nutrition and poor sanitation are two of the major contributory factors to premature death.

        There were also a lot a vaccinations going on around that time. Who knows what was in them?

        The fate of Pfeiffer’s bacillus as the probable cause of influenza is reflected in the use of vaccines in the United States during the pandemic of 1918–1919. By 1918, the successful use of some vaccines, especially those against rabies, typhoid fever, and diphtheria, as well as the use of diphtheria anti-toxin, had raised high expectations for a vaccine against influenza. Those who already had a vaccine in hand were quick off the mark to promote their vaccines as sure preventives or cures for influenza. Drug manufacturers aggressively promoted their stock vaccines for colds, grippe, and flu. These vaccines were of undisclosed composition. As public anxiety and demand swelled, there were complaints of price gouging and kickbacks. (p. 114–6) Preexisting vaccines of undisclosed composition were also endorsed by physicians such as M.J. Exner, who actively promoted in newspaper interviews and testimonials the vaccine developed some six years earlier by his colleague, Ellis Bonime. Bonime was a late champion of the tuberculin treatment of tuberculosis and an adherent of the opsonin theory of immune response and of the therapeutic use of vaccines. His vaccine was claimed to prevent pneumonia, influenza, and blood poisoning. Exner’s boosterism paid some dividends. At least one municipality, Far Rockaway, New York, announced that it would provide Bonime’s vaccine to all its citizens.

        Early in the pandemic, more highly respected and well-placed authorities developed vaccines based explicitly on Pfeiffer’s bacillus. On October 2, 1918, Royal S. Copeland, Health Commissioner of New York City, sought to reassure citizens that help was on the way, because the director of the Health Department’s laboratories, William H. Park, was developing a vaccine that would offer protection against this dreaded disease.Park’s successes in combating diphtheria with anti-toxins and vaccines developed in these same laboratories gave Copeland’s announcement much weight. Park explained to his colleagues that he and his staff consistently had been able to isolate Pfeiffer’s bacillus from influenza cases, and that his laboratory had isolated the current strain, shown that animals injected with it developed specific antibodies, and developed a heat-killed vaccine that was to be administered in three doses at two-day intervals.

        Park’s was not the only Pfeiffer’s bacillus influenza vaccine to make an early appearance during the pandemic. At Tufts Medical School in Boston, Timothy Leary, professor of bacteriology and pathology, developed another Pfeiffer’s bacillus vaccine. His was developed from three locally isolated strains, and it was heat-killed and chemically treated. Leary promoted his vaccine as both a preventive and a treatment for influenza. Other Pfeiffer’s bacillus vaccines soon followed. Faculty from the Medical School of the University of Pittsburgh isolated 13 strains of the Pfeiffer’s bacillus and produced a vaccine from them by modifying the techniques Park had used. In the crisis atmosphere of the pandemic, the Pittsburgh vaccine developers isolated their strains, prepared the vaccine, tested it for toxicity in some laboratory animals and in two humans, and turned it over to the Red Cross for use in humans—all in one week. In New Orleans, Charles W. Duval and William H. Harris from Tulane University’s Department of Pathology and Bacteriology developed their own chemically killed Pfeiffer’s bacillus vaccine. Their justification for its use was the common presence of the bacillus in influenza cases and the example of the typhoid vaccine whose administration schedule they followed.

        It was not only heads of bacteriological laboratories who acted on the assumption that Pfeiffer’s bacillus was the cause of influenza and developed vaccines on that assumption. Some private physicians did the same. Horace Greeley of Brooklyn, New York, reported isolating 17 strains of the bacillus from 17 patients, and from these “strains,” he developed a heat-killed vaccine intended to be administered in three increasing doses. With it he immunized his own patients, and he distributed eight liters to colleagues who did the same.

        These vaccines were widely used. Park’s vaccine was released to the military for use in Army camps as well as to private physicians. It was also used as corporate policy among industrial workers, including the 14,000 employees of the Consolidated Gas Company and 275,000 employees of the U.S. Steel Company. Leary’s vaccine was used frequently during the epidemic in state custodial institutions of the Northeast and by some private physicians. Duval and Harris reported immunizing approximately 5,000 people, most of whom were employees of large New Orleans companies. Almost without exception, those reporting on the use of these Pfeiffer’s bacillus vaccines reported that they were effective in preventing influenza.

        • Your quote is from a government document. There were are lot of different things going on then, including vaccines, that we really don’t understand. Presumably they had no influence on the epidemic, but we don’t really know.

      • We should recall that by the end of WW1, most of the inhabitants of the combatant states were very poorly nourished and stressed.

        • World War I was fought in Eurasia, primarily, without battles in the new world. Thus, the US would likely have been less affected. I understand that Australia was pretty much left out of the Spanish Flu, because boat travel to the country took so long. There weren’t battles fought there either.

          If we believe the 10% fatality rate of the Spanish Flu, the existence of 675,000 deaths in the new world means that 6,750,000 people in the US contracted the illness. This would amount to 6.5% of the population of 104 million who contracted Spanish Flu. We are told that worldwide, one third of the population contracted Spanish Flu, and 3%, or over 50 million, died.

          One other data point is interesting. The latest estimate I have read of the percentage of US citizens who have contracted COVIC-19 is 11%. Thus, we seem to already be way ahead of the percentage of individuals who contracted the Spanish Flu in 1918-1919. People back in that period were fairly isolated. Farmers tended to work mostly on their own farms. There weren’t big conventions going on all of the time. (To some extent this was true in Europe, as well.) So the Spanish Flu may have mostly affected a list of fairly large cities, plus military people who were fighting in Europe.

  6. Jeff Snider has an excellent Podcast series on the Dollar vs. Euro Dollar system. Its complicated and I’m not going to say I understand it completely. But it seems we already have a 2 currency system. The FED has little control over the Euro Dollar system, which could be the ultimate down fall of the dollar.

    • I found a PDF that seems to describe what is going on. One quote from the PDF is

      “paraphrasing Dickens, a bank that has no dollars, gets another bank that has no dollars, to guarantee that everyone has dollars.”

      There seems to be a lot of money that is conjured out of thin air by off balance sheet guarantees. Sort of like all of the derivatives that provide guarantees, but don’t have funds behind them. More or less, insurance, without an insurance company behind them.

      I understand that China’s debt system is full of guarantees of one company that it will pay another company’s debt.

  7. Just returned from Zermatt (Switzerland) and Chamonix (France). At this time of year the streets usually throng with tourists from all over the world. Not this year, no-one at all from the US, Asia, Russia; only Europeans and no other Brits either. I can’t see how the businesses will survive the coming ski season.

    • I visited Zermatt for the first time in January. I hope it won’t end up being my only visit to that beautiful place. Given the current global ridiculousness, I wonder if I’ll ever get the chance to travel outside of the US again.

    • The younger Swiss could become mercenaries and raiders once more, like all the old mountain peoples.

      I wonder what the state of their pastures is? In the Pyrenees we have have trouble with dry winters and summer droughts destroying the grass which the flocks need.

      Also, young people in the domestic market going Vegan or being too poor to buy lamb.

      • Perhaps young people will get together in groups to do the raiding, or to offer “protection” if police departments don’t do this. In fact, the same groups could do some of both. Perhaps they would be “Robin Hood” types of groups. Most of the poor they would help would be themselves.

  8. When I wrote that pop will contract according to available resources, someone asked me about hijacking a cruise ship and going to the West.

    Actually, someone had that idea on 1973, and wrote Le Camps des Saints.

    Jean Raspail, who had traveled extensively in Asia, Africa and Oceania, wrote the Camp of the Saints , which starts with a bunch of desperate refugees from India seizing ships to travel to Europe (around South Africa because the Egyptians blocked the Suez Canal), and ends with a general collapse of the West.

  9. Gayle, thank you for an outstanding article.
    The gradual collapse (slow decline) process is partially a statistical function that gathers momentum over time, for example, if many homeowners are unemployed, and cannot make their mortgage payments, and a certain number of them have critical failures that due to lack of money cannot be repaired (such as a leaking roof, or a hot water heater that quits, that homeowner has just slipped down a rung on the collapse ladder. The neighbors next door have hot water while this homeowner does not. Or the other houses’ roofs are not leaking while one is. By book value, the value of that home is still equivalent to those next door, but in reality, it has lost value. If an attempt to sell the house is made then it manifests as falling housing value. This loss of value is hidden until a financial sale or repossession event. Banks and governments can hide the cost of the gradual collapse by artificially maintaining the book value of that property. As time progresses, the true collapsing value leaks out.

    The same is true for rental and other commercial property. Over time the relentless march of physics results in millions of failures here and there. No one has incentive, even if they have the means to maintain their properties. Eventually this reality catches up with banks and governments.

    The truly notable failures are when a government cannot maintain the water purification system, or the water supply system, or the electrical power system. But physics will get them also. What happens when a city cannot repair leaking water pipes? Even if they can still purify and pump water, the leaking pipes waste it all. The onslaught of physics induced failures snowballs until the system is completely non-functional.

    Supply chain problems are only part of it. Physics and the relentless need for cheap energy will destroy the ability of governments to maintain technological complexity.

    And so we slip down. All of these current financial tricks are hiding the scope of the problem. When the problems are visibly manifested, the avalanche gather momentum and power. At some point it cannot be stopped.

    • Very true. We can’t see the hidden “decay” that is going on, until it manifests in a sale. And neighbors won’t have an incentive to keep their homes up, it those nearby don’t.

      In recent years, insurance companies have begun using “Credit scores” for underwriting. They have found the people with low credit scores (slow in paying their bills, some not paid at all) are also ones who try to roll some previous damage into their claims. Often, the previous damage came from neglecting previously needed repairs. Of course, this means that poor people end up paying more for insurance, making it all the more difficult to afford the repairs that need to be made.

    • Excellent observations!

      One can see this process ‘live’ in Spain in abandoned villages.

      Stone, well-built, farmhouses, often hundreds of years old, will look more or less unchanged for years, but the inexorable decay proceeds, until the loss of only a few roof tiles in storms eventually causes beams to fall, floors to collapse and walls to shatter, and one is left with a structure that cannot be used in any way.

  10. One measure of economic activity is vehicle numbers and yesterday in the East Bay of the SF Bay Area it was traffic lite, even during the rush hour around 5 PM from Berkeley driving north on Highway 80. But what was more worrisome was the business we went to use to have various business tenants in several warehouses/buildings surrounding theirs were empty. And the business we visited had very little activity. The area was like a ghost town compared to the constant flow of vehicles coming and going it use to have. The owner said we all just need to find a way to get through this period.

    But as things stand even if there is an approved vaccine, we’re looking at April for most people to have been vaccinated, and even then the economy has to begin to build back up. That’s 7.5 months away just to get a fresh start, and what the heck is suppose to happen between now and then that suggests the economy can last that much longer?

    Yesterday was an eye opener as to just how tamped down the economy is. I mean we’re looking at a dire situation and all that seems to be going on in DC is talk of rejecting the prez vote and replacing it with a supreme court decision. So we lose our economy and democracy?! Wow!! What the heck happens then?

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