https://ourfiniteworld.com/2021/02/03/where-energy-modeling-goes-wrong/
Where Energy Modeling Goes Wrong
Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil,” with dotted line added corresponding to where I saw the world economy to be in January 2019, based on how the economy was operating at that time.
.... [6] The growing complexity of the economy is contributing to the huge amount of debt outstanding.
In a very complex economy, a huge number of durable goods and services are produced. Examples of durable goods would include machines used in factories and pipelines of all kinds. Durable goods would also include vehicles of all types, including both vehicles used for businesses and vehicles used by consumers for their own benefit. As broadly defined here, durable goods would include buildings of all types, including factories, schools, offices and homes. It would also include wind turbines and solar panels.
There would also be durable services produced. For example, a college degree would have lasting benefit, it is hoped. A computer program would have value after it is completed. Thus, a consulting service is able to sell its programs to prospective buyers.
Somehow, there is a need to pay for all of these durable goods. We can see this most easily for the consumer. A loan that allows durable goods to be paid for over their expected life will make these goods more affordable.
Similarly, a manufacturer needs to pay the many workers making all of the durable goods. Their labor is adding value to the finished products, but this value will not be realized until the finished products are put into operation.
Other financing approaches can also be used, including the sale of bonds or shares of stock. The underlying intent is to provide financial time-shifting services. Interest rates associated with these financial time-shifting services are now being manipulated downward by central banks to make these services more affordable. This is part of what keeps stock prices high and commodity prices from falling lower than their current levels.
These loans, bonds and shares of stock are providing a promise of future value. This value will exist only if there are enough fossil fuels and other resources to create physical goods and services to fulfill these promises. Central banks can print money, but they cannot print actual goods and services. If I am right about collapse being ahead, the whole debt system seems certain to collapse. Shares of stock seem certain to lose their value. This is concerning. The end point of all of the added complexity seems to be financial collapse, unless the system can truly add the promised goods and services.
[7] Intermittent electricity fits very poorly into just-in-time supply lines.
A complex economy requires long supply lines. Usually, these supply lines are operated on a just-in-time basis. If one part of a supply line encounters problems, then manufacturing needs to stop. For example, automobile manufacturers in many parts of the world are finding that they need to suspend production because it is impossible to source the necessary semiconductor chips. If electricity is temporarily unavailable, this is another way of disrupting the supply chain.
The standard way to work around temporary breaks in supply chains is to build greater inventory, but this is expensive. Additional inventory needs to be stored and watched over. It likely needs financing, as well.
[8] The world economy today seems to be near collapse.
The self-organizing economy is now pushing the economy in many strange ways that indirectly lead to less energy consumption and eventually collapse. Even prior to COVID-19, the world economy appeared to be reaching growth limits, as indicated in Figure 1, which was published in January 2019. For example, recycling of many renewables was no longer profitable at lower oil prices after 2014. This led China to discontinue most of its recycling efforts, effective January 1, 2018, even though this change resulted in the loss of jobs. China’s car sales fell in 2018, 2019, and 2020, a strange pattern for a supposedly rapidly growing country.
The response of world leaders to COVID-19 has pushed the world economy further in the direction of contraction. Businesses that were already weak are the ones having the most difficulty in being able to operate profitably.
Furthermore, debt problems are growing around the world. For example, it is unclear whether the world will require as many shopping malls or office buildings in the future. A person would logically expect the value of the unneeded buildings to drop, reducing the value of many of these properties below their outstanding debt level.
When these issues are combined, it looks likely that the world economy may not be far from collapse, which is one of my contentions from Section [1]. It also looks like my other contentions from Section [1] are true:
(i) Low oil prices rather than high are to be expected as the economy reaches limits,
(ii) Most fossil fuel reserves will be left in the ground because of low prices, and
(iv) If the economy is not to collapse, we need energy sources providing a larger quantity of net energy per capita to offset diminishing returns.
Regarding (iv), the available energy supply from wind and solar (net or otherwise) is tiny relative to the total energy required to operate the world economy. This issue, alone, would disqualify a Great Reset using wind and solar from truly being a solution for today’s problems. Instead, plans for a Great Reset tend to act as a temporary cover-up for collapse.
....
https://www.oftwominds.com/blogfeb21/middle-class2-21.html
The Top 10% Is Doing Just Fine, The Middle Class Is Dying on the Vine
I've been covering the decline of America's middle class for over a decade with charts,
data and commentary on the
social depression that has accompanied the decline.
While there are many mutually reinforcing dynamics in this 45-year decline--demographics,
global energy costs, financialization and globalization, to name a few-- one term
describes the accelerating erosion of America's middle class: decapitalization.
To understand decapitalization, we need to start with the fundamentals of any economy
between labor (wages) and capital and between investment and speculation.
Although it's tempting to oversimplify and demonize one or the other of these basics (speculators bad!
etc.), they each provide an essential role in a healthy economy, one which is in dynamic
equilibrium, a state analogous to a healthy ecosystem with constantly changing interactions of
numerous species, individuals and inputs (weather, etc.). This variability enables the order
of fluctuations (to use Ilya Prigogine's profound phrase), a dynamic stability / equilibrium.
If labor's share of the economy drops too low, the workforce cannot consume enough to support their
households and the economy as a whole. If capital can no longer earn an attractive return, investment
dries up and production stagnates. If speculators are not allowed to take on risk, liquidity
dries up and risk crushes investment. But if speculation becomes the foundation of the economy's
"growth," then the inevitable collapse of speculative bubbles will crash the economy.
In modern social-capitalist systems, the core stabilizer of the system is the wage-earning
middle class which provides the stable workforce driving production and the stable pool of
consumers needed to borrow money and consume enough to soak up the production of goods and services
at a profit to producers.
Without a stable, dominant middle class, capital has few opportunities to invest in productive
capacity. Without a stable, dominant middle class, the economy stagnates and is prone
to collapse as it is far from equilibrium.
The process of middle class decline is best explained as decapitalization because the
middle class is fundamentally a means of transforming labor into capital via
savings and investment. The traditional ladder of social mobility from the working class
to the middle class is one of capitalizing work: time and savings are invested in higher
education, in effect capitalizing future labor by increasing productivity.
Capital isn't
limited to cash, land or tools; in an information economy, knowledge and skills are also
capital, as is the social capital of social networking and relationships formed with mentors,
suppliers, lenders, colleagues, investors, etc.
The second way to capitalize work is to save earnings and invest the savings in assets
that produce income or gain value:
a house, land, rental property, small business and income-producing financial assets such as bonds
or dividend-paying stocks.
Thrift, investing, long-term planning and deferred consumption are all essential to
capitalizing work by turning that labor into income-producing assets. As the household's
ownership of these assets that yield unearned income rises, so does their income and wealth.
These increase the financial security of the household and build a nestegg which can be passed down
to the next generation, improving their security via inheritance of income-producing assets.
As long as productivity is increasing the value of their labor, the middle class can leverage
future earnings into assets by borrowing money to invest in assets: to buy a house,
a mortgage is borrowed against future earnings. As long as the mortgage is a fixed-interest loan
and income can be expected to rise with productivity, then this is a win-win situation: capital
earns a predictable, low-risk return from the mortgage and the middle class household has stake in
a family home, an asset which acts as a savings mechanism as the mortgage slowly pays down
the debt and increases the household's home equity--a form of savings.
The processes of decapitalization have upended this entire structure.
In the systems context outlined above, our economy is out of balance and far from equilibrium
and thus prone to collapse.
For the bottom 90%, which of course includes the middle class however you define it, it's increasingly
difficult to capitalize labor into capital. There are a number of factors driving this
decapitalization:
1. Wages' share of the national income has continued a five-decade downtrend. (See chart below)
National income since 1973 has shifted from labor (wages) to capital and more specifically,
to debt and speculative gaming of the system, a.k.a. financialization.
Total household income in the U.S. in 2018 was $17.6 trillion. The decline in wages' share
of the national income from 1973 to 2018
is about 8.5%, which equals $1.5 trillion, the sum shifted from labor to capital every year.
(See chart below)(source: https://www.statista.com/statistics/216756/us-personal-income/)
No, this is not a typo. As this RAND report documents, $50 trillion has
been siphoned from labor (the lower 90% of the workforce) to the Financial Aristocracy and their
technocrat lackeys (the top 10%) who own the vast majority of the capital (see charts below):
Trends in Income From 1975 to 2018.
2. Within the workforce, wages have shifted to the top 10% who now earn 50% of all taxable
income. (See RAND chart below) Financialization and globalization have decapitalized
the skills of entire sectors of the workforce as automation and offshoring reduced the human
capital of workers' skills and experience and the value of their social capital. When
the entire industry is offshored, skills and professional relationships lose their market value.
In a fully globalized economy, every worker producing tradable goods/services is competing with
the entire global workforce, a reality that reduces wages in high-cost developed nations such as
the U.S.
Financialization has heavily rewarded workers with specialized gaming the financial system
skills and devalued every other skill as only the skills of financialization are highly profitable
in a globalized, financialized economy.
3. As the high-wage jobs and capital shifted to coastal urban centers, middle class owners of
homes and capital elsewhere saw the value of their assets decline. If a home valued at $100,000
in the late 1990s is now worth $150,000, the owners lost ground even with "official" inflation.
In terms of real-world purchasing power, their home actually lost significant value in the past 23
years.
Meanwhile, middle class owners who bought their home in a coastal hot-spot for $100,000 23 years
ago are now enjoying home valuations close to $1 million. Homes, along with every other
asset, have been shifted into a casino where almost everyone is sorted into winners and losers,
less often by skill and more often by luck.
For those who were too young to buy in 1997, sorry--the opportunity to buy a home for three times
average middle class income is gone. The lucky generation who bought in the late 1990s in
booming coastal magnets for global capital joined the top 10% and their colleagues in less desirable
regions lost ground.
4. As capital siphoned off income and appreciation from labor (human and social capital),
the gains accruing to capital accelerated. Those who already owned income-producing assets
reaped both income and asset appreciation gains as yields on savings collapsed to near-zero
as the Federal Reserve and other central banks dropped yields to near-zero in 2009 and kept them
low for the following 13 years.
This had two devastating effects on the middle class: hundreds of billions of dollars that
once flowed to savers and money markets disappeared, swallowed by the banks as a direct (and intentional)
effect of the Fed's ZIRP (zero-interest rate policy).
Since the Fed destroyed low-risk yields, anyone seeking any real yield (i.e. above inflation)
would have to enter the casino and compete with hedge funds, insiders and the Financial
Aristocracy. Very few middle class workers have the skills and experience to beat the
pros in the casino, and so income and wealth accrued to those who already owned capital.
This is a key reason why the rich got richer and the poor got poorer. Those with
capital accrued the majority of gains in income and wealth, leaving the bottom 90% in the dust.
A recent Foreign Affairs essay
Monopoly Versus Democracy included these stunning statistics:
Ten percent of Americans now control 97 percent
of all capital income in the country. Nearly half of the new income generated since the global
financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens.
The richest three Americans collectively have more wealth than the poorest 160 million Americans.
(emphasis added.)
The 3% of income from capital collected by the bottom 90%--which includes the middle class--
is basically signal noise: the middle class collects inconsequential crumbs of income from
capital.
Prior to the Fed's ZIRP and financialization of the economy, the middle class could both collect
income from capital they owned and they could afford to acquire assets that yielded low-risk
solid returns. Now they can do neither. Even worse, the puchasing power of their labor continues
to decline, leaving them less able to save and buy assets.
This is why The Top 10% Is Doing Just Fine, The Middle Class Is Dying on the Vine. Please
study these charts as a means of understanding the inevitability of economic stagnation and
a revolt of the decapitalized middle class.
.... Charts found at link ....
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