Summary: Here we explore an important root cause of the rising stress on the US political regime, which combines with other similar problems to create a situation exploitable by extreme political movements — of the sort we associate with lesser nations, not America. Unless we wake up and act, we might find America has become one of them.
Why so much dissatisfaction today, so that both Democratic and Republican parties have rebellions (challenges to the parties’ power structure)? Polls show a pervasive loss of public confidence in America’s institutions (except, disturbingly, the policy and military), which contributes to the stress on the regime.
Also significant is the slowing rate of economic growth (a similar dynamic contributed to the rise of populism and progressivism during 1873-1932). To learn about this see the interactive graphs at the Regional Economic Analysis Project (REAP). Perhaps the most important metric for people is the annual growth of real per capita personal income during the Boomer’s years. Note that our memories do not well match the facts of the past.
- 1960-69: 3.5% — The golden years,
- 1970-79: 2.3% — The terrible 1970s,
- 1980-98: 2.2% — The Reagan Revolution (tax cuts!),
- 1990-99: 2.0% — The tech boom,
- 2000-09: 1.2% — The Bush Jr. years (tax cuts!),
- 2010-14: 1.4% — First half of the Obama years (partial reverse of Bush Jr. tax cuts).
The sad reality is slowing growth, decade after decade. We have tried various nostrums; none have worked. Worse, these are mean growth rates. Median growth would be lower (less affected by rising inequality) and better reflect results for average Americans
The distribution of this growth was, as always, uneven — but regional distribution is surprising. The economic stars by this metric were (in decreasing order) North Dakota, Mississippi, Arkansas, South Dakota, South Carolina, Virginia, Vermont, Tennessee, New Hampshire, North Carolina, and Louisiana. There is no obvious pattern. For example, South Dakota’s fortunes varied with North Dakota’s, strong in five of these six decades (not the 1980s) — despite it having little oil production.
Washington DC was #21. New York was #34. California was #47.
The Bad News
Look at growth during 2010-2014. The few economic stars in America: North Dakota, Wyoming, Oklahoma, and Texas. Nebraska was in the next tier (?). The other states varied from slow to slower growth.
The common element among the stars: petroleum. With spot WTI oil at aprox. $30 and natural gas at $2.20, these booms are dead. They’ll be joining the other states in stagnation-vile.
The worse news
After 1970 most of this slowing income growth went to the top 10%. Most of that went to the top 1%. Most of that went to the top 0.1%.
Slowing economic growth and rising income inequality are distinct phenomena, with different causes. For most Americans they are the hammer and anvil we live between. Combined with falling legitimacy of the US political regime, it creates a problem while diminishing the government’s ability to cope with it. This creates a situation exploitable by extreme political movements.
Especially since neither of the major political parties has much interest in any of these three problems (i.e., their remedies are not remotely proportional to the size of these problems). Interesting times lie ahead of America. Unless we get involved, re-taking the reins, they might be sad interesting times.
For More Information
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A book review of Between Debt and the Devil: Money, Credit, and Fixing Global Finance by Adair Turner.
One of Financial Times (FT.com) Best Economics Books of 2015, chosen by Martin Wolf. One of The Independent’s Best Economics Books 2015. One of Bloomberg Businessweek’s Best Books of 2015, chosen by Vítor Constâncio.
It is relevant to the economic stagnation issue though decidedly heterodox in its approach. Wish there were more books like this.
Peter,
Sounds like an excellent defense of conventional economic thinking, a rebuttal to the faux economics of the Right.
The real political breakthrough ( that’s not likely to happen) will be the acknowledgment that growth forever is impossible, we’ll stop focussing on GDP growth as the metric that matters, and figure out the path toward a stable, no growth economy. The loss of legitimacy of the elites is simply that they are not able to keep the growth going, and the pain is not evenly shared. Unfortunately, the “dissatisfieds”) don’t want another economic model either.
A no growth economy is coming regardless, it would just be nice if it was intentional and in a way of our choosing. Wealth inequality is another ( though related) dilemma, that I imagine we will be challenged with as long as their are human societies.
Steve,
“will be the acknowledgment that growth forever is impossible, we’ll stop focussing on GDP growth as the metric that matters, and figure out the path toward a stable, no growth economy”
That seems extraordinarily unlikely, especially since a new industrial revolution has begun. But it is a commonplace opinion, heard repeatedly during the past two hundreds years.
Yeah, commonplace like the start of the fourth industrial revolution that has been heralded through the years.
http://www.slate.com/articles/technology/future_tense/2016/01/the_world_economic_forum_is_wrong_this_isn_t_the_fourth_industrial_revolution.html
What I implied but did not state in my second paragraph is that GDP and energy use are deeply linked, and as the fossil era winds down, so will GDP. It won’t matter how many nano/bio/connected/big data/AI creations are developed, they all ride on a foundation of energy use.
Steve,
“GDP and energy use are deeply linked, and as the fossil era winds down, so will GDP”
First, there is no evidence as yet the fossil fuel era is winding down. Oil is $30/b. Natural gas is under $3. Coal is so cheap that companies are going broke.
Second, there are many promising replacements for fossil fuels under development. Next-gen nuclear, solar and wind (plus tech to broaden its use — such as electric cars), and multiple lines of fusion. By the time that fossil fuels become scarce — signaled by their price rise to economically destabilizing levels — we will have alternatives.
The Slate article is silly. It’s a good biz running contrarian articles, but leads them to sometimes print nonsense. Don’t confuse Slate with the NY Times or the MIT Technology Review. That you believe a Slate article more than counterbalances the wide range of experts pointing to a new industrial revolution … well, OK.
“Coal is so cheap that companies are going broke.” is the same for copper, steel, oil, nuclear industry and so on, all around commodity sectors.
Replacement: next-gen nuclear is 5 to 20 years away, fusion 34-100 https://www.euro-fusion.org/eurofusion/the-road-to-fusion-electricity/ (100 years is quoted from Thomas Kingler of Weldenstein 7-X program, on december 2015,).
Electric cars? you are kidding?
“By the time that fossil fuels become scarce — signaled by their price rise to economically destabilizing levels”
2004 to now? with economic experts missing the point of a stagnation due to resources constraint covert with debt, that lead to a apparent overproduction as in the 1929?
“This naturally reduced the demand for goods of all kinds, bringing about what appeared to be overproduction, but what in reality was underconsumption measured in terms of the real world and not the money world. This naturally brought about a falling in prices and unemployment. Unemployment further decreased the consumption of goods, which further increased unemployment, thus bringing about a continuing decline in prices. Earnings began to disappear, requiring economies of all kinds – decreases in wages, salaries, and time of those employed.” http://londonbanker.blogspot.nl/2011/09/testimony-of-marriner-eccles-to.html
i’m not on the doom side, but the fourth industrial revolution is hope to date, not facts.
Paolo,
I do not understand what you are saying. None of your points match the actual facts.
“is the same for copper, steel, oil, nuclear industry and so on, all around commodity sectors. ”
Two dozen US coal companies have gone bankrupt in this coal depression, including majors James River Coal, Patriot Coal Corporation, and (in January) Arch Coal. Please list the comparable bankruptcies in those other fields!
“Electric cars? you are kidding?”
No. There are already electric cars on the road. Their numbers will increase as the industry slides down the price-performance curve.
“Replacement: next-gen nuclear is 5 to 20 years away, fusion 34-100”
The history of such predictions suggests they are worse than unreliable. Neither field is well-funded, but many experts disagree with your sources. For example, As of 2014, Tri Alpha Energy has private investors putting real money on the table — a more reliable indicator of probably success than someone guessing in Euro-Fusion Magazine. From Wikipedia (follow the footnotes to their sources):
“about a falling in prices and unemployment.”
There is zero evidence that current conditions — either in the US or world — are like those of 1929, with “underconsumption causing falling prices”.
“First, there is no evidence as yet the fossil fuel era is winding down. Oil is $30/b. Natural gas is under $3. Coal is so cheap that companies are going broke.”
Quite incorrect. There are plenty of signs that we are passing through peak fossil fuel. Maybe it is the time scale that is throwing you. The above current commodity prices are mostly an artifact of the demand destruction that has recently occurred, as well as the market price feedback loops with timing that coincided with each other. ( high prices brought on new supply, but oil at that price caused demand destruction, but the new production couldn’t taper quickly enough to avoid a glut) Then we have geopolitical games going on as well.
Regardless, GDP is slowing mostly because of the slowly lowering EROEI of fossil fuels, with the resulting reduced amount of energy available for other sectors of the economy. I understand where you are coming from, I just think your optimism is not based on likely outcomes. We will have to agree to disagree on this, but you might want to read up a bit on emergy and the embodied energy residing in all these savior technologies you are counting on.
Steve,
I would be interesting to see some supporting analysis from professionals — not the make-believe from peak oil enthusiasts.
I have followed this professionally since 2003. Almost every single thing you say is quite false. Very false. However, the hundreds of comments to my 72 posts about Peak Oil (including correctly predicting that petroleum production had not peaked in 2005-08) have taught me that these discussions with believers are futile.
A few references for you. You may need to read a bit, but they support my position on declining EROEI of fossil fuels over time.
Note especially sections 4 and 7.
http://www.sciencedirect.com/science/article/pii/S0301421513003856
another
http://www.mdpi.com/2071-1050/3/10/1866/htm
another
http://rsta.royalsocietypublishing.org/content/372/2006/20130126.short
Steve,
Yes, EROI has been declining. If not replaced by alternative sources, that will become a problem. That’s all those say. Let’s replay what you said:
None of those provide the slightest support for your statement. There is a large literature on the causes of slowing growth in the US — perhaps trending to secular stagnation. Research points to demographics and slowing rate of tech evolution. None of the major reports I’ve seen mention falling EROI as a significant factor.
“Maybe it is the time scale that is throwing you.”
It appears that applies to you, not me. You confuse description of future effects with actual past effects.
I’m a bit surprised that you don’t acknowledge a link between net energy use and GDP.
In my prior comment, I was only backing up my statement that EROEI is declining. This link shows one study that explains the causal connection between declining EROEI and GDP.
http://www.mdpi.com/1996-1073/7/10/6558/htm
I agree that the causes for stagnation and economic activity are complex, and demographics, tech plateauing are part of the puzzle. There are lots of feedback loops with hard to discern direction. However, I think that the large amount of literature explaining things in economic terms is because economists think it is an economic problem. I would argue it is more in the realm of the physical sciences. Thermodynamics and systems analysis do give explanations, but the answers they give don’t bode well for future standard of living. Thus the political system ignores them.
Steve,
You are completely mis-representing what both I and those studies say. As for the latest study you post..
“This suggests that the availability and cost of energy is a significant determinant of economic performance.”
Does anyone disagree?
“The best-fitting linear equation relating the percent of GDP (energy cost share) and year-over-year (YoY) GDP change variables suggests that a threshold exists in the vicinity of 4%; if the percent of GDP…”
There are scores of factors that go into this equation, such as the industrial structure of the economy and strength of cartels. It’s an absurdly thin basis on which to draw conclusions.
As for the rest, you of course can have your theories. I will stick to those of people who have actual expertise in these matters.