Friday , September 17 2021
Home / Economy / A rising tide sinks all boats… eventually

A rising tide sinks all boats… eventually

Voiced by Amazon Polly

Have you heard that ice cream causes murder or that global warming has led to an increase in piracy? Apparently in Maine, consuming more margarine leads to more divorces, while increased US spending on science, space and technology results in increases in suicides by hanging, strangulation and suffocation.  Actually, these are examples of spurious or false correlations – entirely unrelated things whose data appear to suggest a causal relationship.  And in these examples, the outcome is little more damaging than a few humorous media articles and a couple of books.

False correlations, however, run deep.  And some can have a pernicious impact on large numbers of us.  Consider for example, the well-worn neoliberal saying that “a rising tide raises all boats.”  It is based on two mistaken premises.  First, that employment is always a route from poverty to prosperity; and second, that an increase in overall employment must benefit everyone.  And it is for these reasons that continued economic growth is the altar upon which all else must be sacrificed.

The evidence for the benefits of economic growth for all is far more nuanced.  In pre-industrial economies where most people worked the land, there is little evidence that much growth occurred beyond that allowed by the ups and downs of the annual harvest.  Indeed, it took the economies of the British Isles until the eighteenth century to re-reach the technological level of the Roman Empire; so what economic growth their had been amounted to a catching up following a major economic collapse.  And even during that period of lethargic growth, various plagues and famines – including the catastrophic Black Death in the fourteenth century – rapidly threw economies into reverse.

The levels of growth that our leading economic and political thinkers have come to regard as normal are, in fact, a product of the industrial age.  And while it is true that the period from 1750 to 1950 saw a whole raft of new technologies which allowed for an explosion in economic activity, technological progress has been far slower since.  Growth, too, has been uneven – periods of expansion are inevitably followed by recessions and depressions which wipe out most of the gains for those in the bottom half of the income distribution who, except for the brief period 1945-1973, have struggled against first relative, and later absolute decline.

Since 1973, the UK economy has experienced a general levelling down.  Where we once used to think of entire regions as being prosperous, and talked about a north-south divide, by the early 2000s, prosperity had retreated to the London-Cambridge-Oxford triangle and to an archipelago of enclaves around the top-tier universities.  Turning every former polytechnic an FE college into a university and massively expanding the number of people with degrees failed to change this and created new harms of its own.  Meanwhile, whole swathes of ex-industrial, rundown seaside and small-town rural Britain was left to wither on the vine – its people told to move to the prosperous metropolises or quit complaining about their lot.

By the mid-2000s, Tony Blair’s neoliberal government had begun the process to refocus social security to the desired aim of making it difficult to stay on benefits and making it easier to move into employment.  Previous categories, such as “incapacity,” which used to provide long-term sick and disabled people with a meagre income were replaced with various “pre-employment” categories, based on the idea that all could work and that work was always preferable.  At the same time, a system of tax credits was introduced so that – at least in theory – any move into employment would leave the employee better off than if they had remained on benefits.

This was “government without wing mirrors,” since it ignored just how easily Blair’s version of “encouraging employment” could be abused by a Tory Party bent on making the poor pay the cost of the banking and financial meltdown in 2008.  The Tories’ Universal Credit was used to cut the already low benefits to the poor still further, while using a system of sanctions to remove benefits from people even if this resulted in starvation and death – which it frequently did.

Despite this, the mainstream political parties continue to uphold the underlying view that work always pays and that – give or take the odd £20 – the social security system should continue to encourage (force?) people to find work.  And this may not always be such a bad thing, because it turns out that some of the targeted groups have seen their employment rate increase in the years between the 2008 crash and the start of the 2020 pandemic; according to a new paper from the Institute for Fiscal Studies:

“Overall, the largest increase in employment was experienced by population subgroups that historically had lower employment rates… Three groups saw particularly large increases in employment. First, single mothers’ employment increased by 12ppts, a rise partly caused by policy reforms incentivising paid work… It is worth noting that employment amongst lone parents, a central part of the Labour governments’ child poverty strategy, had already increased from 47 per cent to 57 per cent in the decade leading up to the Great Recession.”

Work though, is not meant to be an end in itself.  The more important question is whether the increase in employment between the two crises served to raise all boats.  And here, the IFS arrive at a sobering conclusion:

“The two key characteristics of the labour market over the period bookended by the Great Recession and the onset of the COVID-19 crisis were the strong employment growth and the weak pay growth. The former was widely shared, and was strongest for those demographic groups that started out with low employment rates – including immigrants, lone parents and older workers. The weak pay growth probably stands out as the worst attribute of the labour market over the period: at the median, hourly pay actually fell slightly, and though wages grew faster at the bottom of the distribution, the pace was fairly meagre by historical standards…

“In terms of living standards and poverty, there were certainly plenty of challenges before the COVID-19 crisis – the weakness in earnings growth and benefit cuts had been putting a lot of pressure on incomes at the bottom. But there is no question that large falls in unemployment, and particularly in household worklessness, had been a significant factor in keeping poverty lower than it would otherwise have been. The current crisis may mean that much of that will be undone, with few countervailing forces to prevent more vulnerable households from falling into hardship…”

The authors end by encouraging policymakers to think carefully about how employment rates can be increased once the pandemic is over; although they offer no policy prescription themselves.  Meanwhile, the UK Chancellor is a creature of the City of London hedge funds, and is likely to pursue the kind of austerity cuts implemented by George Osborne between 2010 and 2016.  As Will Hutton at the Guardian warns:

“The double trouble in terms of policy is that Sunak and the Treasury look at the economy almost wholly in financial terms. Their preoccupation, as behoves what is in essence a ministry of finance, is borrowing and debt. Both matter, of course, but as important is the economic behaviour they drive. Britain needed big borrowing over the pandemic; it will need continued big borrowing to reshape and stimulate the economy.

Britain requires an economic and business ministry of equal standing to the Treasury to mastermind the country through its recovery. Instead, it has a business secretary, Kwasi Kwarteng, who has regressed, notwithstanding what some of his officials advise, to advocating a rejuvenated ‘free market’ approach, oblivious to the structural weaknesses that the ‘free market’ has created.”

As the IFS report shows, between the Crash and Covid, employment patterns continued to shift away from value-generating sectors of the economy, such as manufacturing, construction, agriculture, forestry and fishing, mining and quarrying.  Employment growth tended to be in value-consuming sectors such as services, social care, accommodation and food.  As Hutton explains, the mark of a thriving economy is not just that people have jobs, but that those jobs add value and lead to prosperity:

“So, for example, one of the signs of a dynamic economy is people moving from jobs with few prospects to those with better prospects, but the rate of job movement in the 2010s was the lowest since the 1930s.”

While vehemently opposed to the Chancellor’s belief in fairy tales about free markets, Hutton remains wedded to the belief that job growth must result in a growth in prosperity – the old win-win proposition that all can prosper in a growing economy.  What though, if the link between employment and prosperity is as spurious as the link between ice cream and murder or between margarine and divorce?

In my book, Why Don’t Lions Chase Mice?, I offer an alternative, energy-based history of the period since 1500 which calls into question the mainstream view of economics which imagines an arc of progress stretching from the Greek philosophers to the modern global economy.  Instead, I point to the first energy crisis – the massive European timber shortage as the main driver of the “voyages of discovery.”  I point to the accident of ocean gyres and trade winds as the main reason why Chinese mariners could only trade with the Americas while Europeans could carry sufficient supplies to colonise.  I point to an enlightenment fuelled by the calories from sugar and the mental stimulation from substances like coffee and tobacco, and to the most brutal energy source – human slavery – which allowed these substances to be grown and traded cheaply.  I point to the dramatic change that occurred when – beginning with Britain – we began to substitute the power of coal for human and animal labour; and the even greater change that occurred when we switched from coal to oil.

But energy crises remain the stumbling block throughout this history.  Just as economic growth as Europe recovered from the Black Death created timber shortages, so economic growth in the nineteenth century eventually led to coal shortages as the first coalfields peaked.  But each time, the previous energy source could be replaced by a more energy-dense alternative so that, for example, the switch to oil allowed for the extraction of far more coal than was possible in a coal-powered economy.

We have a big problem though.  There is no alternative to oil which is not far less energy-dense than oil.  The reason that this doesn’t appear to be a problem is that there is more oil beneath the ground than all of the oil extracted so far.  And because oil is relatively cheap – less per litre than a bottle of Pepsi – economists and politicians simply assume that there is more than enough oil to meet our needs.  Indeed, by far the bigger problem appears to be the pollution caused by burning that oil and by the impact of the pollution on the environment.

The bigger – and less obvious – crisis though is that the energy cost of extracting oil has been rising remorselessly for decades.  And while the price of oil remains small, the value it allows us to generate is massive.  What this means is that even relatively small increases in the price of oil – say from $40 to $80 per barrel – mark the difference between real – non-financial – growth and recession.  It was the peak extraction of the lowest energy cost oil of all – in the continental USA – in 1970, which triggered a loss of control of oil prices, the collapse of the post-war Bretton Woods monetary system and the onset of stagflation.  It was the arrival of the last tranche of relatively low-cost oil in Alaska, the North Sea and the Gulf of Mexico which provided the world economy one final spurt of debt-based growth before the peak of global conventional oil production in 2005 triggered the events which led to the 2008 crash.  After that, financial manipulation allowed a US fracking industry to spend billions of dollars of investors’ money extracting millions of dollars of shale oil.  But even this growth came to an end in 2018, and it is doubtful that global oil production will ever return to that level again.  Not least because, unlike with coal, we lack an alternative energy source powerful enough to make the remaining oil deposits energetically or economically viable.

What has this to do with British employment between 2008 and 2019?  For incomes to rise across the workforce – all boats rising on the rising tide – real – non-financial – value has to be created.  Some of that value can come from services.  But the bulk must come from processes that use productive energy – “exergy” – to convert naturally occurring resources into useful products.  And what a rising energy cost of energy causes is a shortage of exergy across the economy.  As ever more exergy has to be devoted to extracting and converting energy sources, so there is insufficient exergy to power all of the manufacturing and service activities that we used to engage in.

In an economic model based on energy rather than finance, what we would expect to see in the years after the 2005 conventional oil extraction peak is precisely an economy in which employment grows – as energy-consuming technology becomes too expensive and human labour (energy) increases in relative value – even as the value generated and thus the real – inflation adjusted – returns begin to shrink.  That is, the pattern in employment and wages revealed by the IFS report is precisely how a growing exergy shortage manifests.  And it is also why finance-based economists like Hutton are mistaken to assume that more state spending is sufficient to turn things around.

In the absence of an energy source more energy-dense and versatile than oil – and none is currently available – the economy has switched from a win-win to a zero-sum game, as we must each fight with someone else to secure our slice of dwindling prosperity.  Ironically – and this is also borne out in the IFS report – it is those at the bottom who – along with the elites – are likely to win in the short-term because they can still gain by undercutting the going average rate for a raft of jobs whose occupants could previously command high wages.

In the longer-term, of course, all boats sink because the various claims that we have been conditioned to think of as “wealth” will prove to be worthless.  Your house, for example, is not “worth” the current asking price unless someone wants to buy it.  And in a shrinking economy there are going to be fewer – and poorer – buyers.  The same goes for any corporate activity that supposedly justifies current share prices and debt schedules.  Retailers are only profitable if people can afford to shop.  Commercial property companies are only profitable if shops want to rent.  And pension funds can only pay out if commercial rents continue to provide higher than inflation returns.  In employment terms, the tide may be rising but without exergy, all boats – no matter how luxurious – are heading to the seabed.

As you made it to the end…

you might consider supporting The Consciousness of Sheep.  There are five ways in which you could help me continue my work.  First – and easiest by far – please share and like this article on social media.  Second follow my page on FacebookThird, sign up for my monthly e-mail digest to ensure you do not miss my posts, and to stay up to date with news about Energy, Environment and Economy more broadly.  Fourth, if you enjoy reading my work and feel able, please leave a tip. Fifth, buy one or more of my publications

Check Also

Exergy-driven crisis

Media has little in the way of memory and the rest of us struggle to …