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Is double-dipping the new green shoots?

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Stephanie Flanders | 10:25 UK time, Wednesday, 1 July 2009

We had a few weeks in the thrall of green shoots. Now the phrase de jour is "double-dip".

I doubt that the real economic situation has changed as dramatically as the headlines. But it's right to worry about the recovery petering out.

As I discussed with Evan Davis on the Today programme this morning, we are back from the brink. That doesn't mean the economy is about to scale new heights.

This morning's CIPS/Markit Purchasing Managers' Index for June tells the story. It shows the first increase in manufacturing production since March 2008.

Across the board, the index looks healthier than it did in the first few months of the year.

People queuing outside a branch of the Job Centre PlusAnd yet, employment is still falling at a rapid rate, and the headline index is still below the "neutral" 50% mark for the 15th month in a row.

As yesterday's GDP revisions reminded us, the key weaknesses hanging over the economy have not gone away. We've just been averting our gaze.

Consider the financial system. Mervyn King and others have long warned that the embattled state of bank balance sheets could make for an unusually slow pick-up in lending, and as a result a painfully slow recovery.

That concern has not gone away. Far from it. Yesterday. Bank of England figures yesterday showed no rise at all in May in net lending secured on property, for the first since those records began in 1933.

We also had encouraging house price figures from Nationwide - the third monthly rise in four months. But even many estate agents say they doubt the improvement will last. The number of houses actually changing hands at these prices is tiny.

The same is true of the household sector. We now know that the household saving rate fell from 4% to 3% of their income in the first quarter, perhaps because wages and salaries fell 2% in the same period.

Yet we know that people are likely to want to save more in the future, to repair their own balance sheets - a lot more than 3% of their income, if history is any guide.

If their income isn't going up, the only way that happens is through lower spending.

Think through the implications of that for businesses. Assume a company was operating at 100% capacity a year ago. Then that fell to 60-70% during the winter (of course a lot of industries suffered even greater falls than that).

Perhaps they are back to 80% now. But if demand stays at that level, it doesn't matter that things are better than they were. They could still go out of business.

As I pointed out on the Ten O'Clock News last night, we had a similar 2.4% drop in GDP in the autumn of 1979. Then the economy bounced back, to grow by 1%, only to tip into recession for the whole of 1980.

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I don't see that happening today, for a bunch of reasons - not least, the fact that there is already so much policy stimulus in place to prevent it. For what it's worth, I still think a square root recovery (see previous post) is more likely. But, as we keep being reminded, we can't take anything about this recovery for granted.

Comments

  • Comment number 1.

    The most important measure of any recession is unemployment.

    People want jobs and money more than anything else.

    Unfortunately, unemployment will climb over 3 million during the coming years.

    The recession will not be over in most people's minds until unemployment is brought down and job security increases. This will be years away.....

    The issue of interest costs on government debt is also very worrying, as it will mean cuts to public sector jobs. The interest payments will eventually crowd out investment by the government.

  • Comment number 2.

    Stop counting falling apples!

    "the greatest danger of an age in which dubbing the fall of every apple with a colossal system of equations passes for the hallmark of scholarship ... is that even the potential Newtons are discouraged from becoming interested in synthesis." Nicolas Georgescu-Roegen, 1971

    I still don't hear anyone explaining to us how we are going to increase our economic recovery.

    Instead all I see is ramping up of the money base to try and stabilise inflation:

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/06/why_banks_must_be_allowed_to_d.html

    The supply of money and the velocity of money (the key determiners of prices) are veering wildly. Forget the falling apples, the tower of Pisa is leaning!

  • Comment number 3.

    Banks should be forced to charge 0% interest for all existing debt, fix minimum repayment amounts, restrict taking on of new debt, and change their status to not-for-profit ( nationalise).

    Private debt levels would drop rapidly.

  • Comment number 4.

    "For what it's worth, I still think a square root recovery (see previous post) is more likely."

    Yes, but far more than your economics training, far more than your balanced observation of what's happening, far more than your realistic appreciation of the awful state some of our economy is in, far more than your recognition of the limitations our politicians will have in taking appropriate action, far more than any of these is your faith that the current consensus, the current high and mighty in the decision-making world, are undoubtedly the best people to be making these decisions, and that the decisions they make will prove this.

    There are some of us who say instead that these people, by and large, and these ideas, by and large, are based on the same logic and assumptions as those that refused to accept warnings in the past that their policies would make this calmitous state of affairs inevitable.

    Are you sure that your support for more from the same people is really because you believe them to be the best? Or is it more because, being one of them, you can't take the thought that they aren't.

  • Comment number 5.

    Hi Stephanie,

    Reluctant though you obviously are to be on the cup-half-empty side of the argument, I detect you are moving your position. Surely we need to critically analyse the bank lending issue, the impairments to QE - the BoE admit these issues and impairments are negatively feeding back into the real economy.

    Consumers know that the fiscal stimulii and the reduction in interest rates are due for substantial reversal in the short term and are behaving with this in mind. Debt pay-down is on the mind. I dont share your confidence in the stimulii.

  • Comment number 6.

    Working in the "real world" as opposed to journalism, it's been clear to us, in our particular sector, that the economy dipped in the last quarter of 2008 and was on it's knees in Q1 / 2009. Q2 has seen a rapid, and sustained improvement.

    Of course, these statistics are going to include sectors, such as construction and vehicle manufacture, which have had a terrible time, but for pities sake, please stop talking down the entire economy - it's not like that everywhere, and in every sector.

  • Comment number 7.

    GDP estimation is not really anything close to an exact 'science', however big movements in any direction the to be compensated for through natural mechanisms. "V" shaped recessions, "W" shaped recessions (which are essentially a "V" shaped recession with a wobbly up-slope recovery), all are possible and if I was being paid to compile the figures you could have what you like!

    Having said all that, it did seem pretty obvious to most 'independent' observers that the depth and severity of the present recession was going to make the recovery patchy and slow. (I am well aware that there was considerably pressure applied to the media to be upbeat and talk things up. This applies to this blog!)

    There will be a recovery, but if we want a genuine 'sustainable recovery' there can only be a recovery if it is based on sound money that costs a realist price (4-6 percent range). This is a condition precedent for a recovery - not something that can be aspired to after the 'recovery'. Any recover without sound money is not and will not be a recovery just a re-stoking of the hyperinflation asset bubble which would be catastrophic! (But this is what I expect to happen given the position and present actions of the Bank of England - please note this Dr. King. and prove me wrong! Or go and let someone with the guts to do what you know is the right thing, do it!)

  • Comment number 8.

    Stephanie

    Good analysis.

    Talking with my clients (all small businesses) they all expect things to get worse except my decorator who says that after a very poor February things have picked up. However, he says that his customers say that they are improving their homes rather than thinking of moving.

    The fact is that in the real world (ie that not inhabited by Gordon Brown et al.) sentiment is pretty desperate and people I speak with are very worried about the unemployment rate. Many know that employment lags recovery so saving and cutting back is the order of the day, and will be for some time to come I fear.

  • Comment number 9.

    Demand and production must not be confused. Industries making things need to run down inventories (Honda) and when this is done production increases (or resumes) which can give a false impression as production increases to a much lower level than before the recession began and may not increase further until after demand picks up. What are the drivers of increased demand - abroad? more credit for UK consumers? the state!
    Recession or stagnation is here for a long stay

  • Comment number 10.


    I remember the post regarding the shape of the recession and the "square root" theory. At the time I could not think of a symbol that would offer the alternative, pessimistic shape - but now I suggest the possibility of the Cyrillic symbol for ch. It's unlikely that this will be accepted here (where even the pound sign is not)but here goes .....

  • Comment number 11.

    Stephanie,
    Another statistic which tells us quite alot - look at a key marginal price of, say, energy. It goes to confidence and price flexibility. BERR confirm that average industrial electricity prices ( inc Climate Change Levy) for Q1 2009 are 35.3% higher in real terms than in Q1 2008. Consumption is dropping. Similarly domestic electricity prices ( inc VAT) are 19.7% higher in real terms. In May 2008 UK diesel prices were the highest in the EU.

  • Comment number 12.

    Hawkeye_Pierce (#2) "I still don't hear anyone explaining to us how we are going to increase our economic recovery."

    Exactly. That's what we should all be pressing Flanders, Peston and Mason to start asking and report back on. Preferably with suggestions other than war.

  • Comment number 13.

    I'd love to do a little strawpoll asking the question:

    "approximately how many dwellings (falt and houses) were sold in the UK in the month of May?"

    Take a guess.....then let me tell you that the published NET lending secured on Dwellings in May was £300mio. Given the average house price is £185k, we can see that ONLY about 1500 houses changed hands (note that the £300mio figure INCLUDES re-mortgaging..... so new homes sales could be considerably lower).

    If that isn't an indictment on how consumer spending is likely to fare going forward, I don't know what is, given that the UK has effectively had a debt financed boom since 1997, financed by borrowing against property.

  • Comment number 14.

    John_from_Hendon (#7) "There will be a recovery, but if we want a genuine 'sustainable recovery' there can only be a recovery if it is based on sound money that costs a realist price (4-6 percent range). This is a condition precedent for a recovery -"

    If the MPC did that, wouldn't there be a flood of money from countries where the rate was still very low by agreement? That would not just be nationalist/protectionist it would be impossible would it not?

    One of my points elsewhere has been to ask you how King and crew can truly act independently in a global free-market economy? This is a genuine heuristic/question.

    Postscript: The USSR attended Bretton Woods but they didn't sign. Now the socialist opposition is developing their own economic pact... they are not going to want us at this rate, they may take Iran. I can't say I blame them. Can you?

  • Comment number 15.

    Double dip. More like the Big Dipper. There has not been a housing crisis like this before. And the line on the graph is still heading down. A year of aversion therapy will stop consumer spending.

  • Comment number 16.

    #14. JadedJean wrote:

    "If the MPC did that, wouldn't there be a flood of money from countries where the rate was still very low by agreement? That would not just be nationalist/protectionist it would be impossible would it not?"

    In short, no. The present protectionist policies were designed to drop the pound in value against the dollar - to help British exporters as we were (untruthfully) told. The theoretical free market movement of currencies does not happen in the way that interest rates might suggest. For decades we had interest rates above those of our competitors and yet it did not drive the currency up ad infinitum. The greed / fear balance ensures that everything is moderated.

    The advantage of a proper price for money is that asset price inflation is moderated and investment decisions that in the end are all based on expectations of interest rates in the medium term become more rational. Presently we have the insane situation that everyone doing investment decision making is waiting for the higher rates to kick in as they expect. Indeed the longer before they kick in the higher they will have to be. This uncertainty must be alleviated and the earlier the better.

    The reality is that the Bank of England is waiting for the next election after which it will hit the button and rate will rise substantially. I am sure they fear raising rates before an election will be seen as a political move and thus they are scared of doing so. However any delay will inevitably result in more inflation in the system and require higher rates sooner and for longer and they know it. This is the hard place in which they exist - oh and they don't have the bottle to do the right thing either.... I hope they raise rates by August 2009, not January 2010... They should, but they are cowards.

    Also this is a severe problem for the Treasury and raising vat again!!!

    Both will be going up (and if they don't - we will not have a recovery at all.)

    Predicting currency movements in these circumstances is extremely difficult. But that is dependent not only on the UK but everyone else... When are the mid-term US elections.... late 2010?! So rates have to go up in the window at least 9 months before the mid-terms so our election needs to be in early the first quarter and not as late as May 2010. So there are two windows after March 2010 and before June 2010, or early this autumn / late this summer. If this does not happen the recovery will be a very long time coming - as is possible, given the widely held view that the most realist model for this recession is the Long Depression of the 1870's to 1890's - but I hope not.

    So Dr King, get rates up NOW to bring an end to the recession and stop it turning into a depression.

    That is my latest thoughts on the economic position late June 2009.

  • Comment number 17.

    #15. glanafon wrote:

    "There has not been a housing crisis like this before"

    See the Long Depression of the 1870's.....

  • Comment number 18.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 19.

    "The number of houses actually changing hands at these prices is tiny."

    Meaning I suppose that it's TOO tiny to be statistically significant in any way and therefore its a complete waste of time to analyse on a time basis for trends of any kind over the whole of the UK.


  • Comment number 20.


    Can the finance sector earn us out of this mess?

    Not judging by these figures from the ONS I stumbled across for the UK:

    Manufacturing GDP: 17% Tax contribution: 59%
    Finance & business services GDP: 26% Tax contribution: 12%

    Am I interpreting this data correctly? That is that the Finance & services sector is indeed the largest contributor to our GDP figures, but is woefully under contributing to the nation's tax revenues. Whereas Manufacturing is proportionately paying 6 times the amount!

    Is this correct? And if so, would there not be a national outcry at this information??

    Source: 2006 Summary Supply and Use Tables for the United Kingdom (Summary SUTs)

    http://www.statistics.gov.uk/about/methodology_by_theme/inputoutput/latestdata.asp

    [incidentally the ONS considers 2006 information the "latest data"]

  • Comment number 21.

    16. At 5:08pm on 01 Jul 2009, John_from_Hendon wrote:

    "the most realistic model for this recession is the Long Depression of the 1870's to 1890's"

    Fortunately, we had steel, electricity and heavy engineering to pick ourselves up from that slump. Perhaps the Kondratieff wave theory was not so far off the mark:

    http://en.wikipedia.org/wiki/Kondratieff_wave

    All of the main 5 cycles were based on geniune productivity improvements (i.e. engineering & energy use based), except the last one:

    1) The Industrial Revolution: 1771
    2) The Age of Steam and Railways: 1829
    3) The Age of Steel, Electricity and Heavy Engineering: 1875
    4) The Age of Oil, the Automobile and Mass Production: 1908
    5) The Age of Information and Telecommunications: 1971

    The current 5th wave of information technology (aka the "Knowledge economy") is a net consumer of energy with little to show in terms of REAL productivity improvements (but conveniently handy in propagating endogenous credit creation!).

    Where is the real saviour of the 5th Kondratieff wave? A mountain of debt has postponed the inevitable search for alternative low cost energy sources (there ain't nothing useful on the moon, nor Mars), so where be it?

  • Comment number 22.

    Hawkeye
    The direct taxation on the numbers you linked to are only 6% of GDP figure, which means most of the increased taxation come indirectly not directly.
    Which makes it hard to answer your question.
    As an aside - I used to have to do analysis based on the categories used in that report and the thing I always remember about it is that Business Services includes Window Cleaners.

    Does the square root recession flat line higher than the start? I heard some-one refering to the shorthand symbol for bank being the likely shape of the recession which sounded very similar to the square root sign except it plateaus at a lower point than the prior peak.

    I work for a company that sells TV, Broadband & Phone products, we've seen churn drop probably before the down turn and stay low, but new customer acquisition did the same at the same time (they are both highly reliant on people moving house). Existing customers have been seeking to pay less but not by completely ridding themselves of products. We haven't had any real change in non-payment levels. The level of alterations to current product holding increased mid-way through the first half but has slowed again.
    The overall impression is that people have indentified a new level of affordability and moved to it, some moved slightly too far and moved back a bit, but now everyone is waiting to see what happens.

  • Comment number 23.

    I am so fed up with the constant misunderstanding of this recession. It's a correction that should be embraced as a 'natural' response of the economy to the mistakes made.

    Interest rates were kept artificially low by removing house prices from the measure of inflation. Available credit was expanded based on this artificial increase of 'wealth'. When some people borrowed too much and began to default the income to the lenders fell. To make up for it they decided to sell the properties which caused house prices to plummet and lenders to be cautious. As available credit contracted a number of companies failed and unemployment increased causing more people to default and a downward spiral continued.

    The natural response of the public was the best solution, reduce spending, start saving and being more weary of our financial situation. This would increase the capital in banks and enable borrowing based on a better ratio.

    The Government decided to follow misguided advice based on the work of Keynes. As we refused to spend they would do it for us and take on more debt on our behalf; bail-outs, car scrappage and public spending. Not to mention the wholly misguided idea of printing money.

    The Government do this because it is politically motivated, they appear to be doing something and manage to get even more power by owning banks and other companies. Yes recession hurts but the Government are just dragging it out and risking making the situation worse with their current policies.

    What we need to do is start saving and buying good when we have the money for them. We need to move away from the service industry which is failing and move into goods that we can export. When we build up a sound base for the economy we will become sustainable in the long term rather than suffering from inflating and bursting bubbles.

  • Comment number 24.

    #7 "There will be a recovery, but if we want a genuine 'sustainable recovery' there can only be a recovery if it is based on sound money that costs a realist price (4-6 percent range). This is a condition precedent for a recovery - not something that can be aspired to after the 'recovery'. Any recover without sound money is not and will not be a recovery just a re-stoking of the hyperinflation asset bubble which would be catastrophic!"

    Hear !! Hear !! It's been said many times by many in this blog but then again, most of us are not economists !!

  • Comment number 25.

    Perhaps for the first time we are starting to hear about the real drivers of the economy - the people. If you really want to know about the true state of the economy the study what households are doing. The whole economy is based upon their decisions, not the wishes of politicians, not the bankers balance sheets, not the expecatations of industry and commerce, or even the performance of exporters

    All of the figures that I have seen point to a strong move towards household entrenchmnet. I doubt many householders believe that their present mortgage rates will be sustained. Unemployment is now generally believed to be heading towards 3 million. Wages are being cut or frozen. Debt levels, exclusing mortgages, are still at an all time high. These are the FACTS upon which households are making their decisions not QE or th level of government borrowing or even the performance of the bond markets. Across the board household confidence is already in the toilet. Until that confidence level can be raised there will be no real improvment in the UK economy. Any green shoots will be truly ficticious.

    So forget about the shape as it is tolly irrelevant.

    So how can household confidence be raised? Well, 2 actions come to mind. The first may be negative but. The public still want to see blood from the Financial Services Sector. The popular opinion that they caused this mess and they must publically be seen to be made accountable - we need to see a few Madoff type sectances to assuage the bloodlust. Secondly we need to see the government appear to take control and publish a LONG TERM economic plan including a clear plan for trade and industry. For too long we have washed about in the tide directionless. (note: this is NOT a call for nationalisation).

    So the economists can continue to look at the forecasts and what the City etc. thinks and they will continue to get it wrong because they are looking in the wrong place.

  • Comment number 26.

    #25

    Where I live the situation is slightly different I suppose but typical for CEE: Prague, the capital, seems to be largely running on a domestic microeconomy - most business seems to be generated as peripheral to the core major concerns here, namely telco, banking, retail and energy HQs. However, outside Prague most business is export and automotive, with some textiles, and these are either packing up or cutting the working week down due to lack of export demand. This is slowly having a knock on effect in Prague, as the HQs lose revenue from national declines, and also as the troubled Western parent companies start to cut budgets and make attempts to shift Czech projects to their foreign teams (to keep themselves in a job). The capital is still wheeling along on its domestic economy based inertia, while around the capital the declines are dramatic.

    As The Count mentions above, people seem to have moved to different spending patterns. Nobody thinks this is going away any time soon and the reasons, despite all the rhetoric about green shoots, spending plans and all that distracting claptrap, are quite clear:
    1) The attitude to a capitalist system based on a feedback loop of ever increasing credit-fueled asset speculation has changed. The consumer is aware of the risks, and the 'management' now want regulation to restrict credit expansion and asset price bubbles. A decade or two of 'growth' and irrational optimism based on for example house price increases won't be possible until the next generation comes along and the current one passes away.
    2) Unless the governments take steps to force a reduction in private debt (through direct regulation of the banks), people will be concentrating on reducing their debt obligation. This takes money out of the system, reduces consumption, and causes further insecurity and motivation to reduce debt levels. This is a deflationary spiral. Though the spiral can be slowed, it will take a long time, without direct intervention, to reduce the levels of private debt to points where people become able or willing to save and spend savings.
    3) The only way now or in the future, without a return to the sins of the last few decades, people will be able to afford a quality of life like that we have become accustomed to, is to reduce the actual real cost of living. By that I don't mean continuous shifting of production to nations of starving slaves, as has been the cynical wont recently, but a continual investment into technology that guarantees a continually reducing cost of energy.




  • Comment number 27.

    Isn't there a problem with green shoots and double dip theory, and that is the new ONS numbers and graph for growth or rather shrinkage!

    The new numbers with 2.4 per cent fall in Q1 2009 show a new annual rate of change graph, too.

    That graph shows no sign of bottoming out. There is no hint of U in the fall in the curve, in fact it seems to me to be half way between \ and | and accelerating in its fall. (Googling ONS growth 2009 gets it (or even 'groth' as my typo had it!)).

    Green shoots and double dip, first stage, might have seemd possible with the ONS initial numbers when there was a hint of curl in the graph at Q1.

    That however was only 45 per cent factual (as the ONS says in the text accompanying the charts). Now at 85 per cent factual things look much worse.

    Neither a double dip nor a U look like reasonable extrapolations to me.

    So we turn to theory. Everything from an optimistic 'What goes down must come up' to 'What goes down keeps falling' is available. From Mervyn to Marx?

    Before these revisions, King was saying that we just don't know which way things are going. Since these revised figures are all we really know and they are worse, surely Mervyn's central estimate is now 'Down'.

    Provisional numbers and anecdotal evidence give the wrong impression. That is surely a lesson from the ONS's 2.4 from 1.9 revision at Q1 2009.

  • Comment number 28.

    #26 FrankSz

    Re: Point 3) Reducing the REAL cost of living.

    I totally agree with your suggestion. The only way to sustain or improve the standards of living for the greatest number of people is to find the nirvana of limitless cheap energy supplies. Regrettably, despite billions and billions of investment (and surely the efforts of tens of thousands of scientists for the last 100 years or so), we are still no closer to finding this holy grail.

    That is the reason why we (in the West) have no option but to reduce cost of living by outsourcing labour intensive production to the likes of China.

    Globalisation is not innovation - it is the last ditch effort of the Growth Economists (Solowists) to desperately try and keep the myth of perpetual motion alive:

    http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/06/a_note_of_caution.html

  • Comment number 29.

    #27

    Yes, the correct figures are here:

    http://www.voxeu.org/index.php?q=node/3421

    This is updated from month to month so we can keep track. Everyone should add it to their bookmarks.

    By the way, how come DeadEndStreetKid turned into U14055799? Is this an internal id - I think this blog has bugs

  • Comment number 30.



    I see energy as the key to everything here really. I think a government instigated drive to a new energy vision, with the promise of free inputs, would be enough of a fiscal stimulus to get the ball rolling.

    " Regrettably, despite billions and billions of investment (and surely the efforts of tens of thousands of scientists for the last 100 years or so), we are still no closer to finding this holy grail."

    I do not believe so - scientific research, funding, and general will, to find alternatives to oil is really only beginning. But that is not the real point, the point is how these things are costed and the frameworks in place that attribute costs to different energies. I have heard arguments from some people for example claiming that geothermal energy extracted via method X is more expensive than petrochemical. Problem is, more expensive in terms of what? Oil exploration is often subsidised, oil demand results in dollar demand because of the oil/usd link, which allowed the US to expand its trade deficit, which allowed the Asians to perpetuate their growth, which allowed the Saudis to buy US weapons, allowed the Asians and the Arabs to run huge current account surpluses, allowed the climate to start to react against us because of CO2 imbalances, and most importantly sucks irreplenishable resources out of the Earth without incorporating them into the final price!!

    I mean, the very use of petrochemicals, is, until energy becomes free, an externality! This is why the price of oil and the price of geothermal are currently incomparable.

    What we really need is the state, or some institution(s), to be committed to the process of making energy increasingly available. By definition then sustainability would be a necessary criteria for any chosen method, and more importantly, while money is relevant, those served by the state or institution could expect a long term deflation in real cost to match and offset the deflating money supply

  • Comment number 31.

    #30

    "the very use of petrochemicals, is, until energy becomes free, an externality"

    You are along the right lines, but you need to factor in the two laws of Thermodynamics:

    1) You can't get energy for free
    2) Available energy tends to degrade over time

    Low cost (almost free) energy comes in the form of low entropy resources, but we are exploiting these at an alarming rate. Mother nature has spent nigh on a billion years soaking up (free) solar energy on our planet, and (rather conveniently for us) converting that into highly efficient chemical structures (oil, coal & gas). Clever as humans are, do you think we can do better than this in little under a few hundred years??

    I strongly suggest that you take a look at some of the thinking in Ecological Economics, in particular Herman Daly & Nicholas Georgescu-Roegen, not to mention the concept of net energy (or EROEI):

    http://dieoff.org/page148.htm

    http://www.whirledbank.org/ourwords/daly.html

    http://en.wikipedia.org/wiki/EROEI

    To paraphrase from Daly, traditional economists view the economy as a self feeding system: one without a mouth or anus.

  • Comment number 32.

    #31

    1) Yes you can, or as near as dammit - look at the amount of solar radiation hitting the Earth daily. This source isn't going to dry up for another few billion years.
    2) Yes, but we are talking billions of years

    I think I didn't make my point clear enough:

    Imagine we build a machine that can construct copies of itself. It is powered entirely by solar radiation. The first machine takes a lot of initial investment in terms of time, traditional energy. The next machine is made by the first machine, but takes a lot of time to construct, because the 1st machine shuts down and recharges every time it's batteries are depleted. The 1st machine goes around looking for minerals, metals, whatever it needs, but that additional effort beyond keeping itself online consumes a lot of energy, so it takes a lot of time to make a second machine.

    Naturally the 3rd and 4th machines take the same amount of time to construct, but because 2 have been built, we now have effectively halved the time.

    The 5th,6th,7th and 8th represent generation 3 and effectively quarter the time.

    Each machine is dedicating 90% of it's input energy into constructing new machines, 5% in self maintenance, 5% is surplus. Of course, we can switch these ratios as desired.

    What we have here is a process, or an explication of one, that a state has committed to. In terms of 'money', it is a terrible business model because the long term prospect is abundance of energy. The returns decrease over time and the valuation of the company is based on the expectation that returns diminish to zero! This is why in the price system, it has to be a state or not-for-profit that does this. Something that is responsible for the regulation of externalities.

    Once such a process has been embarked upon, the health and prospects of the nation supported by the state is improved, and continues to improve!






  • Comment number 33.

    Frank & Hawkeye,

    Whilst I agree with both of you that the key to our futures lies in the identification and development of new forms of energy we must also take into account the major human resource - PEOPLE.

    I have postulated before that the indicators for a major technoloical shift are turning positive. Industrial history shows that the major developments have always been led by the development of new power systems and i don't see this one being any different. We do however have some additional criteria to meet. we always had efficiency and effectiveness to that we must also add sustainability and climatic effect. leaving aside the Laws of Thermodynamics, the goal has to be almost unlimited CHEAP power that is not strategically constrained. A cheap power source that relies upon shipment from another state (a la Russian gas) is a none-starter.

    The second major issue lies with employment. We need to totally re-think what a productive population actually means. If we are to continue to be more efficient in our production (goods and services) then the number of people required will continue to decline. At present the unemployed are considered as a drag upon the economy. We need to develop new activities upon which we place value for thse people to undertake. To my mind we therefore need to develop a new economic system - let's use Social Economics as a working title - wherein all activities have a value to the economy rather than being viewed as a cost.

    Sure, the above ideas do not answer all of the questions but then I'm not trying to develop an economic theory or a political policy

  • Comment number 34.

    So far, everyone has talked about energy *supply* !! What few, if any, people have spoken about or discussed is energy *demand* !! There is much we can do to drastically reduce the demand for energy !! By that I *DON'T* mean the pathetic efforts of this government and the local councils that spend HUGE amounts of energy telling us to turn down the thermostats or wash clothes at a lower temperature !!

    What I mean is something even simpler but more drastic and effective !! Ban all advertising with lights !! This includes, not just the neon signs, but offices lit bright as day just to show off that the company is so rich it can afford to light up a whole office block *all night* with just 3 guards in it !! Do that and we'll probably save 10% or more of our energy needs. This *will* translate to lower expenditure of energy which, in turn, could be used more productively in manufacturing !!

    No point treating the symptoms !! Treat the disease !!

    Of course this will *NOT* happen because this will reduce the profits of the energy companies which will, in turn, reduce the tax take by the government !! Lower taxes !! Heresy !! Heresy !! Can't have that !!

  • Comment number 35.

    #33

    I have thought about this before. Technocracy advocates total abundance, or at least the inevitability of it. But whilst thinking about things like Technocracy, I have wondered what would people end up doing. Even if we ended up with a utopian Eden of machine production for god like humans living a life of perfect of leisure, we cannot predict whether people would be happy with that or what would actually happen.

    The truth is, there will always be scarcity of something. As production improves, scarcity will be of ideas. The 'what to produce' question will receive valuable answers. A good example is the internet and digital media. Distribution of music becomes easy, so the old business models of marketing garbage music that targets a reliable,predictable minority of easily persuaded consumers dies. In its place we have an abundance of music, and value is in originality. People will want to find something special, truly special, something that stands out from the rest, and then go to see a concert by that person, or discover more about the reasons for its specialness. They will sacrifices for this, and they will trade for it.

    In short, I think that by the state committing to a process of energy cost reduction, culture will begin to value flexibility in production. It won't be about how much the tech can produce, it won't be about how much it will cost, it will be about how flexible can the factory change what it produces, and the markets will be about persuasion of generating that what we want. Ideas will be valuable. I think it will be a better world, where opportunities have greater priority over risks, where people focus more on discovery, scientific or artistic, where disease is reduced, hunger reduced, and in general there will be more comfort about the future.



  • Comment number 36.

    #34

    Funnily enough I think the end result would be the same. Technology that makes life more efficient and sustainable would become artificially valuable under the 'ban'. Naturally - a light that is solar powered would be exempt from this ban?

  • Comment number 37.

    #34 ishkandar,

    I agree that there are plenty of ways that could be used to reduce consumption. However, mankind has never been very good at long term reduction. We always seek more.

    This is the major problem with the environmentalist's argument. Instead of concentrating upon means of delivering more of what people want in a sustainable way, they have pitched their argument upon the demand for reduction. Take transport. We must now feel guilty about flying and move around on 'public' transport to the ardent environmentalist this is a price worth paying. But the argument is already lost. Try telling an Indian that he can no longer aspire to owning a car. Try telling a Brit that their Spanish holiday will entail 4 days train travel! It's not going to happen. Therefore he concentration should be upon meeting these wants in a more sustaiable way.

  • Comment number 38.

    #32

    "Imagine we build a machine that can construct copies of itself......"

    Machines that absorb energy, reproduce and feed off earlier generations (simpler forms). I wonder where you got that idea from? What you have just described in that post is the very origins of life on the planet. (For a thoroughly engaging description of how our planet formed life then take a look at "The science of Discworld" by Terry Pratchett et al.)

    Over a period of billions of years more and more complex life-forms evolved, each feeding off the free energy from the sun and using this to make complex organisms. What wonders were created, our atmosphere, trees, plants, fruits of all types, and wild animals in various shape and sizes. The rich tapestry of life took in billions of years of free energy of the sun to make the resources we see around us.

    I repeat my assertion from post #31 that no amount of man-made mechanical or laboratory bred bio-chemical automaton can do better than life - it has a billion year head start on us, and a proven track record of success!!

    If you want to unleash such a voracious species go do it on Mars - but mankind has already sucked the organic wonders out of the planet enough and spewed out inert structures of narrow, limited and lifeless form. We are a cancer on this planet and no better than the Borg - absorbing, assimilating and synthetising all organic matter around us.

    You can't milk a tractor my friend, and you can't eat crispy fried nanobots.

  • Comment number 39.

    #33

    "leaving aside the Laws of Thermodynamics, the goal has to be almost unlimited CHEAP power"

    Err.... leaving aside the laws of gravity, I could walk to the moon in a few hundred years......

  • Comment number 40.

    #34 and #37

    If energy is truly constrained to natural resources (natural capital), then in the long run we can only sustain ourselves by using that energy which is depleted from stocks. At the moment we are using up limited resources for immediate gratification, and doing it very quickly in geological terms.

    So not content with capitalism hooked on consuming at ridiculus speed (in that it consumes from stocks faster than they can be replenished), but worse still it is an acceleration junky. Year on year it increases the rate at which it is depleting stocks!

    Sustainable does not mean stopping growing - it means to only use those resources which can be replaced in the equivalent time. Not only have we stolen resources from the past to fuel our addictive appetite in the present, but we have mortgaged the house on the false assumption that we can also take from the future and use it now.

    http://dieoff.org/synopsis.htm

  • Comment number 41.

    #40 + #38

    No I didn't say that previous generations would be consumed, and in any case it is besides the point.

    The point is that in fact there is an abundance of energy. We just don't use it. The reason we don't use it is because using it is basically free. Before you go off on a tangent exclaiming that "no it is not free, it costs us to get the energy and the rewards might not cover the investment", think again:

    The above idea of creating a system that tends to produce energy increasingly cheaply, is not something that can be currently embarked upon. There is no business case. "Hello dear Mr Investor, I have a great business plan, it's called 'free energy' - the aim is to make a small initial investment, of say 1million Euro, but after about 30 years we will have a limitless supply of energy, which we would have to give away for nothing."

    The business case has to be in the externality of such a thing existing and being used - ie., the added value has to be captured, and that can only really be done by the use of a "state". (Even if it started private, the energy supplier would quickly become the state)

    It is also not "free" to use petrochemical. The use of oil for example depletes oil from the Earth, but the actual raw oil is accounted for as having a cost of 0. The cost of oil is entirely down to extraction and distribution, but the actual depletion of oil reserves is not accounted for. Why? What then is the "real" cost?

    We have petawatts of solar energy, we just need to embark on a process of harnessing that energy that increases in efficiency. Once we are on that process, we can assume that we will reach the limit price (zero), and we can speculate with that assumption.....now think of the consequences!!




  • Comment number 42.

    #41 Frank

    I'd say your economics is in danger of getting as bonkers as your science.

    On the science part you don't explain how your replicating machines are able to build copies of themselves - I presume they need raw material inputs (metals, plastics, silicon etc.) - or how energy is stored and given to us little humans.

    On the economics part you seem to have got into a pickle about the concept of "free". Just because something may cost next to nothing to make / obtain, does not stop anyone from charging money to provide it. A business makes money by obtaining a profit margin (the difference between cost to supply and revenue received). One word springs to mind - Dasani:

    http://en.wikipedia.org/wiki/Dasani

    Anyhow, there may be petawatts of free solar energy arriving at earth each day, but the whole point I am making is that it is not that easy to make efficient use of it. Please see the section marked "RENEWABLE ENERGY SYSTEMS":

    http://www.dieoff.org/synopsis.htm

    Mother nature has taken billions of years of petawatt solar energy (yottawatts!) and converted it into fossil fuels and living organisms. This is the most abundant and low cost source of energy & fuel / food there is, and we are consuming it fast. The principle of high grading means that we exploit the easy stuff first:

    http://en.wikipedia.org/wiki/High_grading

    In a way we both agree - the fact that the depleting of natural resources is not actually counted by the accountants in their ledgers. When we extract and consume a barrel of oil, really it should be:

    Human Race: +1 Earth: -1

  • Comment number 43.

    #41 "(Even if it started private, the energy supplier would quickly become the state)"

    This statement makes things sound like the world according to "Rollerball" - great action, shame about the plot !! :-)

  • Comment number 44.

    #37 "Therefore he concentration should be upon meeting these wants in a more sustaiable way."

    #40 "Sustainable does not mean stopping growing"

    These two statements point to the same problem. It is *not* growth that is the problem but the greed of those who already have sufficient and want more !!

    Take the example of travel in #37 above. Humans used to take months to cover what we do now in a day or less. A journey to Aussieland that took 6 months then takes 28 hours now !! Why the hurry ?? A Zeppelin will cover that same journey at three times the time spam but used up only 40% of the fuel. The savings being in the reduced need to heave a huge weight into the air and keep it in the air; the Zeppelin used differential density to keep the vessel afloat (i.e. a bloody great balloon) !! It is also postulated that it is a healthier form of long-distance transportation since it allows the passengers to walk about the vessel and, thereby, reduces incidences of DVT (Deep Vein Thrombosis) which has been know to occur in those flying cigar tubes !!

    Back to growth, there *IS* still masses of room for growth if we are not too greedy. There are huge areas of Asia, Africa and Latin America that could benefit from the growth towards a living standard equivalent to ours. However, greed/averice - in terms of wealth and/or power - have kept these areas in perpetual darkness !! We still suck wealth vampirically from the developing nations to fund our lavish life-styles. We still operate to keep them in darkness in order to make them dependent on our patronage, whether for the purchase of their raw materials or for the sale of our manufactured goods to them !!

    If we think of growth as "growing those markets" instead of subjugating them or dictation to them, as the Chinese have so successfully done recently, we might still see lots of room for growth !! However, I do *not* see "growth" as an ever-expanding pool of "funny money" !! If Our Glorious Leader keeps up his attempts to re-inflate this ever-expanding pool of "funny money", we may be in for a very, very rough ride for a very, very long time !! Oh, and the "green shoots" are actually the verdigris from the rusting factories !!

    By lavish life-style I include subjecting millions to abject poverty and starvation in order to fund payment to the unemployable in this country !! By unemployable I include *only* those who are physically capable of working but are culturally reluctant to do so !! In non-politically correct terms - work-shy or bone-idle, as my grandma would say !!

  • Comment number 45.

    #42

    Sorry for the delay. Have been away:

    "On the science part you don't explain how your replicating machines are able to build copies of themselves - I presume they need raw material inputs (metals, plastics, silicon etc.) - or how energy is stored and given to us little humans.

    On the economics part you seem to have got into a pickle about the concept of "free". Just because something may cost next to nothing to make / obtain, does not stop anyone from charging money to provide it"

    a) I don;t need to explain how replicating machines replicate - the example is an explication of a process tending to zero cost.
    b) Raw material inputs can be seen purely in terms of energy needed to find and extract them, regardless of where they are in the universe, so thinking in terms of anything other than energy would be digressing
    c) Free/cost. No I haven't confused free with cost. A number of points here: multiple suppliers would bring down the cost of the supplier (state) existing via competition, but in any case, what value would the money have? You are the supplier of the world's energy, which is tending to infinite abundance, what do you care about money?

 

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