The priest, the engineer and the economist

I was exchanging economist jokes over the holiday and heard this one that seemed apropos both to our resource predicament and the seeming abundance of the holiday season:

A priest, an engineer and an economist were stranded together on a desert island. Given their location, fish seemed to be a logical source of food. So, they discussed how to get some. The priest said that the three of them should pray. The engineer said he thought a better approach would be to fashion a net from materials on the island. The priest and the engineer then turned to the economist for his input. With his hand on his chin, the economist thought for a moment and then looked up and said, "Assume a fish."

That joke neatly summarizes the problem with the vast majority of economic thinking today. Much of that thinking rests on something called the Cobb-Douglas function which has three terms:

Total production = Labor input X Capital input

What is so obviously missing, of course, are physical resources. Hence, "assume a fish" illustrates the slight of hand which most economists perform when referring to the physical world.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, December 27.

Mobility is NOT a business: Why the pandemic-induced collapse of mass transit should concern us all

People have always needed to get from here to there whether by foot, by horse, by ship, by train, by car, by bus or by plane. Civilization DEPENDS on the mobility of humans and the produce they cultivate and extract from the earth. Without mobility everything would grind to a halt. Human mobility—like drinkable water, waste disposal, roads, grain storage and buildings (for government, religion, and commerce)—is a prerequisite to human civilization.

Human mobility may be aided by businesses which manufacture vehicles, motorized and not; supply concrete and asphalt for roadways, sidewalks and tarmacs; supply fuel; and build facilities that are part of the mobility infrastructure. But this is all in service to something essential to civilization, something that is the glue of civilization. Airplanes are optional to civilization. They create a certain kind of civilization. But civilization has been around, of course, for a very long time before airplanes arrived.

Governments typically organize transportation systems and then build the necessary infrastructure and purchase the vehicles or license the purchase of vehicles by others. This is how it is done because mobility is NOT optional for civilization.

Mass transit—the kind of transit in deep trouble right now because of the pandemic—is a product of cities' dense accumulations of people. Though we identify mass transit with the modern industrial city, it has been around for as long as cities themselves. Any locale where there has been a rickshaw, livery horse or carriage for hire has mass transit—by which I mean a system of vehicles that is SHARED by unrelated persons.

You can easily find stories today about the deepening financial distress of mass transit systems in New York City and Washington, D.C. In my experience, the Washington Metro, the tri-state light rail system, isn't entirely empty as depicted in the linked story. But it is very far from the packed-to-gills, standing-room-only affair it used to be during rush hour. Ridership is reported to be down 80 percent. In the San Francisco Bay Area, the BART light rail system in down 90 percent.

Critical metals supply: Industry and government just couldn't be that shortsighted, could they?

In 2009 I had an email exchange with a reader in the computer industry in which he contended that the supply of two key metals in the electronics and solar energy industries, gallium and indium, just couldn't be as precarious as I was claiming.

I bring this up because the European Commission put out a white paper earlier this year about the need for a plan to secure adequate supplies of critical metals including gallium and indium. This concern arises, in part, because these metals and several others are central in the manufacture of ubiquitous devices such as cellphones and renewable energy equipment such as solar cells.

In 2009 my reader made the following case which I summarized in a piece I wrote at the time:

He insists that indium simply can't be that scarce because—get this—there is indium in billions of electronic devices including cellphones and computer screens, in fact, in nearly everything that has a flat-screen display associated with it.

This is curious logic. It says that because we are using a resource ubiquitously and at an exponentially increasing rate, it must be plentiful...

I realized later that what this computer professional actually meant was that the corporate and government planners charged with thinking about resource supply issues couldn't possibly have made a colossal blunder which would lead to a catastrophic shortage of key metals in the electronics industry. He presumed, I think, that such an outcome was simply out of the question given the competence and intelligence of the people in his industry.

Low prices batter oil industry (and later the rest of us)

It is a sign of the times that the largest oil company in the world, Saudi Aramco, the state oil company of the Kingdom of Saudi Arabia, must borrow money to pay its shareholder dividend. I have written about the twice-delayed and often troubled initial public offering of the company previously (here and here).

Now it seems that the cash which the company is generating from operations is far less than the dividend payout—which leaves nothing for new drilling to replace reserves and other capital expenditures needed to keep the company going. Hence, the need to borrow.

All of this is due, in part, to low oil prices. And, the Saudis are not the only ones suffering, of course. U.S. producers, mostly those focused on high-cost shale deposits, continue to head toward bankruptcy or merge with other stronger companies. Another part of the equation is heavy debt. Naive investors kept handing over fresh capital, oblivious to the fact that the shale oil and gas industry as a whole has been free cash flow negative for years. That's okay for a few years, but as a long-run strategy it means a company is simply consuming the capital of its investors.

Nature on the ballot and the 'parliament of things'

There were some obvious and even historic ways in which nature was on the ballot this year in the United States:

• Orange County, Florida voters overwhelmingly approved a charter amendment to give rights to two rivers to be free from pollution. By a margin of 89 percent, voters approved "the right to sue corporate polluters in court, without having to show they have been personally harmed, as state law requires." The state legislature's preemption of local jurisdiction regarding rights of nature may not be an obstacle if it is ruled unconstitutional in a case currently before the courts.
• American participation in the Paris Agreement, the climate accord reached by the world's governments in 2015, was also on the ballot indirectly. President Donald Trump withdrew the United States from the agreement. Trump's opponent, Joe Biden, pledged to have the United States rejoin.
• Numerous conservation millages, like this one in Washtenaw County, Michigan, were approved by voters for various conservation projects such as tree planting, protecting habitat and assisting efforts to keep surface and groundwater clean.

What we may not realize is that nature is always on the ballot everywhere. But our awareness of that fact is only now bubbling to the surface of political consciousness. Even those who have no wish to accommodate the supposed needs of nature are actually acknowledging those needs by opposing them—usually by saying that human needs are more important.

But therein lies the contradiction in our thinking. For surely we humans are as much a part of nature and everything we attribute to it. As I've written before, one of tenets of the crumbling system of modernism is that humans are in one category and nature is in another. Now the word "nature" has been much abused and misused. So, we need something else. French thinker Bruno Latour has suggested "parliament of things."

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, November 22.

Is Denmark about to export a more dangerous form of COVID-19?

Denmark is famous for its exports of cheese and pork. Less known is the country's role as the world's largest producer of mink skins and therefore, not surprisingly, the "global hub for the fur trade." Unfortunately for the minks and the mink industry, the Danish government has now pledged to kill every mink in Denmark is order to eradicate a mutant strain of COVID-19 carried by mink that is transmissible to humans. That would mean dispatching some 17 million animals in short order.

Why are the Danes so panicked? Because this mutant strain "is not readily stopped by antibodies to the dominant strain of the virus." That could mean that vaccines currently being developed for this dominant strain will be of little or no value in treating people with the mutant strain.

The number of human cases so far is small, 12 cases in workers on one farm.  It is worth remembering that on February 26 this year, President Trump told the public that there were only 15 cases in the United States, that drastic steps to contain the virus such as shutdowns were not yet necessary and that "15 [cases] within a couple of days is going to be down to close to zero." By the end of March, much of the country was in a state of emergency as infections were skyrocketing. And even now, new daily infections in the United States are reaching new records as the long anticipated seasonal uptick in COVID-19 cases arrives.

Ransomware attacks and biodiversity: A possible lesson from nature

As I read about recent ransomware attacks on hospitals, I was reminded of a seemingly unremarkable event years ago when I was still using a computer with the Windows operating system. I was working with a medical doctor turned medical IT specialist. His preferred operating system—though not that of the hospitals he worked for—was the one on his Apple computer. When he loaded files from a flash drive onto his machine in my presence, I asked why he didn't check for viruses first. He had a one-word answer: biodiversity.

He was, of course, using the metaphor of biodiversity to refer to the fact that the vast majority of computer viruses and malware targeted Windows systems at that time, something that is still true today. Very few threats targeted the Apple operating system, and because of its design the system was (and is) more resistant to such attacks.

Every student of biology—which naturally includes doctors and health care workers—ought to be aware of the advantages of biodiversity in natural systems. Biodiversity brings resilience to species and to entire ecosystems. Variations in members of a species make it more likely that some will survive to propagate. Variations across species that inhabit an ecosystem make it more likely that the system will survive as a coherent unit when some, but not all of a particular species die out.

Do you own your own face?

The question of whether you own your own face may not be as clear as you might think. Companies are already buying and selling information worldwide based on facial recognition technology. In January of this year I proposed that the United States adopt a constitutional amendment which would give each person ownership of his or her information including facial likenesses and any other biometric data. Now, some U.S. senators think that those gathering your likeness into their databases should have your permission first to do so.

Those senators are not alone. In September Portland, Oregon passed a sweeping ban on facial recognition technology for both government and businesses. San Francisco, Boston and Oakland have passed bans as well, but only for governmental agencies.

Those supporting such bans have cited racial and gender biases built into the algorithms controlling the technology as a central reason for the ban. Beyond this, a California legislator who led the fight to ban such technology for use in conjunction with police body cameras—including passing recordings through facial recognition software later—found out something even more disturbing. The technology which depends on a variety of algorithms is woefully inaccurate. The legislator and 25 of his colleagues were misidentified as persons listed in a law enforcement database as having criminal records.

Risky business: Cellphone satellite networks endanger asteroid early warning, threaten catastrophic space junk

During the coming decade companies that include Amazon, SpaceX and OneWeb are seeking to launch well over 100,000 satellites to service wireless networks on Earth. Many more satellites may follow after that.

Astronomers are crying foul because the satellites—which have proven to be much more reflective than anticipated—are making it difficult for observatories to survey the night sky. The satellites show up as multiple streaky white lines in long-exposure photography so essential to detecting new objects in the distant reaches of the universe.

Thus have the wonders of wireless communications blinded us to the risks of filling the sky with so many satellites. Were that the extent of the problem, it would be irksome to the world astronomy community but probably not a major concern to the rest of us. Unfortunately, much bigger risks await us as the number of satellites in orbit around planet Earth reaches, well, astronomical proportions.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, October 18.

Scavenger or thief: The line will continue to blur

The role of scavenger in nature is to find that which others have discarded or which no longer has life. Vultures are the best-known example of a species that lives off the dead carcasses of other animals. Many insects act as scavengers as well.

Human scavengers go by many names: junk removal—the junk man often reclaims things of value even as we pay him to take them away—recycling companies, and finally, those who out of economic necessity rummage through trash cans and pick out containers redeemable for a deposit that others leave behind.

In the human world, the more desperate the times, the more scavenging people are likely to do and the less stuff there will be to go around. That's when scavenging may cross the line into theft.

Why am I feeling so anxious? The end of modernism arrives

A friend of mine quipped that it is one thing to talk about the end of modernism—as the two of us have been doing for over 25 years—and quite another to live through it. It might seem that such notions are far too abstract to account for the anxiety of our fraught times. But underneath all the disorder we see in our pandemic-plagued economic, social and political lives is the crumbling of key assumptions about what we call modernity, a period of "enlightenment" that has supposedly freed us from the past.

First, let me recount what I regard as four key assumptions of modernism—I've written about them before—which are being demolished every day right before our eyes with the help of an invisible virus.

1. Humans are in one category and nature is in another.
2. Scale doesn't matter.
3. History can be safely ignored since modern society has seen through the delusions of the past.
4. Science is a unified, coherent field that explains the rational principles by which we can manage the physical world.

The next thing I need to remind you is that modernism is as much a religion as any other. In the not-too-distant past, whenever anyone raised questions about its basic tenets—directly or indirectly in one form or another—that person was quickly shushed. If the person persisted, he or she was then shamed. If shaming didn't work, then that person was shunned or even unceremoniously ejected from the party.

Enter COVID-19.

The 'new normal' has been postponed (and probably canceled)

There remains a hope that once we get past the economic and social effects of the pandemic, all of us will be able to return to something resembling normal life before the pandemic—even if it is a "new normal" marked by heightened vigilance and protection against infectious disease and more work at home for office workers as companies realize they don't need to maintain as much expensive office space.

But the date for this recovery to a new normal seems to keep getting postponed. The International Air Transport Association now projects a full recovery in international passenger traffic will take until 2024, a year later than the association projected back in April. The hotel industry will get a bit of a jump on the airline industry with a projected recovery by 2023. The situation is so bad for restaurants that no one seems to be willing to project a date for anything that might be called a recovery.

Office building owners—who are suffering lower rent collections and lease cancellations—seem lucky in comparison with a recovery expected by the end of 2022.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, September 20.

Do we have room for a billion Americans?

As I was reading Matthew Yglesias' piece "The Case for Adding 672 Million More Americans," the Soviet-era designation of Mother Heroine, initiated by Joseph Stalin in 1944, came to mind. Stalin and subsequent Soviet leaders gave Mother Heroine medals to mothers who bore and raised 10 or more children. Lesser honors were provided for mothers who bore and raised between five and nine children. There is some mention of additional financial assistance from the state to those with such large families, but I could not find much information on this.

For America's version of Mother Heroines (and Heroes), Yglesias proposes "not just paid leave but financial assistance, preschool and after-care services, reasonable summer programming, and affordable college for all qualified student"—all in order to encourage larger families (which he claims Americans actually want).

Yglesias thinks we need to increase our population so that we will be able to compete with 1.4 billion Chinese. Whether you think competing with the Chinese is important or not, there is a problem with the hidden metaphor that Yglesias is using throughout his piece. He is imagining that the United States of America is like the family room in your home. Normally, you might have two or three members in the room at once, watching television, reading, or munching on snacks. But actually, you could fit 10 or maybe even 15 people in the room comfortably if you rearrange the furniture.

North Dakota blues: The legacy of fracking

When oil drillers descended on North Dakota en masse a decade ago, state officials and residents generally welcomed them with open arms. A new form of hydraulic fracturing, or "fracking" for short, would allow an estimated 3 to 4 billion barrels of so-called shale oil to be extracted from the Bakken Formation, some 2 miles below the surface.

The boom that ensued has now turned to bust as oil prices sagged in 2019 and then went into free fall with the spread of the coronavirus pandemic. The financial fragility of the industry had long been hidden by the willingness of investors to hand over money to drillers in hopes of getting in on the next big energy play. Months before the coronavirus appeared, one former oil CEO calculated that the shale oil and gas industry has destroyed 80 percent of the capital entrusted to it since 2008. Not long after that the capital markets were almost entirely closed to the industry as investor sentiment finally shifted in the wake of financial realities.

The collapse of oil demand in 2020 due to a huge contraction in the world economy associated with the pandemic has increased the pace of bankruptcies. Oil output has also collapsed as the number of new wells needed to keep total production from these short-lived wells from shrinking has declined dramatically as well. Operating rotary rigs in North Dakota plummeted from an average of 48 in August 2019 to just 11 this month.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, August 30.

Is the pandemic causing an exodus from big cities?

Thomas Homer-Dixon, the Canadian student of complex systems and author of The Upside of Down, wrote in his 2006 book that "September 11 and Katrina won't be the last time we walk out of our cities."

Today, many big-city dwellers appear to be seeking refuge in less crowded towns and rural landscapes. The wealthy, at least, are seeking "bugout" homes away from major cities as places to ride out the pandemic, the economic downturn and the civil unrest that are gripping the world. Beyond news reports, I've heard from friends that homes are being snapped up in eastern Washington state and New York's Hudson Valley by coastal city dwellers looking for a refuge in turbulent times.

It's not just residents who are leaving. The New York Times reports that retail restaurant and merchandise chains are exiting Manhattan because it is "unsustainable." New York City no longer teams with tourists, and its office towers are largely empty. That makes for empty streets with few customers for the city's many retail establishments. This story is being repeated in other major cities including Atlanta, Chicago, Denver, Houston, Los Angeles, Seattle, and St. Louis.

Wireless charging: A colossal waste of energy

It turns out the cellphone industry believes its customers just can't be bothered with setting their phones in charging cradles or worse yet, actually plugging a charging cord into a phone. Users can now simply place a phone on top of a wireless charging pad to get their phones topped up.

For the privilege of being extra lazy these users of wireless charging expend up to 47 percent more energy to charge their phones, something that if widely adopted would require dozens of new power plants across the globe to accommodate.

Everything wireless seems like magic, and it is essentially sold as magic. It's also sold as freedom, freedom from those pesky cords that limit where you can use your electronic devices. But the freedom is illusory. We are simply shackling ourselves ever more tightly to an addictive device that is contributing to an unsustainable fossil fueled way of life which is bound to crumble dramatically if we do not alter course.

Evictions, tenants and the fragility of a "correlated" world

As eviction moratoriums around the United States come to an end, it is expected that landlords will begin evicting nonpaying tenants en masse. Eviction by itself is an unremarkable phenomenon in America. Some 900,000 per year have been occurring routinely in the last several years affecting about 2.3 million people annually.

The scale this time is different. No one knows exactly how things will play out in the United States (or elsewhere for that matter). But, barring new moratoriums on eviction one estimate suggests 23 million people will be subject to eviction by the end of September, more than 10 times the number for an entire year.

Where all those households would go is a puzzling question as the limited space in facilities for the homeless could never hold them. And, given the continuing coronavirus pandemic, those facilities that are observing proper social distancing have had to limit their capacity.

Perhaps the U.S. Congress will come to its senses and pass aid for renters just as it has done for businesses. I am doubtful about such prospects.

Climate and architecture

Someone once quipped that nowadays the purpose of architecture schools is to graduate tortured geniuses who design one-of-a-kind buildings which have no relationship to their surroundings. There is a lot to analyze in that observation, but I am going to focus on "no relationship to their surroundings."

Prior to the invention of air-conditioning, architects had to figure out ways to keep people cool and ventilated through design rather than through the action of refrigerants and compressors. I can remember walking into an upscale late 19th century home with an open tower just off the foyer, a foyer connected by large openings to the rest of the house. To stay cool, the residents would simply open the windows. The hot air would flow upward into the tower and rush out the open windows at the top, thus pulling air in through the ground floor windows. This created a constant internal breeze in the heat of the summer.

Other methods of beating the heat included:

1. Single-room-width homes which promoted cross-ventilation when owners opened windows on each side.
2. Wraparound porches which shield the interior from the sun and allow open windows even during rainstorms.
3. Tall ceilings that allow hot air to rise above the people in the room.
4. Sleeping porches for outside sleeping, sometimes screened in. (My boyhood home had one of these just off my parents' second-floor bedroom.)
5. Transom windows which allow circulation between rooms when the doors are closed (popular in apartment houses and hotels).

If you can't stand the heat...get off of the planet!

As I sit in 90-degree heat typical of Washington, D.C. in midsummer and a so-called "heat dome" hovers over much of the United States, I am reading the following:

At 11 or 12 degrees [Fahrenheit] of [global] warming, more than half the world’s population, as distributed today, would die of direct heat. Things almost certainly won’t get that hot this century, though models of unabated emissions do bring us that far eventually.

That implies one of two things: A lot of migration or a lot fewer people. This second thought is suggested in the observation above, but few people want to come out and say it: What we are doing to the climate, to the air, to the water and to the soil, and thus to ourselves, on our current trajectory implies a dramatic decline in human population as multiple crises converge and our ability to cope with them dwindles.

As it turns out, the number of 90-degree days in Washington's summers has been on a steady rise. And even though the record for the longest streak of days with temperatures reaching above 90 wasn't broken this time—only 20 days in a row instead of 21—those 90-degree days are coming sooner in the season, and there are more of them.

Cracks in the supply chain: Is metastable turning into unstable?

You who are reading this sentence are metastable systems. So, is the biosphere, and so is all of human society. A metastable system is one that remains stable so long as the inputs necessary to maintain its stability are available.

For humans this includes food (energy) and water. For the biosphere the key element is the energy input from the Sun. For human society, which is a subset of the biosphere, the Sun is also the key energy input. Much of the energy used by humans is stored in the form of wood, coal, natural gas and oil which all ultimately come from living organisms dependent on the Sun for energy.

Hydropower is also a product of the Sun which drives the water cycle on Earth and therefore allows hydroelectric dams to be filled. Wind and solar energy are, of course, products of the Sun as well. The energy harvested by humans gets expressed in manufacturing and transportation in machines. It gets expressed in human labor, but also in the thought, planning, and communications needed to make things happen.

What we are witnessing as a result of this pandemic is a widespread challenge to metastable systems upon which our societies depend. The most obvious are those related to hospitals and health care products. We often read in the news that hospitals are near "the breaking point" as if the hospital walls will burst when too many patients crowd into the building.

Taking a holiday break - no post this week

I'm taking a holiday break this week and expect to post again on Sunday, July 12.

Our conversation with a coronavirus

We have all been flummoxed by the way in which the coronavirus called COVID-19 has behaved as if it has agency in the world. We say it "moves," "adapts," "evades," and "tricks us." We attribute an intelligence to it. We marvel at its ability to manifest itself in so many ways. And everywhere we read COVID-19 is an enemy, an invader, and a killer, one that uses stealth to spread itself. We must defeat it, wipe it out, and eradicate it.

Many places on the internet we are implored to understand COVID-19 in order to stay safe—but only until such time as we vanquish this foe of humankind with a vaccine.

It occurs to very few people that we might be in a conversation with this coronavirus which is transmitting information to us by its actions and responding to our actions with its own reactions.

The financialization of the end of the world

For those who are fans of cartoons from The New Yorker magazine and consistent readers of this blog, you might be able to guess my two favorite cartoons. In the first one, a man in a coat and tie stands at a podium and tells his unseen audience the following: "And so, while the end-of-the-world scenario will be rife with unimaginable horrors, we believe that the pre-end period will be filled with unprecedented opportunities for profit."

In the second, a man in a tattered suit sits cross-legged near a campfire with three children listening to him intently as he says this: "Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders."

Now, in the you-can't-make-this-stuff-up category, financial writer Paul Farrell used the caption from the first cartoon in a 2015 piece for MarketWatch entitled: "Your No. 1 end-of-the-world investing strategy." The subheading is: "How to pick stocks for the near term when long-term trends say collapse is near." The subhead actually seems like it might be another caption from a New Yorker cartoon (or possibly one from The Onion). Why exactly would you invest in stocks—as opposed to seeds of food crops and sturdy garden implements—"when long-term trends say collapse is near"? But I'll put that down to bad headline writing.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, June 21.

Insanity? Markets continue disconnect from economy and society

It's hard to ignore the protests on the streets of the world's cities of late. Those protests are coming from a populace who knows that the system they live under long ago stopped benefiting them. While the focus has been the senseless killing by police of an African-American man—all of which was caught on video—there are many other grievances: legalized financial theft by the one percent from the rest of us comes to mind, something that has resulted in growing and egregious inequality across the world.

It's also hard to overestimate the hardship visited on the world's people as many have been deprived of income and daily life by up to three months of pandemic-inspired stay-at-home orders and retail shutdowns. As I mentioned in my previous piece, the U.S. Federal Reserve Bank of Atlanta does a frequently updated estimate of U.S. GDP which as of this writing is minus 53.8 percent for the second quarter. (That's annualized and seasonally adjusted.) The estimate for the current quarter started at minus 12.1 percent and has been dropping like a stone with each new piece of information. For comparison, U.S. GDP during the 2008-2009 financial crises shrank by only 4.2 percent.

And yet, the world's stock markets are behaving as if the protests and the deprivation are inconsequential. After crashing in March in the wake of the spread of the coronavirus pandemic, major stock market indices are at or near all-time highs. For example, the S&P 500 Index was last around its Friday closing price on February 24, before the coronavirus pandemic market panic. How can this be explained?

Extraordinary popular delusions: Endless bull markets and mining on the moon

Charles Mackay was a 19th century Scottish poet, journalist and author who is best known these days for his book Extraordinary Popular Delusions and the Madness of Crowds. He leads off with three of the most famous financial bubbles in history: the Mississippi Scheme, the South-Sea Bubble and Tulipomania. He also writes of fortune-telling, witches and the Crusades.

Fortune-telling remains a mainstay among the financial elite and the lowliest retail investor on the planet alike. The U.S. Federal Reserve Bank has a sort of running fortune-telling tool called GDPNow that takes up-to-date indicators and plugs them into its formula for projecting the current direction of U.S. GDP. GDPNow is revised every few days as new values for its many components become available.

The latest reading as of May 29 is minus 51.2 percent. That's an annualized number that is seasonally adjusted. It's a number that suggests that economic activity may have fallen at least as much since January as it did in the first four years of the Great Depression (1929 to 1933). At the bottom of the depression in 1933 the U.S. economy had contracted by about 30 percent. Unemployment in the United States reached 25 percent. The Dow Jones Industrial average had lost almost 90 percent of its value.

A stealth peak in world oil production?

We who have been suggesting that a peak in world oil production was nigh almost from the beginning of this century looked like we might be right when oil prices reached their all-time high in 2008. But since then, we have taken it on the chin for more than a decade as the U.S. shale oil boom kept adding to world supplies—even as production in the rest of the world mostly stagnated or declined.

But then world oil production turned down—not when the recent coronavirus pandemic and associated economic shutdowns hit—but more than a year before while few people were noticing. Monthly fluctuations will make it difficult to pinpoint a peak until long after it occurs. But, let's note the difference between world output in November 2018 which was 84.5 million barrels per day (mbpd) versus December 2019 which was 83.2 mbpd when the world economy was supposedly still in high gear. (These numbers are for crude plus lease condensate which is the definition of oil on major oil exchanges.) Between these two dates monthly oil production was occasionally lower than December 2019, but never higher than November 2018.

Does this mean oil production has reached an all-time peak?

The world in straight lines: Why we are not ready for discontinuities

It is not unusual to hear someone make definitive statements about the distant future as if they were facts. How often have we heard something like the following: The world economy will double in size by 2050.

When people represent such "facts" in chart form, those facts become somehow more convincing. (You need to click on the charts below to see them clearly):

SOURCE: OECD

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, May 17.

Oil flows spell deep depression

Energy is not just one commodity among many in the economy; it is the commodity. Without energy, nothing gets done. And, oil is not just one form of energy in the energy commodity complex; it is the energy source upon which our modern way of life depends. In fact, it is the main energy source running through the arteries of the global economy.

Far from being a boon to the world, ultra-low oil prices signal that the global economy is flat on its back—even worse, flat on its back with two broken legs.

Petroleum geologist and consultant Art Berman recently detailed the problem in this piece. Berman is the man who accurately predicted—starting way back in 2008—the persistent losses that shale oil and gas would produce for the companies that extracted them. The shale industry continuously vilified Berman for his analysis over the next decade, even as the industry was in the process of blowing 80 percent of investors' capital as of last year. With the arrival of the coronavirus, the coup de grâce has just been delivered to a shale oil and gas industry that was already on its knees.

Perhaps the most important thing to understand about the current oil "glut" is that it is not merely the result of producing too much oil for an economy humming on all cylinders. It is primarily the product of a coronavirus-infested economy in which demand has dropped 20 percent in just a few weeks. As Berman points out, estimated U.S. oil consumption has returned to a level not seen since 1971.

Insuring against catastrophe: The coronavirus predicament

People insure themselves against many types of potential catastrophes: a house fire, a car accident, the untimely death of a spouse, a serious health problem. For other unexpected expenses, prudent people, as we say, save money "for a rainy day." For some reason people and governments have chosen not to insure themselves (individually or collectively) against two catastrophes that have been much in the news lately: pandemics and large investment losses.

There is a connection, of course, for the two are tightly coupled. Here are some of the similarities between the two:

1. Both occur at irregular and sometimes very long intervals.
2. Both require careful thought and regular financial outlays to hedge against.
3. Despite persistent warnings from experts, most people (and governments) did not act on such warnings.
4. Now that the worst has occurred, many investment advisors and governments say, "No one could have seen it coming"—even when such a statement can be proven immediately false with easily obtained video evidence!

Will we learn from our current experience?

The answer in some cases will certainly be no because the incentives in our system encourage those in high places to act imprudently. Executives of publicly traded companies have spent trillions of dollars buying back shares of their own companies in order to goose stock prices and make their stock options more valuable—without regard for the need for cash reserves to make it through a recession.

The coronavirus scoreboard: The illusion of understanding and control

Cable television news now frames its news anchors with constantly updated coronavirus statistics, usually the number of cases and the number of dead. There is a sense of urgency in those numbers as viewers watch them tick higher. But, by definition those numbers cannot move otherwise since they are totals of past events.

A more useful indicator would be current active cases. But, that would be hard to count since so many cases are mild or at least uncounted among those now ordered to stay home. And, there are not currently enough testing materials to do complete testing of the world's population. As it turns out, the number of people who have had the virus may be 50 to 80 times higher than what is currently being recorded. The best we can do for now is to track the number of new cases identified by tests not yet widely available in many areas and see if they decline.

More than anything public officials want to convey the impression of understanding what we face and having solutions to control the outbreak. What they have done successfully in some places through severe social distancing and stay-at-home orders is to reduce the velocity of the spread of the virus without any ability to reduce the number of people who will ultimately contract it. It is really only a matter of time before all those who remain susceptible will get infected unless they hide in total isolation away from humans for good or until an effective vaccine is available—which may be a long time and possibly never. See here and here.

The Saudi-Russian oil price war tag team: Are things what they seem?

To the casual observer Saudi Arabia and Russia, two of the top three producers of oil in the world, have been having a spat about what to do about low oil prices. (See here and here.) Each has accused the other of bad faith and counterproductive behavior. But is that merely what the two oil powers want you to believe?

We've been here before. Throughout most of 2016 Saudi Arabia and Russia put on a two-person show for the entire world, pretending time after time to move close to an agreement to lower production in order to prop up oil prices, only to back away or delay at the last minute. The two kept this up for most of 2016. They incited periodic spikes in the oil price without ever having to cut one barrel of production, spikes that kept prices higher for weeks until they drifted back down to levels that reflected reality.

But I believe the most important thing they were trying to achieve then was to create an atmosphere of continuing uncertainty. That uncertainty was supposed to scare investors and lenders away from U.S. shale oil producers who were still hurting from an oil price collapse that began at the end of 2014. Saudi Arabia and Russia wanted to prevent those producers from resurrecting U.S. production and undermining oil prices again. Simply stated, Saudi Arabia and Russia wanted the shale oil industry to go bust in a way that would prevent a recovery for many years.

Ben Bernanke: Contrary Indicator

On May 17, 2007 Ben Bernanke, then chairman of the U.S. Federal Reserve System, spoke at a conference sponsored by the bank's Chicago branch and told his audience the following:

[W]e believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.

Just 18 months later the world economy was on its knees due to the implosion of the subprime housing market, an implosion that ended up spilling over into practically every other part of the world financial system.

Bernanke's confident speech preceded the highs in the Dow Jones Industrial Average by only a few months and a few hundred points before the index plunged by more than 50 percent. Investment types would style Bernanke's speech as a contrary indicator—an event, utterance or market statistic that suggests excessive optimism or pessimism in a manner that indicates an imminent and major reversal in the prevailing market trend.

Overreacting to coronavirus? The perverse logic of panic during a potential pandemic

The best time to panic, that is, overreact to a potential pandemic is shortly after a novel pathogen has been detected. So say famed student of risk, Nassim Nicholas Taleb, author of The Black Swan, and his colleagues. Of course, at that point, by definition few people have the virus and therefore it does not seem like a threat to the whole community.

In hindsight it is perfectly obvious that the extraordinary efforts now being made by individuals and communities across the world to prevent the spread of COVID-19 should have been made in those areas where the virus was first discovered when it appeared. However, it is natural that authorities do not wish to be criticized for "crying wolf" and, if they are elected officials, beaten at the next election for unnecessarily interfering with the life of the community.

But it is precisely what would be called an "overreaction" that might have stopped COVID-19 in its tracks at the beginning. I've written previously about those whose jobs are to make sure that small problems never become large and that some problems never even appear. The piece was called "Asymmetrical accolades: Why preventing a crisis almost never makes you a hero."

Taking a short break - no post this week

So many half-formed thoughts about our current predicament are running around in my head that I'm taking a short break this week to sort them out. I expect to post again on Sunday, March 29.

Spectacularly wrong: Why Wall Street doesn't understand the corona virus

Investment professionals on Wall Street spend their days reading financial reports and looking at numbers flash on screens. These numbers record the moment-to-moment changes in the collective wisdom of markets about the value of stocks, bonds, commodities and a distressing array of derivative financial products.

From the comfort of the sealed caverns of Wall Street the actual physical and social world is just an abstraction to be quantified and analyzed. One of Wall Street's most prominent investment research and management firms released an analysis that says the corona virus won't be all that bad for the economy.

Analysts from Morningstar Inc.—which is actually headquartered in Chicago's cavernous downtown—say that this pandemic will be a "mild pandemic." I'm not sure how pandemics can be mild, but the analysts outline cases for "moderate" and "severe pandemics."

One of the things that gives these analysts such a sanguine view, particularly in the United States, is the country's advanced health care system which is "likely much more prepared for the taxing of our hospital system, as we appear to have a massive lead over other developed nations in the number of intensive care unit beds per citizen."

And yet, a first-hand report from a physician in those hospitals suggests that there will be very little room for severe corona virus cases in any hospital ICU. Those beds are already being used by patients and not just waiting empty. In all likelihood, hospitals will be quickly overwhelmed and forced to decide who gets critical live-saving treatment and who does not. The "who does not" number could be very large if the Italian experience is anything to go by.

Coronavirus reminds us we are organisms in an environment

A close friend of mine, a professor of English literature, has been researching American philosopher John Dewey, whose book Quest for Certainty captivated me so much many years ago that I read it again right after I had finished it the first time. My friend has been reminding me why I found Dewey so profound while shedding new light on the philosopher's thinking.

Dewey, it turns out, is one of the few thinkers in American life who absorbed the true import of the work of Charles Darwin. Dewey reminds us that, quite simply, Darwin posited that we humans are organisms in an environment just like every other organism. Dewey's star faded after World War II.  American and world society have since lapsed into a narrative that puts humans above and outside nature, protected by technological advancements that supposedly shield us from nature's demands and vicissitudes. The general narrative is that we are heading into a push-button, voice-activated technocratic paradise. (I think of the various Star Trek television series as popular cultural reflections of this view.)

But, the first pandemic in a century is forcefully and sadly reminding all of us that Darwin was right about our place in the natural world, more specifically, that we will never be outside of it.

Coronavirus financial collapse: "Central banks can’t come up with vaccines"

In a global society optimized for finance, it is easy to believe that finance holds the answer to all problems. In 2008 as shipping slowed to a crawl in the wake of the financial crash, sellers of the merchandise on board those ships became increasingly reticent about accepting letters of credit from wobbly banks as payment guarantees from buyers.

And, banks were increasingly hesitant to provide other forms of trade credit to buyers. The solution—as for so many other problems that year—was government financial guarantees for banks, depositors and various other financial institutions. That's because when the essence of the problem was financial, a financial response could work.

Today, it is the coronavirus which menaces the world economy—and the people who contract the virus, of course. Much of the Chinese economy—China has been the epicenter of the epidemic—has now been shut down in an effort to halt the spread of the infection which is believed to kill around 2 percent of those who get it. But as anyone reading headlines knows, coronavirus has now landed on every continent.

Taking a short break - no post this week

I'm taking a short break from posting this week. I expect to post again on Sunday, March 1.

The return of resource nationalism

It wasn't supposed to be this way. The fall of the Berlin Wall was to bring about one, integrated world market where goods and services freely traversed borders without the interference of meddling ideologues—where the agricultural, mineral and man-made treasures of one country would be available to anyone, anywhere who was willing to pay for them: oil, gold, diamonds, soybeans, palm oil, wheat, computers, software and myriad other products of the earth and of human endeavor.

It's not working out that way. Not every country completely bought into this idea of an almost frictionless international capitalist order overseen benignly by global organizations created by treaties adhered to by all the world's nations.

Among the most obvious is China. China has started to treat rare earth elements—which are critical to practically everything electronic these days—the way the Atreides family, a ruling family in the Frank Herbert's science fiction novel Dune, treats "melange," a substance that extends life and increases mental ability and only comes from one planet, one that the Atreides happen to control.

Note to EIA: Major shale operator sending cash elsewhere

John Hess, CEO of Hess Corporation, a large U.S.-based independent oil producer, recently told a Houston audience where he's putting the company's money these days: Offshore drilling.

That should strike those who know of Hess Corporation's heavy involvement in the Bakken shale play (in North Dakota) as a bit strange. Hess says the company will "use cash flow from the Bakken to invest in longer-term offshore investments."

Hess told his audience that "key U.S. shale fields are starting to plateau, calling shale 'important but not the next Saudi Arabia.'" Setting aside whether Hess is actually getting investable cash from the Bakken, the constant refrain from the U.S. oil industry has been precisely that shale plays ARE the next Saudi Arabia.

Code blue: Pandemics and hospital surge capacity in a just-in-time world

We may be about to see the sad fruits of so-called just-in-time (JIT) inventory systems applied to hospitals in the United States and elsewhere. Fourteen years ago I first wrote about the vulnerabilities of such systems across society including health care systems. (Other observers have more recently noted this problem in health care.) If the corona virus spreads rapidly around the world, those hospitals which have adopted such systems will be least able to cope.

Here's why:  JIT systems are designed to minimize inventories in order to free up cash for other useful and profitable purposes. If you no longer have to store large inventories, you don't need to build and maintain substantial rooms and storage areas for that purpose. And, the money actually invested in those inventories, whether for auto parts or for medical supplies, can be deployed elsewhere to make a profit. With JIT, supplies arrive at your door as you need them. The "storage room," if it can be called that, is a delivery truck on its way to your loading dock.

The trouble is, a wave of corona virus victims showing up at hospitals could quickly exhaust lean inventories of medical supplies. And, the supplier providing those supplies may quickly run out as demand surges. After all, a smart supplier will be practicing JIT as well.

Owning your own information: How about a Constitutional Amendment?

Celebrities can sue you if you use their likeness or name for promotional purposes without permission, and normally, you must pay a fee to do so. And, you don't get to use that likeness or name again unless you pay again.

So, why shouldn't the law require companies and governments to get your permission to use your likeness—now called "facial recognition"—when they wish to exploit your identity for profit and/or surveillance purposes? In fact, why not require the government to demonstrate probable cause in front of a judge as to why it needs to gather biometric and other data on you and store it?

One hundred fifty-five years ago the United States abolished the right of one human to own another. The principle is that we own ourselves and no one should be able to take that ownership away. So, I'm asking this: If we own ourselves, does that not imply owning the information we need to maintain that ownership, in other words, to be a free person?

This is no idle question in the age of surveillance capitalism. Everywhere the key to controlling others has become controlling information related to them, and that information now includes your movements, your purchases, your habits (at work and at home), your current whereabouts, and anything and everything you put on the internet about yourself. In addition, anything you choose to monitor using "smart" technology will have the providers of such technology looking over your shoulder as you do.

Taking a short break - no post this week

I'm taking a short break from posting this week. I expect to post again on Sunday, January 26.

'Soylent yellow': Is artificial protein really a solution to food production?

The 1973 dystopian science fiction film "Soylent Green" is set in the year 2022, just one year after a nonfictional Finnish company hopes to begin selling an artificially produced yellow protein-laden flour created by bacteria that the company says will revolutionize food production.

The flour is derived from vats of yellow bacteria whose fermentation process create a yellow protein that when dried looks like flour. That yellow flour contains 50 percent protein, 20 to 25 percent carbohydrates and 5 to 10 percent fat. This basic foodstuff can then presumably be turned into products such as meat substitutes, bread products and filler in myriad foods needing a protein boost.

The entire process takes place indoors and the company claims that it dramatically reduces the amount of water, land and other resources needed to grow or raise the equivalent amount of protein using modern farming techniques.

Iran, energy and war

The American obsession with Iran is about oil and natural gas. If these two resources had been absent, it is hard to imagine such an intense American focus on the country from the time of a U.S. Central Intelligence Agency-backed coup of Iran's elected government in 1953 to today. The Foreign Policy magazine piece linked above is based on declassified CIA documents and summarizes the coup this way: "Known as Operation Ajax, the CIA plot was ultimately about oil."

This should come as no surprise. Iran was an oil power back in 1953 and it remains one today. Iran is presumed to have the third largest oil reserves in the world and the second largest natural gas reserves. Even if the numbers cited are somewhat inflated, Iran's reserves are not small, and the country is likely to play a large role in world energy markets for many years to come.

The recent escalation of tensions between the United States and Iran because of the U.S. assassination of a prominent, popular and by all accounts highly effective Iranian general will allow the advocates of war to trot out all manner of excuses for such a war: terrorism, regime change, the credibility of the United States, Iran's nonexistent nuclear weapons, and the United States' geostrategic posture vis-à-vis big power rivals such as Russia and China. (Does anyone really know what the last one means?)