Citizen Action Monitor

Americans and their leaders face ten daunting challenges in the next 4 years, says Dr. Nate Hagens

Biden faces challenge of navigating new existential challenges using failed economic and cultural tactics. —

No 2680 Posted by fw, November 9, 2020 —

To access links to other posts by Nate Hagens about The Human Predicament, click on the Tab titled Teachings of Dr. Nate Hagens about The Human Predicament – Links to Posts

“We are now in the liminal [threshold] space between our nation’s long history and future.  Facts and expertise matter less by the day. Emotions and tribal affiliations focus our attention on the ‘cars’ instead of looking at the road ahead of us. Later this week 50% of our population will be elated and the other 50% will be angry. And most of both camps will be variously: righteous, anxious and uncertain, and perhaps violent.  This, along with the various trivia of Democrat and Republican victories and defeats will be the hyper-focus of our media.  But below, in no particular order, is a look at some of the critical guideposts in the next 4 years along the winding road of our collective future that – as colleagues, citizens and neighbors in the United States of America, we’ll have to navigate with each other – no matter who wins the election.”Dr. Nate Hagens

Dr. Nate Hagens

Dr. Nate Hagens is a well-known speaker on the big picture issues facing human society and currently teaches a systems synthesis Honors seminar at the University of Minnesota ‘Reality 101 – A Survey of the Human Predicament’. Previously Nate was President of Sanctuary Asset Management and a Vice President at the investment firms Salomon Brothers and Lehman Brothers. Nate’s presentations address the opportunities and constraints we face after the coming peak of global economic growth. On the supply side, Nate focuses on the interrelationship between debt-based financial markets and natural resources, particularly energy and the unique (and so far unplanned for) risks from the coming ‘Great Simplification’.  Nate has appeared on PBS, BBC, ABC and NPR, and has lectured around the world. He holds a Masters Degree in Finance with Honors from the University of Chicago and a PhD in Natural Resources from the University of Vermont.

 

Don’t have time to read all of Hagens’ long, information-rich post, Nate’s list of “ten daunting challenges,” plus my addition of dozens of sub-headings, are designed to facilitate selective reading.

Here is Nate’s list of ten daunting challenges the US will face in the coming 4 years

1/ COVID 19- Spilling into 2021 — As bad as it has been, the worst may still be ahead of us

2/ V vs K inequalities – V quick and sustained recovery for professionals / K for working class, different parts of the economy recover at different rates, times, or magnitudes

3/ [Biden faces challenge of navigating new existential challenges using failed economic and cultural tactics]

4/ The Zombies are Coming — Cheap debt is even turning big corporations into debt-ridden Zombies

5/ A Cul-de-Sac – and Full of Cans – When decades-old debts come due and we can’t pay, we keep kicking the cans down the road

6/ Complexity — our core risk is declining returns from increasingly complex globalization

7/ Our Basement Larder is — Unbeknownst to Most – Going Bare — COVID-19 is about to drive US oil production, including shale oil … off a cliff

8/ Other Energy Sources — Biden’s Green New Deal is good news, but renewables will not be our salvation

9/ Meaning and Well-being — If we’re wise, the coming decades will be more about well-being “for all” rather than for all consuming more and more stuff

10/ Protecting Heaven on Earth — The state of the natural world needs to be a top priority in our values

Bottom line, the one threat that grabbed my immediate attention is #7 — COVID-19 is about to drive US oil production, including shale oil … off a cliff, with massive consequences for society.

NOTE – Dr. Hagens prepared his essay before the November 3 election, which explains his frequent repetition of the phrase, “No matter who wins this election…” 

Below is my abridged and edited repost of Dr. Hagens’ long essay, featuring my added subheadings, text highlighting, added notes and headings in [square brackets], added hyperlinks, bulleted formatting in selected places, cartoons, and a SEE ALSO link at the bottom of the post.

Alternatively, to read Hagens’ original piece, click on the following linked title.

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No matter who wins by Nate Hagens, Institute for the Study of Energy and Our Future, November 2, 2020

US elections are now more like sporting events than referendums around ideas

Modern elections — despite their social and political importance — have become more like sporting events than referendums around ideas. We so intensely identify with our partisan tribe, that we focus on the slogans, the rooting against the ‘other guy’ and other us-vs-them dynamics, and often lose sight of the issues, the context, and how ‘winning’ for our country (and world) might actually be influenced by our choices.

Humans learned the survival benefits of tribal cooperation during their long evolutionary history

We are inherently tribal, after all. Of all of our inherited ancestral heuristics, defending our (historically small) tribe and ostracizing/rooting against the other tribe is one of the strongest human universals. In fact, perhaps humans’ best quality – cooperation and collaboration – was a byproduct of the strong unity born out of common threats, accessing surplus, and tribal warfare. We cooperate – for the good of our group – and for tens/hundreds of thousands of years, this meant survival.

During this election, two opposing political tribes will compete for power

Fast forward to November 2020, USA and the four-year inflection [decision] point where half the country is rooting for Joe Biden and the other half (roughly) for Donald Trump – in our minds we know this is an important guidepost for our collective future, but we approach this week with similar temperament and behavior as a Packer/Viking pre-game tailgate.

No matter who wins the election, Americans will somehow have to navigate the road ahead

We are now in the liminal [threshold] space between our nation’s long history and future.  Facts and expertise matter less by the day. Emotions and tribal affiliations focus our attention on the ‘cars’ instead of looking at the road ahead of us. Later this week 50% of our population will be elated and the other 50% will be angry. And most of both camps will be variously: righteous, anxious and uncertain, and perhaps violent.  This, along with the various trivia of Democrat and Republican victories and defeats will be the hyper-focus of our media.  But below, in no particular order, is a look at some of the critical guideposts in the next 4 years along the winding road of our collective future that – as colleagues, citizens and neighbors in the United States of America, we’ll have to navigate with each other – no matter who wins the election.

[What critical challenges will Americans face in the next 4 years?]

COVID 19- Spilling into 2021

COVID-19 – As bad as it has been, the worst may still be ahead of us

As I wrote in March, the ‘cure’ (lockdowns) for COVID would be worse than the disease in aggregate impact.  Though death rates were perhaps overblown, the virulence and ‘long COVID complications’ were not. Various vaccines and treatments and protocols will be developed but the worst months may still be ahead of us. This virus may or may not ultimately have a cure, but either way COVID has permanently damaged the vascular system of the human superorganism, explained below. No matter who wins the election, the Coronavirus will still be with us.

V vs K economic rebound

V vs.K rebounds – V quick and sustained recovery for professionals / K for working class, different parts of the economy recover at different rates, times, or magnitudes

Economies tanked in the 2nd quarter and – on the backs of stimulus and central bank support – roared back in Q3.  Through July 31, 2020 -when direct stimulus ran out – the US government was responsible for fully 25% of our national wages.  While the professional class (and tech companies) are experiencing a sharp V recovery, many hourly workers, small businesses, retail, leisure, transportation, restaurants are seriously struggling [under a K rebound – [K arm up for the rich, K leg down for the common folk].  Many people are hanging on via donations and loans from friends and family and ‘food insecurity’ is becoming widespread.

If the Senate remains Republican, stabilization of the economy under a Biden government will be in jeopardy

The conventional thinking is that in either a Democratic or Republican ‘sweep’, considerably more stimulus (aka borrowing from future to consume today) will arrive. If, there is e.g. a Biden win and the Senate stays Republican, continued government stabilization of the economic patient will be in jeopardy, and many systemic risks ensue.

“No matter who wins the election we are going to have to find ways to support the weak, the vulnerable and the unemployed. And I expect these will number in the 10s of millions”.

But headline GDP statistics aside, the pandemic has widened already large disparities between the haves and have nots. The COVID recession is the most unequal one in US history. As we recover – or don’t – distribution of resources within our population is going to be a critical issue – (more on this below). At some point if the have nots have nothing, they may be forced to take from the haves – or do without. No matter who wins the election we are going to have to find ways to support the weak, the vulnerable and the unemployed. And I expect these will number in the 10s of millions.

Capitalist societies optimize for (economic) efficiency, not fairness, nor resilience

If you haven’t been asleep, traveling or drugged these past few years, you are aware there is a growing movement pointing out the racial, social and economic injustices of our current system. This is in large part because there are considerable racial, social and economic injustices in our current system.  But fairness was never the objective built into our cultural goals or institutions – we optimize for (economic) efficiency, not fairness, nor resilience.

Social classes are competing for a larger piece the economic pie, but few know the pie is going to get a lot smaller

The situation is this:  various demographics now quite vocally (and reasonably) want a larger share of the economic pie, but the pie itself is about to shrink, which is something few are aware of – and don’t like to hear/think about.

[Biden faces challenge of navigating new existential challenges using failed economic and cultural tactics]

New existential crises like pandemics and climate change are difficult for people to discuss, plan for, and solve

The point here is that the narratives (and religions) that make people feel good are often not based on reality. Which makes discussing, planning and responding to [new existential crises like pandemics and climate change] a very difficult task.

The key to our survival is to recognize and learn from the failings of our economic and cultural past

The key [to survival] will be to acknowledge the moral failings of our economic and cultural past while simultaneously acknowledging and planning [solutions]. That’s a difficult thing for a human mind to do.

Biden will face multiple explanations for emerging upheavals, but cultural baggage will complicate navigation of these formidable challenges

No matter who wins the election we will be faced with multiple non-overlapping memes and explanations for the upheaval that is coming.  Our plight is biophysical (biology and physics) in nature but will be blamed on class, race, politics, and ideology. Navigating this is going to be exceedingly difficult.  A new [leader] can change the morale and surround himself by great minds to make the best civic decisions, but he/she cannot change the fact that our economy and culture has hit [new upheavals].

The Zombies are Coming

Cheap debt has turned the global financial system into a digital Rube Goldberg machine

The central bank purchases and guarantees of various offerings of debt has turned the financial system into a digital Rube Goldberg machine.* One of the externalities is that — while the economy was suffering from an exogenous shock from COVID – companies used the FED guarantee to raise cheap debt.  For instance, Boeing – a company who arguably will come out of the COVID crisis with worse business prospects due to less demand for planes – nearly doubled its long term debt because it could do so at low rates (the bonds being guaranteed by the FED). [*Rube Goldberg machine — the expression has expanded to mean any confusing or overly complicated system that would be impossible to implement.]

How is it that Boeing will emerge from the COVID crisis with insufficient profits to cover interest payments?

This means Boeing – and many other companies – will emerge from this crisis with both lower revenues and higher debt, putting them at risk of becoming ‘zombies’. Zombie companies are those whose profits are not enough to pay their interest payments – and they need to take on even more debt (or get direct aid from governments) to stay solvent.

Stock market’s rise driven by 5 largest S&P 500 stocks while other 495 stocks will likely drop -24% in earnings per share

Yes – it’s true stock markets are near all time highs. But this too is a distribution (and expectation) problem. Going into Q3 earnings, the five largest S&P 500 stocks (AAPL, MSFT, AMZN, GOOGL, FB) were expected to grow 3Q sales and EPS by +13% and +1% while the other 495 stocks in SP500 are expected to have a -5% revenue drop and a -24% drop in EPS.

Economic stimulus isn’t a long-term solution to large and growing number of bankrupt and insolvent companies

Some great companies. Lots of zombies. No matter who wins this election, we (and the rest of developed world) are going to face a large and growing number of bankrupt and insolvent companies.  Stimulus will help – and is critically necessary – but isn’t a long-term solution. And, as the government takes on more and more of this burden, it too risks zombification.

A Cul-de-Sac – and Full of Cans

2008’s “temporary measures” still in effect 12 years later yielded “tiny” productivity gains

At year end 2019 we were still recovering from the Great Recession in 2008 — the ‘temporary’ measures initiated in 2008 –

    • artificially low interest rates,
    • too-big-to-fail guarantees,
    • Quantitative Easing,
    • explosion of government debt,
    • expansion of central bank balance sheets, etc.

— were still in effect a dozen years later. Even with all this, productivity gains have been tiny – and a fraction of earlier decades.

Now governments are adding ‘fiscal stimulus’ to boost the economy – But what does ‘fiscal stimulus’ mean exactly?

Now, in addition to all this, governments are adding “fiscal stimulus”* – because they must. The little green man behind the curtain – (currently Jerome Powell) is a very capable and good person but he is not superman.  The institution he oversees -the Federal Reserve is using an invisible giant magic wand to move what we might’ve consumed in 2030 or 2040 forward to 2020 (in the process leaving less available in 2030 and 2040).  [*fiscal stimulus – ‘fiscal’ refers to government finances; fiscal stimulus may refer to either greater public spending or tax cuts. In both cases, the government wants to boost economic growth. In the majority of cases, government bailout packages are also types of fiscal stimulus.]

Problem is, when we create money we don’t create the energy and materials to pay back the growing debt

Modern Monetary Theory tells us deficits don’t matter – but they do – when we create money, we do not create the energy and materials needed to pay it back, so adding more and more debt becomes less productive over time – and has limits.

But when the stimulus stops, the Gross Domestic Product (GDP) will collapse to levels like 1930s

What happens when either government decides to stop stimulus (hard to imagine) or the bond market says ‘no mas’ via higher rates? What is the plan by either the Left or the Right (or anyone) for when QE and stimulus combined cannot plug the economic hole for people and businesses? My opinion is that question will be answered in the next administration – and the answer will be a drop in GDP akin to the 1930s.  Yes, more debt and creative stimulus/infrastructure spending will forestall this – for a while but we will soon face a situation when we can no longer kick the can of growing GDP again to the future. Money isn’t reality – it’s a marker for the things that matter: built, social, natural and human capital.

No matter who wins the election we have a decades old physical/financial bill that’s coming due.

Complexity

Energy and finance aside, our core risk is declining returns from increasingly complex globalization

Increasingly I think it’s not oil nor finance, nor social disruption that is our core risk but declining returns to complexity. Historian Joseph Tainter famously studied how ancient civilizations collapsed due to the inability of resources/productivity to keep pace with complexity. In today’s world, this can be seen in myriad ways, from the unemployment software in US States being written in COBOL and FORTRAN, to APIs for majority of our medicines made in India and China.

With COVID-19 on financial steroids, strengthening local supply chains may be crucial

It’s not something we think about, but we all are part of a complex global supply chain. On the way up, using the concept of ‘comparative advantage’ we outsourced various manufacturing to their lowest cost production – which in many cases meant locations in Asia with cheap labor. COVID allowed us to see the soft-underbelly of those decades old decisions as we have endangered our own security: almost 200 drugs currently listed as in short supply by FDA, 6 month wait for bicycles, heavy equipment delays etc. This is a separate issue from ammunition, canned goods, toilet paper etc., having short term kinks in the supply chain – this issue goes to the embedded brittleness of a global system based on growth to further rely on import substitution models of production.

No matter who wins the election, with the geopolitical context that is COVID 19 on financial steroids, making sure that important things are made domestically (or regionally) may become an important question.

Our Basement Larder is — Unbeknownst to Most – Going Bare

No matter who wins the election, COVID-19 is about to drive US oil production, including shale oil … off a cliff, with massive consequences for society

If you took a poll and asked people what the single biggest casualty was from the pandemic, very few people would respond with ‘oil’.  But no matter who wins the election, US oil production, including shale oil, is about to fall off a cliff, with massive consequences for society. For the setup of our modern way of life, oil is effectively our hemoglobin – and the COVID arrow hit at the heart of the industry as market prices are far below what it costs to extract oil from the ground.  Yet this is all invisible to most people as the media (and economics departments) still conflate price with cost and cost with value.

    • We were in bad shape BEFORE Covid-19 and now the Red Queen (drilling faster and faster just to maintain static production) has stepped off the treadmill for 6+ months – meaning the large underlying decline rates of existing fields are not being offset much by new drilling.
    • Worse, most of the recent decline in production is because wells have been shut [down].  Many of these will never be brought back on line because they cannot meet basic operating expenses and production taxes at current oil prices.
    • In aggregate, US production is, so far, down [to] 2.28 mmbpd [million barrels per day] from a 2019 monthly average high of 12.86 mmbpd. 
    • Assuming rig counts and prices stay roughly where they are (and with no stimulus they may get worse), this implies a level of about 7 mmbpd by late summer 2021 – nearly a 50% drop.
    • Globally, the reduction in travel, leisure and transport due to COVID effectively squeezed upstream investment — we are down to 72.8 mb of crude and condensate from 84.6 in November 2018, — which date is highly likely to be the all time peak in global production.
    • Note:  this [the COVID factor] will likely never be recognized as such because there will always be a non-biophysical reason articulated as to why we aren’t getting more oil — e.g. ‘the Chinese’ or ‘the environmentalists’ or ‘the war’.)
    • Oil is the lifeblood of our (current) economy — peak demand for oil also likely means peak growth for economies (unless massive efficiencies and fuel switching occur very fast). 
    • We probably won’t notice any lack of oil for many years because affordability by citizens will likely decline faster than oil itself (unless massive stimulus and central bank bazookas arrive).
    • Regardless, an accelerated retiring of the fossil armies — that do most of our work, and create and deliver our modern smorgasbord of goods and services — is now on the horizon.

The US faces an oil drilling dilemma — Stop drilling and lose 40% of production in 1 year OR keep drilling in more difficult and costly locations to avoid production decline, but driving up prices

Note: I think the graphs [below] … may be a bit pessimistic, but maybe not. We face a biophysical gauntlet where the price citizens can afford is getting lower and lower and the price energy companies need is higher and higher.  If governments guarantee high prices to oil companies, or there are other incentives, production might be higher than indicated here – but here is a glaring statistic – if we were to stop drilling in USA entirely we would lose around 40% of our entire oil production in 1 year – we have to keep investing/drilling in more difficult and costly spots to avoid such a decline. (the one-year decline rates are: Texas 40%, ND is 52%,  Oklahoma 50%,  GOM/deepwater 32% New Mexico 45% – these 5 regions are 80% of US production).

This is not remotely being discussed in our culture.

No matter who wins the election, US oil production has peaked – again — and this time including the tight oil [aka shale oil] provinces – from the ‘source rock’. This will have….large long-term consequences, whether one is left, right or libertarian.* [*libertarian — An advocate or supporter of a political philosophy and movement that upholds liberty as a core principle. Libertarians seek to maximize autonomy and political freedom, emphasizing free association, freedom of choice, individualism and voluntary association.]


(Charts from Labyrinth Consulting. Assumptions: EIA & Enverus data through August 2020. Sept and Oct guided by EIA tight oil estimates plus Labyrinth estimates for OCS & conventional. Nov 2020 thru Nov 2021 calibrated speculation using to-date tight oil rig count and production correlation extrapolating 2020 ratio average for deep water & conventional production.)


Other Energy

The good news about Biden’s Green New Deal plans

Humans – during periods of growth – and contraction – self-organize around energy. Oil is central but our entire energy balance sheet is going to be a critical issue in the coming decade. Under a Biden win, various Green New Deal [GND] schemes will massively scale renewable energy. In many ways this is good news, because it will be good for GDP, it will create jobs, and grow our supply of low carbon energy.

Six problems with GND proposals – Bottom line, we will face a more complex, less secure energy future

But there are many problems with this because it won’t be approached systemically. Briefly:

1) renewable energy isn’t renewable, it’s rebuildable,

2) only 20% of (current) energy mix is electricity which is the type of energy produced from most renewables

3) the higher % of RE [renewable energy] in our mix, the more important back up ([natural gas] NG and coal) become – and the US is facing an impending gas shortage as US drilling has plummeted. (the largest growth component of supply was the associated gas from tight oil production),

4) the full system cost of integrating RE into the grid is higher than consumers currently pay, weighing on the economy

5) all RE plans expect a LARGER economy in the future when (see above) most realistic scenarios using systemic inputs point to a smaller economy.

6 / Still, renewables are our only hope – they are mature, robust and inexpensive vis-à-vis even a decade ago.  The problem will be how to ‘add renewables to a smaller and more complex system’.

No matter who wins the election, we will have to face a more complex and less certain energy future.

Meaning and Well-being

If we’re wise, the coming decades will be more about well-being for all rather than for all consuming more and more stuff

One of the silver linings (if you will) of the pandemic is that now a great number of people personally are aware US GDP does NOT represent how well we are doing as individuals or as a nation.  The constant media reminders that the SP500 and Dow Jones just made all-time highs is incongruous with most peoples real lived experience (and most of whom have zero money in the stock market). Whether one understands or agrees with the risks of climate change, energy depletion, or limits to growth, tens of millions of people are now hungry for living a decent life with access to basic needs, while doing something good. The coming decades – by definition but also by desire – are going to be more about well-being than they are about growing our consumption of stuff.

No matter who wins the election, our nation needs to embark on a deep conversation about what our cultural goal is – we are going to need complementary metrics to the econometric measures quantifying how much energy we burned. What is all this energy for is a question that should be part of our national discourse.

Protecting Heaven on Earth

The state of the natural world needs to be included in our values

Lost in the discussions of Republicans vs Democrats, stimulus, PPP, COVID statistics, stock market gyrations and geopolitics is perhaps the most important story of all – the state of Earth’s ecosystems and the ~10 million species we share the planet with. They are ‘downstream’ of our elections and financial/economic systems, but none of them have a vote.

I have concluded that natural systems and species futures – for better or worse – are linked to human futures – we have to ‘bend not break’ to have the best outcome for (most) Earth Systems (other than perhaps oceans and very remote species).  I believe humans are not any better or worse than we were 100 years, 1000 years or 100,000 years ago – there are just more of us so our impact is (much) larger and each and every one of us consuming much more resources than our ancestors did. Humans are good at heart but we are biological organisms following cultural goals that have expiry dates.

We have arrived at a ‘species level’ juncture and need to use systems science, reason, discourse, and leadership to navigate a glide path to intact futures.

No matter who wins the election, the state of the natural world needs to be included in our plans and discussions. Unfortunately, it first needs to be included in our values.

SEE ALSO

MUST READ – Dr. Nate Hagens’ masterly synthesis of the Big Picture implications of the coronavirus crisis : Prof. Hagens’ overview captures the complexity of our deadly predicament, a systems synthesis unmatched by other commentators. No 2607 Posted March 29, 2020

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