Happy Thanksgiving. I thought you might enjoy some light reading for the holiday. Here are some things that caught my eye in the last week or so.

Item #1 — Deep Thought

In Douglas Adam’s The Hitchhiker’s Guide to the Galaxy, the computer Deep Thought said the answer to the ultimate question of life, the universe and everything was 42. It turns out that here on Earth, the answer is 9.7 ± 0.3. Is Global Warming Unstoppable?

The study – which is based on the concept that physics can be used to characterize the evolution of civilization – indicates [among other things that]

  • Throughout history, a simple physical “constant” – an unchanging mathematical value – links global energy use to the world’s accumulated economic productivity, adjusted for inflation. So it isn’t necessary to consider population growth and standard of living in predicting society’s future energy consumption and resulting carbon dioxide emissions…

[Utah professor] Tim Garrett treats civilization like a “heat engine” that “consumes energy and does ‘work’ in the form of economic production, which then spurs it to consume more energy,” he says…

“If society consumed no energy, civilization would be worthless,” he adds. “It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources”…

That “constant” is 9.7 (plus or minus 0.3) milliwatts per inflation-adjusted 1990 dollar. So if you look at economic and energy production at any specific time in history, “each inflation-adjusted 1990 dollar would be supported by 9.7 milliwatts of primary energy consumption,” Garrett says.

Item #2 — Never 90!

A recent issue of Science examined the oil supply question in Splitting the Difference Between Oil Pessimists and Optimists (subscription required). It’s kind of UK version of the U.S. GAO survey report—do you remember that one? (Reports come, and reports go, and don’t make a lick of difference.)


Figure 1 I am proud to say that NONE of the peaking forecasts shown match my own (and Sadad al-Husseini’s) view as I described last week in Staking Out the Middle Ground. I’ve pointed out the one closest to my view in the left graph. See page 144 of the report (left graph) and page 147 (right graph).

My take on future production capacity is easy to sum up: Never 90!

I’m slightly more pessimistic than al-Husseini.

You can download the UKERC report here (big pdf). If you read the entire report, and you understand every word of it, you would be in a position to evaluate the peak oil question yourself. I would never again have to say anything about the subject. It’s pretty good, especially if you are confused about the weaknesses of Hubbert curves, the hard-to-swallow views of Cornucopians, etc. If you read it, and you have any questions about it, shoot me an e-mail.

Item #3 — More than the combined federal budgets for …

The New York Times weighs in on the growing Federal deficits in Wave of Payments Facing U.S. Government. Apparently this is the first of a series of articles called, appropriately enough, The Debt Bomb.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

Here’s part of the Times’ graph.


Figure 2 — From the New York Times article. Payments on the debt exceed 3% of GDP by 2019 assuming interest rates rise to lure buyers for our debt.

Item #4 — If it walks like a duck, and it quacks like a duck …

In A Tale of Two Economies, Nouriel Roubini says that “the American economy is actually much weaker than official data suggest.” I agree. The 3.5% preliminary number for GDP in the 3rd quarter was revised down to 2.8% based on weaker net exports, non-residential investment and consumer spending, but that’s only half the story.

David Rosenberg had calculated that growth would have been nil in the 3rd quarter without stimulus spending, and he made this estimate based on the higher preliminary number. Thus we might conclude that without government spending, growth would have been negative. We don’t have an economy which is able to stand on its own two feet.

Many economists, including Paul Krugman and James Kwak, believe we will need much more stimulus before we’re out of the woods. New monies would be targeted to spur job creation. Obviously, the first $787 billion didn’t do the trick. These economists don’t worry about federal deficits (see Item #3). It seems that no amount of debt is too high for Krugman.

How can there possibly be a repeat of the vigorous but phony debt-based growth that took place between 1983 and 2007? This was Ben Bernanke’s “Great Moderation.” The clear implication was that technocrats had learned something new about how to manage economies, i.e. the human race was making progress. See Item #7 below.

You need vigorous growth to pay down the deficits, or you must raise taxes, or you must inflate the public debt away, or some combination of these. Of these 3 possibilities, which do you think is mostly likely? (Hint, the answer is not behind door #1.) See Item #2 above.

But gruesome as they are, forget the current jobs numbers says Roubini. He thinks things are much worse than government statistics say.

Consider the following facts. While America’s official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.

Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries. Thus, a growing proportion of the work force – often below the radar screen of official statistics – is losing hope of finding gainful employment, while the unemployment rate (especially for poor, unskilled workers) will remain high for a much longer period of time than in previous recessions.

[My note: And don’t forget about the bogus Birth/Death revisions through which the BLS has added hundreds of thousands of fictional jobs to the economy throughout 2009.]

If many more people are unemployed than the official numbers suggest, and many of these jobs are gone forever, then further stimulus packages may be pointless unless the U.S. makes major structural changes to the economy whereby we start producing things again and investing in the infrastructure (energy, transportation) we will need for the 21st century. This process which could take decades.

In other words, additional spending is justified to help people get through hard times only if you’ve got a plan to put the economy on a sound footing long-term. We will not return to the phony prosperity of yesteryear. The real problem is that we spent so much money bailing out banks without helping American workers… Did I mention that many of the States, which typically provide benefits to the jobless, are in deep fiscal trouble?

And what about the duck? Roubini concludes

So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.

Item #5 —  More Americans swimming underwater…

Do you think the housing bottom is in? Think again. Calculated Risk reports on the latest First American CoreLogic report.

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgage than their homes are worth.

  • Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, 2009. An additional 2.3 million mortgages were approaching negative equity, meaning they had less than five percent equity. Together negative equity and near negative equity mortgages account for nearly 28 percent of all residential properties with a mortgage nationwide.

You don’t need to be a rocket scientist to figure out that being upside down leads directly to foreclosure in a significant number of cases. Given that house prices are unlikely to rise for some time to come, especially in Nevada, Arizona, Michigan, Florida and California, what would you do? I would stop paying and hand in the keys.

Speaking of foreclosures, the Mortgage Bankers Association (MBA) expects foreclosures to peak in 2011.


Figure 3 — We’re all subprime now! This graph shows foreclosure (red) or delinquency (blue) rates for prime mortgage borrowers.

MBA chief economist Jay Brinkman expects foreclosures to peak in 2011. As of the latest report, 14.41% of all mortgage loans were in foreclosure or at least one payment past due. Unemployment piled upon underwater loans is driving this process. Households are getting hammered. This also bodes well for the banks…

Item #6 — Tough times? Don’t eat…

No job? Lost your house? On Thanksgiving we should take time to remember that 49 million Americans lacked consistent access to adequate food in 2008 according to the USDA’s Household Food Security study.


Figure 4 — Eighty-five percent of American households were food secure throughout the entire year in 2008, meaning that they had access at all times to enough food for an active, healthy life for all household members. The remaining households (14.6 percent) were food insecure at least some time during the year, including 5.7 percent with very low food security—meaning that the food intake of one or more household members was reduced and their eating patterns were disrupted at times during the year because the household lacked money and other resources for food.

In contrast, we might consider the compassionate words of Giant Vampire Squid CEO Lloyd Blankfein. The Sea Monster’s peerless leader was responding to a reporter after being asked if there should be limits on Wall Street compensation. The Times of London reports on the conversation

Is it possible to make too much money? “Is it possible to have too much ambition? Is it possible to be too successful?” Blankfein shoots back. “I don’t want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation. As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I’d like them to continue to do what they are doing. I don’t want to put a cap on their ambition. It’s hard for me to argue for a cap on their compensation.”

So, it’s business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker “doing God’s work.”

Item #7 — Mark Twain refuses to comment…

As re-published in this month’s Harpers Magazine and reprinted at salon.com.

SITTING IN DARKNESS

From a November 26, 1902, letter by Mark Twain to Carl Thalbitzer, a Danish writer, who, after reading the short story The Man That Corrupted Hadleyburg. asked Twain if he had plans to write about “The advantages and drawbacks of civilization.”

The short story appeared in the December 1899 issue of Harper’s Magazine. In 1906, two years after the death of his wife, Olivia Langdon, Twain published the manuscript mentioned as What is Man?

Dear Sir,

You have read me between the lines. What I have tried to do, and what I still try to do, is to allow only a little to leak out between the lines. This has been a strain on me for thirty years. I have put this restraint upon me and kept it there all these years to keep from breaking my wife’s heart, whose contentment I value above the salvation of the human race.

This is a confession that in building a wall across my Nile and damning my feelings and opinions behind it, and trying to caulk the leaks, I am not actuated by principle, but by something much stronger—sentiment.

I shall continue to leak, but shall not write the book unless I survive my wife—which I hope will not happen.

I believe that many a person has examined man with a microscope in every age of the world; has found that he did not even resemble the creature he pretended to be; has perceived that a civilization not proper matter for derision has always been and must always remain impossible to him–and has put away his microscope and kept his mouth shut.

Perhaps because the microscopist (besides having an influential wife) was built like the rest of the human race—ninety-nine parts of him being moral cowardice.

I am such a person myself. I used my microscope during fifteen years, and then put the result on paper five years ago. When ever I wish to account for any new outbreak of hypocrisy, stupidity, or crime on the part of the human race, I get out that manuscript and read it, and am consoled, perceiving that the outbreak was in obedience to the laws of man’s make, and was not preventable.

My wife does not allow the manuscript to be published, and as ninety-nine parts of me forbid me to make myself comprehensively and uncompromisingly odious, it has been difficult to persuade me to restrict the reading of it myself!

But you shall read it when you come to see me; then perhaps you will believe with me that civilizations are not realities, but only dreams; dreams of the mind, not of the heart, and therefore fictitious, and perishable; that they have never affected the heart and therefore have no valuable progress; that the heart remains today what it always was, as intimacy with any existing savage tribe shall show. Indeed the average of the human ‘brain’ is not a shade higher today than it was in Egyptian times ten thousand years ago.

All this elaborate explanation of why I am not likely to write that book which you speak of amounts to this, when boiled down:`ninety-nine parts of me are afraid, and my wife, who is the bulk of the remaining fraction, forbids it.

Sincerely Yours,

S.L. Clemens

Riverdale, N. Y.


Mark Twain (left), not Mark Twain but doing God’s work (right)

Contact the author at dave.aspo@gmail.com

2 thoughts on “Some Holiday Reading”

  1. The Feds will reduce the future deficit by implementing a value added tax in a couple of years. It is a stealth tax, so people’s checks won’t go down and they won’t revolt. Prices of what we buy will go up, but not drastically. Since it is collected on a huge fraction of the economy, it can raise a lot of revenue. Federal spending may also be cut. Social Security may be means tested or frozen for a few years.
    There is no way the fat cats in Washington or their Wall Street masters will let the dollar collapse, if they can possibly prevent it. They have life way too good to let that happen. They will tax the population into near revolution first. Even declare some sort of ‘National Emergency’ and enact a gasoline tax increase. Remember Paulson’s martial law threat to Congress, so Wall Street could get their hands on your tax money.
    Trust me, I experienced Katrina. When you’re hungry and a soldier, or Blackwater private cop with a gun, tells you to do something, you don’t ask a lot of questions. In a life threatening crisis, you will be surprised at how fast your Constitutional rights can disappear. Right after Katrina, squads of cops actually went house to houes in some areas of New Orleans asking people if they had any firearms inside their homes. They seized them from those who answered in the affirmative, including elderly people, just trying to protect themselves. Some people walking on a bridge were shot in the back by police. The FBI just vacuumed the bridge looking for 4 year old shell casings. The point being, the power structure does what it has to do to maintain power in a crisis, lawful or not. That is the same everywhere. So get ready for the VAT.
    That is my deficit killing theory, for today at least.

  2. Wow! Another 1,900,000 possible increase in the unemployment total coming.
    Time.com has a good article on the new book by Josh Kosman, ‘The Buyout of America, How Private Equity Will Cause the Next Great Credit Crisis.’ The private equity folks got the cash. The weakened companies got the crushing debt. Want to bet that we taxpayers, eventually get that debt? The billionairs are already appearing early in the morning on CNBC, saying that they will need some sort of ‘Federal program’ to prevent this, or that, market from melting down and threatening the recovery. You can bet that they will be too big to fail, since they are constantly recycled into and out of the government. Get ready for Long Term Capital Management II.
    I remember wondering where all the money was coming from, during the last couple of decades, as I watched the constant stream of buyouts and mergers. I remember thinking, ‘Wow, these rich people must be REALLY rich to be able to buy all those businesses.’ Nope, but many now are, having taken a big cut of the debt created for the buyouts. The shadow, unregulated Wall Street ‘investment’ bank wizzards doing God’s work again. Where would we be without these geniuses.
    It seems like these guys have been hard at work making our economy ‘more efficient’ for the last 30 years. I think it was the NY Times that did an excellent article on the looting of Simmons Matress. It is a shocking eye opener for me, but I’m rather naive. I’ll bet the book has a few more interesting tales.

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