US$12 trillion of opportunities

Posted on 27 June, 2020 by alloporus

A large number attracts attention.

Only this number, 16 thousand billion, is so large as to be beyond comprehension

16,000,000,000,000,000

Put a dollar sign in front of it and you get the United States national debt.

As of December 31, 2018, debt held by the public was $16.1 trillion and intragovernmental holdings were $5.87 trillion, for a total of $21.97 trillion.

Don’t you just love credit?

The ‘buy now pay later’ attitude that generates a number so large that there is no end to it other than for the invention of another economic system so it can be written off under a giant bankruptcy proceeding, is classic ostrich behaviour.

Here is the history of that debt as a proportion of GDP noting of course that during this timeline GDP has grown to over 40x its 1960 value.

100% of GDP in 2019 was 40 times bigger in dollars than 100% of GDP in 1960.

Source: https://images.app.goo.gl/itFbk1Aqe4sSvJi36

And another slightly different presentation of the same data that shows this absolute dollar increase more clearly, the debt adjusted for inflation divided by the number of housholds

Source: https://www.darrinqualman.com/us-national-debt-per-family-1816-2016/

Just for comparison the national entry-level average house price in the US for the last quarter of 2019 was $200,000 meaning a huge chunk of US households were up to their eyeballs in their own debt as well as copping an equivalent amount borrowed by Uncle Sam.

The pattern of when debt increased and fell is interesting too.

After both world wars debt was paid down, rapidly in the case of WWII on the back of a newly minted industrial base. Reagan and Bush spent a few dollars that Clinton tried to pay down only for Bush Jr and his successors to take on a couple more expensive wars.

Obama spent big and, not to be outdone, so has Trump.

Alright, so without getting all political about it, the curve is going up… exponentially.

Here is a neat explanation from Investopedia of how the US government pays for spending more money than it earns from taxes

To operate in this manner of spending more than it earns, the U.S. Treasury Department has to issue Treasury bills, notes, and bonds. These Treasury products finance the deficit by borrowing from the investors—both domestic and foreign. These Treasury securities also sell to corporations, financial institutions, and other governments around the world.

By issuing these types of securities, the federal government can acquire the cash that it needs to provide governmental services. The national debt is simply the net accumulation of the federal government’s annual budget deficits. It is the total amount of money that the U.S. federal government owes to its creditors.

So in simple terms, the government borrowed the money.

It is said that really this is printing money and that would be the case if in the future the government foreclosed. It reneged on its obligation to pay bond interests and the house of cards fell over. But for now, it is claimed to be a debt system and not a printing system where there is some notion of future returns and recovery of the principle.

The investors do not seem to mind.

They buy and trade government bonds making a clip in the process so they have no qualms about how big the debt is or the risk of default. They will be on their yachts when it all goes belly up.

And so the debt number that just gets bigger each day is owed to creditors.

Governments who are in control of the central bank could just print the money instead of borrowing it, but history tells everyone that this risks a crazy level of inflation that can cripple economies. Ask the Zimbabweans about that one.

Hyperinflation

Hyperinflation has two main causes

an increase in the money supply
demand-pull inflation

When a government has a spending bill and decides to print money it increases the money on the economy. When there is more money around people have it to spend and goods and services can raise prices without losing custom generating regular inflation. A little of this is seen as a good thing because most people feel like they are growing financially.

Demand-pull inflation is when demand for goods and services outstrips supply so scarcity pushes prices higher. This can happen as a result of increased consumer spending due to a growing economy, a sudden rise in exports, or more government spending.

If inflation gets going through an increase in the money supply but the government continues to print money it generates more of cause one and prices can rise very rapidly. When consumers start to realise that continued inflation is likely they buy more now to avoid paying a higher price later. This increase in demand further aggravates the inflation through cause two.

A nasty spiral results.

Is national debt a bad thing?

Well, I am a ‘money in the bank’ kind of guy.

I struggle to have credit card debt without freaking out so much that I burry the bills in the cupboard.

Economists are not such wimps; it’s other people’s money after all. Only they don’t seem to agree on the issue of debt.

They do agree that governments that run fiscal deficits have to make up the difference by borrowing money. This they know eats up a fair chunk of capital investment in private markets. They also agree that debt securities issued by governments to service their debts affect interest rates, although this can, until recently be manipulated to some extent through monetary policy tools.

After this, it gets a bit ‘cake and eat it’

The Keynesians believe that it can be beneficial to run a current account deficit

in order to boost aggregate demand in the economy.

However, the neo-Keynesians tend to support government deficit spending only after the monetary policy has proven ineffective and nominal interest rates have hit zero.

On the other hand macroeconomists from the Chicago and Austrian school argue that

government deficits and debt hurt private investment, manipulate interest rates and the capital structure, suppress exports, and unfairly harm future generations either through higher taxes or inflation.

Some economists on the fringes are still ok with central banks printing fiat money, despite the historical evidence for inflation.

The fear of inflation appears to keep policymakers from monetizing debt entirely. Instead, overspending governments either have to continue to borrow, sell assets, raise taxes, renegotiate terms, or default to resolve debt issues.

As the federal debt number in the US reaches the outer reaches of our solar system there has to be a limit to what can be fiddled to soak it up with selling down and borrowing. The most likely end result is to default.

Oh, terribly sorry, but we can’t make those repayments.

So is all this debt good or bad?

Inject money into an economy and it will prosper so long as that money of made from something. Print it and it sends values into a spin.

Currently, the world is compromised in the middle, through the third option. Spend but pay for it with debt. Under the current rules, sooner or later that debt is either paid back or not.

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How much more meat are we eating?

Posted on 21 June, 2020 by alloporus

I was born in 1961.

That means I am moving ever closer to retirement and I can’t wait.

It also means that I’ve been around long enough for a fair few things to have happened to the world in my lifetime.

Here is one.

Back in 1961, the average adult consumed 2,194 calories per day and around 6% of this intake came from meat. Fifty years later caloric intake has risen to 2,870 per day and 9% comes from meat.

In less than a lifetime, the average global Joe had gone from eating 93 grams of meat per day to 173 grams per day. Nearly double by weight.

Ok, so we eat more burgers and chicken drumettes than we did back in the day. We also eat more than we did back then. So we are better fed overall. It goes along with the falling rates of famine and fewer people going to sleep hungry.

All good.

Back in 1961, global demand of 93 grams per day per person required the supply of roughly 285,510 metric tonnes of meat per day, a hefty 104.2 million tonnes per year given there were 3.07 billion people around at the time.

In 2011 global demand was from 7.04 billion people chomping on 173 grams per day — that’s more than double the number of people eating nearly double the meat quota.

Multiply these numbers and you get 445 million tonnes per year of meat demand.

All good too for the meat producers, supply chain jockeys, retailers and consumers. More product, more revenue. Supply meeting demand is what makes the wheels of commerce turn.

And yes, of course, not everyone is lucky enough to secure the 173 g per day. There are still a billion or more who go to bed hungry and another billion or so who only eat meat occasionally so the straight multiplication is an overestimate — production was around 320 million tonnes in 2013.

The exact numbers on these volumes are not the issue. The point is that the rangelands, pastures and feedlots of the world now produce more than four times the quantity of meat that they did fifty years ago.

This is a huge change in a very short time.

In absolute volume terms, the supply that took care of the demand for the whole of 1961 only kept us going to the end of April in 2013. Supply for the other eight months of the year was not produced.

Again, it is not the absolute amounts but the proportional change that matters.

What about HANPP?

Come again?

HANPP is the acronym for ‘human appropriation of net primary production’ an indicator of the amount of land used by humans and the intensity of that land use, specifically HANPP measures…

to what extent land conversion and biomass harvest alter the availability of trophic (biomass) energy in ecosystems.

It has grown from 6 to 16 Gt carbon per year in a century.

Global HANPP throughout the last century. (A) Development of global HANPP by major land use type and human induced fires from 1910 to 2005. (B) Sensitivity of global HANPP trends to data uncertainty and different model assumptions. The standard estimate of HANPP (black line) is compared with a low and a high estimate and to an estimate excluding changes in NPPpot due to CO2 fertilization (constant NPPpot of 1990). HANPP is measured in GtC/y (1 Gt = 1 Pg = 1015 g or 109 t). See SI Appendix for details. (C) Biomass harvest (HANPPharv) and final consumption of biomass products (plant and animal based food, food, timber, fuel wood, and other industrial biomass use; tC/cap per y) grew largely in parallel with population. (D) HANPP intensity measured as HANPP per capita (tC/cap per y), HANPP per unit of GDP (kgC/1990 constant international dollars $ per y) and total HANPP per unit of biomass harvest (HANPPharv) (gC/gC) declined, indicating increasing land use efficiency.

Source: Krausmann, F., Erb, K. H., Gingrich, S., Haberl, H., Bondeau, A., Gaube, V., … & Searchinger, T. D. (2013). Global human appropriation of net primary production doubled in the 20th century. Proceedings of the national academy of sciences, 110(25), 10324-10329.

These numbers show that humans have appropriated NPP primarily through the expansion of cropland and grassland, and that the rate of appropriation parallels population growth.

NPP Net primary production

Net primary production (NPP) is

the amount of carbon and energy that enters ecosystems. It provides the energy that drives all biotic processes, including the trophic webs that sustain animal populations and the activity of decomposer organisms that recycle the nutrients required to support primary production.

Gross primary production (GPP) is the amount of chemical energy, typically expressed as carbon biomass, that primary producers create in a given length of time. A proportion of this fixed energy is used by primary producers for cellular respiration and maintenance of existing tissues, what is left of the fixed energy is NPP.

NPP = GPP – respiration [by plants]

This means that NPP is the rate at which all the autotrophs (mostly plants) in an ecosystem produce net useful chemical energy that is available for consumption by herbivores.

Both gross and net primary production are typically expressed in units of mass per unit area per unit time interval.

For example, mass of carbon per unit area per year (g C m−2 yr−1) is most often used as the unit of measurement in terrestrial ecosystems. There is a distinction between “production” the quantity of material produced (g C m−2) and “productivity” the rate at which material is produced (g C m−2 yr−1).

There is some projected levelling off of HANPP in the future but not before further substantial increases

Global HANPPharv rises to between 8.5 and 10.1 Pg C/yr in 2050 in the four scenarios, 14−35% above its value in 2010, and some 50% of HANPPharv is calculated to be crop residues, wood residues, and food losses in the future. HANPPharv in developing regions (Asia, Africa, and Latin America) increases faster than that in more-developed regions (North America and Europe), due to urbanization, population growth, and increasing income
Zhou, C., Elshkaki, A., & Graedel, T. E. (2018). Global human appropriation of net primary production and associated resource decoupling: 2010–2050. Environmental science & technology, 52(3), 1208-1215

Note also that appropriation does not mean use. It means that waste and residues account for 50% of the appropriation making a huge efficiency opportunity a prospect.

Under the current systems of production and the rate of increase in demand, humans look like maxing out HANPP within a few generations hence.

Now we will not do this of course. There will be constraints, such as the need for reserves, land-use choices and inevitable fluctuations in NPP from soil nutrient mining and changes to climate. There will also be innovation and intensification so that food production will somewhat decouple from NPP, perhaps it will completely and this post is just fear-mongering.

But I don’t think so, at least not before some substantive changes to the global capacity for NPP have occurred.

The reason is that we always pick the low hanging fruit. All organisms do. We have an inbuilt requirement to take the easiest route to resources. Just like the lioness who walks down the roads through the reserve to avoid getting her paws wet, humans always walk the path to the easiest money. So we’ll mine the soil, grow food through the simplest methods and externalise as much cost as we possibly can. And because this is innate it takes a lot to overcome.

As it has since 1961, this slows the transition to smarter use.

Just a reminder.

We are eating 4x more meat than we did in 1961.

The average person eats 80 grams per day more and, given there are close to 4 billion more people, the tonnage is now over 350 million t per annum.

I know, I know, I crap on about this sort of thing all the time. It’s just that I don’t hear anyone else talking about these numbers in this way. This simple math with profound implications

The implications of food consumption

We can do very little about global demand. People have to eat and the more resources they have the more they want to eat well. This means nutrient-dense food, especially meat.

Will we all starve? No.

Will we all become vegans? No.

Are we increasing the risk of catastrophe? Yes, all the time.

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Make America great again

Posted on 14 June, 2020 by alloporus

Make America great again.

I had a problem with this political slogan from the beginning.

The assumption, of course, is that America was at one time great. In the minds of its citizens perhaps, but, in reality, when America dominated the world it was a bully with extraordinary economic power thanks mainly to the industrial makeover after WW II.

The problem, even if you concede that industrial and economic might is indeed a great thing, is that in order to make America great again, the orange man has turned to an isolation approach based on an ‘us and them’ kindergarten psychology where the ‘them’ are bad and ‘we’ are good. It is innately racist.

Chasing the slogan has worked, at least for his support base. He spent government money, no matter that there was none to spend and a $26 trillion debt on the books, and for a time pumped a certain amount of confidence in the economy. Things were indeed moving towards his definition of great.

Only now a threat has arrived that he can’t control, a pandemic, where being economically great simply doesn’t work to protect anyone against its consequences — just ask Boris how he felt in the ICU.

It might be smart to reconsider the concept of being great under such circumstances. The global world of lockdown has given us any number of creative definitions from the humorous to the smart.

The US is in an election year and obviously Trump is moving to make sure he is reelected. I say obviously because we didn’t think he would make it to the office or survive five minutes, so we perhaps shouldn’t assume he would automatically want another four years of being the biggest cheese… only joking. Of course, he wants it.

Re-election in a pandemic would be a challenge for anyone. The US economy has tanked, unemployment is through the roof, and many people have no idea when or if there will be a return to normal.

In the meantime, under the encouragement of the president, people are taking their guns and demanding that state governors lift the lockdown measures. At over a million cases and counting that seems reckless at best.

Professor Robert Reich, a former US Secretary of Labour and Professor of public policy at the University of California at Berkeley has recently come up with what he believes is Donald Trump’s four-step plan for reelection

Step 1 is to remove income support so people have no choice but to return to work

Step 2 hide the facts

Step 3 pretend it’s about freedom

Step 4 shield business’ against lawsuits for spreading the infection

This, of course, is a Democrat talking about a Republican president but the points he makes in those four steps are troubling.

Removing income support at a time when people are worried about their employment status is cruel in the extreme.

We know that the Trump administration hides the facts as a matter of course and when facts appear that they don’t like, they play them as fake news.

The problem with COVID is that the facts deal with death.

When Trump first put his hand up to become president, pretty much everyone laughed. I for one failed to realise how far the denial of facts and the lambasting of the media as fake could take you all the way to the White House. No surprise then that this tactic of hiding the facts will apply in the case of the virus.

Pretending it’s about freedom so that gun-toting individuals can rock up at government offices to demand their rights and for that behaviour to be seen as ok is crazy. As Robert Reich points out, making this about freedom is absurd. Freedom is meaningless for people who have no choice but to accept a job that risks that health.

And the fourth step to get business back on track and the economy in the direction that will get me reelected, is to protect them from lawsuits that might occur if they remain open and their staff contract the virus

I don’t know if it’s possible to imagine how any of this is great.

There have been millions of words written about the craziness of this situation that the US finds itself in with leadership that really has no concern for the people or just a small proportion of those people who are there to support the ego of an individual.

I suspect that we’re actually witnessing the ongoing decline of a once-powerful nation. The British Empire has gone and the American one looks like it will follow suit. This will take time because you can’t just turn off the influence of 350 million people and the world’s largest economy but the passions and the motivations that got them into that position of greatness have been corrupted beyond recognition.

America will not be great again at least not on this path.

Now there is another disruption. The next chapter in a terrible saga of racism that has blighted the so-called greatness for the countries entire history. There is hope this time around, there always is when the righteousness in people is roused by tragedy.

Perhaps this offers an alternative path.

The grass is always greener problem

Posted on 7 June, 2020 by alloporus

If I tell you that the grass is greener over there you will laugh at me. That’s just the old wives having a go. The grass is just as green as it wants to be. You’ll rightly say that I’m just jealous.

However, if I keep saying it, a sliver of doubt will creep in.

Could this guy be right?

I did see his neighbour with a bag of fertilizer the other day. Maybe he does have a greener lawn. It certainly looks greener. Maybe it is.

This doubt can grow if my claim of extra verdancy is delivered with passion and commitment… and often.

Everyone knows the adage though.

It is easy to think that others have it better than us but this is rarely, if ever, the case. The grass is not greener at all. And anyway, who cares? It is irrelevant if my neighbour has splashed out on fertilizer. It is his lawn, not mine.

I need to look down to my own grass and not over the fence.

In other words, I might find out that the grass is indeed greener but there is nothing I can do about it, it’s not my grass.

Let’s take this notion a little further.

Here is a section from a lengthy paper on the necessary and complex dialogue on climate change and sustainable development…

By excluding any obviously, social or political matters, the scientific
reductionism of climate change makes consensus possible, but the result
is, in some sense, irrelevant. The things that can be known with scientific certainty are not necessarily the most important to know. So, for example, the science of climate change can agree about the physical sources of carbon emissions, but only by refusing to consider the far more important and deeply political question of why they are increasing and how (or if) they should be curtailed.
Cohen, S., Demeritt, D., Robinson, J., & Rothman, D. (1998). Climate change and sustainable development: towards dialogue. Global Environmental Change, 8(4), 341-371.
Emphasis added by Alloporus

Alright, this is interesting.

It says that the evidence — and the level of inference in that evidence (what can reliably be said given the numbers) given the degree of reductionism (amount of inference) — should be enough to convince everyone that climate change is both real and the current warming event a result of human activities. The numbers are unequivocal.

We know where the emissions came from and we know what levels they are at in the atmosphere and we know what this does to the back radiation of energy from the sun.

The problem is that this is not what matters.

The real questions for climate changes are

why are the sources of greenhouse gas emissions increasing?
should we try to curtail the warming trend through greenhouse gas emission reduction and carbon sequestration?
is it even possible to curtail the worse of the climate changes given the scale at which humans can take action?

These are the psychological consequences of the emergence of a problem. It triggers strong emotional responses. The real questions are not about the truth of the matter but what we feel needs to be done if we accept the truth.

I might know intellectually that ‘the grass is greener over there’ adage can’t help me sort out my own grass, however, it does not stop me being jealous.

Here is another example…

Agricultural production

Take a look at this image of some paddocks in central NSW, Australia

This is sheep country and has been pretty soon after the Europeans arrived in 1788. This land has seen generation after generation sheep and the graziers that manage them.

The area in the image is around 400 ha (1,000 acres)

In the image, you can see the water source in the northeast with its bare perimeter reminiscent of water holes in game parks and the rectangle in the centre of the image is a holding pen. This is grazing on native vegetation but there is little grass among the patchy and occasionally dense trees and shrubs. Stocking rates are low and much of the land would be classified as degraded.

The land is tired after such a long period of production on what were initially old and nutrient-poor soils. The carbon content of the soil has declined and the production of grass become more and more volatile from year to year, season to season, in a hot, drought-prone region.

Given this, what happens if there is a run of poor years?

What does the grazier do?

Well, first of all, he will let any staff go for there is no money to pay salaries so any employees move on. Any slack in the operation he will take up himself. His long hours will just get longer — a poll by Agriland showed that 72% of farmers say they work more than a 60-hour week.

He might sell some of his herd or even loan them to other graziers with more grass and cut down as much as possible on any inputs he has from deworming to fence maintenance. His priority will be to keep what animals he has fed and watered enough for them to survive.

What he won’t do is give up.

His farm means more to him than a business. It is his home, livelihood and sense of place all in one. There is more to his bare paddocks than a place to grow some meat for the city folk, there is the opportunity that when it rains again there is serious money to be made, maybe a house on the coast or a holiday in Europe. The things that those city folk have begun to take for granted.

The farmer actually has no time to consider the greenness of his neighbour’s grass.

He is flat out trying to keep his animals alive… on his own.

This is important to know

The grazier can do well to tap into some of his real questions. He doesn’t need to know about the greenness of his neighbour’s pastures or the cause of climate change, we actually want him to ask

what are the sources of my declining productivity?
should I try to curtail these sources or change production altogether?
is it even possible to curtail the sources given the resources available to me right now and my needs for the next few years?

It is in his interests to focus on his own grass.

It is in our interests too and we should help however we can. We need every grazier to be producing as much food as possible without reducing the chance of producing food in the future not just to feed ourselves but to feed everyone.

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