Worry About Deflation in a Debt-Ridden World

Gail Tverberg, an experienced actuary, is essential reading for all who are concerned about our present impossible marriage between infinite growth economics and the finite world on which we live. Here she explains why plunging commodity prices are not the good news you might think:






Money Wells Dry Up

So oil prices have fallen. That’s great news, isn’t it? Must mean there’s loads of the black stuff on tap. Well, it’s not that simple — although the media too often try to pretend that prices are a straightforward relationship between supply and demand.

This extract is from my new book, Solving the Grim Equation, pages 76-77.

“World oil consumption continues to edge upwards by 1%-1.5% annually.[i] The US Energy Information Administration (EIA) expects oil use in 2015 to grow by another 1.5% to 92.89 million barrels a day, 130,000 barrels less than daily production. Annual consumption would be pushing towards 34 billion barrels.

The EIA reckoned that in 2009 the world’s proven reserves of crude oil totalled 1,342.2 billion barrels. That equalled 43.3 years’ supply at the 2009 consumption rate. By 2013, reserves had inflated to 1,646.0 billion barrels, a phenomenal 22.6% growth in four years although no major new oilfields have been discovered. By 2013 the world appeared to have some 50 years of oil reserves. The inclusion of ‘tight oil’, which is ‘liberated’ by hydraulic fracturing, commonly called fracking, boosts the reserve figures but has a low return on the energy invested in extraction. The issue is not so much the absence of oil under the ground, but absence of money to give producers a profit sufficient to reinvest in exploration. The market is held back by impecunious consumers more than by dry wells. The actuary Gail Tverberg, who analyses energy and commodity prices, comes to this conclusion:[ii]

‘Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.’

Oil with a high return on energy invested in extraction gives pricing flexibility. Where the energy return is small, the price needs to be consistently high, or there is no financial incentive to extract it.

Saudi Arabia, Venezuela and Canada are supposed to have the world’s largest oil reserves. In both Venezuela and Canada, the energy gain from drilling ‘oil’ is low and in Canada is sometimes negative. The tar sands in northern Alberta are strip mined, and carried in trucks to processing plants where water is added to create a slurry, which is placed in separation vessels. The bitumen rises to the top. It is diluted with naphtha and further separated in centrifuges. The bitumen is processed again to yield gas oil, naphtha and hydrocarbon gases. The liquids are cleaned up with hydrogen to remove sulphur and nitrogen compounds. The naphtha is from local natural gas which is ‘stranded’ – i.e. there is not enough of it to justify exporting it through a long-distance pipeline. That limited supply of natural gas is an important element in the energy-heavy process to convert bitumen into synthetic crude oil.

The current financial cost of producing synthetic crude oil from sands is about $90 a barrel.[iii] Ignoring the heavy environmental damage, the immediate production cost means that unless the oil is sold at over $100 a barrel, there is scant reason to produce it, and insufficient return to justify new investment. So is it realistic to assume that Canada will supply the world with over 173 billion barrels? Hardly. The oil price was on a plateau in 2011 and 2012, and in 2013 and 2014 trended downwards to below $100 a barrel, in September sinking close to $90. The fall continued in October and November, to under $80, followed by a precipitous collapse in late November and early December to under $63, and in January 2015 to below $50, for benchmark WTI (West Texas Intermediate).”

[i] US Energy Information Administration, Short-Term Energy Outlook, September 9th 2014.

[ii] ‘Low oil prices: sign of a debt bubble collapse, leading to the end of oil supply?’ by Gail Tverberg, http://ourfiniteworld.com/2014/09/21/low-oil-prices-sign-of-a-debt-bubble-collapse-leading-to-the-end-of-oil-supply/, September 21st 2014.

[iii] ‘Peak Oil becomes an issue again after the IEA revised its predictions’ by Tom Dispatch, http://oilprice.com/Energy/Crude-Oil/Peak-Oil-becomes-an-Issue-Again-after-the-IEA-Revised-its-Predictions.html, January 9th 2014.

Later note: in August 2015 oil prices slid further. On the 21st, the West Texas Intermediate price dipped below $40 a barrel. 


Crime Benefits the Economy!

Including crime in national accounts expands the mirage of economic growth

The world’s unfettered free markets are hardly bastions of ethics. The dry-sounding ‘Changes stemming from improved comparability of Gross National Income measurement’, published by the UK’s Office for National Statistics on May 16th 2014, includes these startling, shocking sentences:

“…illegal activities (e.g. prostitution and production of drugs) fall within the production boundary of national accounts. The sources and methods used need to be reviewed in order to ensure that illegal activities are properly included in the national accounts. The UK already includes estimates in the national accounts for smuggling of alcohol and tobacco, so this reservation will be addressed by including prostitution and drugs within the national accounts framework.”

The announcement was one of a number from statistics offices in the European Union, as members moved to harmonise a way of inflating economic growth by estimating the amounts changing hands illegally! Criminal activities such as drug pushing are good for the numbers, because buyers who are addicted will pay the price asked, even if they have to turn to more crime to get the money. Governments evidently value crime as a pillar of economic output.

Is this the end of ethics in government? How can politicians expect people to behave ethically when criminal activities are valued for contributing to national income? The European Commission pushed member states down this road when in December 2013 it included the proposals in the ‘European System of National and Regional Accounts’. This shows the Commission’s priorities – economic growth above all other considerations. Maybe the European Union is not such a force for social good after all.

Complaints in the media were muted and, it seems, short-lived. For the mainstream media too, the imperative for economic growth is unquestioned. Nearly all activities, including childcare — parents paying other people to look after their children while they work to earn the money to pay the childminders – have already been monetised, prompting the powers-that-be, in a desperate gamble, to co-opt the underworld.

The UK’s boost to gross domestic product from the addition of illegal activities was thought to be £10 billion, about £155 per man, woman and child. The £10 billion figure is, of course, only a guess as no one really knows. The figure is probably inaccurate as well as reprehensible.

— extract from Solving the Grim Equation, published by Cambria Books this year, 2015


Brainwashed by Words

Who compared Jeremy Corbyn to Hitler?

Not directly, you understand, but by quasi-subliminal word association?

Christina Patterson, freelance journalist, ex-The Independent, on Sky News’ Press Preview last night (Friday), launched a diatribe against Labour leadership contender Jeremy Corbyn. He might be sincere, she intimated, but Hitler was also sincere. Sincerity doesn’t stop people from being nutcases, we heard. For the ‘cognoscenti ‘ like Christina, from their lofty perches above the hoi polloi, Mr Corbyn’s popularity resembles an incipient car crash.

The association between ‘Corbyn’, Hitler’, ‘nutcase’ and ‘car crash’ took me to Norman Fairclough’s* book ‘Language and Power’. Published by Longman in 1989 – pre-Blair, early in the digital age – but so relevant.

“…the constant doses of ‘news’ which most people receive each day are a significant factor in social control, and they account for a not insignificant proportion of a person’s average daily involvement in discourse “, he wrote. (p.37 of the 1995 9th impression)

As he says, “control over orders of discourse by institutional and societal power-holders is one factor in the maintenance of their power”. (same page)  They try and persuade us that their particular ideology is ‘common sense’ and in modern Britain this brainwashing has achieved a high degree of success!

Norman again (p.107): “…when ideology becomes common sense, it apparently ceases to be ideology; this is itself an ideological effect, for ideology is truly effective only when it is disguised”.

Disguised as common sense, and pushed from the public arena by a cacophony of trivia.

* Norman Fairclough is Emeritus Professor of Linguistics at Lancaster University.

PDR, not a member of the Labour Party, but in Plaid Cymru and very concerned about the narrowing of debate in the modern world, where political philosophies outside the dominant discourse are rubbished and insulted by insidious, subliminal means as well as overtly.

Culture Clash: Planning is for Profits not for People

The exciting Lammas eco-hamlet project was eventually given planning permission by Pembrokeshire County Council under its pioneer Policy 52, a forerunner of One Wales One Planet, despite strong opposition from within the council itself. Lammas is a community creating nine low-impact smallholdings at Glandŵr, near the Pembrokeshire-Carmarthenshire boundary.

The Lammas founders, orchestrated by Tao Paul Wimbush, sought to make this a legitimate rural development by obtaining planning permission before construction, rather than going ahead and then seeking retrospective permission. The exhausting process revealed the chasms that exist between policy and practice, and highlighted the clashing frames of reference which planners must somehow align.

The planning system in England and Wales is currently mired in the 1950s, when the global context was entirely different. Local food production was perceived as of diminishing importance because cheap transport meant imports could be sourced easily. ‘The countryside’ was a collection of landscapes for rich people to live in and for poorer people to enjoy from a distance. As for the poorer people, new jobs in the bright technological future would result in each generation being more prosperous than the last, and these new middle classes would be car-dependent and live in spacious suburbs.

A wave of New Towns, including Basildon, Bracknell and Harlow, reflected the Utopian aspirations of the Labour governments of 1945-50 and 1950-51, led by Clement Atlee. The first section of the M1 London to Birmingham motorway opened in November 1959. Dr Richard Beeching came along in the 1960s and on his recommendation the rural railway network was largely abandoned. He thought the car would rule from then onwards. The UK was still a manufacturing nation, jobs were plentiful, and when oil from British fields in the North Sea started flowing in the early 1970s, how bright the future seemed. The Franco-British supersonic Concorde made its first commercial flight in January 1976. The fatal flaw of Concorde, the fatal flaw of the transnational industrial age, was profligate use of energy. Concorde’s engines burned 5,638 gallons of fuel per hour, or 56.38 gallons for every one of a capacity load of 100 passengers. Concorde was not sustainable, and was withdrawn from service in 2003, the final flight taking place on November 26th.

The England and Wales planning system, though, has remained in the 1950s, in a landscape of suburban estates, industrial ‘parks’ and town-centre bypasses.

Lammas’s founders suffered years of failing to convince Pembrokeshire’s planners and councillors of the legitimacy of their vision, because low-impact development was off the agenda when the Town and Country Planning Act 1947 was assembled, and has never been properly recognised as a permissible land use. We are stuck with outdated conceptions of development which oppress today’s priorities for low-emission, low-energy, local lifestyles.

Battles over planning legislation since 1947 have focused on whether and how to tax the rise in land values following the granting of planning permission.  The 1947 Act in Labour Britain introduced a 100% charge on the rise in land value, but the Conservatives suspended it when they came to power in 1951 and abolished it in 1954, although public bodies were able to buy land at its existing use value until 1959. The 1966-70 Labour government created both a Land Commission to buy land required for the implementation of national, regional and local plans, and a ‘betterment levy’ of 40% on value uplift. The following Conservative government of 1970-74 abolished both. When Labour returned in 1974, they tried a ‘development land tax’ of 80%, which Margaret Thatcher’s first Conservative government of 1979-83 cut to 60%, before her second government did away with it in 1985. During the ‘New Labour’ interval between 1997 and 2010, a ‘planning gain supplement’ was mooted but the idea, vehemently opposed by developers, was dropped in 2007.

Since 1945 the big argument has been about taxing the financial gain conveyed by planning permission. The concept of land use for an ecologically balanced future is missing from the main legal framework.

The first gesture towards low-impact development was on the edge of the UK, in Pembrokeshire, West Wales. In June 2006 Pembrokeshire County Council and Pembrokeshire Coast National Park Authority (the planning authority in the national park) adopted Policy 52, Supplementary Planning Guidance ‘Low Impact Development Making a Positive Contribution’.

Policy 52 applications must pass eight tests:

  • There must be environmental, social and/or economic contribution with public benefit.
  • All activities and structures must have low impact on the environment and low use of resources.
  • If there are buildings on the site, their re-use must have been investigated and incorporated wherever practical.
  • The project must be well integrated into the landscape and have no adverse visual effects.
  • The project must require a countryside location, must involve agriculture, forestry and/or horticulture, and be tied directly to the land on which it is located.
  • A sufficient livelihood for the residents on site must be provided.
  • The number of adult residents should be directly related to the demands of running the enterprise.
  • If the project involves members of more than one family, it must be managed and controlled by a trust, co-operative or other similar structure in which the occupiers have an interest.

The policy sets low-impact development firmly in a business frame. An appendix states that “if residents become unable to contribute to the proposal, due to age or illness, the Authorities will consider whether they can remain on the site”. This condition implies that a low-impact settlement is only for the hale and hearty, and primarily an enterprise, not a home or group of homes.

from ‘Solving the Grim Equation’, published in 2015 by Cambria Books, written by Pat Dodd Racher, pps 147-150. Planning policy 52 conveys an assumption that enterprise income is more important than family or group solidarity. Planning, generally, is about access to profit.

Grim Now, Grimmer Later: Time to Act

Official launch on Tuesday July 7th — ‘Solving the Grim Equation’, published by Cambria Books and written by me, Pat Dodd Racher

Upstairs at The Angel, Rhosmaen Street, Llandeilo, at 7.30pm.

Author and One Planet Council patron David Thorpe will lead a question and answer session and discussion.

The Grim Equation means that increased consumption now will result in lower consumption in the future.

Exciting pioneer projects in Wales show that families can reduce consumption dramatically and use less energy, and still live happily. Pioneers have had to battle against hostility in local government, but thanks to the Welsh Government’s ‘One Wales One Planet’ policy the chances of projects being approved are increasing.

The One Planet Development policy, and guidance in Technical Advice Note 6, and the establishment in Wales of the One Planet Council, can give Wales a leading role in the inevitable One Planet future — because we have only one planet on which to live.


The longer we wait, the more uncomfortable the fall

Solving the Grim Equation

The cover of the print version of ‘Solving the Grim Equation’, written by me, coming soon from Cambria Books


Prepare — fast — for a very different future