Brane Space: The Unspoken Reasons Why Younger 'Muricans May Never Achieve The Living Standards Of Their Parents

Steve Rattner – sometime econ columnist for the NY Times- went on one recent rant (Sunday, People Are Pessimistic About Their Economic Futures. Can You Blame Them?) that ought to be addressed. In fact it needs to be addressed. Rattner starts his rant by writing:

"Nearly half (40%) of those age 18-29 are still living with parents. Those seeking to buy their first home and “climb the property ladder” face the double whammy of high house prices and high mortgage rates, creating a massive affordability problem.

Even more fundamentally, voters — admittedly, not economists — may deserve credit for at least subconsciously comprehending two immense longer-term challenges: lagging productivity and a huge and fast-rising national debt."

Adding:

"Increasing productivity — how much output per hour an individual worker generates — is the only lasting mechanism for improving the standard of living. During the halcyon postwar era, between 1947 and 1973, productivity increased at a remarkable 2.8 percent annual rate.

Then its growth — save for the computer revolution boom from 1995 to 2005 — slowed markedly, to just 1.8 percent between 1973 and 2019 and an even worse 1.3 percent in the last decade of that period. Living better becomes more challenging."

Well, as they say, 'No shit, Sherlock!" But you've let fundamental reasons off the table. Actually, Rattner asserts: "The reasons for this slowdown are myriad and much debated". But that's a wad of twaddle. For those who've done the deep dive into the energy inputs needed for higher productivity as a population expands there is no mystery. Nor, in this connection, is there a mystery why - as the U.S. has become the world's biggest oil producer (as noted by Chris Hayes on All In last Wednesday night) Americans remain scratching for economic relief amidst a world they see as laden with higher prices on everything.

Ok, let's first get this higher prices thingie in perspective. As Rattner correctly points out for two-thirds of American voters prices have been the highest seen in their lifetimes. But these kids are living in wonderland and haven't been around long enough. When I graduated from USF (1971) the inflation rate was at 5.5% or significantly higher than today's 3.2%. Worse, through the next decade it went up to 14.4 % before culminating in 1980 at 14%. In Barbados, where I lived from late 1971, the inflation averaged 22-24% through all the period Janice and I resided - up until moving back to the U.S. in January, 1992. In other words, my point is inflation comes and goes for a variety of reasons. And while millions want to blame Biden, he isn't the one jerking up interest rates, i.e. to have made home prices now almost unaffordable. Want to blame someone? Blame Jerome Powell and the Fed!

Let's now get back to the energy aspects, because as I noted this underlies productivity. Or to use one NY Times commenter's response following Rattner's piece:

“I am not happy with the decision by the Fed to raise interest rates to cool inflation. It is just my personal view that if demand accelerates and causes inflation, the solution should be the production of more goods, not a soft or hard landing engineered by interest rates.”

Well, while his advocacy for "producing more goods" - like more homes - is laudable, it can't work in an environment where the supply is already extremely low and the costs of producing more goods excessively high. Why is this?

I have frequently written, in my energy-fracking posts, that a large difference in EROEI translates into some bad economics given the lower energy content of shale oil (kerogen). E.g.

Newsflash! Fracking's Days Have Been Numbered For At Least A Year...

And no surprise now, with the U.S. on an oil production tear - but based mainly on extracting shale oil- too many can't afford their energy bills. But apart from possible utility co. gouging this may be because shale oil is less energy intensive (energy returned on energy invested or EROEI) meaning it's less efficient energy source. Much more is needed to do the same job or produce the same quantity of goods.

A less efficient energy source also means you have to extract more of it, and at ever higher costs given the innate diminishing returns. It means, basically, endless reinvestment to support the losing operations and compounding debt from the latter at the same time. This isn't relativity or rocket science.

The issue first surfaced some about ten years ago in Richard Heinberg's book, Snake Oil: How Fracking's False Promise Imperils Our Future', ( p.115). Therein we learned from a report by a London -based brokerage firm, Tullett Prebon:

"Our calculated EROEIs both for 1990 (40:1) and for 2010 (17:1) are reasonably close to the numbers cited for those years by Andrew Lees. For 2020, our projected EROEI of 11.5 to 1 is not as catastrophic as 5: 1 but would nevertheless mean that the share of GDP absorbed by energy costs would have escalated to 9.6% from about 6.7% today. Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1) by 2030."

The report goes on to conclude that the dismal diminishing energy returns means that the economy we "have known for more than two centuries" will "cease to become viable at some point". Cease to become viable? As Heinberg observes, while it may cost less to extract a cubic foot of natural gas or a gallon of oil shale today, it will cost much more in just five years and even more in ten - such that one would have to spend as much or more to get the energy as the benefit it delivers. Heinberg summons a point that most of the snake oil salesman humping fracking won't tell you, that it costs energy to get energy. And if you are a nation that resorts to employing 15 to 1 EROEI energy to extract 5 to 1 EROEI oil shale energy.....well, can we say 'stupid'?

The entire issue of sinking oil shale fortunes pivots on the breakeven price: that amount which the recovered oil needs to earn to have made its extraction worthwhile If that per barrel amount tends to be below what the market offers, a loss occurs and over years the losses pile up. In many cases, as seen in recent years there is the added factor of an oil glut from over production. (Why so many frackers were going bankrupt over the last few years, and crawling to hedge funds for more $$$ invested.)

Unmentioned until now is the impact a once in a century pandemic has had - including on global oil supply - exacerbated by the Russian invasion of Ukraine. The Covid pandemic has also affected a host of consumer supply lines creating shortages, including of baby formula. But again moms (in this case) were never told who was actually behind it, i.e.

Republicans

200 Members of Congress Voted Against Baby Formula. That’s An Outrage.

The pandemic also distorted - and in many cases lowered labor supply - with many workers (i.e. nurses, child care workers, teachers, even dentists) leaving to find work elsewhere. As one NY Times colleague of Rattner's put it:

"People need child care and dentists and affordable housing and safe transportation and accessible education. "

Yes, they do. But other people - citizens also need the freedom to work where they feel most secure and the rewards are greatest. The near term solution is to allow more migrants entering the country to work, like Canada is - as opposed to making them jump through innumerable hoops.

Also unmentioned until now is that whenever one has increased production which expands the existing supply beyond the current demand, a deflationary force is interjected, What this does, i.e. in tamping down the cost at which oil can be sold, is create more problems for lower efficiency oil sources like fracking - whether in the Permian or Appalachian basins.

None of this detracts from the point that shale oil is a lower EROEI source and hence much more work must be done to extract it and process it (i.e.g from kerogen) and hence this inefficiency must appear in the lowered GDP over a future track, as reported by Tullet Prebon, e,g, "Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1) by 2030."

Energy costs absorbing as much as 15% of GDP by 2030? What does this mean? It means our present energy-intensive civilization with its HDTVs, Ipads, Smart phones, F35 bombers, Dreamliner and MAX jets, ICBMS, drones and SUVs will need to go into ever more debt to function at the same level. That is, to produce the same energy intensive devices, products, gadgets, toys etc. much greater manufacturing and processing costs will have to be born. That almost certainly implies much higher levels of debt. And yes, it means your kids - i.e. the "next generation" will likely not live at the same standard of living you are, some of which is starting to seep in now. But don't blame Biden, blame the continued overpopulation swelling our world beyond sustainable limits resulting in ever dwindling resources for fewer And blame the ever increasing use of lower EROEI energy.

Still, younger Americans are particularly troubled by the current miasma: vast student debt to pay off, no chance of getting out of mom and dad's basement, and even unable to afford cheap dates. So no surprise Biden has far lower support among this cohort than he enjoyed in the 2020 election, when 60 percent of those under 30 pulled the lever for him. Today, his share of that group hovers around 50 percent in polls. Reality has hit them, including the reality of higher costs many of us experienced 50 or so years ago, but the new crop of college grads never had. They've been living in wonderland, affording the latest X-boxes, smart phones, streaming services out the wazoo....and Taylor Swift concert tickets. No more.

Meanwhile, among 2020 Biden voters in swing states surveyed in another recent poll, just 11 percent of the 18-to-29-year-olds thought positively of the current economy, the smallest share of any age group. Again not surprising. But how many grasp the underbelly that Rattner pointed to, excessively low productivity that craters living standards - but owing to a degrading energy support system. Not to Social Security recipients plundering the future hopes of the young and running up the national debt, a vile canard skewered six ways from Sunday by LA Times columnist Michael Hiltzik:

Let us also bear in mind, and Rattner might find this useful too for his next effort, that many of the younger (and not so young) demographic may have themselves to blame for any financial struggles in which they find themselves. I refer to the recent report on financial literacy by the TIAA Institute and the Global Financial Literacy Excellence Center. Their 2023 Personal Financial Index report found that "American adults have shown a generally poor level of financial literacy."

What does that mean? Basically, that they flunked, getting only 50% of the questions correct in the financial literacy test contained in the survey. According to the report then, American adults correctly answered only about half of the test's 28 questions which spanned a range including: earnings, budgets, saving, spending, borrowing, managing debt, insurance and understanding risk.

My point? If people - so many - don't even possess basic financial literacy skills how much of their predicament can they really blame on Biden? Especially given - for the unemployment truthers out there - the employment to population ratio for age range 25-54 has increased to 80.7% this year (over the 2019 ratio)

Oh yeah, and the job creation rate per month has increased from 163,000 in 2019 to 239,000 in 2023. (We surpassed the pre-pandemic peak level of jobs in June 2022.) And real (inflation-adjusted) hourly wages for production & non-supervisory workers (the bottom 80% of private sector workers) have increased about $1,500 per worker more in purchasing power over 2019. Meanwhile, the number of U.S. uninsured has fallen from 32.8 million in 2019 to 25.0 million in 2023. This is nothing to dismiss or brush off.

But yeah, Steve Rattner does have some points in his basis for American pessimism. And he's correct that the bulk of workers have not shared fully in even these more meager productivity gains, as they did in the past. (Since 1990, worker productivity has risen by 91 percent, but compensation (adjusted for inflation) has risen by just 58 percent.) But I suspect the insane and disproportionate rewards of these "meager productivity gains" is falling into CEO pockets.

But before pointing fingers let's be sure we know where to point them- the actual causes - as opposed to superficial ones that hold minimal ballast.

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Democrats