Loony Uni

So who benefits from a common or garden university education these days? I don’t mean from a high-end Oxbridge mind-expander or a career-critical science/engineering course but from the bog standard ‘Uni’ experience the system shovels school leavers into by the tipper-bucketload every autumn.

According to today’s Independent, the average student clocks up nearly six grand in loan interest before they graduate. By the time they finish paying all the interest over 30 years, their three years at the University Formerly Known As Nnnnn Technical College will have cost them over £120,000.

Supposedly, this gives graduates an advantage in the jobs market.

It doesn’t.

After a decade of being handed grads who can’t spell, add up or manage critical thinking; and who also require babying through their first two or three years on the job, employers are saying “WTF? We might as well take bright school leavers at 18 and be three years ahead of the game by the time they would have left Uni”.

Moreover, when you consider that these 18-year-olds’ other option is to waste three years of their lives at Uni and come out with a £120k ball and chain of debt round their ankles, it wouldn’t be hard to justify asking them to go to work for virtually nothing if it meant being formally work-certified in some way and largely debt-free after three years.

Employers I know have begun taking apprentices instead of graduates for the first time. They’re getting the pick of the crop of kids who’re too smart to get saddled with a shed load of debt in return for making themselves less useful to those employers three years down the line.

Maybe it will take 20 years for all this to work itself out, at the end of which degrees will be rarer and have regained their value. Until then, my advice to anyone asking whether they should go to Uni is: “Only if you really, really have to.”

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Apocalypse Not Yet

I was talking to my independent financial adviser the other day. He’s a patient man. He mentioned that I’ve been predicting the cataclysmic disintegration of the financial system for 10 years now.

Ten years. So it is. Although to be fair, I got past the ‘Armageddon tomorrow’ stage quite a long time back. The point my IFA was wearily making is that I still won’t be convinced that Business As Usual (BAU) is sustainable whereas he can’t see what’s wrong when the markets keep going up and the funds his clients are invested in keep growing nicely.

A courtesy call isn’t the place for a discussion about net energy and turning points, so I agreed to his proposed reallocation of my modest exposure to the markets and left it at that.

The thing is he’s right; there are very few signs on the surface that much is wrong with the economy. The big picture looks, if not rosy, at least reassuringly ‘normal’.

Yet this reassuring picture is made up of details that are consistently unsettling. The financial woes of schools and the NHS, even before the back-loaded Private Finance Initiative interest payments start to kick in. The bursting of the university-places-for-all bubble as more and more school leavers recognise it was only a scam to load them up with debt in return for mostly worthless degrees.

Behind all this is a sense of growing weakness; like a racing cyclist who’s been unable to take enough food on board – their finely-tuned system wants to keep going but the flow of fuel to the muscles is no longer sufficient.

When the flow of high-quality energy from coal faltered a century ago, oil and gas kicked in with the thermal bonanza that took the industrialised world from Kittyhawk to the moon and from the Bell telephone to the Internet.

This time round, there are no more massive seams of cheap BTUs to be mined. It’s manifested in the phenomenon where oil producers can no longer extract oil profitably at the kind of prices consumers are willing or able to pay. Which is another way of saying that net energy is entering the twilight zone.The fires under the boilers are dying down. Renewables will realistically run an economy about 25% the size of today’s.

That’s an article for another time, though. The take-away today is that the solid mass of thermal Jenga blocks that underpins our way of life has been eroding since the Millennium, when net energy turned the corner. What’s happening to the NHS, pensions, the auto industry and almost everywhere else you look are the first small cracks you see in the soil at the top of the slope as the land starts slipping.

Let’s see how they widen over the next 10 years. Easily far enough to swallow a good many of today’s expectations, I’ll bet, even if there’s no full scale avalanche.

Scarcity and shortage

Several things make it hard to talk about Peak Oil these days. At the bright end of the Reasons To Be Cheerful About Oil spectrum, there are no zombies or Mad Max gangs on our streets. Some Peak Oilers were die-hard doomsters, so the absence of A-Grade harbingers of apocalypse surely proves that it has not, will not, indeed cannot happen.

Also, there are no shortages of fuel (or at least very few) to be seen. Commonsense decrees that Peak Oil and queues at petrol (gas) stations will go hand in hand.

But that’s just it. Scarcity and shortage are very two different phenomena. They exist at opposite ends of the supply chain.

Scarcity is when the supply of something is limited and no amount of money, technology or prayer will increase the flow rate.

Shortages happen when demand exceeds supply at the point of delivery. You might get a temporary shortage of fuel locally if a tanker driver oversleeps. Here in the UK, we’ve only had prolonged national shortages on two or three occasions since WW2: first back in the days of the OPEC oil embargoes and, more recently, when farmers and truckers blockaded refineries to protest high diesel prices in 2000.

Theory says that scarcity of crude oil shouldn’t lead to actual shortages. That’s because if the supply of crude gets tight, the markets send price signals up the delivery chain. So pump prices go up and in turn demand goes down. It’s that bloody Invisible Hand again.

Plateau

Except that right now, oil is getting scarcer. Conventional crude production is stuck on a plateau so that the short-lived gains from fracking in the US only make up for declines elsewhere. Total world liquids production keeps inching up but a lot of those liquids can’t do the same job as crude and you get the impression the IEA would count the coffee in the rigger’s flasks if it could in order to present an optimistic figure.

OK, what about demand? Well, the basic driver of demand – registered motor vehicles – is going up in leaps and bounds. Having taken 120 years to reach one billion combustion-engined road vehicles worldwide in 2010, we’re on track to reach two billion in under 10 years from now.

By rights, the price of oil should be ratcheting up rapidly so that all that demand will be satisfied without shortages arising at the point of delivery. Instead it is stuck sullenly around $50 a barrel. That’s barely enough to cover the cost of extracting a lot of the remaining conventional crude, let alone very high-cost resources like tight (fracked) oil or tar sand.

Sacrifices

The oil companies (and by extension everyone in the industrial world) are now caught between a rock and a hard place. The experiment with very high oil prices that lasted from 2011 to 2014 showed that consumers will cut back on fuel use rather than make sacrifices elsewhere in their budgets.

But without those high prices, oil producers can’t profitably extract what oil is available. They’re trapped. They can’t satisfy the all demand for $40 oil but if the price gets better from their point of view (i.e. higher) the demand goes away.

Conventional wisdom says that consumers will try to keep driving until their eyes bleed – partly because they have to to get to work and shop for essentials. But that’s no longer true.

People with sufficient money (which usually means capacity to take on debt) can upgrade to more fuel-efficient cars. Those who don’t have the means have to find ways to use less.

That is easier than people think. The average private car spends between 95% and 98% of its time unoccupied and stationary. Unless the vehicle is only used for essential trips – say commuting to work – there’s almost always a way to cut down on mileage. After all, the owner is only increasing their non-use of the vehicle by perhaps 1%.

But from the oil company’s angle, a 1% increase in vehicle non-use translates into a 20%-50% drop in that consumer’s demand for petroleum. You can see that in the 25%-30% falls in oil consumption in Greece and Italy, which have been at the sharp end of enforced conservation since the onset of the eurozone crisis in 2008.

Millennials

This has got huge potential to carry on for a long time. Certainly longer than most oil producers can live with. Millennials are generally happy to take their own sweet time getting a driving licence and even then it’s not a given that they’ll immediately enter the car market. Ride-sharing among commuters has barely got started and it could increase rapidly if real incomes keep falling and fuel costs rise.

Boiled down to brass tacks, the problem is this. Crude oil is scarce and it’s getting scarcer. The reason there are no queues at the pumps is that scarce crude creates a shortage of affordability. That is because the alternative ‘high tech’ petroleum sources, like tight oil, kill their producers unless the global oil price rises to the point of driving marginal consumers out of the demand pool.

Imagining that people will overcome their inability to afford cheap petroleum by switching to electric or hydrogen cars is on par with Marie Antoinette’s brainwave about getting the starving poor to eat cake instead of bread. (Yeah, yeah, I know that’s a mistranslation of cake. But that’s to say that even la Reine Marie was smarter than today’s economists and policymakers. And look what happened to her).

Finally, this is much, much bigger than something that’s just an awkward predicament for the automobile industry and its consumers. Oil is the master resource. It is essential for extracting other fuels and feeding the world. It built the bulk of today’s civilisation’s infrastructure (more than half of which didn’t exist yet when I was born in the mid 1950s).

Oil scarcity will heavily constrain humanity’s ability to unhook itself from oil dependency. For a detailed analysis of how that works in the macroeconomic context, read Oops! Low oil prices are related to a debt bubble on Gail Tverberg’s Our Finite World site.

And if you start seeing queues for fuel in more OECD countries, give a little smile. As bad as that will be, at least it will be a sign that the energy crisis has reached the point where people need to stop pretending and start dealing with it.

University education: priceless or valueless?

One of the best things I’ve listened to in the past few days was Charles Hugh Smith talking about his new book, The Nearly Free University, on the Resilient Life podcast.

The costs of running universities and attending them have sky-rocketed since 2001, while the outcomes for most graduates are increasingly negative: a mountain of debt and often no conspicuous skills advantage over someone who went out to work at 18.

Hugh Smith addresses what he calls this ‘factory model’ of higher education, which seems finally about to implode under the pressure of its own, well, uselessness.

“In the good old days of the factory model, and I mean both the factory model in education and the factory model of production, you could get a degree in underwater basket weaving – or in my case, philosophy – and then you go work for an insurance company or some white-collar job in which whatever you were supposed to learn they would teach you on the job. So your degree literally was sort of like a stamp on a passport; you were not claiming to know anything of value to that business.

“Well, that worldview and that economy is dying. The idea that you can just show up and an employer is going to lavish a bunch of on-the-job training – that is no longer efficient for the employer. They want somebody that can produce value on Day One. We need to create and teach the value system that is needed in the real economy, and values, of course, are not taught at college at all.”

I can relate to that. Friends’ children are coming out of university with degrees in fashion design, creative writing and modern dance. The ‘lucky’ ones are working full time in the bar and hotel jobs they did at weekends before they went to Uni. Others are simply unemployed.

Given a few more years and several unpaid internships each, all of them will hopefully be in full-time work. But they will be, in their mid to late twenties, only where they would have been if they’d gone straight into jobs when they left school. The only winner was the higher education system.

Seeing my daughter getting swept into her school’s GCSE-A Level-Uni process like a leaf falling into a running gutter, I can see how hard it is for kids to imagine an alternative. Only three out of 50 A-level leavers from her school went into employment this year.

Meanwhile, one of her older cousins (history degree, Oxford) is slowly working his way up from a grunt job in NHS data management – formerly his holiday earner. His girlfriend (biochemistry degree, Oxford) is in teacher training after working for a year as a basic-waged teaching assistant. Between them, they have many tens of thousands of pounds of student loans to repay.

And those were real degree courses at on of the world’s best universities. Think of all the young people plodding through three years of glorified babysitting on courses cobbled together to take advantage of the loan system – sorry, cater for the ‘demand’ for degrees.

Another of my daughter’s cousins, also in his early 20s, has just bought his first house. But then he went into an apprenticeship at 16. Of course, he now has a hefty mortgage but so too, eventually, will the graduates … on top of their student loans.

One can argue that student debt is an investment in your future. Borrow now, earn more later. Charles Hugh Smith disagrees:

“Statistically, half of all recent college graduates have either no job at all or they are severely underemployed. This speaks to an enormous disconnect from the higher education system and the economy that it is supposed to be serving.”

“What is the pay-off for our society of saddling college students with a trillion dollars in debt? A huge study, one of the few that has actually tracked the results of a college education – like, how much do people learn in getting a four-year degree – … found roughly a third of all college graduates had no increase in critical thinking skills.

“Another third had marginal improvements in the kinds of skills that we would consider critical in what I call the emerging economy, the parts of the economy that are actually growing and expanding instead of shrivelling and fading.”

For the moment, the tide is still just about running in favour of the university cartel. But kids are catching on to the worthlessness of degrees that mean nothing to employers.

Hugh Smith proposes a combination of apprentice-style on-the-job skills training for work and employment, combined with online courses and tests to develop critical thinking ability. It’s the kind of fitter, cheaper alternative we need.

 

Budget 2013 spawns another wave of zombies

What does a big house-building business say when it’s given a big stack of cash by its best mate?

“Thanks, Gov.”

Yes, the Tories’ latest wheeze for transferring wealth to places where much wealth already exists is a Help for house-builders scheme whereby we the taxpayers get to backstop highly inflationary loans dished out by the government to facilitate dubious deals on overpriced, shoddily-built houses.

Oh, there’s plenty of pie in the skies above the fields where sprawling rural slums are about to spring up. We’re promised that the scheme will kick start growth, cure the housing shortage and make home ownership more affordable.

That’s all complete bolleaux, of course. One analyst, Ian Williams of Peel Hunt, told the FT:

“As a policy for driving economic growth – limited. For solving the national shortage of housing – no impact. For wrecking long term affordability of housing – tremendous.”

But desperate times call for desperate handouts. The government’s back is against the wall and the hot breath of its corporate masters is caressing its neck. So now the zombie banks will be joined by zombie house builders: staggering blindly onwards until someone cuts the tubes through which they mainline public revenues that could otherwise go to the commons.

This is where 30 years of hypertrophic waste-fuelled growth has got us. A nation of homeowners (© M. Thatcher) for whom “ownership” adds up to paying a mortgage averaging £100,000 due to the ludicrous level of house prices.

And now with the added pleasure of watching more of our taxes being funneled to the same construction firms and banks whose greed and ineptitude was instrumental in creating the mess we’re in.

There is a real late-Roman-empire feel to our situation. The handouts get more blatant as the rhetoric gets more populist. Meanwhile real incomes stagnate and affordability drops ever faster as the people in charge frantically try to prop up asset prices.

It’s not the barbarians at the gate we should be worried about. It’s the zombies in the city.

No friends for electric cars

That fizzling noise in the marketing-o-sphere is the sound of something terminal happening to Electric Cars 1.0.

By now, the UK’s roads were supposed to be filling rapidly with the silent swooshing of a juiced EV market. Instead, the EV scene is flatter than an iPhone 4 battery at 2.30 in the afternoon.

Leasing companies are lining up to tell their customers not to waste any more time on mains powered motors.

“Slow burning” is how the kindest commentators in the fleet car sector are describing battery-powered cars’ potential. After all, what is the commercial point of acquiring them for fleet use?

On a coalface-to-wheel basis, EVs emit more CO2 than dozens of more-capable combustion models. Functionally, they’re pants. In return for costing a small fortune to buy, their pathetic range is designed to keep a driver on tenterhooks most of the way from London to (nearly) Swindon – or Newbury if it’s cold, dark and raining.

Cargo cult

QuadRanting has always averred that current EVs are simply a cargo cult response to the withdrawal of the cheap liquid fossil fuel that enabled the Age of Happy Motoring; facsimiles of real cars.

Driving an EV is not a happy thing to do. The EV-makers’ latest throw of the dice – the Tesla S – is said to be good for 300 miles on a charge. But so what? Buying the additional 140 miles-worth of batteries adds £15,000 to the price of the 160-mile base model, which already costs thirty grand.

You could buy an equally roomy, year-old, ex-demo Passat or A4 with 12,000 miles on the clock for that £15k and then, if you wished, spend the £30k you’d saved by avoiding the Tesla on approximately 230,000 miles worth of diesel.

OK, so the Tesla’s a luxury car but, again, so what? If the answer to EVs’ shortcomings is to make toys for rich boys at the meagre rate of 12,000 units a year, that’s the biggest ‘sod off’ to the herd since Marie Antoinette urged starving commoners to switch to cake.

Trick question

So, if EVs are neither cheap nor cheerful nor plentiful nor environmentally sound, what are they for? It turns out that the answer to that question is the same as the response the trick question on QI: nobody knows.

The makers, who are being sucked into a monster whirlpool of overcapacity and disappearing demand for combustion cars in Europe, can barely give their pricey, heavy, range-crippled EVs away.

Nissan has sold 12,000 Leafs so far instead of the 44,000 p.a. it was counting on. It is planning to sell a ‘budget’ version of the car next year at a £4k discount to the current tag of £30,000 after we taxpayers chip in for the £5k Government subsidy per car.

Look dearie, if I wanted a budget Nissan that’d only do 70 miles before needing a good rest, I’d buy a knackered £950 Micra with two gallons of petrol in its tank.

Plain stupid

That’s the circle that EVs in their current form cannot square. If the proles are being priced out of conventional cars by the global debt implosion and peak oil, it’s plain stupid to try offering them super-pricey, barely functional EVs instead.

The future of mass vehicle ownership is in 2-wheelers and microlight cars – a shift the manufacturers are resisting as furiously as you’d expect of corporations with billions tied up in the wrong products.

Even so, I reckon we’ll see the first Ford scooters and GM microlight prototypes before 2020. Of course, this will require a complete rethink of road rules and infrastructure design to accommodate millions of lightweights among the legacy of conventional cars.

Ironically, by then Europe will have shovelled trillions of euros into perpetuating the current, doomed automotive infrastructure as it tries to stimulate its way out of GD2. It’s going to be interesting.

Racing new car retailers towards the cliff edge

The global market for fleet vehicles  is “flourishing” says the Financial Times.

 Companies that deferred renewing their fleets during the credit crunch are now making up for lost time, and ordering record numbers of company cars, vans, and heavy trucks .

Looks of puzzlement and mutters of ‘I wish’ greeted this clip during an auto industry meeting attended by QuadRant yesterday.

To be fair to the FT, the clip was not news or comment but their ad department attempting to drum up support for a forthcoming fleet supplement.

Fleet sales down

In fact UK fleet registrations were down by 0.7% between January and August this year. Business sales (to small companies and sole traders) were much worse – plunging by 15%.

Only private sales look good. But much of the 10% rise reported by the SMMT is deceiving.

Nearly new cars languish on dealer forecourts,” reported Motor Trader last week.

 Despite the market being supported by the private sector Glass’s reports that franchised dealers do not recognise this strengthening in retail demand.

Adrian Rushmore, Managing Editor of Glass’s, said: “What is recognised is the growing number of nearly new cars that have started to languish on forecourts.” Between June and July the number of 1212 plated cars advertised increased by 50 per cent.

In other words, the market is loaded up with cars registered by the industry to itself, just to keep its numbers up.

Manufacturing used cars

It’s true that ‘manufacturing’ nearly-new cars actually accounts for a big chunk of the auto trade. Employees of the car makers and retail outlets are given brand new cars every six to nine months.

Then the cars go to the forecourts with a few thousand miles on the clock as ‘ex demonstrators’ or suchlike, at a substantial discount. Hundreds of thousands of ‘nearly news’ are made this way every year.

‘Fleet’ sales also include new cars registered to finance firms but driven by punters on personal leasing deals, and cars bought by daily rental companies.

That helps explain how the industry chalks up a million such registrations every year when genuine company car drivers currently need fewer than 300,000.

Stuffing the market with unwanted cars

But even this convoluted system isn’t always enough. Sometimes some manufacturers simply stuff the market with thousands of new registrations that nobody has any use for.

That’s what the Motor Trader article is highlighting. There are 50% more brand-new, plated cars with delivery mileage on the clock on forecourts. That will bugger up prices and margins throughout the house of cards that is the ‘new’ car market.

Sure, this sort of thing happens fairly regularly. But this time around there’s less chance of the market bouncing back to absorb the excess. The auto makers’ cushion is wearing thin.

The industry has a massive problem with fuel costs. I don’t mean high pump prices (although they are affecting demand). I mean the fact that the oil price needed to bring fresh supplies of liquid fuels to the global market is simply too high for Western economies to bear.

High-priced black stuff

Western economies, designed for $25 oil, don’t grow when the black stuff costs $100. But if crude sells for less than $100, there’s no justification for producers to invest in expanding expensive tar sands, shale, deep sea and polar sources.

So OECD growth stalls, household incomes stagnate and personal debt becomes disabling rather than enabling. People are forced to conserve. But conservation supports the high oil price at the root of the problem by killing the incentive to exploit the remaining, hard-to-get-at, resources.

Simply cutting retail fuel prices won’t help much. A few people will use their cars a bit more, or change them. But many would use cash saved at the pumps to pay down the loans, credit cards and mortgage debt that are crippling household finances.

Even so, the auto industry’s reaction is to repeat what it’s always done in the past. It’s stuffing unwanted units into a shrinking market. And hoping the surfeit won’t choke too many dealerships to death before growth returns ‘as it always does’.

Oil and energy prices say growth won’t return. So the car industry needs to find a smarter way to manage declining demand. Because doing what it has always done will turn a hazardous descent of a rocky slope into a full blown plunge over a cliff edge.