Category: monetary policy

We live in interesting times!

The impending ‘banquet of consequences’.

The Welcome page of this blog includes this:

Dogs ‘teaching’ man to be so successful a hunter enabled evolution, some 20,000 years later, to farming,  thence the long journey to modern man.  But in the last, say 100 years, that farming spirit has become corrupted to the point where we see the planet’s plant and mineral resources as infinite.  Mankind is close to the edge of extinction, literally and spiritually.

I continue that theme in Part Two of my book (Chapter 7: This Twenty-First Century)

Bad news sells! Bad news also causes stress and worry. In my previous explanation, I explained that the last thing you want is a catalogue of all the things that have that power to cause you stress and worry. However, I do see three fundamental aspects of this new century that have their roots in that loss of principles that I referred to in the previous chapter. They are

1. the global financial system,
2. the potential for social disorder, and
3. the process of government.

Because they are at the heart of how the coming years will pan out.

The first aspect, our global financial system, was selected because it underpins all our lives in so many ways. When I was living in southwest England I was a client of Kauders Portfolio Services[1]. The founder of the company, David Kauders, published[2] a book, The Greatest Crash, in 2011. It was an obvious read for me at that time and I still have the book on my shelves here in Oregon.
David explained that whether we like it or not, our lives are inextricably caught up in the twin dependencies of the global financial system: credit and debt. As he wrote in his opening chapter:

Households can barely afford their existing debts, let alone take on more. Since households now prefer not to borrow, indeed some even choose to pay back debt, it follows that those who have already borrowed, as a group, can no longer contribute to economic expansion.
People can be divided into borrowers and savers. With existing borrowers unable to afford or unwilling to take on extra debt, can new borrowers be found instead? Those who do not need to borrow are unlikely to volunteer. Except for the young wishing to buy houses, facing the reality that house prices are beyond their pockets, where are the new borrowers?
Businesses are also under pressure. There has been an inadequate recovery from recession, business prospects are poor as households cut back their spending. Lack of bank lending is a symptom rather than a cause, for if existing businesses were to be given more credit, they would probably be unlikely to find profitable growth opportunities in a world of austerity.

Later on in the book David describes this as “the financial system limit”. In other words, the period of growth and expansion, especially of financial and economic expansion, has come to an end in a structural sense. This was his perspective from 2011.

Recently, I chose to reread The Greatest Crash. What struck me forcibly, reading the book again some four years later on, was how visible this “system limit” appeared in the world today. Everywhere there are signs that the era of growth has come to an end. Many countries are now indebted to a point that reinforces the proposition of there being a financial system limit. The United States is greatly in debt[3] but the only thing mitigating that situation, for the time being anyway, is that the American dollar is the quasi dominant global currency.
The changing nature of the global population is also reinforcing the fact that this is the end of a long period of growth. Even without embracing the question of how much longer we can increase the number of people living on a finite planet, the demographics spell out a greater-than-even chance of a decline in consumption and economic activity. Simply because in all regions of the planet, except for India where there is still a growing youth element in the country, people are ageing. To state the obvious, ageing persons do not consume as much as middle-aged and younger persons.
Thus, the world’s economy that is just around the corner is certainly going to be very different to what it has been in the past. It is not being widely discussed. Worse than that, there is a widespread assumption adopted by many governments that a return to the “normal” economic growth of previous times is a given. Many do not share that assumption.

The second aspect that isn’t being spoken about is the potential for massive, widespread social disorder. All summed up in just three words: greed, inequality, and poverty. Just three words that metaphorically appear to me like a round, wooden lid hiding a very deep, dark well. That lifting this particular lid, the metaphorical one, exposes an almost endless drop into the depths of where our society appears to have fallen.
Even the slightest raising of awareness of where this modern global world is heading is scary. I have in mind the author Thomas Piketty who warned[4] that, “the inequality gap is toxic, dangerous.” Then there was the news in 2015[5] that, “Billionaires control the vast majority of the world’s wealth, 67 billionaires already own half the world’s assets; by 2100 we’ll have 11 trillionaires, while American worker income has stagnated for a generation.”

The third and final aspect that isn’t being widely discussed is the process of government. Not from the viewpoint of “left” or “right”, Labour or Conservative, Democratic or Republican (insert the labels appropriate to your own country), that is being discussed ad nauseum, but from the viewpoint of good government. It might be a terrible generalisation but it is still a fair criticism to say that many peoples of many countries have lost faith in their governments.
There appears to be a chronic absence of open debate about the need for good government, what that good government would look like, and how do societies bring it about.

If we were a dog pack, then our leader, our female mentor dog, would have moved us all to a new, pristine territory!

[1] My relationship was terminated when I became a resident of the United Staes in 2011.
[2] 2011, Sparkling Books.
[3] offers on the 14th November, 2014 that the Federal Debt of the United States was about $18,006,100,032,000.
[4] In his book Capital in the Twenty-First Century (Belknap Press, 2014).

Yes, these are indeed very interesting times!

So, dear reader, you can understand why a recent article over on Naked Capitalism spoke to me. It was penned by Satyajit Das, a former banker and the author of a number of books. Both Satyajit and Yves, of Naked Capitalism, were delighted to offer me permission to republish the full post.


Satyajit Das: Age of Stagnation or Something Worse?

Yves here. If you’ve read Das regularly, one of the characteristics of his writing is wry detachment. The shift to a sense of foreboding is a big departure.

By Satyajit Das, a former banker and author whose latest book, The Age of Stagnation, is now available. The following is an edited excerpt from Age of Stagnation (published with the permission of Prometheus Books)

If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth, only . . . wishful thinking to begin, and in the end, despair. C.S. Lewis

The world is entering a period of stagnation, the new mediocre. The end of growth and fragile, volatile economic conditions are now the sometimes silent background to all social and political debates. For individuals, this is about the destruction of human hopes and dreams.

One Offs

For most of human history, as Thomas Hobbes recognised, life has been ‘solitary, poor, nasty, brutish, and short’. The fortunate coincidence of factors that drove the unprecedented improvement in living standards following the Industrial Revolution, and especially in the period after World War II, may have been unique, an historical aberration. Now, different influences threaten to halt further increases, and even reverse the gains.

Since the early 1980s, economic activity and growth have been increasingly driven by financialisation – the replacement of industrial activity with financial trading and increased levels of borrowing to finance consumption and investment. By 2007, US$5 of new debt was necessary to create an additional US$1 of American economic activity, a fivefold increase from the 1950s. Debt levels had risen beyond the repayment capacity of borrowers, triggering the 2008 crisis and the Great Recession that followed. But the world shows little sign of shaking off its addiction to borrowing. Ever-increasing amounts of debt now act as a brake on growth.

Growth in international trade and capital flows is slowing. Emerging markets that have benefited from and, in recent times, supported growth are slowing.

Rising inequality and economic exclusion also impacts negatively upon activity.

Financial problems are compounded by lower population growth and ageing populations; slower increases in productivity and innovation; looming shortages of critical resources, such as water, food and energy; and manmade climate change and extreme weather conditions.

The world requires an additional 64 billion cubic metres of water a year, equivalent to the annual water flow through Germany’s Rhine River. Agronomists estimate that production will need to increase by 60–100 percent by 2050 to feed the population of the world. While the world’s supply of energy will not be exhausted any time soon, the human race is on track to exhaust the energy content of hundreds of millions years’ worth of sunlight stored in the form of coal, oil and natural gas in a few hundred years. 10 tons of pre-historic buried plant and organic matter converted by pressure and heat over millennia was needed to create a single gallon (4.5 litres) of gasoline.

Europe is currently struggling to deal with a few million refugees fleeing conflicts in the Middle East. How will the world deal with hundreds of millions of people at risk of displacement as a resulting of rising sea levels?

Extend and Pretend

The official response to the 2008 crisis was a policy of ‘extend and pretend’, whereby authorities chose to ignore the underlying problem, cover it up, or devise deferral strategies to ‘kick the can down the road’. The assumption was that government spending, lower interest rates, and the supply of liquidity or cash to money markets would create growth. It would also increase inflation to help reduce the level of debt, by decreasing its value.

It was the grifter’s long con, a confidence trick with a potentially large payoff but difficult to pull off. Houses prices and stock markets have risen, but growth, employment, income and investment have barely recovered to pre-crisis levels in most advanced economies. Inflation for the most part remains stubbornly low.

In countries that have ‘recovered’, financial markets are, in many cases, at or above pre-crisis prices. But conditions in the real economy have not returned to normal. Must-have latest electronic gadgets cannot obscure the fact that living standards for most people are stagnant. Job insecurity has risen. Wages are static, where they are not falling. Accepted perquisites of life in developed countries, such as education, houses, health services, aged care, savings and retirement, are increasingly unattainable.

In more severely affected countries, conditions are worse. Despite talk of a return to growth, the Greek economy has shrunk by a quarter. Spending by Greeks has fallen by 40 percent, reflecting reduced wages and pensions. Reported unemployment is 26 percent of the labour force. Youth unemployment is over 50 percent. One commentator observed that the government could save money on education, as it was unnecessary to prepare people for jobs that did not exist.

Future generations may have fewer opportunities and lower living standards than their parents. A 2013 Pew Research Centre survey conducted in thirty-nine countries asked whether people believed that their children would enjoy better living standards: 33 percent of Americans believed so, as did 28 percent of Germans, 17 percent of British and 14 percent of Italians. Just 9 percent of French people thought their children would be better off than previous generations.

The Deadly Cure

Authorities have been increasingly forced to resort to untested policies including QE forever and negative interest rates. It was an attempt to buy time, to let economies achieve a self-sustaining recovery, as they had done before. Unfortunately the policies have not succeeded. The expensively purchased time has been wasted. The necessary changes have not been made.

There are toxic side effects. Global debt has increased, not decreased, in response to low rates and government spending. Banks, considered dangerously large after the events of 2008, have increased in size and market power since then. In the US the six largest banks now control nearly 70 percent of all the assets in the US financial system, having increased their share by around 40 percent.

Individual countries have sought to export their troubles, abandoning international cooperation for beggar-thy-neighbour strategies. Destructive retaliation, in the form of tit-for-tat interest rate cuts, currency wars, and restrictions on trade, limits the ability of any nation to gain a decisive advantage.

The policies have also set the stage for a new financial crisis. Easy money has artificially boosted prices of financial assets beyond their real value. A significant amount of this capital has flowed into and destabilised emerging markets. Addicted to government and central bank support, the world economy may not be able to survive without low rates and excessive liquidity.

Authorities increasingly find themselves trapped, with little room for manoeuvre and unable to discontinue support for the economy. Central bankers know, even if they are unwilling to publicly acknowledge it, that their tools are inadequate or exhausted, now possessing the potency of shamanic rain dances. More than two decades of trying similar measures in Japan highlight their ineffectiveness in avoiding stagnation.

Heart of the Matter

Conscious that the social compact requires growth and prosperity, politicians, irrespective of ideology, are unwilling to openly discuss the real issues. They claim crisis fatigue, arguing that the problems are too far into the future to require immediate action. Fearing electoral oblivion, they have succumbed to populist demands for faux certainty and placebo policies. But in so doing they are merely piling up the problems.

Policymakers interrogate their models and torture data, failing to grasp that ‘many of the things you can count don’t count [while] many of the things you can’t count really count’. The possibility of a historical shift does not inform current thinking.

It is not in the interest of bankers and financial advisers to tell their clients about the real outlook. Bad news is bad for business. The media and commentariat, for the most part, accentuate the positive. Facts, they argue, are too depressing. The priority is to maintain the appearance of normality, to engender confidence.

Ordinary people refuse to acknowledge that maybe you cannot have it all. But there is increasingly a visceral unease about the present and a fear of the future. Everyone senses that the ultimate cost of the inevitable adjustments will be large. It is not simply the threat of economic hardship; it is fear of a loss of dignity and pride. It is a pervasive sense of powerlessness.

For the moment, the world hopes for the best of times but is afraid of the worst. People everywhere resemble Dory, the Royal Blue Tang fish in the animated film Finding Nemo. Suffering from short-term memory loss, she just tells herself to keep on swimming. Her direction is entirely random and without purpose.

Reckoning Postponed

The world has postponed, indefinitely, dealing decisively with the challenges, choosing instead to risk stagnation or collapse. But reality cannot be deferred forever. Kicking the can down the road only shifts the responsibility for dealing with it onto others, especially future generations.

A slow, controlled correction of the financial, economic, resource and environmental excesses now would be serious but manageable. If changes are not made, then the forced correction will be dramatic and violent, with unknown consequences.

During the last half-century each successive economic crisis has increased in severity, requiring progressively larger measures to ameliorate its effects. Over time, the policies have distorted the economy. The effectiveness of instruments has diminished. With public finances weakened and interest rates at historic lows, there is now little room for manoeuvre. Geo-political risks have risen. Trust and faith in institutions and policy makers has weakened.

Economic problems are feeding social and political discontent, opening the way for extremism. In the Great Depression the fear and disaffection of ordinary people who had lost their jobs and savings gave rise to fascism. Writing of the period, historian A.J.P. Taylor noted: ‘[the] middle class, everywhere the pillar of stability and respectability . . . was now utterly destroyed . . . they became resentful . . . violent and irresponsible . . . ready to follow the first demagogic saviour . . .’

The new crisis that is now approaching or may already be with us will be like a virulent infection attacking a body whose immune system is already compromised.

As Robert Louis Stevenson knew, sooner or later we all have to sit down to a banquet of consequences.


henrifredericamiel148210Very interesting times indeed!

This interconnected world.

There is no question that we are living in interesting times!

Back in the old country there was a popular saying: “There are liars, damn liars, and politicians.” I am insufficiently aware of politics in both my new home country, the US of A, and my new home state, Oregon, to know if that saying is equally pertinent to life in America as it was in Great Britain – I suspect that it is.

So what’s getting ‘my knickers in a twist’ today? Namely the state of the world economy.

There seems to be so much spin and counter-spin that getting to the truth of what is going on, economically speaking, is not straightforward.

Which is why a recent article posted by over on The Automatic Earth jumped out at me. To my eyes, it really did cover the truth of what’s going on. And to double-check my analysis I shared it with Dan Gomez, no stranger to global finances, and he found it useful. Indeed, this was Dan’s reply: “That’s pretty much it. This should be the top of the world news every week until governments become accountable. All the other big issues of the day pale compare to the backlash from this sclerotic thinking. Good luck to all of us.”

Raúl has very kindly given me his permission to republish this. It’s not an easy read but that doesn’t detract from the value of the essay.


 Why This Slump Has Legs

 January 18, 2016  Posted by Raúl Ilargi Meijer
Berenice Abbott Columbus Circle, Manhattan 1936
Berenice Abbott Columbus Circle, Manhattan 1936

We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth?

For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into.

I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth’”.

That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever.

How do we know a ‘recovery’ is so far off it’s really no use to even talk about it? As I said, it’s easy. Let me lead this in with a graph I saw just today, which deals with a topic the Automatic Earth has covered a lot: marginal debt, or more precisely, the productivity/growth gained from each additional dollar of debt.

Please note, this particular graph deals with private non-financial debt only, we’ll get to other kinds of added debt, but that restriction is actually quite illuminating.

MarginalDebtNow of course, you have to wonder about the parameters the St. Louis Fed uses for its data and graphs, and whether ‘growth’ was all that solid in the run up to 2008. There’s plenty of very valid arguments that would say growth in the 1960’s was a whole lot more solid than that in the naughties, after the Glass-Steagall repeal, and after the blubber.

However, that’s not what I want to take away from this, I use this to show what has happened since 2008, more than before, when it comes to “passing debt off as ‘growth’”.

But it’s another thing that has happened since 2008, or rather not happened, that points out to us why this slump will have legs. That is, in 2008 a behemoth bubble started bursting, and it was by no means just US housing market. That bubble should have been allowed to fully deflate, because that is the only way to allow an economy to do a viable restart.

Instead, all that has been done since 2008, QE, ZIRP, the works, has been aimed at keeping a facade ‘alive’, and aimed at protecting the interests of the bankers and other rich parties. That facade, expressed most of all in rising stock markets, has allowed for societies to be gutted while people were busy watching the S&P rise to 2,100 and the Kardashians bare 2,100 body parts.

It was all paid for, apart from western QE, with $28 trillion and change of newfangled Chinese debt. The problem with this is that if you find yourself in a bubble and you don’t go through the inevitable deleveraging process that follows said bubble in a proper fashion, you’re not only going to kill economies, you’ll destroy entire societies.

And that is not just morally repugnant, it also works as much against the rich as it does against the poor. It’s just that that is a step too far for most people to understand. That even the rich need a functioning society, and that inequality as we see it today is a real threat to everyone.

Recognizing this simple fact, and the consequences that follow from it, is nothing new. It’s why in days of old, there were debt jubilees. It’s also why we still quote the following from Marriner Eccles, chairman of the Federal Reserve under FDR and Truman from 1934-1948, in his testimony to the Senate Committee on the Investigation of Economic Problems in 1933, which prompted FDR to make him chairman in the first place.

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they cannot save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying.

It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.

Everything would all be so much simpler if only more people understood this, that you need a – fleeting, ever-changing equilibrium- to prosper.

Instead, we’re falling into that same trap again. Or, more precisely, we already have. We have been fighting debt with more debt and built the facade put up by the Fed, the BoJ and the ECB, central banks that all face the same problems and all take the same approach: save the rich at the cost of the poor. Something Eccles said way back when could not possibly work.

Anyway, so here are the graphs that prove to us why the slump has legs. There’s been no deleveraging, the no. 1 requirement after a bubble bursts. There’s only been more leveraging, more debt has been issued, and while households have perhaps deleveraged a little bit, though that is likely strongly influenced by losses on homes etc. plus the fact that people were simply maxed out.

First, global debt and the opposite of deleveraging:

LeverageGlobalAnd global debt from a longer, 65 year, more historical perspective:

LeverageGlobal2-500It’s a global debt graph, but it’s perhaps striking to note that big ‘growth’ spurts happened in the days when Reagan, Clinton and Obama were the respective US presidents. Not so much in the Bush era.

Next, China. What we’re looking at is what allowed the post 2008 global economic facade to have -fake- credibility, an insane rise in debt, largely spent on non-productive overinvestment, overcapacity highways to nowhere and many millions of empty apartments, in what could have been a cool story had not Beijing gone all-out on performance enhancing financial narcotics.

LeverageChina500Today, the China Ponzi is on its last legs, and so is the global one, because China was the last ‘not-yet-conquered’ market large enough to provide the facade with -fleeting- credibility. Unless Elon Musk gets us to Mars very soon, there are no more such markets.

So US debt will have to come down too, belatedly, with China, and it will have to do that now. because there are no continents to conquer and hide the debt behind. We’re all going to regret engaging in the debt game, and not letting the bubble deflate in an orderly fashion when we still could, but all those thoughts are too late now.

LeverageUS500What the facade has wrought is not just the idea that deleveraging was not needed (though it always is, after every single bubble), but that net US household worth rose by 55% in the 6-7 years since the bottom of the crisis, an artificial bottom fabricated with…more debt, with QE, and ZIRP.

USTaxesHoneyPot2Meanwhile, in today’s world, as stock markets go down at a rapid clip, China, having lost control of a market system it never had the control over that Politburos are ever willing to acknowledge they don’t have, plays a game of Ponzi whack-a-mole, with erratic ‘policies’ such as circuit breakers and CIA-style renditions of fund managers and the like.

And all the west can do is watch them fumble the ball, and another one, and another. And this whole thing is nowhere near the end.

China bad loans have now become a theme, but the theme doesn’t mean a thing without including the shadow banking system, which in China has been given the opportunity to grow like a tumor, on which Beijing’s grip is limited, and which has huge claims on local party officials forced by the Politburo to show overblown growth numbers. If you want to address bad loans, that’s where they are.

Chinese credit/debt graphs paint only a part of the picture if and when they don’t include shadow banks, but keeping their role hidden is one of Xi’s main goals, lest the people find out how bad things really are and start revolting. But they will anyway. That makes China a very unpredictable entity. And unpredictable means volatile, and that means even more money flowing out of, and being lost in, markets.

The ‘least worst’ place to be for what money will be left is US dollars, US treasuries and perhaps metals. But there’ll be a whole lot less left than just about anyone thinks. That’s the price of deleveraging.

The price of not deleveraging, on the other hand, is what we see in the markets today. And there is no cure. It must be done. The price for keeping up the facade rises sharply with each passing day, and the effort will in the end be futile. All bubbles have limited lifespans.

I’ll close this with a few recent words from Tim Morgan, who puts it so well I don’t feel the need to try and do it better.

The Ponzi Economy, Part 1

In order to set the Ponzi economy into some context, let’s put some figures on it. In the United States, total “real economy” debt (which excludes inter-bank borrowing) increased by $19.4 trillion – in real, inflation-adjusted terms – between 2000 and 2014, whilst real GDP expanded by only $3.7 trillion. Britain, meanwhile, added £1.9 trillion of new debt for less than £400bn on “growth” over the same period. I spent part of the holiday period unearthing quite how much debt countries added for each dollar of “growth” over a period starting at the end of 2000 and ending in mid-2015.

Unsurprisingly, the league is topped by Portugal ($5.65 for each $1 of growth), Ireland ($5.42) and Greece ($5.39). Britain’s ratio ($3.46) is somewhat flattering, in that the UK has used asset sales as well as borrowing to sustain its consumption. The average for the Eurozone ($3.54) covers ratios as diverse as Germany (just $1.87) and France ($4.22).

China’s $2.56 looks unexceptional until you note that the more recent (post-2007) number is much worse. Economies which seem to have been growing without too much borrowing (such as Brazil and Russia) are now experiencing dramatic worsening in their ratios, generally in the wake of tumbling commodity prices.

In the proverbial nutshell, then, the world has become addicted to borrowing money, spending it, and passing this off as “growth”. This is a copybook example of a pyramid scheme, which in turn means that the world’s most influential economic mentor is neither Keynes nor Hayek, but Charles Ponzi.

[..] How, in the absence of growth, can inflated capital values be sustained? The answer, of course, is that they can’t. Like all Ponzi schemes, this ends with a bang, not a whimper. This is why I find forecasts of a ‘big fall’ or ‘sharp correction’ in markets hard to swallow. Ponzi schemes don’t end gradually, any more than someone can fall off a cliff gradually, or be “slightly pregnant”.

The Ponzi economy simply continues for as long as irrationality prevails, and then implodes. Capital markets, though, are the symptom, not the cause. The fundamental problem is an inability to escape from an addictive practice of manufacturing supposed “growth” on the basis of borrowed money.

There may be shallow lulls in the asset markets, nothing ever only falls down in a straight line in the real world, but that debt I’ve described here will and must come down and be deleveraged.

The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer numbers of people added in the past 50 years.

When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.


If you found your mind wandering somewhat as you tried to stay focussed on the essay, just go back and read the closing two paragraphs.

The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer numbers of people added in the past 50 years.

When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.

As I said at the start: we are living in interesting times!

Seeing the truth in our mirror.

A sombre reflection on the killing abilities of man.

I was in two minds as to whether to post this today for it is certainly a grim reminder of the less desirable aspects of our species.

In the end, I decided to so do because it needs to be shared and if it changes the mindset of just one person it will have been worthwhile. I was originally seen by me on the EarthSky blogsite.


Want to see Earth’s super predator? Look in the mirror.

Our efficient killing technologies have given rise to the human super predator. Our impacts are as extreme as our behavior, says study.

Rope trawl for midwater trawling. Photo credit: NOAA
Rope trawl for midwater trawling. Photo credit: NOAA

Extreme human predatory behavior is responsible for widespread wildlife extinctions, shrinking fish sizes and disruptions to global food chains, according to research published in the August 21 edition of the journal Science these are extreme outcomes that non-human predators seldom impose, according to the article.

Lead researcher Chris Darimont is a professor of geography at the University of Victoria. Darimont said:

Our wickedly efficient killing technology, global economic systems and resource management that prioritize short-term benefits to humanity have given rise to the human super predator. Our impacts are as extreme as our behavior and the planet bears the burden of our predatory dominance.

A coastal wolf is hunting salmon in British Columbia, Canada. Photo credit: Guillaume Mazille
A coastal wolf is hunting salmon in British Columbia, Canada. Photo credit: Guillaume Mazille

The team’s global analysis indicates that humans typically exploit adult fish populations at 14 times the rate than do marine predators. Humans also hunt and kill large land carnivores such as bears, wolves and lions at nine times the rate that these predatory animals kill each other in the wild.

Researchers noted that in some cases, dwindling species of predatory land carnivores are more aggressively hunted for trophies, due to the premium placed on rare prey.

The result of human activity on wildlife populations is far greater than natural predation. Research suggests that socio-political factors can explain why humans repeatedly overexploit. Technology explains how: Humans use advanced killing tools, cheap fossil fuel, and professional harvesters – like high-volume commercial fishing fleets – to overcome the defensive adaptations of prey.

Humanity also departs fundamentally from predation in nature by targeting adult quarry.Co-author Tom Reimchen is a biology professor at University of Victoria. He said:

Whereas predators primarily target the juveniles or ‘reproductive interest’ of populations, humans draw down the ‘reproductive capital’ by exploiting adult prey.

During four decades of fieldwork on Haida Gwaii, an archipelago on the northern coast of British Columbia, Reimchen looked at how human predators differ from other predators in nature. Reimchen’s predator-prey research revealed that predatory fish and diving birds overwhelmingly killed juvenile forms of freshwater fish. Collectively, 22 predator species took no more than five per cent of the adult fish each year. Nearby, Reimchen observed a stark contrast: fisheries exclusively targeted adult salmon, taking 50 per cent or more of the runs.

The authors conclude with an urgent call to reconsider the concept of “sustainable exploitation” in wildlife and fisheries management. A truly sustainable model, they argue, would mean cultivating cultural, economic and institutional change that places limits on human activities to more closely follow the behavior of natural predators. Darimont said:

We should be protecting our wildlife and marine assets as an investor would in a stock portfolio.

Enjoying EarthSky? Sign up for our free daily newsletter today!

Bottom line: According to research published in the August 21, 2015 edition of Science, extreme human predatory behavior is responsible for widespread wildlife extinctions, shrinking fish sizes and disruptions to global food chains.

Read more from the University of Victoria


Chris Darimont really put his finger on the spot in my opinion when he was quoted,”We should be protecting our wildlife and marine assets as an investor would in a stock portfolio.”

Going to close today’s post by repeating what is presented on the Welcome page of Learning from Dogs, namely:

As man’s companion, protector and helper, history suggests that dogs were critically important in man achieving success as a hunter-gatherer. Dogs ‘teaching’ man to be so successful a hunter enabled evolution, some 20,000 years later, to farming, thence the long journey to modern man. But in the last, say 100 years, that farming spirit has become corrupted to the point where we see the planet’s plant and mineral resources as infinite. Mankind is close to the edge of extinction, literally and spiritually.

Dogs know better, much better! Time again for man to learn from dogs!

My argument rests!

Bitter Lake ripples.

Reflections on last Thursday’s post.

Last Thursday, I published a post under the title of Oil, money, banks, guns and blood. It was such a departure from my normal style of blog post that I anticipated that it would slide by without any comment. Wrong! It had the highest readership of the week and attracted some powerful and insightful replies. So much so that I expressed the desire to reflect on those replies before responding. Thus, today’s post is my response to your comments and feelings.

First, Hariod Brawn of the blogsite Contentedness responded, in part:

Now, where are we? Val’s words are a good place to begin: “Nothing is what is seems, or will ever be the same again.” Nobody knows for sure, but piecing together fragments of world events, my instinct (fwiw) tells me that we are in the incipient stages of the collapse of the 20th.c. paradigm. Neoliberalism has failed; further than that, Capitalism has failed – we have no free markets where it counts; they’re all rigged. Politics has failed too, having been bought out by the corporates. [There are over 30,000 lobbyists in Washington alone] All that Western Governments have to offer is a doomed re-run of failed practices (same with Japan actually). Worse still, they have gone down on their knees and begged the financial sector to create a fix. The private banks have been given access to vast sums of QE cash at virtually zero interest in order to continue rigging markets (via their agents) all to their benefit whilst also creating huge market distortions in asset bubbles. Has the wealth they created trickled down? Has it hell. Whilst all this is going on, and as the film so clearly demonstrates, the Middle East looks like fulfilling its promise of the last century as being the flashpoint for warfare on a vast scale. And of course, if by some miracle we escape financial collapse, and world peace is not threatened by warfare, then the environment is going down the pan because – guess what? – our politicians have failed us once again. I have said enough on this.

Hariod then went on to recommend the films of Chris Hedges that will be featured on Learning from Dogs at a future date.

Then Val Boyco, her blogsite being Find Your Middle Ground, wrote a response before viewing the film:

Without being informed yet … my thinking is that the world we live in is so complex, stressful and fast that we can’t absorb everything that happens. We simplify and label, in order to make sense. We chop and segment in order to understand, but we miss the full story and many have lost the ability to grasp the bigger picture…. or are too fearful of going against the expectations of others and becoming one of “them” instead of one of “us”.

Then reinforced by her comment after watching the film:

I just watched the movie Paul. It is powerful and very disturbing. As you say, it undermines what we believe is real. It also reveals the complexity – misunderstanding – manipulation – corruption – opium, oil and the struggle for power – naivety – chaos.
In the dualistic fairy tale world of good vs evil it has created a nightmare of errors.
Nothing is what is seems.
Or will ever be the same again.

There was a comment from Patrice Ayme:

Giant American global corporations, the 200 largest ones, do 100 billion dollars of tax evasion through Luxembourg alone. Each year. Many are media companies. Wonder why stories make no sense?

Juncker directed that. Now he is head of the European Commission, and insist Greece shall pay every single penny.

As it happened, my dad was among a European group of geologists working for the Afghan government, who discovered Afghanistan’s riches… In the 1970s. All hell broke loose shortly thereafter.

I write about these sorts of things, day in, day out. But most people prefer the opium of feel-good…

Patrice then went further in offering a post over on his own blog that carried the specific title of Great Bitter Lake. Let me quote a little from that:

“Bitter Lake” is about the conspiracy between American plutocracy and Saudi plutocracy. Plutocrat Roosevelt was freshly flown from Yalta, to the Great Bitter Lake, on the Suez Canal. The idea was to steal the Maghreb, and the Middle East from the French and the British, by making a theocratic alliance.

At Yalta, Roosevelt had given half of Europe to his Comrade Stalin. (Plutocrats of the world naturally unite!)

Never mind that Poland had fought the Nazis courageously the Nazis, at a time when the USA was militarily and diplomatically collaborating… with the Nazis (or maybe, precisely, the Poles had to be punished!) Roosevelt had to be strict: the French had successfully escaped from the military occupation (AMGOT) he had set-up for them.

The movie “Bitter Lake” exposes (some) of the American plutocracy led conspiracies which led to the devastation, among other things, of Afghanistan, and other constituencies, thanks to the Wahhabist Islam it unleashed on the world.

Readers of this site will be familiar with the general ambiance.

One caveat: all what is in the documentary and makes American plutocrats (Roosevelt) and their servants (Reagan) look bad, is correct. However the real situation, the real badness is way worse. (For example the secret, official USA intervention in Afghanistan was under Carter, on July 3, 1979. However the real even more secret intervention, through the Pakistani ISI was even earlier and even more vicious.

So what is my response?

It is this:

In 1887, Oscar Wilde said, referring to the differences between the British and the Americans: “We have really everything in common with America nowadays, except, of course, language.

By way of example there is a saying back in my old country that when something is “… going to the dogs”, it means an irreversible decline in standards; the phrase usually aimed at an organisation or even a country.

Many, especially those of my age, might nod sagely and reflect that something ‘is going to the dogs‘ in terms of the wider Western world.

Let me be specific. There are destructive and dysfunctional issues in modern societies that I would list as: Selfishness; Power & Corruption; Short-termism; Materialism; Population growth; Greed, inequality and poverty. It’s not an exhaustive list!

Now many would argue the ‘whys’ and ‘wherefores’ about what precisely is wrong with Western societies in this 21st century but far fewer would argue with the underlying premise; that something is fundamentally wrong with today’s world.

Indeed, one of the things that is impossible to miss is the body language, the look on a face, the shrug of a shoulder, when one casually remarks that these are interesting times! From strangers and friends alike.

There is no question that what mankind has ‘enjoyed’ these last fifty years or so cannot be continued for very much longer. That the era since the 1960s of growth, materialism and consumption is running one very basic and fundamental resource dry. You know the one I am referring to: Planet Earth.

My hope is that the widely-felt feelings that something is fundamentally wrong with today, are the feelings man has always experienced, since time immemorial, when mankind has passed through the threshold between two eras.

My hope is that the new era, one that we quite possibly may now just be entering, a new era of sustainable living on this planet, of social and political changes to replace extreme levels of inequality, of stronger communities of like-minded persons, will be obvious to all, but especially obvious to our next generation, within the next ten years; possibly fewer than ten years.

One thing is for sure. The sharing of ideas and feelings as is the style of modern blogging is critical to the forming of the opinions that precede the changes that so many now see as unstoppable.

Oil, money, banks, guns and blood.

The history of power, control, those who wield it, and where it has taken us all.

There is a real pain in me as I start into today’s post. A pain that comes from agonising over whether or not to write in this vein. A pain that has its roots in me being forced to accept that global politics, money and power-plays are much worse than I ever wanted to believe.

What, you must be asking, has got me plunging so far into this dark place? When just twenty-four hours ago I was writing of peace, calm and deep meditation?

Simply a film!

A film that was uploaded by the BBC a few days ago exclusively on to their BBC iPlayer platform.

The film is called Bitter Lake and here’s the trailer.

The full film is 2 hours, 20 minutes long. (But note that the film is age-restricted for obvious reasons.)

I can’t encourage you to watch it. For if you do, the world may never seem the same to you.

But Jeannie and I did watch it and think it should be shared widely. And, yes, it has changed the world for us.

Here’s how it is described by Adam Curtis and the BBC.

Published on Jan 26, 2015
Shown exclusively on the BBC iPlayer service in the UK
This upload is for those outside of the UK

Politicians used to have the confidence to tell us stories that made sense of the chaos of world events.

But now there are no big stories and politicians react randomly to every new crisis – leaving us bewildered and disorientated.

And journalism – that used to tell a grand, unfurling narrative – now also just relays disjointed and often wildly contradictory fragments of information.

Events come and go like waves of a fever. We – and the journalists – live in a state of continual delirium, constantly waiting for the next news event to loom out of the fog – and then disappear again, unexplained.

And the formats – in news and documentaries – have become so rigid and repetitive that the audiences never really look at them.

In the face of this people retreat from journalism and politics. They turn away into their own worlds, and the stories they and their friends tell each other.

I think this is wrong, sad, and bad for democracy – because it means the politicians become more and more unaccountable.

I have made a film that tries to respond to this in two ways.

It tells a big story about why the stories we are told today have stopped making sense.

But it is also an experiment in a new way of reporting the world. To do this I’ve used techniques that you wouldn’t normally associate with TV journalism. My aim is to make something more emotional and involving – so it reconnects and feels more real.

BBC iPlayer has given me the opportunity to do this – because it isn’t restrained by the rigid formats and schedules of network television. It’s a place you can go to experiment and try out new ideas.

It is also liberating – both because things can be any length, and also because it allows the audience to watch the films in different ways.

The film is called Bitter Lake. It is a bit of an epic – it’s two hours twenty minutes long.

It tells a big historical narrative that interweaves America, Britain, Russia and Saudi Arabia. It shows how politicians in the west lost confidence – and began to simplify the stories they told. It explains why this happened – because they increasingly gave their power away to other forces, above all global finance.

But there is one other country at the center of the film.


This is because Afghanistan is the place that has repeatedly confronted politicians, as their power declines, with the terrible truth – that they cannot understand what is going on any longer. Let alone control it.

The film shows in detail how all the foreigners who went to Afghanistan created an almost totally fictional version of the country in their minds.

They couldn’t see the complex reality that was in front of them – because the stories they had been told about the world had become so simplified that they lacked the perceptual apparatus to see reality any longer.

And this blindness led to a terrible disaster – support for a blatantly undemocratic government, wholesale financial corruption and thousands of needless deaths.

A horrific scandal that we, in our disconnected bubble here in Britain, seem hardly aware of. And even if we are – it is dismissed as being just too complex to understand.

But it is important to try and understand what happened. And the way to do that is to try and tell a new kind of story. One that doesn’t deny the complexity and reduce it to a meaningless fable of good battling evil – but instead really tries to makes sense of it.

I have got hold of the unedited rushes of almost everything the BBC has ever shot in Afghanistan. It is thousands of hours – some of it is very dull, but large parts of it are extraordinary. Shots that record amazing moments, but also others that are touching, funny and sometimes very odd.

These complicated, fragmentary and emotional images evoke the chaos of real experience. And out of them I have tried to build a different and more emotional way of depicting what really happened in Afghanistan.

A counterpoint to the thin, narrow and increasingly destructive stories told by those in power today.

And I must include this comment from the relevant page on BBC Blogs:

Quite simply one of the best films I’ve ever watched. The theme and content made so many connections linking events of the last 40 years. It’s perhaps time to reflect on power ,control and those who wield it . The official narrative is not our narrative , we have a choice to decide what we believe . Time to reflect and make that choice.
Thanks for such an informing film.

Here is the film.

A breath of common-sense.

George Monbiot perfectly spells it out.

Regular readers of this place will know that it is a rare couple of weeks without a republication of a George Monbiot essay.  His voice seems so often to be a ray of common-sense shining into a dark cave of present-day madness. None more obvious than this essay that was published last Monday under the title of There Is An Alternative.

It’s a huge honour to be able to share this with you, dear readers.


There Is An Alternative

December 8, 2014

The great political question of our age is what to do about corporate power. It’s time we answered it.
By George Monbiot, published in the Guardian 8th December 2014

Does this sometimes feel like a country under enemy occupation? Do you wonder why the demands of so much of the electorate seldom translate into policy? Why the Labour Party, like other former parties of the left, seems incapable of offering effective opposition to market fundamentalism, let alone proposing coherent alternatives? Do you wonder why those who want a kind and decent and just world, in which both human beings and other living creatures are protected, so often appear to find themselves confronting the entire political establishment?

If so, you have already encountered corporate power. It is the corrupting influence that prevents parties from connecting with the public, distorts spending and tax decisions and limits the scope of democracy. It helps to explain the otherwise inexplicable: the creeping privatisation of health and education, hated by almost all voters; the private finance initiative, which has left public services with unpayable debts(1,2); the replacement of the civil service with companies distinguished only by their incompetence(3); the failure to re-regulate the banks and to collect tax; the war on the natural world; the scrapping of the safeguards that protect us from exploitation; above all the severe limitation of political choice in a nation crying out for alternatives.

There are many ways in which it operates, but perhaps the most obvious is through our unreformed political funding system, which permits big business and multimillionaires effectively to buy political parties. Once a party is obliged to them, it needs little reminder of where its interests lie. Fear and favour rule.

And if they fail? Well, there are other means. Before the last election, a radical firebrand said this about the lobbying industry(4): “It is the next big scandal waiting to happen … an issue that exposes the far-too-cosy relationship between politics, government, business and money. … secret corporate lobbying, like the expenses scandal, goes to the heart of why people are so fed up with politics.” That, of course, was David Cameron, and he’s since ensured that the scandal continues. His lobbying act restricts the activities of charities and trade unions, but imposes no meaningful restraint on corporations(5).

Ministers and civil servants know that if they keep faith with corporations while in office they will be assured of lucrative directorships in retirement. Dave Hartnett, who, as head of the government’s tax collection agency HMRC, oversaw some highly controversial deals with companies like Vodafone and Goldman Sachs(6,7), apparently excusing them from much of the tax they seemed to owe, now works for Deloitte, which advises companies like Vodafone on their tax affairs(8). As head of HMRC he met one Deloitte partner 48 times(9).

Corporations have also been empowered by the globalisation of decision-making. As powers but not representation shift to the global level, multinational business and its lobbyists fill the political gap. When everything has been globalised except our consent, we are vulnerable to decisions made outside the democratic sphere.

The key political question of our age, by which you can judge the intent of all political parties, is what to do about corporate power. This is the question, perennially neglected within both politics and the media, that this week’s series of articles will attempt to address. I think there are some obvious first steps.

A sound political funding system would be based on membership fees. Each party would be able to charge the same fixed fee for annual membership (perhaps £30 or £50). It would receive matching funding from the state as a multiple of its membership receipts. No other sources of income would be permitted. As well as getting the dirty money out of politics, this would force political parties to reconnect with the people, to raise their membership. It will cost less than the money wasted on corporate welfare every day.

All lobbying should be transparent. Any meeting between those who are paid to influence opinion (this could include political commentators like myself) and ministers, advisers or civil servants in government should be recorded, and the transcript made publicly available. The corporate lobby groups that pose as thinktanks should be obliged to reveal who funds them before appearing on the broadcast media(10,11), and if the identity of one of their funders is relevant to the issue they are discussing, it should be mentioned on air.

Any company supplying public services would be subject to freedom of information laws (there would be an exception for matters deemed commercially confidential by the information commissioner). Gagging contracts would be made illegal, in the private as well as the public sector (with the same exemption for commercial confidentiality). Ministers and top officials should be forbidden from taking jobs in the sectors they were charged with regulating.

But we should also think of digging deeper. Is it not time we reviewed the remarkable gift we have granted to companies in the form of limited liability? It socialises the risks which would otherwise be carried by a company’s owners and directors, exempting them from the costs of the debts they incur or the disasters they cause, and encouraging them to engage in the kind of reckless behaviour that caused the financial crisis. Should the wealthy authors of the crisis, like Fred Goodwin or Matt Ridley, not have incurred a financial penalty of their own?

We should look at how we might democratise the undemocratic institutions of global governance, as I outlined in my book The Age of Consent(12). This could involve the dismantling of the World Bank and the IMF, which are governed without a semblance of democracy, and cause more crises than they solve, and their replacement with a body rather like the international clearing union designed by John Maynard Keynes in the 1940s, whose purpose was to prevent excessive trade surpluses and deficits from forming, and therefore international debt from accumulating.

Instead of treaties brokered in opaque meetings between diplomats and transnational capital (of the kind now working towards a Transatlantic Trade and Investment partnership), which threaten democracy, the sovereignty of parliaments and the principle of equality before the law, we should demand a set of global fair trade rules, to which multinational companies would be subject, losing their licence to trade if they break them. Above all perhaps, we need a directly elected world parliament, whose purpose would be to hold other global bodies to account. In other words, instead of only responding to an agenda set by corporations, we must propose an agenda of our own.

This is not only about politicians, it is also about us. Corporate power has shut down our imagination, persuading us that there is no alternative to market fundamentalism, and that “market” is a reasonable description of a state-endorsed corporate oligarchy. We have been persuaded that we have power only as consumers, that citizenship is an anachronism, that changing the world is either impossible or best effected by buying a different brand of biscuits.

Corporate power now lives within us. Confronting it means shaking off the manacles it has imposed on our minds.














Monbiot Unmasked

Another reposting of a Monbiot essay.

I’m preparing this post on Sunday; i.e. three days ago.  Reason is that my sister, Elizabeth, and friend, Merle, are arriving on Monday afternoon (as in two days ago) bringing us up to three guests in the house.  My mother leaves on tomorrow morning and then Elizabeth and Merle depart on Friday morning.  So for all the right reasons, Learning from Dogs is taking a backstage. Hence me doing as much as I can ahead of time.

In Monday’s post, The tracks we leave, towards the end I wrote, “The utter madness of mankind’s group blindness is beyond comprehension.” Many know that there is something very badly wrong with the way politics is operating today. Yet, at the same time, many intuitively know the political changes that mankind has to see if there is to be any chance of a sustainable future for mankind on this planet.

Thus George Monbiot’s essay published on the 29th July makes encouraging reading in the context of the growing confidence of the UK Green Party.  It is republished here with the kind permission of George Monbiot.



July 29, 2014

The justifications for extreme inequality have collapsed. But only the Green Party is prepared to take the obvious step

By George Monbiot, published in the Guardian 30th July 2014

When inequality reaches extreme and destructive levels, most governments seek not to confront it but to accommodate it. Wherever wealth is absurdly concentrated, new laws arise to protect it.

In Britain, for example, successive governments have privatised any public asset which excites corporate greed. They have cut taxes on capital and high incomes. They have legalised new forms of tax avoidance (1). They have delivered exotic gifts like subsidised shotgun licences and the doubling of state support for grouse moors (2). And they have dug a legal moat around the charmed circle, criminalising, for example, the squatting of empty buildings (3) and most forms of peaceful protest (4). However grotesque inequality becomes, however closely the accumulation of inordinate wealth resembles legalised theft, political norms shift to defend it.

None of this should surprise you. The richer the elite becomes, and the more it has to lose, the greater the effort it makes to capture public discourse and the political system. It scarcely bothers to disguise its wholesale purchase of political parties, by means of an utterly corrupt and corrupting funding system (5,6). You can feel its grip not only on policy but also on the choice of parliamentary candidates and appointments to the cabinet. The very rich want people like themselves in power, which is why we have a government of millionaires (7).

But that describes only one corner of their influence. They fund lobby groups, thinktanks and economists to devise ever more elaborate justifications for their seizure of the nation’s wealth (8). These justifications are then amplified by the newspapers and broadcasters owned by the same elite.

Among the many good points Thomas Piketty makes in Capital in the 21st Century – his world-changing but surprisingly mild book – is that extreme inequality can be sustained politically only through an “apparatus of justification.” (9) If voters can be persuaded that insane levels of inequality are sane, reasonable and even necessary, then the concentration of income can keep growing. If they can’t, then either states are forced to act, or revolutions happen.

For the notion that inequalities must be justified sits at the heart of democracy. It is possible to accept that some can have much more than others if one of two conditions are met: either that they reached this position through the exercise of their unique and remarkable talent; or that this inequality is good for everyone. So the network of think tanks, economists and tame journalists must make these justifications plausible.

It’s a tough job. If wages reflect merit, why do they seem so arbitrary? Are the richest executives 50 or 100 times better at their jobs than their predecessors were in 1980? Are they 20 times more skilled and educated than the people immediately below them, even though they went to the same business schools? Are US executives several times as creative and dynamic as those in Germany? If so, why are their results so unremarkable?

It is, of course, all rubbish. What we see is not meritocracy at work at all, but a wealth grab by a nepotistic executive class which sets its own salaries, tests credulity with its ridiculous demands and discovers that credulity is an amenable customer. They must marvel at how they get away with it.

Moreover, as education and even (in the age of the intern) work becomes more expensive, the opportunities to enter the grabbers’ class diminish. The nations which pay the highest top salaries, such as the US and Britain, are also among the least socially mobile (10). Here, you inherit not only wealth but opportunity.

Aha, they say, but extreme wealth is good for all of us. All will be uplifted by their god’s invisible hand. Their creed is based on the Kuznet’s curve, the graph which appears to show that inequality automatically declines as capitalism advances, spreading wealth from the elite to the rest.

When Piketty took the trouble to update the curve, which was first proposed in 1955, he discovered that the redistribution it documented was an artefact of the peculiar circumstances of its time. Since then the concentration of wealth has reasserted itself with a vengeance (11). The reduction in inequality by 1955 was not an automatic and inherent feature of capitalism, but the result of two world wars, a great depression and the fierce response of governments to these disruptions.

For example, the top federal income tax rate in the US rose from 25% in 1932 to 94% in 1944. The average top rate throughout the years 1932 to 1980 was 81%. In the 1940s, the British government imposed a top income tax of 98% (12). The invisible hand? Hahaha. As these taxes were slashed by Reagan and Thatcher and the rest, inequality boomed once more, and is exploding today. This is why the neoliberals hate Piketty with such passion and poison: he has destroyed with data the two great arguments with which the apparatus of justification seeks to excuse the inexcusable.

So here we have a perfect opportunity for progressive parties: the moral and ideological collapse of the system of thought to which they were previously in thrall. What do they do? Avoid the opportunity like diphtheria. Cowed by the infrastructure of purchased argument, Labour fiddles and dithers (13).

But there is another party, which seems to have discovered the fire and passion that moved Labour so long ago: the Greens. Last week they revealed that their manifesto for the general election will propose a living wage, the renationalisation of the railways, a maximum pay ratio (no executive should receive more than 10 times the salary of the lowest paid worker), and, at the heart of their reforms, a wealth tax of the kind Piketty recommends (14).

Yes, it raises plenty of questions, but none of them are unanswerable, especially if this is seen as one step towards the ideal position: a global wealth tax, that treats capital equally, wherever it might lodge. Rough as this proposal is, it will start to challenge the political consensus and draw people who thought they had nowhere to turn. Expect the billionaires’ boot boys to start screaming, once they absorb the implications. And take their boos and jeers as confirmation that it’s onto something. You wanted a progressive alternative? You’ve got it.




3. Clause 144, Legal Aid, Sentencing and Punishment of Offenders Act 2012.






9. Thomas Piketty, 2014. Capital in the Twenty-First Century. Harvard University Press.

10. Thomas Piketty, as above.

11. Thomas Piketty, as above.

12. Thomas Piketty, as above.




Want to know some more about the UK Green Party?  Their website is here.

Those annoying adverts on this blog!

Yes, I find them annoying too!

When you are a WordPress user, as is Learning from Dogs, you can pay $30 a year to stop advertisements from appearing on one’s blogsite.

This is how WordPress explain their policy on advertising:

We sometimes display advertisements on your blog to help pay the bills. This keeps free features free! We only run them in limited places, and we do not show ads to logged-in readers, which means only a very small percentage of your page views will actually contain ads. To eliminate ads on your blog entirely, you can purchase the No-Ads Upgrade for a single blog (per year).

I choose not to pay that upgrade, despite the ads being annoying; of that I have no doubt.

For this reason.

WordPress pay an amount of their advertising income to the owner of the blog.  Thus twenty-four hours ago, WordPress sent me an email:

Just thought you’d like to know sent you $106.23 USD.

I’m not sure but I think that covers the last twelve months.

That $106 will be divided into two with $53 staying with Jean and me and $53 going to our nearest humane society; Rogue Valley Humane Society.

Just wanted to let you know.

Heads I win: Tails you lose!

How the foreclosure crisis was a boon for the super wealthy.

For some time now, must be quite a few years, I have subscribed to Yves Smith’s Naked Capitalism blog.  I do so for a number of reasons.

Thus it was that a few days ago I read with a mixture of anger and disgust an article about the consequences of the foreclosure crisis on the wealthy.  Within a few hours of me requesting by email permission to republish that article on Learning from Dogs came the reply from Yves granting such permission.

Try not to get too angry!



How the Foreclosure Crisis Made the Rich Even Richer

This is Naked Capitalism fundraising week. 53 donors [now well over 400, Ed.] have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar or another credit card portal, WePay in the right column, or read about why we’re doing this fundraiser and other ways to donate, such as by check, as well as our current goal, on our kickoff post.

It’s a welcome departure to see Adam Davidson’s weekly column in the New York Times, which usually puts a happy face on how the 1% are winning the class war in America, have a guest writer look at the other side of the story.

Catherine Rampell has a short but compelling piece on how the foreclosure crisis was wealth transfer from lower and middle income families to the rich. Her points are simple: the typical person who lost their home wasn’t a greedhead who bought too much house or refied to buy flat panel TVs and go on cruises (if you hang out with mortgage types, you’ll get a big dose of profligate consumer urban legend). The people who were like that (and there were some) for the most part were in subprime loans that reset in 2007 and 2008 and were in the early wave of foreclosures. The people who’ve lost their homes in later foreclosures were overwhelmingly people who had the bad fortune to buy late in the housing bubble (so when the bust hit, they had negative equity and couldn’t use lower rates to refi into cheaper payments) and took economic hits as a direct result of the crisis (hours cuts and job losses; other people who were hurt were in the more typical “shit happens” categories, like suffering medical problems, with their situation made much worse by their inability to sell or refinance their home).

Rampell’s contribution is to look at the phenomenon of investors, both big and small, and how they’ve bought properties at foreclosure and then flipped them. Separately, Josh Rosner recently released the astonishing statistic: that sales of owner-occupied properties showed only a 1% gain in the last 12 months. The gains that have been driving the indexes were all in investor owned properties. Some flipped to other investors. In hot markets, local investors have been doing “mini-bulks,” acquiring small portfolios to sell to private equity investors, some without renovating them, others with modest fix-ups. Others sold them to homebuyers.

Rampell uses the example of a couple who believed that renting was throwing away their money, and had the bad luck to buy a moderately-priced fixer-upper in early 2007. Each wage earner saw their income drop and unable to get a loan modification, they lost their home. Their $309,000 Seattle home went to an investor for $155,000 in the summer of 2011. That investor just sold it to a homeowner for $290,000, not far below what the hapless couple paid for it. But the new buyer paid all cash.

Rampell tells us:

Of the 87,062 foreclosures in the last five years that were bought by corporate investors and have been flipped, about a quarter were sold for at least $100,000 more than what the investor originally paid, according to [an online real estate listings site] Redfin (Although it’s impossible to know how much investors spent on upgrades or renovations.)….

The boom-bust-flip phenomenon is just one of the most obvious ways that research suggests the financial crisis has benefited the upper class while brutalizing the middle class. Rents have risen at twice the pace of the overall cost-of-living index, partly because middle-class families can’t get the credit they need to buy. That means “landlords can raise rents with impunity,” says Glenn Kelman, chief executive of Redfin. And according to a report by David Autor, the M.I.T. economist, job losses during and after the recession were concentrated in midskilled and midwage jobs, like white-collar sales, office and administrative jobs; and blue-collar production, craft, repair and operative jobs. Employment for higher-skilled workers, on the other hand, has grown substantially.

There is a second way foreclosures have served as a wealth transfer to the capitalist classes. Foreclosures don’t necessarily result in evictions. Banks often leave properties in a “zombie” state, starting foreclosures but not completing them, leaving the owner who thought he was foreclosed on still on the hook for property taxes. Another variant which is much less damaging is to leave the homeowner in place. I recently met an investor who is acquiring homes in Atlanta. The day after he buys a house, he goes to introduce himself to the former homeowner to see if he can work out a deal to keep them in place as tenant. In the overwhelming majority of cases, he can. “They were paying $1100 on their mortgage and the bank wouldn’t give them a mod. I’ll let them rent for $700, which is way above what they’d have gotten if they wrote the principal down to the price at which I bought the house. And I tell the tenants I’d be happy to sell the home to them.” We didn’t discuss details, but it sounded as if he’d be willing to structure rent to own deals (where part of the rent would go to a down payment on the house).

He was clear that his business depended on what he saw as value destroying behavior by banks. He described how he’d recently bought a home and when he went for his usual visit to the house, a well-dressed black man met him and invited him in, saying he’d be out in 30 days and assumed it wasn’t a problem. The new owner saw the house was in impeccable shape. He chatted with the owner a bit and found out he was a bodybuilder with a high-end training business. He asked the homeowner: “You look like you take good care of yourself and the house. You’d been paying on time. What happened?”

The trainer told him that he’d bought the house at the peak of the cycle for $160,000. The house was clearly now worth way less. He tried to get the bank to modify it to a principal balance of $100,000. The bank wouldn’t consider it. “So I bought a house which is comparable to this one for $50,000 and gave this one up.”

In this case, the homeowner had enough cash to arbitrage himself. The investor told me he’d bought the foreclosed home for $40,000. Had the bank cut a deal for $100,000 (and who knows, the homeowner might have accepted a higher number), it would have come out way ahead. But that also assumes that the bank owned the mortgage. It’s pretty much a given that the bank was a servicer, and as we’ve seen again and again, servicers don’t have the incentives or the infrastructure to do mods. So investor in the mortgages lose, homeowners lose. The winners are the banks as inefficient looters (the money they skim off the servicing is chump change relative to the damage done by negligent and predatory servicing) and the investors who profit by picking up the pieces. This is isn’t a well-functioning economic system, it’s rentier capitalism. And it’s looking more and more like a doomsday machine for what remains of the middle class.


Can’t add anything polite to this!  Except, to say it’s a very long way from integrity!

Unintended Consequences

That pesky ‘law’ regarding the power of unintended consequences.

As many of you are aware, last week was an unusual format for Learning from Dogs in that the whole of the week was dedicated to republishing Dr. Samuel Alexander’s essay The Sufficiency Economy – Envisioning a Prosperous Way Down.  If you missed that, the first chapter was a week ago today under the title of Where less is so much more.

Moving on. Many living in Northern California and South-West Oregon will have had a timely reminder that nature is tapping mankind on the shoulder in new and challenging ways.  I’m referring to the massive storm that was featured in a recent Climate Crocks article that delivered over a foot of rainfall in recent days.  Here in Southern Oregon we received over 10 inches!  Hence the growing awareness that we have to do something!

So with those musings in mind, read the following essay written by Gail Tverberg of the website Our Finite World.  Gail describes herself, thus:

I am an actuary interested in finite world issues – oil depletion, natural gas depletion, water shortages, and climate change. The financial system is also likely to be affected.

I’m very grateful to Gail for so promptly giving me written permission to republish her work.  It is very relevant to all of us.


Climate Change: The Standard Fixes Don’t Work

World leaders seem to have their minds made up regarding what will fix world CO2 emissions problems. Their list includes taxes on gasoline consumption, more general carbon taxes, cap and trade programs, increased efficiency in automobiles, greater focus on renewables, and more natural gas usage.

Unfortunately, we live in a world economy with constrained oil supply. Because of this, the chosen approaches have a tendency to backfire if some countries adopt them, and others do not. But even if everyone adopts them, it is not at all clear that they will provide the promised benefits.

Figure 1. Actual world carbon dioxide emissions from fossil fuels, as shown in BP’s 2012 Statistical Review of World Energy. Fitted line is expected trend in emissions, based on actual trend in emissions from 1987-1997, equal to about 1.0% per year.
Figure 1. Actual world carbon dioxide emissions from fossil fuels, as shown in BP’s 2012 Statistical Review of World Energy. Fitted line is expected trend in emissions, based on actual trend in emissions from 1987-1997, equal to about 1.0% per year.

The Kyoto Protocol was adopted in 1997. If emissions had risen at the average rate that they did during the 1987 to 1997 period (about 1% per year), emissions in 2011 would be 18% lower than they actually were. While there were many other things going on at the same time, the much higher rise in emissions in recent years is not an encouraging sign.

The standard fixes don’t work for several reasons:

1. In an oil-supply constrained world, if a few countries reduce their oil consumption, the big impact is to leave more oil for the countries that don’t. Oil price may drop a tiny amount, but on a world-wide basis, pretty much the same amount of oil will be extracted, and nearly all of it will be consumed.

2. Unless there is a high tax on imported products made with fossil fuels, the big impact of a carbon tax is to send manufacturing to countries without a carbon tax, such as China and India. These countries are likely to use a far higher proportion of coal in their manufacturing than OECD countries would, and this change will tend to increase world CO2 emissions. Such a change will also tend to raise the standard of living of citizens in the countries adding manufacturing, further raising emissions. This change will also tend to reduce the number of jobs available in OECD countries.

3. The only time when increasing natural gas usage will actually reduce carbon dioxide emissions is if it replaces coal consumption. Otherwise it adds to carbon emissions, but at a lower rate than other fossil fuels, relative to the energy provided.

4. Substitutes for oil, including renewable fuels, are ways of increasing consumption of coal and natural gas over what they would be in the absence of renewable fuels, because they act as  add-ons to world oil supply, rather than as true substitutes for oil. Even in cases where they are theoretically more efficient, they still tend to raise carbon emissions in absolute terms, by raising the production of coal and natural gas needed to produce them.

5. Even using more biomass as fuel does not appear to be a solution. Recent work by noted scientists suggests that ramping up the use of biomass runs the risk of pushing the world past a climate change tipping point.

It is really unfortunate that the standard fixes work the way they do, because many of the proposed fixes do have good points. For example, if oil supply is limited, available oil can be shared far more equitably if people drive small fuel-efficient vehicles. The balance sheet of an oil importing nation looks better if citizens of that nation conserve oil. But we are kidding ourselves if we think these fixes will actually do much to solve the world’s CO2 emissions problem.

If we really want to reduce world CO2 emissions, we need to look at reducing world population, reducing world trade, and making more “essential” goods and services locally.  It is doubtful that many countries will volunteer to use these approaches, however.  It seems likely that Nature will ultimately provide its own solution, perhaps working through high oil prices and weaknesses in the world financial system.

Elastic Versus Inelastic Supply

It seems to me that many bad decisions have been made because many economists have missed the point that crude oil supply tends to be very inelastic, while other fuels are fairly elastic. Let me explain.

Elastic supply is the usual situation for most goods. Plenty of the product is available, if the price is high enough. If there is a shortage, prices rise, and in not too long a time, the market is well-supplied again. If supply is elastic, if you or I use less of it, ultimately less of the product is produced.

Coal and natural gas usually are considered to be elastic in their supply. To some extent, they are still “extract it as you need it” products. Supply of natural gas liquids (often grouped with crude oil, but acting more like a gas, so it is less suitable as a transportation fuel) is also fairly elastic.

Crude oil is the one product that is in quite short supply, on a world-wide basis. Its supply doesn’t seem to increase by more than a tiny percentage, no matter how high the price rises. This is a situation of inelastic supply.

Figure 2. World crude oil production (including condensate) based primarily on US Energy Information Administration data, with trend lines fitted by the author.
Figure 2. World crude oil production (including condensate) based primarily on US Energy Information Administration data, with trend lines fitted by the author.

Even though oil prices have been very high since 2005  (shown in Figure 3, below), the amount of crude oil has increased by only 0.1%  per year (Figure 2, above).

Figure 3. Historical average annual oil prices, (“Brent” or equivalent) in 2011$, from BP’s 2012 Statistical Review of World Energy.
Figure 3. Historical average annual oil prices, (“Brent” or equivalent) in 2011$, from BP’s 2012 Statistical Review of World Energy.

In the case of oil, both supply and demand are quite inelastic. No matter how high the price, demand for oil doesn’t drop back by much. No matter how high the price of oil, world supply doesn’t rise very much, either.1

In a situation of inelastic supply, the usual actions a person might take appear to work when viewed on a local basis, but backfire on a world basis, if not everyone participates. When one country tries to conserve crude oil (whether through a carbon tax, gasoline tax, or higher automobile mileage requirement), it may reduce its own consumption, but there are still plenty of other buyers in the market for the oil that was saved. So the oil gets used by someone else, perhaps at a slightly lower price.  World oil production remains virtually unchanged. Thus, a reduction in oil usage by an OECD country can translate to more oil consumption by China or India, and ultimately more development of all types by those countries.

Adding Substitutes Adds to Carbon Emissions

If we don’t have enough crude oil, one approach is to create substitutes. Because crude oil supply is inelastic, though, these substitutes aren’t really substitutes, though. They are “add ons” to world oil supply, and this is one source of our problem with increasing world emissions.

What do we use to make the substitutes? Basically, natural gas and coal, and to a limited extent oil (because we can’t avoid using oil). The catch is, that to make the substitutes, we need to burn natural gas and coal more quickly than we would, if we didn’t make the oil substitutes. Since the supply of coal and natural gas is elastic, it is possible to pull them out of the ground more quickly. Thus, making the substitutes tends to increase carbon dioxide emissions over what they would have been, if we had never come up with the idea of substitutes.

The increased use of coal and natural gas is pretty clear, if a person thinks about coal-to-liquids or gas-to-liquids. Here, we need to first build the plants used in production, and then with each barrel of substitute made, we need to use more natural gas or coal. So it is very clear that we are extracting a lot of additional coal and natural gas, to make a relatively smaller amount of oil substitute. There is often a substantial need for water to make the process work as well, adding another stress on the system.

But the same issue comes up with biofuels, and with other renewables. These too, are add-ons to the world oil supply, not substitutes. While theoretically they might produce energy with less CO2 per unit than fossil fuel systems, in absolute terms they lead to natural gas and coal being pulled out of the ground more quickly to be used in making fertilizer, electricity, concrete, and other inputs to renewables.2

Carbon Taxes and Competitiveness

Each country competes with others in the world market place. Adding a carbon tax makes products made by the local company less competitive in the world marketplace.  It also signals to potential coal users that the countries adopting the carbon taxes are willing to a leave a greater proportion of world coal exports to those who are not adopting the tax, thus helping to keep the cost of imported coal down.

Asian countries already have a competitive edge over OECD countries in terms of lower wages and lower fuel costs (because of their heavy coal mix), when it comes to manufacturing. Adding a carbon tax tends to add to the Asian competitive edge. This tends to shift production offshore, and with it, jobs.

Figure 4. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.
Figure 4. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

China joined the World Trade Organization in 2001. Figure 4 shows clearly that its fuel consumption ramped up rapidly thereafter. It seems likely that the number of Chinese manufacturing jobs and spending on Chinese infrastructure increased at the same time.

Economists seem to have missed the serious worldwide deterioration in CO2 emissions in recent years by looking primarily at individual country indications, including CO2 emissions per unit of GDP. Unfortunately, this narrow view misses the big picture–that total CO2 emissions are rising, and that CO2 emissions relative to world GDP have stopped falling. (See my posts Is it really possible to decouple GDP growth from energy growth and Thoughts on why energy use and CO2 emissions are rising as fast as GDP. See also Figure 1 at the top of the post.)

The Employment Connection

I have shown that in the US there is a close correlation between energy consumption and number of jobs. (For more information, including a look at older periods, see my post, The close tie between energy consumption, employment, and recession.)

Figure 5. Employment is the total number employed at non-farm labor as reported by the US Census Bureau. Energy consumption is the total amount of energy of all types consumed (oil, coal, natural gas, nuclear, wind, etc.), in British Thermal Units (Btu), as reported by the US Energy Information Administration.
Figure 5. Employment is the total number employed at non-farm labor as reported by the US Census Bureau. Energy consumption is the total amount of energy of all types consumed (oil, coal, natural gas, nuclear, wind, etc.), in British Thermal Units (Btu), as reported by the US Energy Information Administration.

There are several reasons why a connection between energy consumption and the number of jobs is to be expected:

(1) The job itself in almost every situation requires energy, even if it is only electricity to operate computers, and fuel to heat and light buildings.

(2) Equally importantly, the salaries that employees earn allow them to buy goods that require the use of energy, such as a car or house. (“Energy demand” is what people canafford; jobs allow “demand” to rise.)

(3) The lowest salaried people can be expected to spend the highest proportion of their salaries on energy-related services (such as food and gasoline for commuting). The wealthy spend their money on high priced goods and services, such as financial planning services and designer clothing that require much less energy per dollar of expenditure.

The thing I find concerning is the close timing between the ramp-up of Asian coal use and thus jobs using coal, and the drop-off of US employment as a percentage of US population, as illustrated in Figure 6 below. Arguably, the ramp up in world trade is just as important, but some aspects of programs that are intended to save CO2 emissions also seem to encourage world trade.

Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate.
Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate.

Of course, the US did not sign the Kyoto Protocol or enact a carbon tax, and it is its jobs that I show falling as a percentage of population. It is more that the CO2 solutions act as yet another way to encourage more international trade, and with it more “growth”, and  more CO2.

Using More Biomass is Not a Fix Either

Burning more wood for fuel and creating “second generation” biofuels from biomass seems like a fix, until a person realizes that we are reaching limits there, as well.

In June 2012, twenty noted scientist published a paper in the journal Nature called Approaching a State Shift in the Earth’s Biosphere. This report indicates that humans have already converted as much as 43% of Earth’s land to urban or agricultural uses. In total, 20% to 40% of Earth’s primary productivity has been taken over by humans. The authors are concerned that we may now be reaching a tipping point leading to a state shift, because of loss of ecosystem services as use of biological products increases. With this state change would come a change in climate. Simulations indicate that this tipping point may occur when as little as 50% of land use is disturbed. This tipping point may be even lower, if world-wide synergies take place.

On Our Current Path – Lacking Good Solutions

While this list of problems relating to current proposed solutions is not complete, it gives a hint of the problems with reducing CO2 emissions using approaches suggested to date. There are many issues I have not covered.

One issue of note is the fact the cost of integrating intermittent renewables (such as wind and solar PV) increases rapidly, as we add increasing amounts to the grid. This occurs because there is more need to transport the electricity long distances and to mitigate its variability through electricity storage or fossil fuel balancing. (See for example, Low Carbon Projects Demand a New Transmission and Distribution ModelGrid Instability Has Industry Scrambling for Solutions, and Hawaii’s Solar Power Flare-Up.)

While the problems noted in these articles are probably solvable, the cost of these solutions has not been built into energy balance analyses. Energy balances (or EROEI estimates) as currently reported do not vary with the proportion of intermittent renewables added to the grid. If energy balance analyses were adjusted to reflect the high cost of adding an increasing proportion of wind or solar PV to the grid, they would likely show a rapidly declining energy balance, above a certain threshold. This would indicate that while adding a little intermittent renewables (as we have done to date) can be a partial solution, adding a lot is likely to have serious cost and energy balance issues.

Another issue that is difficult to deal with is the fact that we are not dealing with a temporary problem with CO2 emissions. The idea is not to slow down the burning of fossil fuels, and burn more later; what we really need to do is to leave unburned fossil fuels in the ground for all time. This is a problem, because there is no way that we can impose our will on people living 10 or 50 years from now. The Maximum Power Principle of H. T. Odum would seem to indicate that any species will make use of whatever energy sources are available to it, to the extent that it can. Even if we temporarily defeat this tendency with respect to humans’ use of fossil fuels, I don’t see any way that we can defeat this tendency for the long term.

Considering all of these issues, it does not appear that most of the “standard” solutions will really work.3 What other options do we have?

Nature’s Solution  

The Earth has been handling the problem of shifting conditions for over 4 billion years. The earth is a finite system. Nature provides that finite systems, such as the Earth, will cycle to new states of equilibrium over time, as conditions change. While we would like to defeat Earth’s tendency in this regard, it is not at all clear that we can. Part of this cycling to a new state is likely to be a change in climate.

A state change is a cause for concern to humans, but not necessarily to the Earth itself.  The Earth has moved from state to state many times in its existence, and will continue to do so in the future. The changes will bring the Earth back into a new equilibrium. For example, if CO2 levels are high, species that can make use of higher CO2 levels (such as plants) are likely to become dominant, rather than humans.

Exactly how this state change might occur is subject to different views. One view is that changing CO2 levels will be a primary driver. The Nature article referenced previously suggested that increased disturbance of natural ecosystems (as with greater use of biomass) might force a state change. My personal view is that a financial collapse related to high oil price may be part of Nature’s approach to moving to a new state. It could bring about a reduction in world trade, a scale back in CO2 emissions, and a general contraction of human systems.4

However the change takes place, it could be abrupt. It will not be to many people’s liking, since most will not be prepared for it.

Steps That Might Work to Slow CO2 Emissions

It would be convenient if we could slow CO2 emissions by working to produce energy with less CO2. This option does not seem to be working well though, so I would argue that we need to work in a different direction: toward reducing humans’ need for external energy. In order to do this, I would suggest two major steps:

(1) Reduce the world’s population, through one-child policies and universal access to family planning services. This step is necessary because rising population adds to demand. If we are to reduce demand, lower population needs to play a role.

(2) Change our emphasis to producing essential goods locally, rather than outsourcing them to parts of the world that are likely use coal to produce them. I would suggest starting with food, water, and clothing, and the supply chains necessary to produce these items.

Changing our emphasis to producing essential goods locally will have a multiple benefits. It will (a) add local jobs, and (b) lead to less worldwide growth in coal usage, (c) save on transport fuel, and (d) add protection against the adverse impact of declining world oil supply, if this should happen in the not too distant future. It should also help reduce CO2 emissions. The costs of goods will likely be higher using this approach, leading to less “stuff” per person, but this, too, is part of reaching reduced CO2 emissions.

It is hard to see that the steps outlined above would be acceptable to world leaders or to the majority of world population. Thus, I am afraid we will end up falling back on Nature’s plan, discussed above.


[1] Michael Kumhof and Dirk Muir recently prepared a model of oil supply and demand (IMF working paper: Oil and the World Economy: Some Possible Futures). In it, they assume a long run price-elasticity of oil supply of 0.03, and remark that a paper by Benes and others indicates a range of 0.005 to 0.02 for this variable. The long term price elasticity of oil demand is  assumed to be .08 in the Kumhof and Muir analysis.

[2] I would argue that standard EROEI measurements are defined too narrowly to give a true measure of the amount of energy used in making a particular substitute. For example, EROEI measures do not consider the energy costs associated with labor (even though workers spend their salaries on clothing, and commuting costs, and many other good and services that use fossil fuels), or with financing costs, or of indirect impacts like wear and tear on the roads by transporting corn for biofuel.

Other types of analysis have ways of dealing with this known shortfall. For example, when the number of jobs that a new employer can be expected to add to a community is evaluated, the usual approach seems to be to take the number of jobs that can be directly counted and multiply by three, to estimate the full impact. I would argue that with substitutes, some similar adjustment is needed. This adjustment which would act to increase the energy use associated with renewables, and reduce the EROEI. For example, the adjustment might divide directly calculated EROEI by three.

A calculation of the true net benefit of renewables also needs to recognize that nearly the full energy cost is paid up front, and only over time is recovered in energy production. When renewable production is growing rapidly, society tends to be in a long-term deficit position. Typically, it is only as growth slows that society reaches as net-positive energy position.

[3] I obviously have not covered all potential solutions. Nuclear power is sometimes mentioned, as is space solar power. There are new solutions being proposed regularly. Even if these solutions would work, ramping them up would take time and require use of fossil fuels, so it is wise to consider other options as well.

[4] The way that limited oil supply could interfere with world trade is as follows: High oil prices cause consumers to cut back on discretionary goods. This leads to layoffs in discretionary sectors of the economy, such as vacation travel. It also leads to secondary effects, such as debt defaults and lower housing prices. The financial effects “concentrate up” to governments of oil importing nations, because they receive less tax revenue from laid-off workers at the same time that they pay out more in unemployment benefits, stimulus, and bank bailouts. (We are already at this point.)

Eventually, countries will find that deficit spending is spiraling out of control. If countries raise taxes and cut benefits, this is likely to lead to more lay offs and debt defaults. One possible outcome is that citizens will become increasingly unhappy, and replace governments with new governments that repudiate old debt. The new governments may have difficulty establishing financial relationships with other governments, given that most are major debt defaulters. Such issues could reduce world trade substantially. With the drop of world trade would come much more limited ability to maintain our current systems, such as electricity and long distance transport.


Reminds me of that old saying, “The best laid plans of mice and men …” Or as Robbie Burns wrote in 1785,

But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best-laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!