The Economist has been hosting a roundtable discussion on deflation in the Eurozone, and asked me to say something about this from a historical perspective. My contribution is here. (I should also say that the copyeditor removed my reference to Barry Eichengreen, the go-to person on these matters.)

68 replies on “Deflation”

Galbraith is another good go-to man for this kind of thing

“Increasingly in recent times we have come first to identify the remedy that is most agreeable, most convenient, most in accord with major pecuniary or political interest, the one that reflects our available faculty for action; then we move from the remedy so available or desired back to a cause to which that remedy is relevant.”

“The enemy of the conventional wisdom is not ideas but the march of events”

“..the massive onslaught of circumstances with which they cannot contend ..”

When Mario Draghi said he would do ”all that it takes” did it include deflation ?

@ Fiatluxjnr

This is from the UK but applies equally to the EZ

“As a special issue of Fiscal Studies, published on Wednesday, makes clear much that is going on in our economy is almost without precedent. This makes both policy making and preparation for the future remarkably difficult. The long-term consequences are unknown and policy is being made in a context of which we have no experience “

What can happen with policy that is untested

“A death row inmate who was executed by the state of Ohio on Thursday with an untried and untested combination of two medical drugs appeared to gasp and snort in a procedure that took an unusually long 25 minutes to kill him.
His lawyers had warned ahead of the proceeding that the experimental combination of the sedative midazolam and painkiller hydromorphone might subject him to “air hunger”, an insufficient flow of air into the lungs causing the sensation of suffocation. McGuire’s defence attorney, Allen Bohnert, said that according to reports he had been given from witnesses in the chamber, the prisoner was gasping for breath from about 10.30am to 10.44am. At some point, witnesses told Bohnert, McGuire tried to sit up, turned his head toward his family members who were witnessing, and spoke to them. One witness described the scene as “ghastly”.”

@Kevin O’Rourke

“The pernicious effects of deflation on debt sustainability …”

I take your take on this

… and on the form and structure of EU politics:

“For the European elections of May 2014 an unprecedented and powerful new alliance has been formed by right-wing populist and (former?) far right parties. This alliance consists of parties such as the French Front National, the Italian Lega Nord, the Dutch Geert Wilders Freedom’s party (PVV), the Austrian Freedom Party (FPÖ) and the Flemish Vlaams Belang party of Filip Dewinter.”

Habermas and Giddens versus Farage and Le Pen. Fingers crossed for Europe.

Spose 4% inflation for a few years is out of the deutsche_question?

Prof O’Rourke. Now that I have you here. It has come to my attention that economist’s cannot measure Inflation reliably – even the definition they use (and by extension the measurement process itself) is highly questionable. So, what’s this with Deflation, then? How is that measured?

This is a serious question, since some fairly significant economic policy decisions – affecting the wellbeing of millions of folks, are made following the publication of Inflation/Deflation values.

If, as I suspect, that unreliable quantitative economic measurements are being deployed, then inflation/deflation values for the UK cannot be directly compared with those for the USA, Ireland, etc. Would inflation values for the EZ or EU even make any economic sense at all?

Is this matter (of statistically unreliable quantitative economic measurements) being actively addressed by academic economists?

If you want to bypass this thread, you may e-mail me at:

briandotwoodsatdeltaindiatangodotindiaecho (sorry about this, but I’d be damned by spammers if I wrote the short-form address)


“As is well known, the period from the early 1870s to the mid-1890s was one of deflation, as a growing world economy ran up against limited gold supplies …”

Hmmmm. I’d have thought there were some other significant factors as well. But, no matter!

David O’Donnell

It’s not like they can just order up 4% inflation at the neat push of a button .
It implies letting , or pushing the economy , reach full capacity and beyond to the point here inflation is generated and being willing to let that inflation overshoot target . It’s not a very likely scenario is it ?

Deflation would put the odious bank debt in an even worse light.

The “get on with it’ brigade back in 2010 were soothing everyone with “there, there, it’ll be grand when the growth returns”. But growth is like spring these days. It’s not what it used to be.


ECB tossed a TRILLION to the financial system …

Were ECB to toss TWO Trillion into the EZ for its Citizenry – one to pick up/store dodgy odious sovereign debt and the other to lifting the poverty-stricken out of misery – and a weakening of the €uro ….

Possible – however deutsche improbable.

@Mr Regling

Give us a break! Low interest rates on odious debt as a “reward”!

This is the equivalent of cutting a few feet of the hangman’s rope – it simply prolongs the agony but the end result is the same. Theft is Theft from this Irish citizen-serf’s perspective.

Below is the link to a lecture at the LSE by David Pilling of the FT on 15th January entitled “Japan after the Bubble”. This deals with the effects of deflation in Japan.

During the high levels of inflation in the seventies accountants arrived at current purchasing power acccounts ( CPP) in which there was a calculation for losses on holding cash allowed in your P&L accounts.
In deflation there will be losses on holding assets–cash will be king.

That’d be fiscal policy though. Even if it was possible I wouldn’t be so keen on giving the ECB basically unlimited powers over the economy .


One of ‘the’ fundamenta problems in the EZ ab initio is that the ECB has ‘insufficient’ powers to act as a ‘central bank’. It’s a second rate version of the old Bundesbanke.

my overwhelming feeling is I would just give anything to shake this man violently until the truth fell out of him.

Such disingenous LYING, LYING….he knows its bullshit and someone needs to tattoo him with the truth.

sorry but i’m just sick to death of our political and academic elite supporting these sort of lies by not coming out and damning ridiculous statements like this in a very public way.

I dunno but maybe you could be over estimating the powers of the central bank to fix the situation . The problems lie in the political side of things and in the real economy.

According to the IMF’s data base Japan’s nominal GDP per capita has fallen by some 5% since 1999.Real GDP per capita has risen by 13.4% over that period which is not far behind the US ( 14.8%) and better than over half the original eleven members of the euro.

@ JC

It does look as though there is a non negligible probability that Japanification is the next logical stage in the development of capitalism after the debt explosion stage. I can’t wait to see what Monthly Review have to say about deflation in the EZ.

“The problems lie in the political side of things and in the real economy.”
And in the financial economy…

Some interesting remarks from Francis coppola

As far as I can see all the actions that the ECB really needs to take are politically impossible. I have been severely critical of the ECB’s handling of the Eurozone crisis: it has gone way beyond its mandate in imposing fiscal conditionality on sovereign states, and it has failed to address the deepening depression in a growing number of Eurozone states. But I acknowledge that the real problem is the political set-up in the Eurozone. It is not just OMT that is so hedged around with conditionality that it is virtually useless. It is the ECB itself.

@Dan McLaughlin

You also need to look at changing Japanese demographics – which impact on the numbers.

The figures are GDP per head. The issue is whether deflation, per se , causes a range of negative outcomes including impacting real growth. The Japanese experience is universally held up as an example of the dangers of deflation but it would not appear to have much of an impact on real incomes. Japan’s potential growth rate has slowed appreciably for demographic reasons relative to the 1950s-1980s and demand may not be the issue at all.

@ Kerchav

Regling said;

“And that may also have something to do with the way the solution was found without imposing haircuts on senior bondholders and therefore the reward is from markets now to have particular low interest rates for Ireland. So that is also of benefit to the economy and the budget.”

Could you explain how this statement can be termed as a lie? Rather is it not a reasonable assumption that if creditors are repaid creditors in general will have more confidence that they will also be repaid and are therefore willing to lend at a lower rate than otherwise?

Still though the Japanese themselves do seem rather keen to break out of deflation , why is that ? Over the longer term the public debt situation surely can’t be sustainable (you’d imagine…)

@ Dan

Is 1999 the best starting point for the comparison ? How would it look over the last 10 years ? Or 20 years ?

205bn less cash say 25bn. Still, a huge rise is a very short timeframe.

Very good.
Among politicians and business policy makers in Ireland (and presumably also in other debtor nations), there appears to be a “so what” attitude to the growing sovereign debt level(s)…..”May as we’ll be hung for the sheep as for the lamb”. However, while that may have worked well for the largest individual debtors in Ireland (they were “systemically important”…..), the same approach is unlikely to be adopted by our Northern Creditor Brethern……if allowed (unfettered), the Creditor will strip any remaining wealth first before taking pain itself……and those saying “I’m alright, Jack” at present in debtor elite circles will not get away easily in the longer run.

The sacrifice of the Irish in bringing their current account deficit under control will mean little if the wider context (European, global growth, etc) doesn’t pull up in a meaningful way very soon.


An honest statement would have been something along the lines…

“The market has figured out firstly that Draghi is willing to print cash if there is a run on bonds again and he will make sure there is a sustainable yield for the disaffected and secondly that the Irish, more than anyone else has shown they will do exactly what we tell them and what we have told them in the past is – no bondholder left behind.”

Please don’t spin that reality into the “market rewarding” us for “finding a solution that did not involved burning bondholders”….what a load of insulting dross. The “solution” has left us with 125% debt to GDP ratio, with 5.5% of GDP required for debt servicing this year….the solution has been an exercise in self-flagellation…thanks for the ‘reward’ for this solution.

@ DO’D: Poor Christine look as if she is about to tear her hair out!

So our Bureau of Stats and Other Fictions tell us that ‘inflation’ (whatever the hell that means) was + 0.1 in Dec (+ 0.4 per ann). That’s a mighty small absolute estimate. What might be the relative error on that? – plus-minus what? Would it have any meaningful economic message? No!

@ Kerchav

You seem to be under the impression that malign outside forces have created the difficulties in which the country now finds itself. Very few people IMHO any longer subscribe to this view. We need not have a high debt burden if we decide not to borrow further. Failing that, what Regling said is highly plausible.

“You seem to be under the impression that malign outside forces have created the difficulties in which the country now finds itself”

FFS (Swiss Italian Railways) DOCM
The Troika have been running the show for 3 years. Things didn’t work out as the models predicted. Some allowance for ineptitude is surely due. And they parachuted Monti into Italy. And what happened ?

They are trying stuff that has never been tested. They think they know what they are doing and they are very arrogant.

It’s like England at the World Cup.

“We still believe
It’s coming home
It’s coming home
chickens coming home (to roost) ”

Farage would walk all over you down the 3 Lions.


“….very few subscribe to that view”

throw enough sh*te at the wall and some of it is bound to stick, eh!

I still believe there is a sizeable portion that still ascribe to the “Res Ipsa Loquitur” philosophy when judging the merits of what happened to this country and are not swayed by the spin constantly spun…..always spinning. And the fact that speaks for itself here is that never should irish citizens be asked, nay forced to take on the burden of failed speculative investment. If you are telling me that people no longer subscribe to that view then Orwell’s prescience is frightening to a god like degree.

@ Kerchav

Saying that those that do not agree with your views are “spinning” is an opinion, not an argument. We live in a democracy. If there is a majority for the views that you express, no doubt it will emerge in due course.

@ seafóid

How much Farage can you take?

Ireland did hold a referendum on the fiscal treaty (and ratified it by a two-thirds majority).


I could not find a SINGLE economist who could provide any theoretical justification for Angela’s Fiscal Corset. It is deeply flawed and, if and when, the Germans will ignore it themselves; as Hibernia will.

As to democratic will formation – why has there been no referendum on the Citizenry picking up odious financial system debt?

BTW I hear that you got the invite to the Monsters’ Rally in the RDS – might as well make use of the ol’ bus pass.


Firstly I said a large portion – not a majority. Are you under the illusion that because you have democracy it will bring to the right result, that the masses can not be cojoled by spin to their own detriment or corralled by fear as was the Irish governments wont during the fiscal treaty referendum. Perhaps you should take a preamble through a book called Mien Kampf to see how one man told his populace that that was exactly what he would do and did so successful to gain democratic office.

You seemed to have mastered the art of spin yourself. I wasn’t aware that the fiscal treaty was about Irish citizenry democratically electing to take on the burden of 64bn in private creditor debt…but funny you should spin that into an endorsement of just that. If the citizens of Ireland had been asked to vote yes or no in terms of taking on that burden what do you think the outcome would have been….its so obvious the question dare not ever be asked of course. Democracy indeed.

This is first article I have seen on deflation (sorry ‘internal devaluation’), and while I found some of it a big difficult, I can certainly understand the following in terms of my experience of the past few years:

” If economic historians have learned anything from the Great Depression, it is that deflation is dangerous. First, nominal wages are sticky downward: as Ben Bernanke and Kevin Carey showed for the interwar period, this implies that price deflation, if achieved at all, leads to higher real wages and unemployment. ”

In the recent experience with which I am familiar, both volume and prices fell dramatically and wages had to be reduced for survival, but the significant adjustment was in employment level.

After the initial price falls (early 2009), prices have continued to fall or remain static for the past three years, putting further pressure on employment, as going back to the workforce for further pay reductions is a non-runner.

It has been galling to hear the mantra that ‘we must reduce prices and be more competitive’, particularly from politicians who don’t even bother to find out how sums of 180 million are spent. The reality is that much of the traded sector needs price increases of between 5%-10% to get out of loss making positions and into a position where medium term survival is a realistic aspiration.

If current prices stick, then 2014 will be the fifth year of no wage increase, following a reduction in early 2009. If prices fall, then the only way out, if there is a way out, would be further job cuts. But further cuts would mean not being able to keep up service levels to existing customers.
The competitor who manages to cut labour costs the most may survive, but there will be huge job losses along the way, and those left working will barely be able to exist on the pay they earn.

It is a pity that the truth ‘internal devaluation’ is not explained to people in terms that they can understand. This article is a very good and much needed start.


“Truth is, I thought it mattered. I thought the EZ mattered but does it ? Bollocks, not compared to how people matter ”

Farage gets that
Even though he’s nuts.
Deflation is going to skewer the elites.

@ seafóid

Arise and follow Nigel?

I will pass, if you do not mind. However, this side of the EP elections in May, we may expect him to be outbid in terms of nuttiness by UK politicians on both the left and the right but especially in the Conservative party.

The Tories are in a tough spot, DOCM. Cameron needs all the votes he can get because he doesn’t want to be the modern Tory leader who never won an election. Farage will take votes primarily from the Tories. Does Cameron tack to the right to cut off Farage at the risk of losing votes to Labour / the Lib Dems ?

It’s a big decision in a town called malice.

@ JR: Joe, this bad situation has been at least two – maybe even three, decades in the making. But you might not hear that from the usual sources.

There are a multiple causal factors – each confounding the others. My chief suspect is the facilitated entry of China and India into the ‘global’ economy – with their millions of available labour. This was enabled by the ‘export’ of technological knowhow (aka: outsourcing). The reason for this is a parallel story. It will have to wait a bit.

Anyhow, those available souls gradually were put to work and the rest as they say is – what we have ended up with today. Citizens in western developed economies who will never obtain a waged-labour employment. And slow penury for the remainder. Like I said, it has taken a while. These things do.

The superficial economic veneer laid over the slow decline of western manufacture (which provided relatively well-paid work) was the rapid expansion of, and relatively easy availability, of credit in all its various forms. This worked until it did not. Until the debts racked up to such an extent that they have become unpayable. So any jerk that says that we will ‘grow’ our western economies in such a manner as to be able to pay down these accumulated debts is either a mendacious knave or a useful idiot. The latter outnumber the former by several factors of ten!

I suspect that this most inconvenient truth is well known to some. The rest of the sheeple just have to wonder – or be beguiled and amused by their swipe screens. A general debt Jubilee, with all the hardship that would entail, is the only way forward. So, its the choice of slow death by the thousand cuts of austerity or a fast amputation without anesthesia. The first will surely kill you. With a modicum of careful nursing you will survive the second. Though you will need crutches to get around afterward. Choose. Oh, I forgot to mention it. Its TINA! – the first option!

The slow demise of the west will trigger a delayed consequential collapse in China and India. The latter preceding the former. Its a food and water issue, followed by energy shocks. I’d estimate the time-line at three decades at most. That’s enough time for us (in Ireland) to prepare. But we won’t. In ten years time we will like Mister Micawber – still be looking for the ‘growth’ that never came.

I may be ‘doomed’ for being a doomer. So be it. But I’m a scientist (I accept the immutable laws of nature and understand the consequences of exponential rate exploitation of finite resources) – I’m not a economic astrologer! And ‘they’ say technology will save us! It will in its glue! 🙂

“This article is a very good and much needed start.” I agree. But too few will read it. Less will heed it. That’s the way it is.

” My chief suspect is the facilitated entry of China and India into the ‘global’ economy – with their millions of available labour. ”

I could not agree more with you. Basic economics taught us that wages would equalise. Of course we were told that this would not happen, because the ‘superior’ western world would export machines and other technology that China and India did not make-read ‘hint, hint are not able to make’. Such rubbish was fed to us, and is still being peddled, even though China and India are both nuclear powers, and several of their better graduates are employed in NASA and US high tech companies.

As I understand it, China has a poor or non existent welfare system, so they just manufacture products that west wants (not needs) at lowest manufacturing cost. That is their social welfare system and western countries, with the possible exception of Germany, are funding it.

I would like to see ordinary Chinese workers benefit from their export surplus, but it now appears that China has more millionaires that any country in the world. The Chinese worker, like the minimum wage worker in the west, is little more that a modern day serf, to a new wealthy elite.

“The slow demise of the west will trigger a delayed consequential collapse in China and India. ”

That is a real possibility, if European demand falls off consequent to zero growth and possibly deflation. However, I think the European political systems will crack first, if growth does not happen and if unemployment does not improve. That said the EZ powers will take comfort from their successes in maintaining the status quo in Greece, Italy, Spain, Portugal and indeed Ireland, despite huge unemployment.

The valedictory chorus from the EZ elites, is not because they have managed their economies well-they haven’t- or that lives are improving for ordinary citizens- they are not.
The valedictory chorus is because they have managed to maintain and even enhance the status quo in respect of the elevated positions of the wealthier classes.
In their view, that is a success worth celebrating.

The lesson of history is not so much that that money loses value as that its value changes. The increases in price has outweighed the falls,but this should not make us forget how often falls took place,and how steep they were. A study of price movements in the UK for seven hundred years suggest that prices fell in 328 years were steady in 13 and rose in 359; further ,if during this period we took a bet each year that the price level would be higher ten years from the date in question,we would be wong more times than we would be right, in all past centuries except the sixteenth and eighteenth.
There was a markedly downward trend in the latter part of the nineteenth century: UK prices fell by nearly one-third in the fifteen years after 1880 and US prices nearly halved between 1864 and 1894. Deflation is unlikely to reach the speeds and proportions that have been achieved by some inflations. But, though less dramatic ,it. has had profound consequences. Thus, the deflation between the two world wars went hand in hand with unemployment on a dangerous scale. It’s doubtful our civilization could survive another slump of the same severity.
A course in economic history should be compulsory for every Irish schoolboy.

@ JR: Thoughtful comments. I was a tad remiss. I should have included the enrollment of: –

Bangladesh [155 mill]
Burma (aka: Myanmar) [53 mill]
Cambodia [15 mill]
Vietnam [90 mill]

– that totals near enough to all of Europe, sans the Ruskies! And those populations are increasing rapidly. Sure, why not just chuck in Egypt [80 mill]. Pakistan [180 mill!] is almost a basket case – but that’s India’s problem. Interesting times.

“In their view, that is a success worth celebrating.”

You mean the bilge pumps are working at 90% efficiency and are just keeping pace with the inrushing seawater! Well, golly gee for that! Hope they have a spare available – in case of a malfunction!



I dubbed you Malthusian a few weeks ago but in the interval you have gone from the frying pan into the fire of dystopia!

China faces adjustment challenges but it’s not at risk of a collapse triggered by European stagnation.

In 2013, China’s exports to the EU and US accounted for 32% of the total with the EU at 15%.

As with several other emerging economies, China itself produces many of the products that are used by the modern household.

Over time quality will improve and at around 2022, it will be spending as much as the US on R&D.

Then you maybe be using a Chinese smartphone rather than American or Korean.

The cycle of sudden wealth for some, corruption as land for development gets the Midas touch, and poor work conditions, is one that every country goes through. Ireland is still in a process of transition. Enda Kenny can profess shock when a charity worker gets a €700k payoff but not when his departmental chief gets a similar bonanza – also in his 50s.

I think we would agree that the times in the West when there was an expectation that each generation did better than the one that preceded it, are over.

As you mentioned, the next wave of frontier Asian economies are set for development.

Ireland gained from the same globalization that they are set to take advantage of.

Remember when Irish economists sang the mantra “moving up the value chain.” It’s going to be a crowded ladder.

@ MH: I know! I’m a total doom porn Malthusian asshole! I’m actually not bothered! I’ll buy the popcorn on China. There are how many folk there? 1.5 bill – and rising? Or stationary? Lets assume the latter.

Now, to ramp up their average std of living to minimal west EU or US + CND standard they need – wait for it … … well in excess 2 l of liquid hydrocarbon fuel, per person per day* (in addition to their coal requirement). Someone like to tell Briney where that amount of liquid energy will come from, then? I’m all ears!

Jeeze Michael, no matter the origin of those NSA (of China equivalent) approved iPhones – they sure as hell won’t put food on the table nor water in the tea pot! China and India have a real bad problem there.

* Daily global oil production = 14.4 x 10e9 liters/day
Population of China 1.45 x 10e9 persons

two times 1.45 x 10e9 = 2.9 x 10e9 litres/day – MINIMUM!

for comparison: –

US + CND + EA burn through approx 7.25 x 10e9 litres/day

soooo, … in order for China to rise up to US level std of living, (and lets say we exclude 2/3 China pop – being farmers, and all!) – that leaves 0.48 bill china bums. At current US + CND daily consumption levels (and assuming these do NOT increase over the next decade) then China will be consuming more oil than the US + CND combined. Hey! up! WTF!

That’s for starters Mike. Toss in the extra coal that needs to be burnt, then the iron ore! Now the concrete. Gets better. Or as Rev Malthus might have said – if he had been quick enough to notice that steam tractor parked around the corner, waiting for the Off! – WTF! Indeed!


ps: Message from Rev Brian Malthus: “Global oil production has risen (since 2004) by a massive 12% – for a mere 300% increase in financial investment input. ” 😎


The elephant in the macro models

Global food production has been heading in an unsustainable direction for decades. The UN’s Food and Agriculture Organisation estimates that we will need to double global food production by 2050 to feed the growing population. We continue to clear tropical forests to bring more land in to use, and we try to squeeze ever greater yields from existing land by heavy use of fertilisers and pesticides, creating vast crop monocultures. Yet our efforts are undermining the ability of land to produce food. Agricultural practices are causing soils to be rapidly eroded – washing away in rain or blowing away into the sea – so that 40 per cent of farmed soils are already degraded, and some estimates suggest many countries will have little soil left within 60 years. Aquifers used to irrigate arid soils are fast being depleted. Salt build-up, from poor irrigation practices, is affecting 320m hectares of agricultural lands – an area the size of India.

“The long-term effects are only going to become apparent in the next decade, says Mr Rosegrant.The institute forecasts that, if temperatures continue to rise apace, global production of corn, rice and wheat will drop by roughly 15 per cent by 2050, and by 20-30 per cent by 2080 as the effects of higher temperatures are felt.Considering that global yield increases on average by 1 per cent a year, such decreases will make it more difficult for food producers to meet demand if, according to UN estimates, the global population grows to 9bn by 2050.”

I love the way right wing ideologues think they own the phrase “get real”.

@ Seafóid: But sure the Astrologers (aka: our economists) have informed us that there are ALWAYS substitutes. The theory says so. So, its just a matter of being innovative and efficient. Quite so. We’ll be lucky to make 2050 – but Mad Max springs to mind.

Its the math you see. ‘Doubling’ the amount of something means you will have to create as much again as the entire amount you have already created up to your ‘doubling’ starting point. So, mankind is going to re-grow every single crop in the entire world, that they have grown from 1800 until 2010, and then some? – they will compress 210 years harvests into 35? They will in their glue!

The exponential exploitation of physical, finite resources sucks! Works for a while (like 250 years?). Then WHAM! Nature is one nasty bitch.

@ BWS, seafoid

in the moment the EU is paying for certain fraction (5%? , 10 % in Germany?) of agri land not used for food production.

The CRB index is on a gentle downward slope of about 3 – 5% / year

my personal food crisis index (used with Brent – WTI spread as a potential riot indicator) is close to a 4 year low

the world population increase is saturating, especially with China’s one child policy

In general higher CO2 and higher temperature is good for plant growth.

Instead of looking at the typical one bad year against many good years before it, like the FT link above, can you plot wheat, rice, etc yields and total tonnage for US, China, EU ?

Malthus was and is wrong.

The same goes for “deflation”, the latest buzz word, after “austerity” is worn off.

If you do 2 years of 10% deflation in a row, like the US, Germany after 1929, of course people react strongly to this.

The impact of running 3 years at 1% inflation would be unmeasurable, because it would still pay to keep the money in the bank. My take is that anything below an integrated deflation loss of 3% (against nominal) will have minimal impact on consumer / retail investor behavior.

LOL, I am actually working on some data.

in the same thread, we are discussing inflationary and deflationary threats, like the sky is falling, imminentely.

The EU just stopped subsidizing dumping surplus food production into african and indian markets, and distorting their markets.

If food prices would go higher by, lets say 20%, plenty of fallow agricultural land in New England and Europe would come back to the market.

Why always these kind of bipolar arguments? Way too little against way too much, simultaneously?

“If food prices would go higher by, lets say 20%, plenty of fallow agricultural land in New England and Europe would come back to the market.”

Yeah Francis

And if temperatures go 0.5% higher a lot of crops are not going to be grown in the same place any more.
Burgundy just had the third crap year in a row. The best wine needs climate stability.

I think that might focus minds in the plutocracy.

@ francis: You were making some progress until you got to here: –

“Malthus was and is wrong.”

You are indeed quite correct. But, hello there francis! – the Rev Gentleman will NOT be wrong! Why? Well, he was referring to the specific situation of the actual capacity of a fixed natural resource – arable land, to provide sufficient food for human needs. Please think slow and hard about this. Most folk do not. Last time I noticed they were not making any more arable land. And there is this boring thing about arable land – its quality!

If the ill-informed, naive duffers who pontificate through their anal orifices about the capacity of arable land to support more and more folk were to spend a few semesters studying the chemistry of soils, they might come over all quite like! Please try not to be suckered by quantity. Our British cousin Ricardo (he was an Irish MP!!!) had a few useful comments about marginal land. I seem to recall that it took farmers a few thousand years to get the hang of four-year crop rotations. Look, there are indeed vast tracts of land that might be put into productive use. But. Access? Irrigation? Harvesting and post-harvesting production? And how will humans clear that land of its existing non-human inhabitants? there are a few other minor matters. But,no matter, the economic astrologers have all the answers. Shame that they are completely ignorant of the (scientific) questions!

And of course, the chemical synthesis of urea and the steam tractor had absolutely nothing to do with exponential increase in food output. Naw! Technological piffle! And please try to read, and understand what Albert Bartlett had to say about the nasty, and 100% inevitable, consequences of the exponential exploitation of finite resources. He never accused the Rev M of being wrong. He was one very smart scientist. But so was the Reverend.

And anyhow francis, I’m a tad less concerned by low food output than I am about the diminishing amount of global potable water – relative to the increases in populations. It takes several months of food poverty to get you. Lack of water – just a matter of a few days!

“the world population increase is saturating …”

Please not to try to confuse ‘rate of ‘ with ‘amount of”. Very easy mistake. Its the total number of folk that is our problem. Not that the former (rate of increase) is un-important. But its nice to see that it may be inflecting over – but it is still trending UP! Let me know when dPop/dyear = 0 – and its a Max!

I am sure we will be back at this. Its a significant political economy matter.

On falling inflation, a change in HICP methodology and the higher euro rate has been a factor while the peripheral countries have low inflation rates with Greece at -1.8%.

@ francis

On a positive note…

Sufficient food is available for increasing numbers of people, while the dependence of countries on international trade in foodstuffs has jumped in 40 years. The proportion of the population who get enough food (more than 2,500 calories a day) has nearly doubled to 61%. Those living on a critically low food supply (less than 2,000 calories a day) have shrunk from 51 to 3%.

These figures come from a study at Aalto University in Finland examining developments in food availability and food self-sufficiency in 1965–2005. Researchers examined the development of food availability in recent decades for the first time.

Food availability has improved especially in the Middle East and North Africa, Latin America, China, and Southeast Asia. Although food availability has increased on the global level, food self-sufficiency has remained relatively low.

In the 1960s and 1970s, insufficient food production in a country amounted to food shortage, but today the production deficit is increasingly balanced through food imports.

The late Dr. Norman Borlaug, the Father of the Green Revolution, took issue with the scaremongering about genetically modified  (GM) food.

With climate change threatening food supplies in the tropics, over-fed Europeans smugly think GM is more of a threat than herbicides and insecticides.

“More than any other single person of this age, he has helped provide bread for a hungry world,” the Nobel committee said in honouring him.”Dr. Borlaug has introduced a dynamic factor into our assessment of the future and its potential.”  In more recent times, Professor M.S.Swaminathan, President, National Academy of Agricultural Sciences of India, said at a US Congressional Medal of Honor award ceremony in July 2007: “The impact of the Borlaug-led Green Revolution symphony will be clear from the fact that during 1964-68, Indian farmers increased wheat production in four years by an order greater than that achieved during the preceding 4000 years.”

In India today, the long distribution, poor transport for a hot region and restrictions on supermarkets, results in the spoiling of a third to around 40% of India’s fruit and vegetable produce.

@ Michael

There is a good graph here on wheat, corn and soya global agri trade flows

North Africa and West Asia are totally dependent on imports and very vulnerable to desertification.
If the US and Ukraine were to have simultaneous droughts it would not be ideal.

Indian farmers ramped up production alright but the population keeps on growing and many Indians don’t have the money to buy food at international prices. Government food subsidies are not investor friendly. It is getting quite messy.

@ Brian Woods
interesting newletter from Grantham Mayo on agri prices starting on p12.

so it seems that a realistic nightmare scenario is for a period of …overall deflation because of overcapacity ……. but food and energy inflation b/c of supply constraints. Destroy the rent-seekers who are leveraged in property, stocks and bonds, and the poor who spend a large % of income on food…..

@ bklyn_rntr: Thanks for that. What Grantham is writing about is factually accurate. No argument there.

However, what is (and has been) an intractable problem is to synthesize a simplified (not jargon free) message*, such that it will slowly percolate into the frontal lobe areas of the lay public, who exhibit an attention span of milliseconds if they encounter commentators wittering on about the ‘imminent doom’ of the planet!

There IS a problem: getting ordinary folks’ attention is the first part. Our politicians are a dead loss: they and their meeja spokesmodels not only get their facts arseways, but they seem to believe that PR is a substitute for reality.

Michael Hennigan had a longish piece yesterday (4 up) and I almost fell around my keyboard laughing at some of the facts he wrote. All correct!

But its the inadequate, unstructured, and naive assumptions that so many folk have about the actual workings of our economy – especially about the really critical issues of energy, food and water supplies. Frightening!

* I’m working on it! Success is not guaranteed.


34 years ago, in 1980 they published a “Global 2000 report to the [US] president” with about a 1000 pages, also making all kinds of prediction of what things we would have been run out by now.

I still have a copy of it.

This is just the typical doom porn.

@ francis: Thanks. “This is just the typical doom porn.”

I’ll be a tad more charitable and call it ‘wistful thinking’ – whilst under the influence! – of ………. (fill in blank yourself).

francis, every so often folks stop to re-fill their fuel tanks. Now I wonder why? Global economy is no different. But someday …….!

If folk would just be real careful to separate knowledge claims (verifiable facts) from value claims (opinions and predictions) things might be somewhat less confusing and argumentative. Facts are boring: opinions get you a Nobel.

I’ve asked this question before (so, apologies if you have already encountered it):

“Do you know, and understand the term Permagrowth? – (as it refers to aggregate economic output).” If you do, then fine. If not, then you have a bit of study to do.

I’m working on a piece about Permagrowth, and although I do clearly understand its economic implications, its proving fiendishly difficult to compose a simple, coherent narrative.



in Germany we have stopped subscribing to this growth fetishism quite some time ago.

I actually posted a very lengthy piece on this when I came to this blog.

I am trying to find it, searching for “Solow” doesn’t seem cut it.

@ francis. Thanks. Glad to hear that.

Yeah! Solow. Got that false Nobel for his ‘residuals’ hypothesis. Which was shown to be wrong. But that’s life!

Let me know when you locate the piece. Thanks again.

“Knowing’ the problem, understanding the implications and “fixing’ it are all seperate issues. Sometimes it is practically and politically impossible to take an active approach to finding a solution. For instance, the problem of excessive lending was (and still is), in my opinion, understood among policy elites in the US. The issue was how to confront this given that the solution – to prick the bubbles through higher interest rates – would devastate the economy. It was politically more ‘intelligent’ to allow nature take its course but put someone ‘smart and reliable’ such a Henry Paulson into a position of power to safeguard the interests of the oligarchs when the SHTF.

Paulson did his job well.He convinced government to backstop losses for bot investment banks and deposit takers AND he managed to embed these changes into the system. Today, lending is just as irresponsible as it was in 2007 and the FED is still pushing more. The precedent is set that large banks can’t fail. Indeed, they are even too big to jail!!

I think you could make the same argument for food and energy shortages. There is only one economic model. It is energy intensive, driven by auto manuf, communications and the consumption of knick-knacks made in poor countries. Various infrastructure projects flow from these three main groups and they offer a place in the global value chain to almost the entirety of the world’s population. Every i-phone that the Chinese assemble and every trophy apartment sold to someone who already owns three – adds another chink to the chain that locks them into the US economic model. If there’s a strategy, that is it.

The S will HTF at some point and we are likely waaaaayyyy past the point where any active approach can effect a painless transition. Indeed, changes to the model at this stage are likely impossible without major upheavel. So, we ride along the roller coaster and watch for the next economic tsunami to cross the horizon. when we see it, we put our best men forward to direct the ‘recovery’ efforts to make sure the elites remain the elites.


Googling for your “permagrowth wiki” doesn’t produce anything useful, and that says something.

If you analyze the S&P500 as I described in the Moody’s thread, you can see a, at least from my perspective, remarkable continuity, given that we had 2 world wars and a few other crises in between.

With a little bit of phantasy you can interpret some 30 – 40-year cycle onto it, but well, that is daring.

And some financial crises about every 10 years on top of it, these guys always invent new socially useless gimmicks. “portfolio insurance” in 1987 : – )

The interesting thing last year was, that I learned via this blog of Röpke, and in his “crises and cycles” 1932 he reports at least 2 similar cycles like that before 1932 (like founder crisis in 1872)

Some folks interpret them as wiki/Kondratiev_wave, that these long term mood /investment changes are coupled to new technologies becoming important, trending somewhat to shorter cycle times. From my perspective renewable energy would be the next driver.

I tend to believe, that this is coupled to human generations, which would tend to get longer with increasing life expectancy.

Theoretical musings.

Renewable energy is becoming competitive; there is a lot of work to be done now on improving storage technologies, I am somewhat skeptical about hydrogen. One thing I see as an important feature, it requires much larger investment upfront, like > 80% of the cost, whereas carbon based energy production was more like < 30% upfront capital invest.

100 years ago the coal & iron regions of Germany were the “rich”, now it is Bavaria.

I see real estate in southern Europe becoming more attractive in the long run, given the higher PV yield, and much better aligned to the consumption patterns, reducing the need for expensive storage strongly.

francis: try this site: [its written by a chemical engineer turned ‘financial engineer’]

This will take you to his latest posting: September 2013. The author uses the term twice in that post.

There is an earlier posting:- Thursday, November 17, 2011: ‘Is There Life After Debt?’ where the term also appears. You will have to go into the archives. Look on Right-hand side of page for the year/s – you ‘expand’ the specific year to get the posts for each month.

Any problems, get back to me.

“I am somewhat skeptical about hydrogen…” Good for you!

We will surely come back to some of the items you mention. Check all statements of fact – if you can. Just be skeptical of opinions – especially any projections or predictions. Its not all silly stuff. Cheers.


“Renewal energy is becoming competitive”. We need $1tn per year invested to keep temperature rises below 2% according to the IEA . and where is the money going? Yield.

Are you going to help us or are you going to stay on the sidelines and tell everyone everything is fine? Will somebody come on TV and tell the truth about how bad it is ? This not the time to be complacent. I wish I didn’t know so many people and I could say “Just go buy some Washington Mutual and take that yield”


you are still listening to Cramer? No wonder you tend to panic.

It remembers me of the time, when I went at 6 am to the Gym, and we had this guy on cnbc, money honey, Bloomberg and one more I forgot on TV.

Many, many years ago.

World GDP is 84 trn $, according to the CIA, of which 19.4% or 16.3 trn are investment in fixed capital. And now the 1 trn looks pretty doable.

Not easy, but doable.

The US have apparently decided, that they prefer to burn some more shale and coal first, and let others carry the burden, China does not run into the constraint of air pollution, triggering their push into nuclear.

And given that situation, Germany slows down just a little bit with our conversion, to keep the costs under control (6.2 Euro cent/kWh adder in the moment)

Unfortunately we haven’t seen that many followers, willing to carry the development burden with us.

Not nice, but also not a reason to panic.

What disturbed us a little bit, that some of our EU neighbors tried to renege on the accounting of electro cars on fleet CO2 output, trying to cause significant harm to BMW who push the technology very hard and that Enda Kenny was supporting this, until he got a call from Angela


Cramer is fascinating because that video is what happens when TSHTF. We are back to calmer waters now but the potential is always there for things to go haywire.

“The second is whether enough has been done to make the financial system less fragile. I remain concerned. Yes, regulation and oversight have improved. But, in essence, today’s financial system is the same as before. Worse, it is yet more dominated by a small number of thinly capitalised, complex, global behemoths. The notion that such institutions could be “resolved” in a panic without triggering panic remains untested and, partly for this reason, government promises not to bail them out are not credible. This is a highly troubling legacy.

Mr Bernanke will surely be regarded as one of the Fed’s most significant chairmen. Yet the fact that such hyperactivity was needed to save the world from economic ruin tells us how fragile was the bright new global financial system and how ill-judged the confidence in its stability. Mr Bernanke saved the day. But he also leaves behind unresolved questions about the future of central banking, money and finance. We should not forget them. They matter.”

1tn should be doable but it isn’t happening.

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