https://ourfiniteworld.com/2024/01/15/2024-too-many-things-going-wrong/
2024: Too Many Things Going Wrong
We know that the age of peak performance for humans varies, depending upon the activity. Peak performance for an athlete tends to come between ages 20 and 30, while peak performance for a person writing academic papers seems to come between ages 40 and 50 years. By the time people are 80 years old, they have a strong suspicion that health and other aspects of performance will deteriorate in the next 20 years.
Economies, in physics terms, are similar to human beings. Both are dissipative structures. They require energy of the appropriate kinds to keep their systems growing and operating normally. For humans, the main source of this energy is food. For an economy, it is a mixture of energy that the economy is specifically adapted to. Today’s economy requires a certain mixture of energy directly from the sun, plus energy from fossil fuels, burned biomass, and nuclear energy. Electricity is a carrier of energy from different sources. It needs to be available at the right time of day and the right time of year to allow today’s economy to continue.
Most people don’t realize that economies grow and eventually collapse. For example, we know that the Roman Empire started its growth in 625 BCE and reached its peak extent in 211 CE. It declined somewhat between 211 CE and 456 CE, when it finally collapsed after several invasions. The growth and collapse of economies is very much expected because of their nature as dissipative structures.
In 2024, the world economy is acting more and more like an 80-year-old man than like a young vigorous economy. Perhaps the economy can continue for quite a few more years, but it increasingly looks like it is in danger of falling apart, or of succumbing as a result of what might be regarded as minor problems.
Trying to predict precisely what will happen in the year 2024 is difficult, but in this post, I will examine some of the things that are going wrong in this increasingly creaky old economy.
[1] Too many parts of the world economy are changing from growth to shrinkage.
The blue circles can illustrate many different things:
- The total goods and services produced by the economy;
- The quantity of energy required to produce the total goods and service produced by the economy;
- The total population that is supported by these goods and services (which will generally be rising or falling, too);
- Goods and services per person (which tend to rise during periods of growth and fall in a shrinking economy);
- And, strangely enough, the ability of the economy to maintain complexity. Without enough energy, structures such as governments tend to fail.
As the economy moves away from growth, toward shrinkage, major changes can be expected.
[2] In a growing economy, repaying debt with interest is very easy. In a shrinking economy, repaying debt with interest becomes close to impossible.
If an economy is growing, there will likely be an increasing number of jobs available over time, and they will pay relatively more. If a person loses his/her job, it is not very difficult to get a position that will pay as much or more. Paying back a loan on a house or an automobile tends to be easy.
A corresponding situation occurs for businesses. If the business can count on an increasing number of customers, overhead becomes easier and easier to cover with a growing consumer base.
The reverse is obviously true in a shrinking economy. Jobs may be available if a person loses his/her current job, but the jobs don’t pay very well. Businesses may face periods with suddenly lower demand, as in 2020. There is a sudden need to reduce overhead, such as payments for office space, if the space is no longer being utilized by employees.
Clearly, if interest rates rise, it becomes increasingly difficult for borrowers of all kinds to repay debt with interest. Raising interest rates is thus a way to intentionally slow the economy. If the economy is growing too quickly (like a 20-year-old sprinter), then such a change makes sense. But if the economy is behaving like an 80-year-old, hobbling along on a walking stick, it becomes likely the economy will figuratively fall and become severely injured. This is the danger of raising interest rates when the world economy is having difficulty growing at an adequate rate.
[3] The physics of the system dictates that as the system shifts in the direction of shrinkage, the wealth of the system is increasingly distributed toward the rich and very powerful, and away from those of modest means.
Physicist Francois Roddier writes about this issue in his book, The Thermodynamics of Evolution. He likens energy (and the goods and services produced using this energy) as being like energy applied to water. When energy levels are low, the less wealthy members of the economy tend to be squeezed out, just as (low energy) frozen water turns to ice. The reduced amount of energy available (and goods and services produced using this energy) increasingly bubbles up to the small number of economic participants at the top of the economic hierarchy. This issue tends to make the already rich even richer.
In some sense, the self-organizing economy seems to preserve as much of the economy as it can, when energy supplies are inadequate. The wealthy seem to be important for keeping the whole system operating, so the physics tends to favor them.
Inflation, in general, is a problem, especially for people with limited income. Higher interest rates also take a big “bite” out of spendable income. This problem is greatest for low income people. The benefit of higher interest rates, and of capital gains, tends to go to high income people.
High food prices especially affect the poor because, even in good times, food tends to be a high share of their income. For example, in a poor country, if food costs amount to 50% of a person’s income when food prices are moderate, a 20% increase in food prices will lead to food prices costing 60% of income. Such a situation quickly becomes intolerable because there is not enough income left for other essential goods.
The figure above shows that between 1990 and 2022, the share of total wealth held by the top 1% of US citizens rose from 23% to 32%. This means that other citizens were increasingly squeezed out of the benefits of the growing economy.
[4] With their newfound power (arising from the growing concentration of wealth), the wealthy are tempted to exert increasing control over the economic system.
The fact that the world economy was likely to reach annual limits of fossil fuel extraction about now has been known for a very long time. I have referred to a 1957 speech by US Navy Admiral Hyman Rickover pointing out this bottleneck many times. Wealthy individuals have known about this bottleneck for a very long time. They have been asking themselves, “How can we increasingly benefit from this change?”
Clearly, reducing the population growth rate has been one of the goals of some of these wealthy individuals. With fewer people to share the resources available, everyone will benefit.
But the wealthy can also see that hiding the energy bottleneck would be of huge benefit in keeping the current system operating as usual. These individuals, through the World Economic Forum and other organizations, have pushed for zero global warming emissions. They have tried to reframe the problem of inadequate inexpensive-to-produce fossil fuels as a problem of too large a quantity of fossil fuels for the system to handle. In their view, we can decide to transition away from fossil fuels without significantly adverse impacts.
By hiding the energy bottleneck, companies selling vehicles can claim they will be useful for many years. Educational systems can claim that we are well on our way to finding substitutes for fossil fuels, and that there will be good jobs available in the new systems. With the bottleneck problem hidden, politicians do not have to present citizens with a very concerning and intractable issue. Since a happily-ever-after narrative is desired by all, it is easy for the wealthy (and politicians who want to be reelected) to influence the major news outlets to present only this view to readers.
[5] Major cracks in the economy are likely to start showing soon. The energy bottleneck is already pulling the economy down, even if major news media are reluctant to discuss the problem.
The problem displays itself in several different ways:
(a) The economy has moved toward two widely differing views regarding today’s energy situation.
The narrative presented in the press is that we have an excessive amount of fossil fuels. In this view, any shortage of fossil fuels (or any other resource) would be quickly accompanied by rising prices. These rising prices would allow an increasing quantity of these materials to be extracted, quickly solving the problem. But the real story, for anyone who examines the details, is quite different. Affordability becomes very important, holding prices down. History shows that nearly every civilization has collapsed. Populations tend to grow but the resources supporting the economies don’t grow quickly enough. Rising prices don’t fix the problem!
People who work with fossil fuels know how essential they are for our current civilization. The story about intermittent wind and solar substituting for fossil fuels sounds very far-fetched if a person thinks about the need for heat in the winter and the difficulties associated with long-term storage of electricity. The two widely differing narratives surrounding our energy future sound like they could have come from the dystopian novel Nineteen Eighty-Four by George Orwell.
(b) Repaying debt with interest gets to be an increasing problem.
Strange as it may seem, added debt can temporarily act as a placeholder for additional energy. Debt is a promise for goods and services that will be made with future energy. This placeholder can allow capital goods, such as factories, to be made which allow more goods and services to be made in the future. This placeholder can also be used as the basis for money to pay workers, so that they can afford to purchase more goods.
At some point, the debt becomes too much for the system to sustain. We are seeing some of this in China, where there have been debt defaults in the real estate market. In the US, the commercial real estate market is experiencing high vacancy rates. There is increasing concern that, in many places, commercial real estate can only be sold at a huge loss. In this situation, the holders of debt are likely to sustain massive losses.
(c) Political parties start differing widely on whether to increase government debt.
The more conservative parties do not want to keep adding more debt, but the more liberal parties insist that there is no other way out: If there isn’t enough energy of the right kind, the added debt can perhaps be used to fund projects in the renewable energy sector that will create the illusion of progress toward an adequate supply of energy of the right kind at the right price. The added debt can also be used to continue the many social programs promised to citizens and to provide support for activities such as the war in Ukraine.
So far, adding debt has worked for the US because the US dollar is the world’s reserve currency and because the US has tended to keep its target interest rates high, encouraging other countries to invest in US securities. If other countries try to add substantially more debt, their currencies will tend to fall, leading to inflation.
The US may soon also run into an inflation problem because of added debt. This happens because it is possible to “print money,” but it is not possible to print goods and services made with inexpensive energy products. For example, the temptation is to bail out failing banks and pension plans with added debt. To the extent that this debt gets back into the money supply, but there aren’t added goods to match, the result is likely to be inflation in the prices of the goods and services that are available.
(d) Broken supply lines are another sign of an economy reaching limits.
When there aren’t quite enough goods and services to go around, some would-be buyers of goods have to be left out.
In the last three years, all of us have experienced at least some problems with empty shelves in stores and the unavailability of needed parts for repairs. Many kinds of drugs are in short supply around the world. Heavy industry has been encountering problems, as well. In 2022, Upstream Online wrote, “Drill pipe shortages causing headaches for US producers [of oil and natural gas].”
If we are reaching the limit of inexpensive fossil fuel available for extraction, an increasing number of these problems can be expected. These supply line problems tend to raise costs in a different way than “regular” inflation. Often, a more expensive product must be substituted, or a higher cost workaround is needed. For example, a person may need to use a rental vehicle while his current vehicle is being repaired because of unavailable replacement parts.
(e) Conflicts arise when there are not enough goods and services to go around.
Part of the conflict comes from wage and wealth disparity. For example, an increasing number of people are finding reasonably-priced housing impossible to find. The combination of high interest rates and high housing prices tends to make home-buying a luxury, available only to the rich. An increasing share of young people are also finding automobiles too expensive to afford. One way “not-enough-goods-and-services-to-go-around” manifests itself is by many people not being able to afford the products in question.
There is often a belief that a more equitable distribution of income would solve the problem. But, if the economy cannot build more cars or homes because of energy shortages, this doesn’t fix the problem. Providing more money to the poor would instead cause inflation in the price of the goods that are available.
Another way this conflict manifests itself is in conflicts among countries. Countries selling fossil fuels, such as Russia, would like higher fossil fuel prices, so that the standards of living of their own people can be higher. However, if fossil-fuel-importing countries, such as those in Europe, are forced to pay higher prices for the fossil fuel they use, it becomes difficult for companies in these countries to manufacture goods profitably. Also, the higher fossil fuel prices make the cost of growing food higher. Customers often cannot afford higher food prices.
In the case of the fight between Israel and Gaza, at least part of the conflict relates to the natural gas field that Israel is developing, but which arguably belongs to Gaza. If Israel can develop this resource, it may be able to keep its own economy expanding for a while longer. The people of Gaza will remain very poor.
(f) Manufacturing around the world seems to be reducing in quantity. It definitely is not rising to keep up with population growth.
The big shortfall today is in goods, rather than in services. This is what a person would expect if an energy problem is giving rise to the problems we are currently experiencing.
The organization S&P Global Market Intelligence puts out an index called the Purchasing Managers Index, for 15 countries, including a global average. The manufacturing portion of this index is in contraction on a worldwide basis, as of the latest data available. The extent of this manufacturing contraction is especially significant for the US, the European countries included, for Japan, and for Australia. The countries that are not in contraction are India, Russia, and China.
If manufacturing is in contraction, we would expect more broken supply lines in the months and years ahead.
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http://themostimportantnews.com/archives/homelessness-in-the-u-s-is-up-48-percent-since-2015-and-americans-are-being-laid-off-in-droves
Homelessness In The U.S. Is Up 48 Percent Since 2015, And Americans Are Being Laid Off In Droves…
How can anyone out there possibly believe that the U.S. economy is doing well? As you will see below, the number of homeless Americans has risen to the highest level ever recorded, and large companies all over the country are laying off workers in droves. As I have discussed previously, the number of Americans that were laid off in 2023 jumped 98 percent compared to the year before, and now during the first month of 2024 it feels like we are being hit by a tsunami of layoffs. It literally seems like someone has turned a fire hose on, but the Biden administration continues to insist that unemployment is “low” and that the outlook for the U.S. economy is positive.
Honestly, I don’t understand how the Biden administration can say that the outlook for the U.S. economy is positive when the number of Americans that are homeless has been increasing at the fastest pace ever recorded. According to a brand new report that was just released by Harvard’s Joint Center for Housing Studies, the number of homeless Americas has increased 48 percent since 2015…
According to a Jan. 25 report from Harvard’s Joint Center for Housing Studies, roughly 653,000 people reported experiencing homelessness in January of 2023, up roughly 12% from the same time a year prior and 48% from 2015. That marks the largest single-year increase in the country’s unhoused population on record, Harvard researchers said.
Homelessness, long a problem in states such as California and Washington, has also increased in historically more affordable parts of the U.S.. Arizona, Ohio, Tennessee and Texas have seen the largest growths in their unsheltered populations due to rising local housing costs.
We can see evidence of this all around us.
Tent cities are popping up like mushrooms in our major cities and countless Americans are living in their vehicles and RVs.
One of the primary reasons why homelessness has been surging so dramatically is because rental costs have soared to unprecedented heights…
Rent in the U.S. has steadily climbed since 2001. In analyzing Census and real estate data, the Harvard researchers found that half of all U.S. households across income levels spent between 30% and 50% of their monthly pay on housing in 2022, defining them as “cost-burdened.” Some 12 million tenants were severely cost-burdened that year, meaning they spent more than half their monthly pay on rent and utilities, up 14% from pre-pandemic levels.
People earning between $45,000 and $74,999 per year took the biggest hit from rising rents — on average, 41% of their paycheck went toward rent and utilities, the Joint Center for Housing Studies said.
Tenants should generally allocate no more than 30% of their income toward rent, according to the U.S. Department of Housing and Urban Development.
But Joe Biden insists that inflation is “low”.
You believe him, don’t you?
Sadly, more Americans will soon be hitting the streets because we are witnessing an insane wave of layoffs all over the nation.
Right now, it is being reported that Salesforce has decided to conduct another round of layoffs…
Salesforce is cutting about 700 employees, The Wall Street Journal reported.
The job cuts, which amount to about 1% of its global workforce, follow a series of workforce reductions last year.
In 2023, Marc Benioff’s company laid off about 10% of its total workforce as it grappled with a swarm of activist investors who wanted margins increased faster than planned.
And we have just learned that REI will be giving the axe to 357 workers…
REI is laying off 357 workers, mostly in the outdoor retailer’s headquarters and distribution centers. In a letter to employees, CEO Eric Artz noted that “outdoor specialty retail has experienced four quarters of decline – and that trend has been worsening.” While REI was able to outperform this for much of last year, he said, this trend caught up to the company in the fourth quarter, and difficult conditions are expected in 2024.
Difficult conditions are expected in 2024?
Oh really…
Who could have seen that one coming?
After their deal with Amazon fell through, iRobot announced that 31 percent of its staff would be hitting the bricks…
Amazon and iRobot, the maker of the popular Roomba vacuum, mutually called off their estimated $1.7 billion acquisition deal Monday, citing numerous regulatory hurdles.
Immediately after the deal was publicly squashed, iRobot announced it would lay off 31% of its staff and that founder Colin Angle would step down from his role as CEO, citing a focus on profitability, stability and growth. Glen Weinstein will serve as interim CEO.
Shares of iRobot (IRBT) were down around 9% in noon trading following the news. Amazon (AMZN), which was up about 0.5% in noon trading, will pay iRobot a previously agreed-upon $94 million cancellation fee.
Google, Microsoft, Levi’s, TikTok, Riot Games, eBay, Wayfair and Macy’s are some of the other big names that have also announced layoffs so far in 2024.
But no industry is being hit harder than the mainstream media…
Journalists across the country burst into flames of panic this week, as bad news for the news business crested and erupted everywhere all at once.
Patrick Soon-Shiong, the billionaire publisher of the Los Angeles Times, laid off 20 percent of his newsroom. Over at Time magazine, its billionaire owners, Marc and Lynne Benioff, did the same for 15 percent of their unionized editorial employees. This latest conflagration had ignited at Sports Illustrated the previous week as catastrophic layoffs were dispensed via email to most staffers. Business Insider (whose parent company Axel Springer also owns POLITICO) jettisoned 8 percent of its staff while workers at Condé Nast, Forbes, the New York Daily News and elsewhere walked out to protest forthcoming cuts at their shops.
Perhaps if they had not made a habit of blatantly lying to us over and over again during the past several years they would not have lost all of their remaining credibility and they would not have had to lay off so many workers.
But even though so much is going wrong with the economy right now, many of the “experts” continue to tell us that happier times are just around the corner.
For example, Ed Yardeni insists that we will soon relive the Roaring Twenties…
Ed Yardeni, a veteran market strategist, thinks the US economy might be about to relive the “Roaring ’20s.”
The Yardeni Research president said during Friday’s episode of Bloomberg’s “Merryn Talks Money” podcast that he’s expecting a combination of loose post-pandemic monetary policy and rapid technological change to drive growth higher over the next decade.
Wouldn’t it be great if he was actually right?
Of course the truth is that he is just being delusional.
Things are bad now, and things are going to get really bad during the second half of 2024 and beyond.
If you still have a good job and a warm home to come back to at night, you should be very thankful.
Because more Americans are losing their jobs and losing their homes with each passing day, and the level of economic suffering that we are witnessing is already off the charts.
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