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In Brief: What we can expect in 2022

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The year 2022 is the setting for the dystopian movie Soylent Green – in which an over-populated, climate ravaged population is only sustained by consuming the nutrients from rendered and processed human corpses.  Two years ago, we might have shaken our heads at just how wrong the film’s director Richard Fleischer turned out to be.  Today, after two years of Covid lockdowns and restrictions which have undermined supply chains, created energy shortages, and left food rotting in the fields, Fleischer’s version of 2022 looks a lot closer to reality than the wild optimism of the UK’s Chancellor or the techno-utopianism of the Davos crowd.

So, what trends might we expect to see unfolding over the coming months?  While I don’t profess to have a time machine or an accurate crystal ball, here as a few of my expectations:

The end of the pandemic

The revolt of 99 Tory backbenchers against ineffective and dangerously authoritarian vaccine passports – which were enthusiastically supported by the Labour Party – marks the beginning of the end of Covid hysteria.  The prospect of lockdowns and six-monthly booster injections in perpetuity has worn thin with enough of the electorate, that a sizeable opposition is now in place to force the government to revise its plans in the event that Covid keeps returning.

One immediate consequence is that, despite the authoritarian instincts of governments in Wales and Scotland, the UK government has been forced to stop short of a second Christmas lockdown.  And because the UK government holds the purse strings, even Scotland and Wales have had to stop far short of the restrictions they would otherwise have imposed.

Meanwhile, the latest variant of SARS-CoV-2 has evolved in precisely the way viruses tend to evolve – it is far more transmissible, but far less dangerous than any of the previous versions of the disease.  And in the face of an almost fully vaccinated population which has also already acquired a high degree of natural immunity, Omicron is looking more like the cure.

If, as looks increasingly likely, this is the case, this marks the point at which Covid shifts from a pandemic to an endemic disease.  That is, it can be added to the long list of seasonal viruses which do the rounds every autumn-winter.  As with flu, the vulnerable may benefit from an annual vaccination, but for most people it can be added to such unpleasant illnesses as norovirus and the common cold.  And yes, as with those other viruses, every winter will see a cull of the very old and the very unwell… but maintaining an average all-cause mortality rate.

In any case, the economic consequences of the lockdowns and restrictions are just beginning to cause serious problems as we enter 2022.  And as the economic pain grows, concern about the pandemic – along with many other concerns (see below) will fade into the background.

A new phase in the collapse of industrial civilisation

Prior to the pandemic, I had divided the unfolding collapse of industrial civilisation into three phases.  These were, broadly:

  1. The period from 1970 to 1986, when a series of energy shocks and currency crises brought an end to the massive expansion of the post war economies of North America, Japan and Western Europe. This was the period of stagflation in which state spending on public works no longer triggered enhanced productivity and expanded growth, but instead generated inflation and mass unemployment.
  2. The period 1986 to 2005 was characterised by the switch to debt-based, bank-generated currency ushered in by the neoliberal policies of the Reagan, Thatcher and Mitterrand governments, and taking off following the financial “Big Bang” deregulation in 1986. Corresponding with the opening up of new – albeit costlier – oil deposits in Alaska, the North Sea and the Gulf of Mexico, this phase saw the creation of the debt-based boom between 1995 and 2005.  The peak in conventional oil extraction in 2005 set in motion the chain of events which ended with the collapse of the sub-prime housing bubble, and which very nearly brought the entire global banking and financial system crashing down.
  3. The decade 2008 to 2018 was one of playing “extend and pretend,” as governments and central banks continued to bail out stock and bond markets along with the still vulnerable banks, in the hope that someone would figure out how to get the economy going once more. In energy terms, this was the “bumpy plateau” in which ever more expensive fossil fuels had to be sold at a loss just so that producers could service – but never repay – their debts.  And for the majority of households across the developed states, the decade was one of slow but steadily declining prosperity.  Only in a handful of developing states – notably China – was some degree of – largely coal-powered – growth still possible.  The peak of global oil extraction – conventional and unconventional – in 2018 had set in chain a series of business failures and a growth in unemployment even before the pandemic arrived.  And rather than causing the many energy and economic crises unfolding as 2021 comes to an end, the response to the pandemic served only to accelerate the trends.  That is, we might otherwise have limped along the bumpy plateau for a few more years and possibly even through to the second half of the decade.  As it is, the second half of 2021 marks the point at which we slipped into phase four.

The first three phases of the collapse were characterised by the response to the crisis which ended the previous phase.  Energy production and consumption continued to grow.  But at each stage, the cost of recovering energy grew even as the rate of energy production slumped.  In each phase though, economic growth of some kind continued; albeit slower than in the phase before.  And by phase three, much of the growth being recorded in official GDP figures was no more than the issuance of new debt.  During each phase, those who rely upon the sale of their labour-time saw their prosperity decline and their situation become more precarious.  Corresponding to the neoliberal undermining of post-war social security safety nets, each phase saw millions of people become subject to arbitrary forms of control at the hands of corporations and state bureaucracies.

Phase four begins with the first irreversible decline in energy production as more fossil fuel deposits deplete even as fewer – often costlier and smaller deposits are brought into production.  This has already resulted in shortages around the world – gas in Western Europe, coal in China, and a generalised price spike in oil as economies attempt to open up from lockdown in the face of under-invested energy companies.  While in some regions 2022 will see actual shortages, most of the world will experience “market rationing” in which prices rise as high as necessary to bring demand down to the level of available supplies.  In the short-term, this will partially benefit the developed, G7 states whose currencies still command sufficient value to out-bid competitors.  Nevertheless, the price that we are going to have to pay at the pump and the meter will have a major depressing effect on the wider economy.

Phase four marks the first period of irreversible economic shrinkage, as we are no longer able to power the economy we have built to this point.  The rational response to this predicament would be to conserve the remaining energy by re-localising and de-materialising the economy while maintaining as many essential goods and services as possible.  But without understanding – and in most cases even seeing – the danger, our tendency will be to follow any movement, party or leader who claims to be able to restore economic growth even as it recedes in the rear-view.

Peak inflation

Although economists and central bankers are ending the year fearing a return of 1970s-style inflation, this is unlikely, simply because few of the conditions which generated inflation in the 1970s is present today.  What remains of the trades unions are neutered and muted.  Only the public sector unions – which nobody with the power of decision really cares about – still have mass memberships, while the sectors where strikes and work to rules might force employers’ hands are largely un-unionised.  Insofar as workers are protesting their pay and conditions, they are currently doing so by walking away. 

Nor are employers responding to labour shortages with higher rates of pay.  Rather, as we saw in the UK with the HGV driver shortage, companies are offering one-off recruitment bonuses – some of several thousand pounds – while maintaining the hourly pay rate.  In any case, as the pandemic comes to an end and people begin to seek work once more, shortages in skilled employment will begin to disappear.  The UK’s HGV driving schools, for example, are currently over-subscribed, suggesting a glut of drivers later in 2022.

Less obviously – but far more importantly – while we colloquially refer to “money-printing” on the part of governments and central banks, governments ceased doing this on all but a tiny scale in the early 1980s.  Quantitative easing – buying bonds from banks using “M0 money” aka “central bank reserves” has no direct impact on the economy because businesses and households cannot obtain or spend it.  It only has an indirect impact insofar as the banks use the additional central bank reserves – held in their account at the central bank – to underwrite the loans made to businesses and households.  But since getting badly burned in 2008, banks have been reluctant to pump up those kinds of debt-bubbles.  The one exception has been for the biggest, global corporations, which have been able to borrow at next to zero interest to buy back their shares, thereby massively inflating the price of those shares which remain to be publicly traded.  Indeed, asset prices across the board have benefited from being the one area where banks have continued to lend.  For the rest of the economy – businesses and households – there remains far more debt than there is bank credit in circulation to repay it.  And in 2022, debt defaults and spiralling bankruptcies are likely to emerge as by far the bigger threat.

Recession

In April 2022, we are going to be hit by a combination of price rises, tax increases and interest rate rises.  And despite reports of wage rises in some niches of the economy, most people will experience below-inflation wage rises at best.  According to the Resolution Foundation, this will add an average of £1,200 to household bills.  That amounts to some £33.7bn which had previously been available for discretionary spending which will now be lost to the wider economy.

The factors driving the price increases are on the supply side.  Whereas central bankers, politicians and journalists are responding in anticipation of a demand-side crisis.  This assumes that the broad response to higher prices is going to be massive public pressure for wage rises.  This is unlikely.  Instead, the broad response to increases in the price of essentials like energy, food and fuel will be a rebalancing of business and household budgets away from discretionary spending.  As Frank Shostak from the Mises Institute explained five years ago:

“If the price of oil goes up and if people continue to use the same amount of oil as before then this means that people are now forced to allocate more money for oil. If people’s money stock remains unchanged then this means that less money is available for other goods and services, all other things being equal. This of course implies that the average price of other goods and services must come off.

“Note that the overall money spent on goods does not change. Only the composition of spending has altered here, with more on oil and less on other goods. Hence, the average price of goods or money per unit of good remains unchanged.”

With the enormous year on year increases seen in 2021 as the economy bounced back from the first lockdown washed out of the data, growth rates in 2022 will at best be anaemic and may well turn negative from April as the raft of increased costs kick in.

Environmental splits

The improbable climate change consensus, which has seen anti-capitalist activists line up alongside the CEOs of global corporations in support of some vaguely defined version of a “green new deal” or a “great reset,” will be eclipsed in the first half of 2022, as higher energy prices and a general decline in prosperity raises more immediate economic issues to the fore.

In these circumstances, it will be difficult for activists to maintain the fiction that renewable energy – which currently accounts for less than five percent of global energy – can somehow replace fossil fuels – which still provide 85 percent of our energy, and which remain irreplaceable in industrial processes like steel and cement, powering heavy agricultural and industrial machinery, powering the majority of the world’s heavy and long-haul transport, and, ironically in the manufacture of solar panels and wind turbines.

The problem is not just that those within the climate-great reset consensus are asking people to shiver in the dark to save the climate.  Rather it is that people are shivering in the dark – and increasingly struggling to put food on the table – in pursuit of pseudo-solutions which will do nothing to halt, still less reverse, the process of global warming.  And if global warming is going to happen anyway, then continuing to burn fossil fuels while clever people somewhere else come up with a solution that might work, will be seen as the better option.

Certainly, the UK government, having played its part in the theatre of COP26, will be under pressure from its own backbenchers to “get rid of all the green crap,” and develop an energy policy that actually works.

Fracking’s back

With gas prices settling some 400 percent higher than a year ago, with occasional weather-related spikes much higher, and with more than half of our electricity generated by burning gas, criticism of the government moratorium on fracking has already begun.  This though, is just the start.  As the full price of the current spikes in gas prices land on household doormats in April, support for fracking could become far more popular than it was a decade ago.

Whether UK fracking could supply gas at a lower cost to the end user than can be supplied by Norway and Russia is a moot point.  But if it can, in the face of ongoing shortages, no amount of protest is going to stop it…

Nuclear too

… the same goes for nuclear.  Although there is no chance of the giant 3.2GW plant at Hinkley Point undercutting even the current price of gas-powered electricity, Rolls Royce is lobbying the government to grant permission to build a plethora of small modular nuclear reactors across the UK.  The Rolls Royce claim is that they can match the current MW for MW price of offshore wind – and unlike that power source, they won’t depend upon expensive gas for back-up.

In 2017, the government also gave the go-ahead for the development of molten salt and liquid metal reactors to be built on existing nuclear sites.  It is likely that in 2022 these, too, will receive more public attention and scrutiny than has happened to date.

Tory splits continue

It looks increasingly likely that Britain will have a new Prime Minister by this time next year.  This is in part, because the illegal Christmas parties last year have cut through to public opinion in a way in which the sleaze stories and the mishandling of the pandemic failed to do –largely because nobody seriously believes that Labour would have handled the pandemic any differently, and partly because sleaze is common among MPs of all parties.  But thus far at least, there are no reports of opposition MPs partying during lockdown.

The collapse in support for the Tories in the polls, the revolt of Tory backbenchers over vaccine passports, and the disastrous loss of the North Shropshire by-election have left Johnson’s premiership hanging by a thread.  And the latest polling suggests that Johnson would lose his own seat, along with the Tories majority in parliament, if an election were held today.

There are just two things keeping Johnson in his job as 2022 begins.  The first is the Tory hope that something will turn up to restore his – and their – fortunes.  But the problem with this is that there is nothing but storm clouds on the horizon.  And as the public feels the economic impact of shortages and higher prices even as prosperity falls, any faith in the government’s ability to “level up” the economy will evaporate.

The second reason why Johnson will hang on for now is more Machiavellian.  None of the factions within the Tory Party will trigger a leadership contest if they think someone from an opposing faction might win.  The Brexiteers won’t want closet remainer Tories in the south to restore Theresa May-style Brexit in name only, but cannot take for granted the support of an increasingly strident red wall faction.  Nevertheless, so long as the opposition parties avoid making mistakes (see below) falling poll ratings and growing economic woes will conspire to force a leadership challenge.

Brexit bear trap opens again

A large part of the SW1 establishment will seek to blame the coming economic shock on Brexit.  And while Brexit has had a negative impact on UK exports to the EU, these pale into insignificance when compared to the consequences of the pandemic restrictions and, indeed, to the years of energy depletion ahead of us.

Nevertheless, opposition parties and, indeed, many government backbenchers, will come under pressure to put Brexit back onto the political agenda; especially if Johnson faces a leadership challenge.  And while this is likely only to be pressure to re-negotiate the Brexit settlement, a vociferous hardcore “remainiac” minority will be lobbying hard for another referendum, “now that we can all see how bad Brexit has turned out.”

In practice, of course, a second Brexit referendum would be much harder for the opponents to win since they would now have to campaign to re-join rather than remain.  This would mean Britain having to sign up to the euro and to the Schengen free movement area – a much harder sell than sticking with the UK’s pre-Brexit opt-outs and rebates.

While the Labour opposition appears chastened by its drubbing in the 2019 election, when its support for another referendum resulted in the loss of its “red wall,” other opposition parties continue to strongly support EU membership.  And since the first-past-the-post system and the electoral geography of the UK make a majority Labour government highly unlikely, Labour will have to enter into pacts with the LibDems and the Scottish National Party.  Pacts which may well have to include another referendum.

Opposition commitment to another referendum is probably the one thing which could revitalise Johnson’s fortunes.  And, because the remain vote is concentrated into the middle class districts of the big cities and top-tier university towns, it cannot provide enough seats for the opposition to overturn the Tory majority.  And the prospect of another Parliament of minority governments unable to agree a Brexit settlement and move on, is hardly likely to inspire anyone.

As you made it to the end…

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