mfioretti: debt* + downshifting*

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  1. The system acts as if whenever one pump dispenses the energy products we want, another pump disperses other products we don’t want. Let’s look at three of the big unwanted “co-products.”

    1. Rising debt is an issue because fossil fuels give us things that would never have been possible, in the absence of fossil fuels. For example, thanks to fossil fuels, farmers can have such things as metal plows instead of wooden ones and barbed wire to separate their property from the property of others. Fossil fuels provide many more advanced capabilities as well, including tractors, fertilizer, pesticides, GPS systems to guide tractors, trucks to take food to market, modern roads, and refrigeration.

    The benefits of fossil fuels are immense, but can only be experienced once fossil fuels are in use. Because of this, we have adapted our debt system to be a much greater part of the economy than it ever needed to be, prior to the use of fossil fuels. As the cost of fossil fuel extraction rises, ever more debt is required to place these fossil fuels in use. The Bank for International Settlements tells us that worldwide, between 2006 and 2014, the amount of oil and gas company bonds outstanding increased by an average of 15% per year, while syndicated bank loans to oil and gas companies increased by an average of 13% per year. Taken together, about $3 trillion of these types of loans to the oil and gas companies were outstanding at the end of 2014.

    As the cost of fossil fuels rises, the cost of everything made using fossil fuels tends to rise as well.

    3. A more complex economy is a less obvious co-product of the increasing use of fossil fuels. In a very simple economy, there is little need for big government and big business. If there are businesses, they can be run by a small number of individuals, with little investment in capital goods. A king, together with a handful of appointees, can operate the government if it does not provide much in the way of services such as paved roads, armies, and schools. International trade is not a huge necessity because workers can provide nearly all necessary goods and services with local materials.

    The use of increasing amounts of fossil fuels changes the situation materially. Fossil fuels are what allow us to have metals in quantity–without fossil fuels, we need to cut down forests, use the trees to make charcoal, and use the charcoal to make small quantities of metals.

    Once fossil fuels are available in quantity, they allow the economy to make modern capital goods, such as machines, oil drilling equipment, hydraulic dump trucks, farming equipment, and airplanes. Businesses need to be much larger to produce and own such equipment. International trade becomes much more important, because a much broader array of materials is needed to make and operate these devices. Education becomes ever more important, as devices become increasingly complex. Governments become larger, to deal with the additional services they now need to provide.

    f an increasing share of the output of the economy is funneled into management pay, expenditures for capital goods, and other expenditures associated with an increasingly complex economy (including higher taxes, and more dividend and interest payments), less of the output of the economy is available for “ordinary” laborers–including those without advanced training or supervisory responsibilities.

    As a result, pay for these workers is likely to fall relative to the rising cost of living. Some would-be workers may drop out of the labor force, because the benefits of working are too low compared to other costs, such as childcare and transportation costs. Ultimately, the low wages of these workers can be expected to start causing problems for the economic system as a whole, because these workers can no longer afford the output of the system. These workers reduce their purchases of houses and cars, both of which are produced using fossil fuels and other commodities.

    Ultimately, the prices of commodities fall below their cost of production. This happens because there are so many of these ordinary laborers, and the lack of good wages for these workers tends to slow the “demand” side of the economic growth loop. This is the problem that we are now experiencing.

    The Two Pumps Are Really Energy and Entropy

    Unlike the markings on the pump (gasoline and ethanol), the two pumps of our system are energy consumption and entropy. When we think we are getting energy consumption, we really get various forms of entropy as well.

    The first pump, rising energy consumption, seems to be what makes the world economy grow.

    The second pump in Figure 3 is Entropy Production. Entropy is a measure of the disorder associated with the extraction and consumption of fossil fuels and other energy products. Entropy can be thought of as a loss of information. Once energy products are burned, we have a portion of GDP in the place of the energy products that have been consumed. This is why there is a high correlation between energy consumption and GDP. As energy products are burned, we also have an increasing pile of debt, increasing pollution (that our sinks become less and less able to handle), and increasing wealth disparity.
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  2. my core prediction for 2016 is that all the things that got worse in 2015 will keep on getting worse over the year to come. The ongoing depletion of fossil fuels and other nonrenewable resources will keep squeezing the global economy, as the real (i.e., nonfinancial) costs of resource extraction eat up more and more of the world’s total economic output, and this will drive drastic swings in the price of energy and commodities—currently those are still headed down, but they’ll soar again in a few years as demand destruction completes its work. The empty words in Paris a few weeks ago will do nothing to slow the rate at which greenhouse gases are dumped into the atmosphere, raising the economic and human cost of climate-related disasters above 2015’s ghastly totals—and once again, the hard fact that leaving carbon in the ground means giving up the lifestyles that depend on digging it up and burning it is not something that more than a few people will be willing to face.

    Healthy companies in a normal economy usually have P/E ratios between 10 and 20; that is, their total stock value is between ten and twenty times their annual earnings. Care to guess what the P/E ratio is for Amazon as of last Friday’s close? A jawdropping 985.

    At that, Amazon is in better shape than some other big-name tech firms these days, as it actually has earnings. Twitter, for example, has never gotten around to making a profit at all, and so its P/E ratio is its current absurd stock value divided by zero. Valuations this detached from reality haven’t been seen since immediately before the “Tech Wreck” of 2000, and the reason is exactly the same: vast amounts of easy money have flooded into the tech sector, and that torrent of cash has propped up an assortment of schemes and scams that make no economic sense at all. Sooner or later, as a function of the same hard math that brings every bubble to an end, Tech Wreck II is going to hit, vast amounts of money are going to evaporate, and a lot of currently famous tech companies are going to go the way of

    my best guess at this point is that photovoltaic (PV) solar energy is going to be the next big energy bubble.

    Solar PV is a good deal less environmentally benign than its promoters like to claim—like so many so-called “green” technologies, the environmental damage it causes happens mostly in the trajectory from mining the raw materials to manufacture and deployment, not in day-to-day operation—and the economics of grid-tied solar power are so dubious that in practice, grid-tied PV is a subsidy dumpster rather than a serious energy source. Nonetheless, I expect to see such points brushed aside, airily or angrily as the case may be, as the solar lobby and its wholly-owned subsidiaries in the green movement make an all-out push to sell solar PV as the next big thing.
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  3. In the last year, I’ve read and enjoyed the discussions coming out of Naomi Klein’s new book, This Changes Everything, as well as the great article Six Myths about Climate Change that Liberals Rarely Question. The core point within both of these is that our lifestyle needs to fundamentally change if we have any chance of addressing the climate crisis.

    Yet missing from this conversation are ideas that are both practical and radical. Ideas which could serve as a blueprint for what a fundamentally different lifestyle would look like. Just as changing lightbulbs won’t be enough, we also know that occupying Wall Street is not a practical choice for most Americans. So what we need are ideas which are radical enough to cause widespread change, yet practical enough, that folks living in the suburbs could put them into practice.

    The following is a blueprint for how all of you can get to work right now. I also know these steps that are both practical and radical because everything that I describe here has already been accomplished in a small, rural, and ridiculously conservative town in Western Colorado. That is to say, if we did this here, you can do this anywhere.

    If we agree that an economy based on unlimited resource extraction is destroying the planet, and that our consumeristic lifestyle is the thing that keeps this economy in motion, then debt is the biggest and most powerful force that guarantees our continued participation. Why? Well if you are like my wife and I, we owe around $200,000 between our home mortgage and some student loans. Most Americans are in similar situations. Since all of that debt is in dollars, most of us will choose to participate in the global economy to try to pay it off. If we don’t, our system is set up to take all that we have earned and own away from us. It’s that powerful. Barring the unlikely scenario of major debt strikes or loan forgiveness programs, the status quo is not going to let us off the hook. So, at least until the debt (that we voluntarily have taken on) is gone, we need to keep participating in the global economy whether we like it or not.

    Another piece of good news is that due to our excessive lifestyle of the last 50 years, we have the perfect infrastructure already in place to get all the work done that we need to do. In every community, with every demographic of people in this country, there are large homes with large yards and vacant guest bedrooms that could house all of the young social visionaries on the planet. This is an infinitely renewable resource that could allow massive amounts of people to get to work right now without changing anything else. Even more importantly, these kinds of relationships allow young people to meet their basic needs (food, utilities, and housing) without ever having to go into debt or participate significantly in the global economy in the first place. It’s practical, radical, and possible!
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  4. "People will never see the connection to oil. They will assume the issue is all financial, and can be fixed with a new financial system."

    Energy consumption is integral to “holding our own” against other species.

    All species reproduce in greater numbers than need to replace their parents. Natural selection determines which ones survive. Humans are part of this competition as well.

    In the past 100,000 years, humans have been able to “win” this competition by harnessing external energy of various types–first burned biomass to cook food and keep warm, later trained dogs to help in hunting. The amount of energy harnessed by humans has grown over the years. The types of energy harnessed include human slaves, energy from animals of various sorts, solar energy, wind energy, water energy, burned wood and fossil fuels, and electricity from various sources.

    Human population has soared, especially since the time fossil fuels began to be used, about 1800.

    Because the world is finite, the greater use of resources by humans leads to lesser availability of resources by other species. There is evidence that the Sixth Mass Extinction of species started back in the days of hunter-gatherers, as their ability to use of fire to burn biomass and ability to train dogs to assist them in the hunt for food gave them an advantage over other species.

    Also, because of the tight coupling of human population with growing energy consumption historically, even back to hunter-gatherer days, it is doubtful that decoupling of energy consumption and population growth can fully take place. Energy consumption is needed for such diverse tasks as growing food, producing fresh water, controlling microbes, and transporting goods.

    We began an economic growth cycle back when we began using fossil fuels to a significant extent, starting about 1800. We began a stagflation period, at least in the industrialized economies, when oil prices began to spike in the 1970s. Less industrialized countries have been able to continue growth their growth pattern longer. Our situation is likely to differ from that of early civilizations, because early civilizations were not dependent on fossil fuels. Pre-collapse skills tended to be useful post-collapse, because there was no real change in energy sources. Loss of fossil fuels would considerably change the dynamic of the outcome, because most jobs would become obsolete.

    Most models put together by economists assume that the conditions of the growth period, or the growth plus stagflation period, will continue forever. Such models miss turning points.

    we cannot ramp up all of the physical infrastructure needed (pipelines, steaming equipment, refining equipment) without badly cutting into the resources needed to “grow” the rest of the economy. A similar problem is likely to exist if we try to ramp up world oil and gas supply using fracking.

    he link between energy and the economy comes both from the supply side and the demand side.

    With respect to supply, it takes energy of many types to make goods and services of all types. This is discussed in Item 2 above.

    With respect to demand,

    (a) People who earn good wages (indirectly through the making of goods and services with energy products) can afford to buy products using energy.

    (b) Because consumers pay taxes and buy goods and services, growth in demand from adequate wages flows through to governments and businesses as well.

    (c) Higher wages enable higher debt, and higher debt also acts to increase demand.

    (d) Increased demand increases the price of the resources needed to make the product with higher demand, making more of such resources economic to extract.

    11. We need a growing supply of cheap energy to maintain economic growth.

    12. Oil prices that are too low for producers should be a serious concern. Such low prices occur because oil becomes unaffordable. In the language of economists, oil demand drops too low.

    A common belief is that our concern should be oil prices that are too high, and thus strangle the economy. A much bigger concern should be that oil prices will fall too low, discouraging investment. Such low oil prices also encourage civil unrest in oil exporting nations, because the governments of these nations depend on tax revenue that is available when oil prices are high to balance their budgets.

    The issue we are now seeing is the reverse–too low oil prices for oil producers, including oil exporters. These low oil prices are contributing to the unrest we see in the Middle East. Low oil prices also contribute to Russia’s belligerence, since it needs high oil revenues to maintain its budget.
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  5. Le indicazioni che fino a qualche settimana fa arrivavano dalle rilevazioni ufficiali sembravano lasciar ben sperare: la fiducia delle imprese e dei consumatori mostrava segni di netta ripresa, che parevano ripercuotersi anche nell'andamento di indici quali il Pmi, solitamente molto seguiti dai mercati in quanto redatti ascoltando le aziende, che hanno più di ogni altro il polso della situazione. Ma negli ultimi giorni pare che le statistiche si vogliano rimangiare quei germogli di ripresa evidenziati finora, gettando non poche ombre sull'azione del governo Renzi. La rilevazione più clamorosa, anche perché siglata Istat, è stata quella sul calo del Pil nel primo trimestre, cui ha fatto seguito anche il passo di gambero dell'export. Ma anche dal lato dei consumi, oggi, non arrivano segnali distensivi:
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  6. Many of us intuitively recognize that we’ve constructed a ginormous Rube Goldberg machine which for a number of reasons may not continue to crank out goods and services for the next 30-40 years. We blame this and that demographic for our declining prospects – the Republicans, the environmentalists, the greedy rich, the lazy poor, the immigrants, the liberals, etc. We blame this and that country or political system – evil socialists, heartless capitalists, Chinese, Syrians, Europeans, etc. We watch TV and internet about the latest ‘news’ influencing our world yet are not entirely confident of the connections. But underlying all this back and forth are some first principles, which are only taught piecemeal in our schools, if at all. Below is a short list of 20 principles underpinning today’s global ‘commerce’. I should note, if I was a 25 year old starting business school, eager to get a high paying job in two short years, I wouldn’t believe what follows below, even if I had time or interest to read it, which I probably wouldn't.
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  7. Uova e colombe non bastano a invertire il trend di calo dei consumi. Questi hanno infatti registrato per Pasqua una caduta del 13,8% e anche per lo stesso "consumo turistico" si conferma che solamente il 7,5% delle famiglie si è mossa nel periodo di Pasqua e Pasquetta pari a 1,8 milioni di famiglie (4 milioni e 600 italiani). E' quanto sostiene - nella consueta ridda di rilevazioni del periodo - una nota di Adusbef e Federconsumatori firmata dai presidenti Elio Lannutti e Rosario Trefiletti. "Il campione delle famiglie del Onf già interrogato nei giorni precedenti si legge - ha confermato a consuntivo i dati già preventivati e pubblicizzati in merito ai consumi di Pasqua. Ancora dati molto negativi che confermano il forte condizionamento che la situazione economica del paese e delle famiglie soffrono
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  8. This continued attachment to big bonuses might lead you to ask whether bankers, and the organisations which employ them, have learned anything from the financial crisis. But a more beguiling question is why bankers remain so attached to bonuses, despite the significant evidence that they often cause more harm than good.

    There are many answers to this question on offer, but one of the most intriguing comes from an ex-trader. Writing in the New York Times, Sam Polk claims the reason bankers can’t let go of bonuses is because they are addicted to them. He explains how in his final year as a banker he “wanted more money for exactly the same reason an alcoholic needs another drink: I was addicted”.
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  9. “severe material deprivation rate” of selected European countries over the last few years. Essentially, this is the percentage of the population unable to afford at least four of the following nine items:
    Tags: , , , , , by M. Fioretti (2014-01-28)
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  10. nflazione ai minimi dal 2009. Il tasso medio annuo per il 2013 è stato pari all’1,2%, in decisa frenata rispetto al 3% registrato nel 2012. Lo rileva l’Istat, confermando le stime e aggiungendo che si tratta del livello più basso dal 2009, ovvero da quattro anni.

    Nel mese di dicembre il tasso d’inflazione su base annua resta stabile allo 0,7%, lo stesso valore già registrato a novembre, che risulta il più basso da quattro anni. L’Istituto rileva un aumento, pari allo 0,2%, che interrompe una serie di tre cali congiunturali consecutivi. Nell’ultimo mese dell’anno il prezzo del cosiddetto carrello della spesa, ovvero l’insieme dei prodotti ad alta frequenza d’acquisto, ha subito un rincaro, salendo dello 0,5% rispetto a novembre e dell’1,2% su base annua, in accelerazione dal precedente 0,8 per cento.

    Per il Codacons la netta decelerazione rispetto al +3% registrato nel 2012 dipende da un crollo dei consumi senza precedenti, che ha riguardato anche beni di prima necessità come gli alimentari. L’associazione di consumatori evidenzia, comunque, come questa inflazione, nonostante sia il livello più basso dal 2009, tradotta in cifre, equivale, in termini di aumento del costo della vita, ad una stangata annua pari a 257 euro per un single, 345 euro per una famiglia di due persone, 419 per una famiglia tipo di tre persone e 462 per una di quattro componenti.
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